By Ryan Knutson 

Verizon Communications Inc. reported its first decline in quarterly revenue in six years amid sluggish subscriber growth, underscoring why the nation's biggest wireless carrier is seeking new sources of revenue through acquisitions like Yahoo Inc.

Revenue fell 5.3% from a year ago, its first drop since 2010 after three quarters of declining growth. Excluding recent landline divestitures and AOL, revenue would have decreased 3.5% from a year ago. Meanwhile, Verizon's net additions of retail postpaid subscribers -- its most valuable customers -- were down 46% in the quarter.

The slowdown in its wireless business underpins Verizon's push to develop new sources of revenue like digital advertising and connected cars. The strategy drove its $4.83 planned acquisition of Yahoo, announced Monday, the biggest addition to the carrier's burgeoning media business which Verizon projects will have $20 billion of revenue by 2020.

"Yahoo brings viewers. Viewers bring advertising. Advertising brings top line growth," said Verizon Chief Financial Officer Fran Shammo in a call with investors, the first time Verizon executives have spoken publicly about the deal, which is expected to close in the first quarter.

CEO Lowell McAdam said the carrier plans to take on Facebook Inc. and Alphabet Inc.'s Google as it expands into the digital-media industry, which he estimated could be as large as $180 billion by 2020. "Verizon intends to be a significant player in this space," Mr. McAdam said on the conference call.

Verizon's thesis is that content creators and advertisers are hungry for alternatives beyond Facebook and Google as the market for digital media expands for both in-home and mobile consumption. This year, Google collected an estimated 31% of digital-ad revenue globally and Facebook had 12%, according to eMarketer. Yahoo and AOL combined have about 2.2%.

"The big advertisers have come to us saying that they have more ads to place than they have good places to put them," Mr. McAdam said. "We will be one of the few that can deliver advertising and content across the home, across the mobile device, and across the internet."

Mr. McAdam also said he recently spoke with National Football League Commissioner Roger Goodell and National Basketball Association Commissioner Adam Silver about ways to expand sports content, including games, on Verizon's online and mobile properties, such as its mobile video app go90. Mr. McAdam said the carrier is also in talks with broadcast networks about how their sports channels could also be streamed over AOL, Yahoo or go90.

Verizon said traditional 300-channel TV bundles are beginning to fray, and more media consumption is moving to smartphones, especially among millennials. Mr. McAdam pointed to how some of its recent investments, such as those in Complex magazine and AwesomenessTV, will help it ride that wave.

Investing in mobile media will also allow Verizon to draw revenue from a less capital intensive business, Mr. McAdam said, and one that doesn't have to deal with a labor union. Verizon spent $7.3 billion in capital expenditures on its networks in the first six months of they year, and had to manage a 45-day labor strike.

Still, Mr. McAdam said his goal is for the carrier's media business to grow faster than the overall market. "We're a small player today" relative to Google and Facebook, he said. "All we need to do is take more than our fair share of the growth of the market and this will be a success for us."

For the period, Verizon added 615,000 net retail postpaid wireless subscribers, while revenue fell to $30.53 billion. Wireless service revenue has been under pressure as customers migrate to new phone plans that encourage customers to upgrade less often, but that pressure is easing, the company said. Its landline internet and TV business, called Fios, also lost customers, partly due to the wireline strike.

Earnings, meanwhile, took a major hit from one-time remeasurements to Verizon's pension and postretirement benefits as well as higher costs incurred during the strike. In all, Verizon reported a profit of $702 million, down from $4.23 billion a year earlier.

Shares of Verizon were down 2% to $54.76.

In recent years, Verizon has offered heavy discounts on tablets, helping to boost subscriber metrics. This quarter, more than 350,000 of its net additions were tablets, and only 86,000 were phones.

The tablet subscribers have the benefit of seeding Verizon's customer base with a larger screen where they can more comfortably watch its new online content, Mr. Shammo said. About 11% of Verizon's 113 million retail customers have tablets, he said.

"With go90, AOL, Yahoo coming into the portfolio fold, we are trying to drive more usage into these devices, and we want those users to consume content, which then ultimately drives advertising," Mr. Shammo said.

Write to Ryan Knutson at ryan.knutson@wsj.com

 

(END) Dow Jones Newswires

July 26, 2016 15:09 ET (19:09 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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