Intellectual Property Law

Verizon's FiOS Service Bounces Back

By Cynthia Brumfield

When Verizon issued its Q2 08 earnings report, the statistics for the telco's fiber-to-the-home FiOS initiative were pretty discouraging. A slow-down seemed to have hit both FiOS broadband and TV service -- quarterly subscriber gains in both categories looked pretty anemic -- sparking worries on Wall Street that the costly fiber build-out would forever be a money drain.

But those fears eased up a little today. Verizon issued its Q3 08 earnings report this morning showing a bounce-back in both FiOS broadband and video customer gains and company execs say that FiOS is already cash-flow positive. During Q3 08, Verizon added 225,000 net new FiOS high-speed subscribers, down only slightly from the comparable 233,000 net gains during the year-ago quarter and up by 20% over the gains posted during Q2 08.

But even as FiOS broadband gains steam, Verizon's DSL service is slipping. During the quarter, Verizon lost 96,000 DSL customers, a downturn that follows the company's loss of 133,000 DSL customers during Q2 08. CEO Ivan Seidenberg acknowledged that DSL, along with traditional switched access lines, are shrinking businesses for Verizon. "We?re not surprised about the access line loss. We?ve been saying for years that DSL will become less potent" he said, adding that Verizon does have momentum in mobile and FiOS.

Verizon made even greater strides with its FiOS TV service, which posted 233,000 net adds, a run-rate up by 15% year-over-year and almost 33% sequentially, thanks to ramped-up roll-out of the multichannel video option. During the quarter, Verizon made the service available to 1.2 million new homes, thanks to finally getting the green light to sell its cable-like wares in New York City earlier this year.

According to COO Denny Strigl, FiOS TV has already achieved 10% penetration in Queens. "Despite the rhetoric of cable companies and their advocates, FiOS is a formidable competitor," he said during the company's earnings call.

The real savior of Verizon, of course, is its mobile business. During the quarter, Verizon added 2.127 million net new mobile customers, up 29% over the net wireless gains during Q3 07 and up 42% over the wireless gains last quarter.

The growth in Verizon's mobile business is all the more impressive given that the carrier was competing against AT&T's iPhone during a quarter when AT&T launched a 3G version of the desirable device. As a consequence, wireless revenues jumped 12% year-over-year to $10.9 billion, while data revenue soared 40% to $2.8 billion.

The success in mobile, and to a far lesser degree FiOS, outweighed the chronic loss of local access lines -- during the quarter landline losses accelerated at Verizon, with access lines dropping by 1.01 million compared to a loss of 930,000 during Q3 07 and a loss of 920,000 during Q2 08.

Because of mobile (and FiOS), Verizon's net income jumped 31.3% year-over-year to reach $1.67 billion, while operating revenue rose 5.4% to $24.75 billion.

(Download detailed data on Verizon's historical and current financial and operational performance here.)

Full post as published by IP Democracy on October 27, 2008 (boomark / email).