Verizon Meets 2Q 2012 Expectations; Future is the Challenge

Verizon met investor expectations for second-quarter 2012 financial performance, with growth fueled by wireless services, while fixed network and enterprise revenue remained flat. At the very least, those results point out the strategic challenges Verizon faces.

"On a national basis, wireline voice revenues are expected to continue their long-term decline, while the mobile market could grow to over $200 billion by 2015," Verizon says.

"Highlighting an overall theme in the telecommunications market, however, wireless voice revenues are expected to be flat to slightly down in the coming years but will be more than made up by rapid growth in data revenues thanks to the adoption of smart phones and the emergence of machine-to-machine services," Verizon also says.

Of course, saturation will be an issue for smart phone-driven revenue gains, while M2M represents a key growth opportunity. At the moment, growth rates for mobile advertising and hosting services also are key growth opportunities, at least on a percentage-growth basis. The problem is that it remains unclear how large is the revenue opportunity, that can be captured by service providers, in hosting and cloud infrastructure, or mobile advertising.

For the moment, it is data revenues that constitute both a logical and large revenue opportunity. 

Segmented by markets, the overall U.S. revenue picture shows that more than half of telecommunications spending is still in the consumer market segment, although the general business and enterprise (large-business and government) markets continue to grow.

A look at Verizon's revenues and recent strategic moves demonstrates the change in demand for telecommunications services over the past several years. 

Wireless services made up approximately 60 percent of Verizon's revenue in 2010, while traditional wireline services are shrinking as a percentage of Verizon's total revenue. 

Within the wireline market, however, Verizon has generated growth in revenues from broadband and video services.  Verizon's FiOS Internet and TV services now account for 54 percent of consumer wireline revenues, while strategic services represent 46 percent of global enterprise revenue.

At year-end 2005, Verizon reported annual operating revenues of $75.1 billion -- with wireline services generating $37.6 billion and wireless services generating $32.3 billion. 

Five years later, at year-end 2010, Verizon reported annual operating revenues of $106.6 billion -- with wireline services generating $41.2 billion and wireless services generating $63.4 billion. In addition to changing market demand and technology, part of the change in revenue mix was due to divestitures of traditional wireline assets combined with acquisitions of wireless assets.