Verizon Communications reported an increase in revenue and net income for the second quarter, but excluding exceptional gains from tax refunds and the sale of a subsidiary in Hawaii, net income fell 1 percent.

The company reported record operating revenue of US$18.57 billion for the quarter to June 30, up 4.6 percent on the year-earlier figure of US$17.76 billion. It reported net income including exceptional items of US$2.11 billion, up 17.6 percent on the year-earlier figure of US$1.8 billion, for earnings per share of US$0.75.

Earnings for the quarter included US$336 million from the sale of fixed-line and directory operations in Hawaii, and a net tax gain of US$10 million. Excluding these special items, net income dropped 1.1 percent, down from US$1.79 billion in the second quarter of 2004 to US$1.77 billion this year, for earnings per share of US$0.63. Analysts had expected earnings of US$0.64 per share, according to a poll conducted by Thomson First Call.

Operating revenue from domestic telecom services, accounting for around half of Verizon's revenue, declined just 0.5 percent year on year, the slowest rate of decline in four years, Verizon said. Operating revenue at Verizon Wireless increased 14.6 percent year on year, to US$7.8 billion the 12th consecutive quarter of growth above 10 percent, the company said.

Faced with a continuing slide in subscriber numbers in its core domestic fixed-line business, Verizon continues to seek ways to get remaining customers to spend more.

"Our approach is to increase the monthly revenue from residential customers," Verizon Chairman and Chief Executive Officer Ivan Seidenberg said Tuesday in a conference call with analysts.

Revenue from residential users totaled US$3.8 billion in the second quarter.

Average monthly revenue from residential fixed-line customers rose to US$50.92 in the quarter, up 6.4 percent on a year earlier. Around 60 percent of those customers have signed up for long-distance or broadband services from Verizon, in addition to local telephone service, up from 49 percent a year earlier, the company said.

Service revenue at Verizon Wireless increased 13.8 percent compared to a year earlier, to US$6.9 billion for the quarter. Average montly revenue per user during the quarter increased 1 percent compared to the first quarter, but was 2.7 percent down from a year earlier.

Data services contributed 7 percent of wireless revenue, driven by sales of high-speed and 3G (third-generation) mobile services. Verizon Wireless is in the process of spending US$1 billion on extending its 3G network. At the end of the quarter, around one-third of the US population lived within the service area; Verizon plans to extend this to cover almost half of them by year-end.

The company ended the quarter with 214,490 employees -- 9,662 more than a year earlier.

Verizon still aims to complete its acquisition of long-distance carrier MCI by the end of 2005, but has not yet completed negotiations with the U.S. Securities and Exchange Commission (SEC) regarding the filing of form S-4, which relates to mergers, said Seidenberg.

"We are working to complete the process with the SEC for our S-4 registration. The timing of the completion of meetings with the SEC will determine the date of the shareholder vote," he said.

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