Verizon Posts Strong Third Quarter Revenue Growth on Sustained Demand for High-Growth Services

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NEW YORK — Verizon Communications Inc. (NYSE:VZ), the national communications provider formed through the merger of Bell Atlantic Corp. and GTE Corp., announced today that reported net income for third quarter 2000 of $3.5 billion, or $1.27 per diluted share, increased 39.6 percent on a per-share basis from $2.5 billion, or 91 cents per share, in third quarter 1999.

Reported results in both quarters reflect the net after-tax effect of gains on asset sales and other adjustments. Reported third quarter 2000 results reflect a net gain of $1.5 billion, or 54 cents per share.

Adjusted net income for third quarter 2000 was $2.0 billion, or 73 cents per diluted share (EPS), compared to $2.0 billion, or 72 cents per share, in third quarter 1999. Third quarter 1999 results have been adjusted to include Vodafone U.S. wireless properties that were combined into Verizon Wireless this year.

Robust demand for new services drove a 7.2 percent increase in third quarter adjusted consolidated revenues from current operations, to $16.5 billion from $15.4 billion in third quarter 1999. Without the effects of an 18-day strike in August, consolidated revenue growth would have been approximately 7.4 percent.

Highlights of third quarter operations:

  • An industry-leading 130,000 DSL (Digital Subscriber Line) subscribers added in the quarter, bringing Verizon's end-of-quarter total to more than 350,000.
  • 806,000 net additions at Verizon Wireless, almost 35 percent more net additions than in the year-ago quarter, giving Verizon Wireless a total of 26.3 million customers.
  • More than 500,000 customers for wireless data services at the end of the quarter, including more than 400,000 subscribers to Verizon Wireless' Mobile Web Internet access.
  • Nearly 1.2 million New York long-distance customers at the end of the quarter, and nearly 4.8 million nationwide.
  • The 11th consecutive quarter of 30 percent or higher growth year-over-year in data revenues.
  • 14.2 percent year-over-year growth in access line equivalents (access lines plus data circuits as measured in 64 kilobit/second units).
  • 53 percent growth in proportionate international wireless customers, to 7.3 million.

"Our third quarter results are the product of a sound long-term strategy and a disciplined focus on day-to-day operations," said Verizon Chairman and co-CEO Charles R. Lee.

"We moved quickly in the quarter to integrate the leadership and operations of our new enterprise, and we are now one team working to meet the increasing demand in all of our markets for high-growth communications services. We passed our year-end target for New York long-distance customers in early August, and we now serve 16 percent of New York residence customers. With 3,500 DSL installations a day, we're on track to meet our year-end target of 500,000 DSL customers. We have the plans and people in place to sustain our performance and execute fully on these new opportunities, and we're confident we will continue our solid revenue growth and deliver 76-78 cents in earnings per share in the fourth quarter -- and then accelerate revenue growth in 2001 to our long-term target of 8-10 percent," Lee said.

Verizon President and co-CEO Ivan Seidenberg said, "We are in a period of sustained demand for new communications services, and Verizon is one of the companies best positioned to participate in this new era of growth.

"With the premier set of local wireline and wireless assets in the industry, we have the right platform -- a fiber-rich, data-centric network architecture - on which to build a truly integrated bundle of broadband communications services that will create value for customers and shareowners. We are executing on this strategy by focusing on profitable revenue growth, upgrading our networks through 'success-based' capital spending funded by our strong cash flow, and continuing to lead the industry in expense control. In addition, we have the processes in place to achieve $2 billion in annual expense synergies from the Bell Atlantic-GTE merger by the end of 2003. With this discipline, we are driving toward our target of sustaining annual EPS growth in the mid-teens by 2003."

The composition of the quarter's revenues demonstrates the company's success in new markets. Almost 40 percent of consolidated quarterly revenues were generated by fast-growing data, DSL, wireless, long distance and International services and markets. Quarterly revenues from high-speed data services approached $1.6 billion in the quarter, and DSL and long distance services contributed approximately $336 million to U.S. Telecom revenues. Total Verizon Wireless revenues grew 17.6 percent over third quarter 1999, to $4.1 billion. International consolidated revenues grew 12.8 percent to $512 million. Total U.S. Telecom revenues grew 3.3 percent for the quarter, to $10.9 billion

At the same time, Verizon continued to exercise disciplined expense control. Consolidated adjusted expenses increased 6.9 percent over third quarter 1999, with operations and support expense increasing 6.1 percent. Adjusted third quarter expenses for Verizon's U.S. Telecom business, including costs associated with the start-up of its DSL and long-distance businesses, increased 3.1 percent over third quarter 1999, with cash expenses up 1.6 percent. U.S. Telecom operating income for the quarter grew 3.7 percent, and, excluding the impact of DSL and long distance, grew approximately 6.6 percent.

Capital expenditures in the quarter of $4.2 billion, for meeting increased demand for data, digital wireless and basic services, was funded entirely through cash from operations, with EBITDA (earnings before interest, taxes, depreciation and amortization) for 2000 expected to total approximately $28 billion. Verizon is also targeting $2 billion in annual expense savings by 2003 as a result of the Bell Atlantic-GTE merger and the formation of Verizon Wireless.

Further details of the quarter follow.

DSL:

  • Verizon's industry-leading 130,000 lines of DSL installed in the third quarter were nearly double the number added in second quarter 2000, and the 350,000-plus lines in service at the end of the quarter represents a tenfold increase over third quarter 1999. In addition, Verizon Online, Verizon's Internet Service Provider, ended the quarter with 750,000 subscribers.
  • Verizon ended the quarter with more than 1,770 central offices equipped for DSL and nearly 60 percent of Verizon's access lines qualified for the service. Verizon is also increasing DSL capacity in currently equipped offices to meet the strong demand for the service.
  • During the quarter, Verizon standardized its entry-level price for residential DSL at $39.95 a month throughout the nation, and waived start-up connection and equipment charges through innovative marketing programs. Verizon is currently installing approximately 3,500 DSL lines a day. More than 90 percent of these are self-installed, the highest percentage in the industry.

Data:

  • Quarterly revenues for data services, including high-capacity, high-speed local transport services, rose 30 percent over the prior-year quarter to nearly $1.6 billion. This is Verizon's eleventh consecutive quarter of data revenue growth at this level.
  • Total access line equivalents grew 14.2 percent, and Verizon ended the quarter with 101.2 million access line equivalents in service. These include data circuits equivalent to 38.1 million voice-grade lines, 42.3 percent more than in third quarter 1999, and 63.2 million voice-grade access lines, a 2.0 percent increase (figures for both quarters exclude 1.5 million access lines sold since third quarter 1999).

Long Distance:

  • Verizon's long-distance unit continued its strong growth and ended the quarter with nearly 4.8 million customers nationwide. In New York, where Verizon began offering long-distance service in January, 281,500 new subscribers signed up during the quarter, and Verizon ended September with almost 1.2 million subscribers in the state, including some 56,000 businesses.
  • Verizon now serves approximately 16 percent of New York's residence long-distance customers, with average revenue per customer continuing in line with industry averages. About 20 percent of New York long-distance customers, or 232,000, are winbacks from other carriers for their toll calling.
  • On Sept. 22, Verizon filed for Federal approval to offer long-distance service in Massachusetts, where Verizon serves 4.7 million access lines and the long-distance market is a $2 billion a year opportunity. State regulators recommended approval on Oct. 13 to the Federal Communications Commission. The FCC's decision is due by Dec. 21.

Verizon Wireless:

  • Verizon Wireless added 806,000 new customers during the third quarter, 34.8 percent more net additions than in third quarter 1999, with the total number of customers growing 14.6 percent year-over-year to 26.3 million.
  • Total churn, including pre-paid, was unchanged from third quarter 1999 at 2.5 percent, as Verizon Wireless ranked highest in overall customer satisfaction among wireless users in nine U.S. markets, including seven of the top 10, in the September J.D. Power and Associates 2000 U.S. Wireless Customer Satisfaction StudySM. During the quarter Verizon Wireless announced New Every Two, the industry's first free handset upgrade plan, to continue the company's focus on building loyalty and reducing churn.
  • Almost half of Verizon Wireless customers now use digital services, with three-quarters of busy-hour usage carried on digital facilities. Some 716,000 customers now subscribe to the company's SingleRate nationwide calling plans. Verizon Wireless also ended the quarter with more than 500,000 customers for wireless data services at the end of the quarter, including more than 400,000 subscribers to Mobile Web Internet access service. Mobile Web's intuitive format allows users to easily customize their handset information at a portal on their desktop computers.
  • Wireless revenues for the quarter were $4.1 billion, 17.6 percent higher than in third quarter 1999. Operating income rose 32.9 percent to $574 million, with operating cash flow increasing 19 percent to $1.5 billion. Operating cash flow margins were 38.7 percent, unchanged from the year-ago quarter. Average total monthly revenue per subscriber was $52.37.

International:

  • Worldwide demand for wireless services was the primary contributor to international revenue growth, as the number of proportionate international wireless customers increased 53 percent to 7.3 million. Operations in Italy, Taiwan, Mexico, the Dominican Republic and the Czech Republic were the primary contributors to wireless growth. Revenues from consolidated international operations grew 12.8 percent over third quarter 1999 to $512 million, with proportionate international revenues approaching $1.6 billion, an increase of 9.4 percent.
  • Earlier this month, TELUS Corporation, the Canadian communications provider of which Verizon owns 26 percent, completed the acquisition of Clearnet Communications, giving TELUS Mobility a Canada-wide, digital wireless network based on CDMA technology and enhancing Verizon's all-CDMA North American wireless footprint. With more than 2 million subscribers, the new TELUS Mobility is well positioned to lead the high-growth Canadian wireless industry.

Information Services:

  • Revenues from Verizon's directory publishing and electronic commerce operations were $970 million, up 6.2 percent from third quarter 1999 due to growth in print directory advertising revenue, an 81 percent increase in revenues from SuperPages.com, Verizon's Internet directory service, and differences in book publication schedules. Operating income rose 12.1 percent to $480 million, reflecting revenue growth and the company's ongoing effort to reduce publishing expenses.

Reported Results

Reported net income for third quarter 2000 was $3.5 billion, or $1.27 per share, a 39.6 percent increase compared to $2.5 billion, or 91 cents per share, in third quarter 1999. Reported results in both quarters reflect the net after-tax effect of gains on sales and other adjustments, which total $1.5 billion in the current quarter, or 54 cents per share, and $541 million, or 19 cents per share, in the year-ago period.

Net gains on asset sales in the current quarter totaled approximately $1.3 billion after taxes, or 47 cents per share. Assets sold included certain non-strategic wireline properties in seven states, which are reported in operating income, and overlapping wireless properties in four states that were sold for regulatory reasons, and which are reported as extraordinary items. The company also recorded a gain of $245 million, or 9 cents per share, for a "mark to market" accounting adjustment related to notes issued by Bell Atlantic in 1998 that are exchangeable into shares of NTL Inc. and Cable & Wireless plc. This adjustment, either a non-cash gain or loss, is made each quarter depending on the share prices of NTL and Cable & Wireless at the end of the quarter. These gains were partially offset by charges totaling approximately $65 million after taxes, or 2 cents per share, for transition costs related to the Bell Atlantic-GTE merger.

Reported third quarter 1999 results include gains and losses totaling $541 million, or 19 cents per share, from asset sales, primarily GTE Government Systems, and other adjustments, including net losses of Genuity (Nasdaq:GENU). Genuity was separated from Verizon earlier this year through an initial public offering and its results are no longer consolidated with Verizon's. Verizon retains a 9.5 percent ownership interest in Genuity and has an option to convert that interest into as much as 80 percent once Verizon has gained approval to offer long distance over 95 percent of the access lines in the former Bell Atlantic states and is able to operate Genuity consistent with federal long-distance requirements.

Nine-Month Results

Adjusted net income for the first nine months of 2000 was $5.9 billion, or $2.14 per share, compared to nine-month 1999 adjusted net income of $5.8 billion, or $2.09 per share. Nine-month 2000 adjusted revenues were $46.8 billion, up 7.4 percent from $43.6 billion in the first nine months of 1999. Revenues in both periods exclude revenues from operations sold, including 1.5 million access lines.

Reported net income for the first nine months of 2000 was $9.9 billion, or $3.62 per share, compared to $6.5 billion, or $2.35 per share, in the nine-month 1999 period. Reported results in each respective period reflect the net after-tax effect of gains, charges and other adjustments, which totaled $4.1 billion, or $1.50 per share, in the first nine months of 2000, and $703 million, or 26 cents per share, in the first nine months of 1999.

Verizon Communications (NYSE:VZ), formed by the merger of Bell Atlantic and GTE, is one of the world's leading providers of communications services. Verizon companies are the largest providers of wireline and wireless communications in the United States, with more than 101 million access line equivalents and more than 26 million wireless customers. A Fortune 10 company with more than 260,000 employees and approximately $60 billion in 1999 revenues, Verizon's global presence extends to 40 countries in the Americas, Europe, Asia and the Pacific. For more information on Verizon, visit www.verizon.com

NOTE:The financial tables associated with this news release can be found on Verizon's Investor Web site . Historical information also can be found at the Investor Web site.

NOTE: This press release contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: materially adverse changes in economic conditions in the markets served by us or by companies in which we have substantial investments; material changes in available technology; the final outcome of federal, state, and local regulatory initiatives and proceedings, including arbitration proceedings, and judicial review of those initiatives and proceedings, pertaining to, among other matters, the terms of interconnection, access charges, universal service, and unbundled network element and resale rates; the extent, timing, success, and overall effects of competition from others in the local telephone and toll service markets; the timing and profitability of our entry into the in-region long distance market; our ability to combine former Bell Atlantic and GTE operations, satisfy regulatory conditions and obtain revenue enhancements and cost savings following the merger; the profitability of our entry into the nationwide broadband access market, including the impact of our transaction with NorthPoint Communications; the ability of Verizon Wireless to combine operations and obtain revenue enhancements and cost savings; and our ability to convert our ownership interest in Genuity Inc. into a controlling interest consistent with regulatory conditions, and Genuity's ensuing profitability.

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