Telecom giant Verizon (VZ – Free Analyst Report) has reported September-quarter earnings of $0.56 a share, down from the $0.60 posted in the year-earlier period and in line with our estimate, on a 3% year-over-year drop in revenue, to nearly $26.5 billion. The bottom line has come under pressure thus far in 2010, the result of a plethora of factors, including the current economic environment, an increasing competitive marketplace, increasing pension expense, and the disappearance of the accretive benefits of the January 2009 Alltel acquisition. Moreover, Verizon completed the sale of rural lines from former GTE properties to Frontier (FTR) in July of this year, which is likely to put a bit more pressure on results, as these assets produced higher margins.

Yet the news is far from all bad. Although the company's traditional business has struggled a little over the last few years, management has made a concerted effort to bolster its strategic growth areas: wireless, FiOS (fiber optic wireline), and global IP (Internet Protocol) networks. And it certainly seems to be paying off. Verizon Wireless added 584,000 retail customers during the September interim, bringing its total wireless retail count to 93.2 million. What's more, revenues there were up 6%, thanks to a hefty 26% jump in data receipts and an 8% increase in service business. Separately, VZ's FiOS offering continues to do well, with revenues now accounting for roughly 50% of the consumer business. At the end of the most recent quarter, customers totaled  3.9 million at FiOS Internet and 3.3 million at FiOS TV, an increase of 226,000 and 204,000, respectively.

In October of last year, Verizon commenced a restructuring program aimed at growth acceleration and productivity enhancement. To this end, management merged its two wireline business groups, Verizon Telecom and Verizon Business. Efforts toward cost containment, including recent workforce reductions, ought to help widen margins a bit, as well.

Finally, Verizon Wireless is slated to launch its 4G LTE (next-generation Long Term Evolution) network in 38 major metropolitan areas, which cover 110 million people, by the end of the year. The network deployment plans include covering almost all of the company's current nationwide 3G footprint by the end of 2013.

Although earnings per share are likely to make only modest gains this year and next, our long-term outlook is fairly bright. Patient investors may wish to have a look, as this equity offers rather appealing appreciation potential over the next 3 to 5 years. 

About The Company: Verizon Communications was created by the merger of Bell Atlantic and GTE in June of 2000. It is a diversified telecom company with a network that covers a population of about 290 million and provides service to nearly 91.2 million. In the last few years, has acquired MCI (1/06) and Alltel (1/09). The company is also the largest provider of print and on-line directory information. Has a wireline presence in 28 states & Washington, D.C. and a wireless presence in every U.S. state & D.C., as well as operations in 19 countries.

* This report includes late-breaking news not reflected in our full-page review of this company.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.