Verizon Posts Solid Q1 Numbers, iPhone Rumors Fly

Wireless may prove to be the magic bullet for many tech and telecom firms in this recession. Verizon's newly released earnings report is yet another indication of movement in that direction. The company reported higher revenue on Monday, based largely on growth in its wireless division, as well as its acquisition of Alltel.

Verizon reported net income of US$3.21 billion, or 58 cents a share -- an increase from $3.05 billion, or 57 cents a share registered in the same quarter last year. Revenue increased 12 percent to $26.59 billion.

These results beat Wall Street's projections for the company, which included a forecast of $26.3 billion in revenue. Excluding certain items -- like charges related to the Alltel acquisition -- Verizon's earning rose 2 cents to 63 cents. That is 4 cents higher than analysts had been expecting.

Revenue from Verizon Wireless rose 30 percent to $15.1 billion. The wireless division also added 1.3 million subscribers in the period. The number of landlines, by contrast, fell by 12.5 percent to 20.3 million; revenue in the landline business fell 3.8 percent.

Verizon's tally of new additions to its subscriber base was slightly higher than rival AT&T's (NYSE: T) for the quarter -- AT&T reported last week that it had a net gain of 1.2 million. Much of that growth was due to the iPhone 3G, though -- a dependency on Apple (Nasdaq: AAPL) that could lead to larger ramifications for AT&T -- and, of course, Verizon.

Verizon stands to benefit, perhaps immensely, from a Verizon iPhone. Rumors that the company is in talks with Apple have exploded, spurred on by a news report in USA Today that Verizon and Apple were discussing plans for a phone that would run on Verizon's CDMA network.

AT&T's exclusive iPhone franchise ends in 2010, although the companies have reportedly been in talks to extend this contract. Verizon and Apple did not return calls to the E-Commerce Times in time for publication.

Interestingly, Wall Street's initial reaction to Verizon's results seemed to reflect some disappointment, Frederic Ruffy, senior options strategist at WhatsTrading.com, told the E-Commerce Times; the company's stock was essentially unchanged at $31 per share.

That said, the strong overall numbers, the growth in new wireless subscribers, and the possibility of a Verizon iPhone seem to have kept a floor under the share price, Ruffy said.

Conflicting Rumors

Indeed, it may be that the markets are discounting an immediate announcement. Certainly, it is possible that Apple is in talks with Verizon, Greg Sterling, principal of Sterling Market Intelligence, told the E-Commerce Times, "but the timing does seem strange. Last week, AT&T's CEO made a very strong statement in the earnings call reaffirming the exclusive commitment Apple has with it."

However, Apple probably realizes it needs to extend the iPhone to other carriers, Sterling continued, especially as competing smartphones continue to come to market.

"If it truly wants to achieve its mainstream objective, it needs to be more available," he suggested. "Otherwise, it will cede valuable ground to another device."

AT&T and Apple are currently in negotiations, and AT&T -- recognizing the boon Apple has given it with its iPhone exclusivity -- is bound to be very aggressive in its efforts to keep Apple within its fold for at least another couple of years, said Sterling.

One scenario could have Apple staying with AT&T until Verizon builds out its LTE network -- and then making the jump to offer the iPhone on several carrier networks. AT&T's contract would be extended perhaps another year, Sterling speculated.

Or it could be that Apple is bidding its time until Verizon builds out its next-gen network.

LTE Coming

Earlier this year, Verizon Wireless committed to a 2010 deployment date for its Long Term Evolution network and announced that it had picked Alcatel-Lucent (NYSE: ALU) and Ericsson (Nasdaq: ERICY) as its main contractors.

LTE is a mobile phone user's dream, reputed to be so fast that songs can be downloaded in mere seconds. Verizon Wireless' vision -- which it outlined at the industry trade show GSMA Mobile World Congress in Barcelona, Spain this year -- would be one of the largest LTE implementations to date.

Alcatel-Lucent and Ericsson will build the underlying infrastructure for delivery in 2010 -- which would make Verizon Wireless the first company to offer commercial LTE-based service in the United States.