Verizon -- In a Nutshell, Telecom in Transition

(MoneyWatch)  The headlines regarding Verizon's Q3 earnings are that revenue is up but profit down as costs have increased. But there's another way of looking at the company's numbers -- as a classic case of synecdoche, when a part is used to talk about the whole. And Verizon's evolving market says much of where the entire telecommunications sector is headed.

The pivotal point is the switch between the traditional strength of wired service delivery and wireless voice and data. You could point to younger consumers sticking with just a cell phone, but the migration is faster and wider spread, if you look at how Verizon, an heir of the breakup of the original AT&T and long incumbent in some of the most densely populated areas of the country. But look how customer dynamics are changing, as the traditional wireline business in terms of customers is dying (particularly in residential, which was always a cash cow) and wireless picks up steam:

Wireless Customers

Wireline Customers

There are many reasons, including generational preferences, which help explain part of the movement from wired to wireless. However, I think one of the most interesting ones is how business decisions of the carriers started to create a movement from one type of service to the other. They have been pushing more on the wireless front as it offered something other than status quo and represented a chance to expand revenue. But as the carriers pushed on making more money in wireless and were enjoying the twin revenue streams, consumers began wondering why they bothered to keep both types of service. Out went the landlines, where the carriers may not technically have had a monopoly, but were as close as you could get to one. In came wireless, where there was suddenly a lot of competition. Additionally, the advance of cable companies into IP-based telephone services also undercut the lock-in that Verizon and others had enjoyed. You can see the results in the revenues by service type:

Wireless Revenue

Wireline Revenue

So why wouldn't a carrier try to promote wireline? Because the margins on wireless are far higher, with a Q3 28.3 percent operating margin in wireless and 3.8 percent in wireline. It's why Verizon seems determined to get itself out of the landline business, and given the bankruptcy filing of FarPoint Communications, which took over Verizon's landline and Internet business in the northern New England states, you can see why.

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