Verizon Communications: Strong Numbers, Solid Growth

| About: Verizon Communications (VZ)

Verizon Communications (NYSE: VZ) boosted earnings 15.7 percent on a 4.6 percent jump in revenue. Retail wireless revenue was up 8.9 percent, the fastest growth rate in three years.

The underlying numbers were even better. Verizon topped forecasts for contract customer additions, adding 501,000 during the quarter. It increased its 4G wireless penetration rate to 9 percent and cut customer turnover, or "churn," to just 0.96 percent. Total retail wireless customers now total 93 million, 88 million of which are "postpaid" contract users.

Data revenue - which includes everything from video downloads to texting - increased 21.1 percent. Average monthly wireless bills rose 3.6 percent, after being flat for several quarters.

On the wireline side, the company increased its FIOS broadband customer base to 5 million, pushing up revenue per customer by 8.1 percent. FIOS is now 63 percent of overall wireline revenue. The company even reduced the rate of traditional phone customer defections to 6.8 percent, the lowest level in many years.

Verizon widened its technology edge by spending another $3.6 billion on its network. Moreover, the company pulled down $2.4 billion in free cash flow, enough to cover the quarterly dividend by a solid 1.7-to-1 margin.

With a dominant position in a growing market, Verizon's only real challenges now are regulatory, mainly from the current 3-2 Democratic Party majority on the Federal Communications Commission (FCC).

The FCC has become alarmed in recent years at the growing market share of Verizon and arch rival AT&T (NYSE:T), last year rejecting the latter's attempt to buy T-Mobile USA from Deutsche Telecom (OTCQX:DTEGY). It's now deliberating Verizon's $3.9 billion bid to buy unused wireless spectrum from four cable companies, which includes an agreement to share marketing channels for services.

However, Congress has grown increasingly skeptical of the FCC's aims, particularly following the dissolution of LightSquared. That company was able to buy spectrum on the cheap in 2010, when the FCC effectively barred AT&T and Verizon from bidding for it. The venture failed when the US Dept of Defense joined eight other government agencies in stating LightSquared's plans would disrupt global positioning systems (GPS).

Congress' approval of an upcoming spectrum auction includes a condition that the FCC must allow Verizon and AT&T to bid, rather than allocate spectrum for the purposes of creating what amounts to a government-sponsored competitor. Regardless, this company has years of experience dealing with and working around regulation.

Verizon's strong numbers point to consistent growth ahead; even the most conservative investors can buy the stock with confidence and lock in its 5 percent plus yield.

Disclosure: I am long VZ, T.