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New FiOS TV Takes Breather In Q3 - 27-October-2009, 07:30

FiOS TV Takes Breather In Q3
Telco Ends Q3 With 2.7 Million Video Subs
By Todd Spangler 10/26/2009 9:18:48 AM

After packing on 599,000 subscribers in the first half of 2009, Verizon's FiOS TV slowed its growth rate in the third quarter, adding 191,000 video subscribers in the period to stand at 2.7 million overall.

The telco's net video additions of 191,000 for the quarter "were a clear disappointment versus consensus expectations of 253K, and were down -18.0% from last year and down -36.3% from the 300K additions in Q2, despite still aggressive promotions and advertising," Sanford Bernstein senior analyst Craig Moffett wrote in a research note.

Still, FiOS TV is on pace to surpass Cablevision Systems -- the fifth-biggest U.S. cable operator with 3.1 million video subscribers -- within the next two quarters.

FiOS TV penetration increased to 24.9% by the end of September, with the product available for sale to 10.9 million households, versus 19.7% penetration in the year-ago period. On the broadband side, Verizon added 198,000 net new FiOS Internet customers to end the quarter with 3.3 million (a 49.2% year-over-year increase).

The growth in FiOS hasn't been enough to offset the decline in Verizon's traditional landline business. Third-quarter operating revenue in the wireline segment was $11.6 billion, down 4.8%, as the telco shed 695,000 net residential access lines in the quarter to end the period with 18.96 million.

Earlier this month, Verizon consolidated its two former Wireline business groups, Verizon Telecom and Verizon Business, into a single organization.

Overall, Verizon reported $27.3 billion in revenue -- 58% of which is from the wireless division -- up 0.6% vs. the same period last year excluding Alltel, which Verizon acquired in January 2009. Net income attributable to Verizon fell to $1.69 billion, a 9.3% decline compared with the same period last year.

Wireless continued to be a major growth area: Verizon Wireless, a joint venture with Vodafone, had 1.2 million net additions in the quarter to stand at 89.0 million, an increase of 25.7% year over year (6.3% on a pro-forma basis). The company is the biggest U.S. wireless carrier.

"Even through the worst of the recession, we have continued to raise our dividend and to add new customers, expand markets and grow revenues based on the power and innovation of Verizon's wireless, broadband and global networks," Verizon chairman and CEO Ivan Seidenberg said in announcing the third-quarter earnings.

Despite the ongoing landline declines, which have led Verizon to target 8,000 jobs for elimination by the end of 2009, the company pointed to bright spots in its wireline segment.

Broadband connections totaled 9.2 million at the end of the third quarter, a net increase of 63,000 from the second quarter as FiOS Internet adds offset a decrease in DSL connections. In addition, revenue growth from broadband and video services boosted consumer average revenue per unit (ARPU) to $75.04 in the quarter 2009, a 12.6% year-over-year increase.

However, Moffett noted, Verizon's loss of 135,000 DSL subscribers in the third quarter was its worst on record -- again, despite targeted promotions including offering DirecTV's Sunday Ticket "free" this season for new subs who take certain DSL-based triple-play bundles. The 63,000 net broadband additions were 51% lower than the third quarter of 208 and down 89% sequentially.

Verizon said FiOS ARPU is now more than $137, driven primarily by triple-play bundles. Of the approximately 32 million total households in areas covered by Verizon's wireline network, FiOS triple-play bundles were available to 10.9 million, compared with 8.2 million at the end of the third quarter 2008. As of the end of the quarter, the FiOS network passed 14.5 million premises and the telco said it's on track to reach the end-of-year target of 15 million.

Meanwhile, Verizon Wireless said its LTE network deployment plans progressed in the quarter with the completion of test data calls over its 700-MHz spectrum in Boston and Seattle. The company plans to offer commercial LTE-based service in the U.S. in 2010 in as many as 30 markets. In addition, Verizon Wireless in the third quarter announced a partnership with Google to counter AT&T's iPhone with the expects to launch two Android-based devices before the end of the year.

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