Wall Street has a name for the Baby Bells. They are "cockroaches." A meteor squelched a lot of the long-distance and broadband sectors, but Verizon Communications' (NYSE:VZ) impressive second-quarter numbers show that Bell behemoths can survive and, maybe, even thrive.
Verizon's local phone business, like that at SBC Communications (NYSE:SBC), BellSouth (NYSE:BLS), and Qwest (NYSE:Q), continues to shrink. In the second quarter, it suffered a 2.9% decline in sales to $9.6 billion. Assuming Verizon counted correctly, the total number of phone lines in its service dropped by about 4% to 54 million lines.
Sure, the foundation of its old business is buckling. But Verizon is offsetting those losses with an aggressive push into wireless, broadband Internet, and long-distance services. It's still too early to say for sure, but 6% top-line revenue growth could be evidence that Verizon is successfully making the move from stodgy old phone company to whizzy, modern communications company.
Verizon said it added 280,000 digital subscriber line (DSL) customers and posted 15% growth in long-distance revenue.
The big story, however, is wireless. Verizon Wireless, the company's joint venture with Vodafone (NYSE:VOD), accounted for $6.8 billion in sales, a 25% increase from the year-earlier period, and ended the quarter with a whopping 40.4 million subscribers. Even better, Verizon Wireless scored on telltale performance metrics. Churn -- the rate at which mobile customers defect -- dropped to 1.45%, the lowest level in the wireless industry. Average monthly revenue per user (ARPU) came to $50.80, up from $48 in its first quarter.
Price-cutting and competition from cable companies and wireless resellers don't appear to have damaged Verizon's bottom line. While earnings growth remained pretty much flat from last year, Verizon's operating margins jumped to 21% from 16% a year earlier. Healthy free cash flow gives Verizon plenty of room to maintain its 5.1% dividend yield.
AT&T (NYSE:T), Global Crossing (NASDAQ:GLBCE), Qwest, Level 3, and MCI struggle to survive. Verizon won't repeat the pattern.
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Fool contributor Ben McClure doesn't own shares of any companies mentioned in this article.
