Bernstein: Verizon line sale threatens operating income

The departed cash flow from the lines it spun off and sold to Frontier may leave Verizon hurting for operating income in its wireline segment. "Without these access lines, we project that the wireline segment ­ which still accounts for ~70% of Verizon's asset base (proportionate for VZ's 55% ownership of VZW) ­ will produce negative operating income going forward," Sanford C. Bernstein & Co. senior analysts Craig Moffett and Robin Bienenstock said in their research report, adding that while "the divested properties accounted for just 8.8% of Verizon's wireline revenues in 2009, they contributed an incredible 53.7% of wireline's pre-tax operating free cash flow [EBITDA less capex]." Furthermore, even as Verizon is winding down its FiOS market expansions and focusing on cultivating the revenue opportunities in its existing markets, "the unlevered free cash flow [Verizon's wireline] segment produces will be immaterial," according to the analysts. The company's wireline business is further challenged by an existing $35 billion debt burden.