Ringing up second-quarter results before the closing bell yesterday, Verizon Communications
Does that mean Verizon is stuck in a holding pattern? Not exactly.
For starters, the company continues to grow its wireless customer base at an impressive clip. It signed up 1.9 million new subscribers during the second quarter, for instance, and now weighs in with more than 47 million mobile customers overall. Churn is on the decline, too, hovering near a most impressive 1% rate during the second quarter.
That said, the main problem for Verizon and rivals such as AT&T
Wireless is part of the strategy, but so, too, is the firm's broadband service, which -- as measured by connections -- grew by more than 40% over the second quarter of 2004. Moreover, while the dust won't settle on Verizon's recent purchase of MCI until the end of the year, that acquisition should give the firm a leg up when it comes to growing its business-sector market share.
The question now is this: Given growth in wireless and broadband -- which contribute revenue on par with Verizon's landline unit -- why have margins remained even? I'm not ready to call broadband or wireless a commodity play just yet, but it does sound like something of a classic story, doesn't it? Compete on price to grab market share and hope your rivals can't keep up.
As for the long-term viability of that strategy, there are many arguments. And if Verizon winds up being one of the last Bells standing, it might even be a winning tack. Still, competing on price in the telecom industry is a risky business, and investors should insist on a healthy discount before dialing up any of the Bells.
And that, as it happens, is where the Verizon story gets most interesting: The company is trading at a relative discount, with price multiples well below the broader market's and the industry's -- not to mention its own five-year high-water marks. That doesn't make it a screaming buy, of course, but at least on a comparative basis, Verizon does look like low-hanging fruit just now.
SBC Communications is a Motley Fool Stock Advisor recommendation.