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Verizon’s CEO explains that Yahoo purchase as its quarterly revenue dips

The company’s wireless business remains under pressure from intense competition.

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Verizon CEO Lowell McAdam
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Verizon, which has suffered through a weeklong strike and is in the process of buying Yahoo’s core business, notched a mixed set of quarterly financial results on Tuesday.

The company reported per-share earnings that were ahead of forecasts, but saw revenue drop more than expected as its results took a hit from a week-long strike in its wireline business.

“We had an eventful first half,” CEO Lowell McAdam said in a conference call with analysts, insisting that the company posted “solid results in a challenging quarter.”

Putting the Yahoo purchase in context, McAdam talked about the need to create a business that goes beyond network services. The pressure is on Verizon to show it can make money from content, especially once it will have spent $9 billion to acquire Yahoo and AOL.

“By acquiring Yahoo’s operating business, we are scaling up to be a major competitor in mobile media,” McAdam insisted. So far, the company has underwhelmed with its Go90 mobile video service, and some analysts have wondered if the money wouldn’t have been better spent on the company’s core network business.

There should be cost cuts possible by bringing together Yahoo and AOL, but McAdam said it was too soon to put a number on those. “They are meaningful, let’s just put it that way,” McAdam said.

As for how Verizon can bring growth to Yahoo, McAdam said Verizon will look to leverage its content relationships, such as deals with the NFL and NBA to boost Yahoo in sports, while also bringing AOL brands like the Huffington Post, Engadget and TechCrunch to Yahoo’s tech, news and finance sites.

“We think there is a huge opportunity,” he said, adding he has had conversations in recent weeks with NFL Commissioner Roger Goodell and NBA commissioner Adam Silver.

As for the second quarter, adjusted earnings were 94 cents per share on operating revenue of 30.5 billion, a drop of 5 percent from a year ago. That compares with Wall Street expectations of adjusted earnings of 92 cents per share, with average revenue estimates pegged at closer to $31 billion.

The company added 86,000 phone customers in the quarter as higher turnover among tablet customers led to lower overall subscriber gains than in prior quarters. Overall, the company said it added 615,000 postpaid wireless customers while losing 30,000 prepaid ones. (Prepaid customers are generally less lucrative ones who pay on a month-to-month basis, while postpaid customers are longer-term ones that tend to finance higher-end phone purchases over several years.)

On the fixed side of things, Verizon said it is talking with cities about more deals like the one it announced in April to bring high-speed connections to the city of Boston.

Verizon shares dropped in early trading, changing hands recently at $55.37, down 50 cents, or less than 1 percent.

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