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Verizon Communications, (VZ- Free Verizon Stock Report) a telecommunications giant and Dow-30 component, reported December-quarter earnings of $0.66 a share, three cents above our estimate and a stellar 47% improvement on the year-earlier figure, on a 3.3% top-line advance. All told, Verizon posted earnings of $2.84 a share in 2013, an impressive 22% advance on the 2012 tally. Not surprisingly, a lion's share of the good news may be attributed to the company's wireless business, and prospects at the traditional wireline division appear to be on a bit of an upswing.

During the final stanza of last year, Verizon Wireless (55% owned by Verizon Communications) added 1.6 million retail postpaid net subscribers, bringing Verizon's total number of retail connections to 102.8 million, up 4.7% from the year-earlier figure. Total Wireless revenue came in at $21.1 billion, up 5.7% year over year, thanks, in part, to a 7.1% increase in retail postpaid ARPA (average revenue per account). Last year, Verizon Wireless started to report ARPA instead of ARPU, following the rollout of the Share Everything Plan and as customers continue to add multiple devices to their accounts. Moreover, at year-end 2013, smartphones accounted for 70% of the Verizon Wireless retail postpaid customer phone base, up from 67% at the end of the third quarter. Any improvement in this metric certainly augurs well for ARPA growth going forward, as smartphone users typically pay additional data-related fees. Lastly, wireless operating income margins continue to improve, after coming under a significant amount of pressure during much of 2012, due to the introduction of the iPhone, which comes with a pretty hefty handset subsidy. Indeed, for 2013, operating income margin came in at 32.1%, up 340 basis points from the 2012 figure.

Separately, Verizon Wireline's performance continued to improve during the December quarter, with consumer revenues up 6.4%, year over year, with most of the good news coming from the company's FiOS service. Verizon added 126,000 customers to its FiOS Internet service, and 92,000 to its FiOS video service. Seemingly, the tide may be turning for VZ's Wireline business, which has felt the effects of many corporate and government customers tightening the purse strings.

In mid-September of last year, Verizon and Vodafone Group penned an agreement for Verizon to purchase Vodafone's 45% stake in their U.S. wireless joint venture, Verizon Wireless, for $130 billion. This transaction, which would be the third-largest deal in corporate history, stipulates that Vodafone would receive $58.9 billion in cash, $60.2 billion in Verizon stock, and an additional $11 billion from smaller transactions. Verizon has subsequently arranged financing for the transaction and is set to offer $49 billion in new debt and has an agreement to receive $12 billion in term loans to help finance the transaction. Assuming approval of Verizon and Vodafone shareholders later this month, the closing of the acquisition is slated for February 21st, and it would be immediately accretive to earnings by approximately 10%. This issue remains a quality choice for income.

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.

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