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Health-Care Costs Hit Verizon As Expected

April 22, 2010 - News

Is there an echo in here?

One day after AT&T reported that health-care costs were putting a serious dent in its mojo, Verizon Communications said its first-quarter earnings dropped a whopping 75 percent, based a lot on a one-time charge for retiree health benefits, stemming from the new health-care law.

Verizon’s net income fell to just over $400 million, down from $1.65 billion in 2009’s first quarter. Revenue, however, was up a little more than 1 percent, to just under $27 billion.

The company added 1.5 million customers overall, but only a little more than 400,000 of those fall in the postpaid category, which is the most valuable. And that’s where the biggest problem might lie. The mediocre postpaid numbers make the Wall Street Journal wonder if the much-ballyhooed DROID smartphone, which launched last fall, isn’t selling as well as hoped. AT&T added more than 500,000 postpaid subscribers last quarter, with much of that directly attributable to the success of the iPhone.

It’s probably too soon to say the DROID is “fizzling,” as the Journal puts it, but it might be a point of concern. Perhaps fans of the Google Android platform decided to wait until Google released its own smartphone, the Nexus One, just a couple of months after the DROID was released. However, it should be noted that Nexus One sales also have been less than stellar. Obviously, the smartphone market is very crowded, and of the new phones that have been released in recent months, there will be winners and losers.

On the television side of things, Verizon got 168,000 more customers to sign up for its FiOS service.

As of 2:35 p.m. ET on Thursday, Verizon shares were trading down a little more than 1 percent at $29.23.


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