Verizon Communications Inc, the largest US telephone company, on Tuesday reported lower first-quarter earnings as pension and employee costs increased.
Verizon, whose shares were down nearly 2 percent, posted stronger-than-expected growth at its Verizon Wireless cellular joint venture, but its traditional local phone business was weak.
Verizon and other Baby Bells have seen their local service erode as competition has escalated and more customers have dropped home phones for wireless service.
To combat those losses, Verizon has pushed into long-distance and high-speed Internet access, and the company said more than half of its revenue in the first quarter came from growth areas of its business.
"Their core wireline business was a little lower than expected ... however, that was partially offset by continual strength in their long-distance and broadband business," said analyst Rick Black of Blaylock & Partners. "We expected to see strength in the wireless business and that came through."
Verizon said it earned $1.2 billion, or 43 cents a share, compared with $2.4 billion, or 88 cents a share, in the same period a year earlier, when results were boosted by an accounting change.
Excluding about $400 million in one-time items, most of which stems from a 10 percent cut in its work force at the end of 2003, Verizon said it earned 58 cents a share.
Analysts' average forecast was 57 cents a share, according to Reuters Research, a unit of Reuters Group Plc.
Verizon said revenue grew 3.9 percent to $17.1 billion, in line with estimates. Verizon Wireless' revenue grew 21.2 percent, or more than $1 billion, to $6.2 billion as it added 1.4 million customers in the quarter.
Verizon Chief Financial Officer Doreen Toben said Verizon Wireless, the largest US wireless carrier, was benefiting from its reputation as a high-quality network.
Customer turnover fell to 1.4 percent, a figure Goldman Sachs analyst Frank Governali called the best in the industry for the quarter, and the average monthly revenue per subscriber rose about $1 to $48.
Verizon said revenue in its traditional phone business fell 3.3 percent in the first quarter to $9.6 billion as local rivals picked up 508,000 lines and Verizon lost 314,000 residential lines.
But Verizon added 1 million long-distance lines and 345,000 high-speed Internet lines.
Toben said much of the local line loss came from people dropping a second line they had used for Internet access in favour of high-sped connections.