Verizon has been eyeing Vodafone Group Plc.'s <VOD.L> 45 percent stake in Verizon Wireless. But Verizon Chief Executive Ivan Seidenberg quoted Vodafone CEO Arun Sarin as saying Vodafone saw more value in staying in the partnership.

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The issue has been resolved for "the next few years, unless there is a change in Vodafone's thinking," Seidenberg told analysts on a conference call.

Verizon shares fell 2.5 percent, or 86 cents, to $32.96 by early afternoon on the New York Stock Exchange.

"Generally, the market had thought the repurchase of that 45 percent holding would be a very positive development, and today they effectively said that Vodafone is going to remain part of that partnership for the next several years," said Chris Watts, a partner at Atlantic Equity.

Verizon's rival AT&T Inc. <T.N>, by comparison, is due to gain full ownership of Cingular Wireless when it buys BellSouth Corp. <BLS.N> later this year. AT&T and Verizon are the biggest U.S. telecommunications companies.

Excluding special items, Verizon said it earned $1.87 billion, or 64 cents a share, in the second quarter, up from $1.77 billion, or 63 cents per share, a year earlier. Analysts were expecting 62 cents a share, according to Reuters Estimates.

Verizon said revenue rose to $22.7 billion from $18.1 billion. While that was below analysts' average forecast of $22.82 billion, the company said cost-cutting in its wirelines business had helped profit exceed expectations.

Like most telecom companies, the main earnings driver was growth in wireless subscribers, which has helped to compensate for a decline in traditional voice subscribers.

"Verizon Wireless continues to be remarkable in terms of the net adds and the market share they continue to take from everybody in the industry," said Stifel Nicolaus analyst Chris King.

Verizon said Verizon Wireless's revenue in the quarter rose 18 percent to $9.3 billion. Total wireless churn, or customer cancellations, fell to a record-low 1.13 percent. Churn among retail post-paid customers was a record-low 0.87 percent.

Sanford C. Bernstein analyst Jeffrey Halpern even saw Seidenberg's comments as a positive factor.

"Investors should no longer have any questions about whether Verizon will overpay for Vodafone's stake," he said in a report, maintaining an "outperform" rating on the company.

FIOS GROWTH

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Verizon said second-quarter net income fell to $1.6 billion, or 55 cents per share, from $2.1 billion, or 75 cents per share, a year earlier, due partly to costs related to its acquisition of long-distance operator MCI in January.

Verizon has also been expanding its "FiOS" fiber-optic network to deliver high-speed Internet and video services to customers and compete against all-in-one packages of video, voice and Internet offered by cable operators.

But investors have been concerned about the cost of deploying FiOS.

The company said FiOS deployment would dilute earnings by 28 cents to 30 cents a share this year. It reiterated a full-year earnings forecast of around $2.56 a share before items.

Verizon said it added 440,000 net broadband connections in the second quarter. FiOS Internet customers accounted for 111,000 of those additions. Other broadband customers use digital subscriber lines (DSL).

FiOS services are available in 16 states and had been connected to 4.5 million premises by mid-July, the company said, adding that it was on target to connect to 6 million premises by year-end.

The company said it repurchased $1.0 billion of stock in the first half of the year, meeting its full-year target. It said it would buy back an additional $500 million in the second half.

Verizon said it was still likely to spinoff its directories business, although some analysts had said such a move would be aimed at raise money to pay for Vodafone's stake in Verizon Wireless.