News

FiOS TV: 2.5 Million Subscribers and Counting

8/01/2009 2:00 AM Eastern

Verizon Communications' FiOS TV is now larger than Bright House Networks, the No. 6 U.S. cable operator, as economic storm clouds didn't dampen the telco's solid subscriber growth in the second quarter.

The telco snagged 300,000 net FiOS TV subscribers for the three months ended June 30, to stand at nearly 2.52 million. However, the telco said it remains focused on cutting costs in its wireline unit — which posted a 5.2% drop in revenue for the quarter — and plans to cut 8,000 jobs in the second half of 2009.

The FiOS TV results, coming after two quarters of similar numbers of net adds, “were solid in what is normally a seasonally weak quarter, and in the wake of relatively slow rate of new passings in Q1,” Sanford Bernstein senior analyst Craig Moffett wrote in a research note.

In addition, Verizon added a record 303,000 net new FiOS Internet customers, counting 3.1 million as of the end of June, a penetration rate of 28.1%.

“We are taking market share from cable and … we are successfully upselling FiOS to our existing broadband customers,” Verizon chief financial officer John Killian said on the earnings call.

However, while the telco posted strong gains for FiOS, its traditional voice service and digital subscriber line products suffered. Verizon lost 117,000 DSL-based connections in the quarter, after it shed 46,000 in the first quarter. Total residential lines fell 12.3% year-over-year, to 19.66 million as of June 30.

In the second quarter, only 20% to 25% of those DSL losses represented customers upgrading to FiOS, according Killian, meaning most would have gone to cable competitors.

In a blitz aimed at stopping DSL customers from switching, Verizon last week launched a promotion that includes as part of certain triple-play bundles with DirecTV access to the satellite operator's “NFL Sunday Ticket” package of out-of-market pro football games for the 2009 season.

The bundles require a one-year Verizon commitment and a two-year DirecTV agreement that includes hardware lease. Verizon expects the Sunday Ticket promotion to extend through September.

In addition, customers who sign up for the bundle also will receive 12 months free access to Showtime (valued at $158.88) as well as a Compaq Mini Netbook (valued at $299.99) or a Flip Ultra camcorder (valued at $149.99) through a promotion announced June 22 by Verizon.

Verizon's fiber-to-the-home network currently passes 13.8 million homes, 43% of all households in its service areas. The FiOS buildout will be “substantially complete” by the end of 2010, to pass more than 18 million homes, Killian said.

In the small-business segment, Verizon president and chief operating officer Denny Strigl downplayed competition from cable, saying in response to an analyst question, “We think we're holding share; there has been limited impact due to cable competition.”

Killian said Verizon will continue to be “very focused” on cutting costs in the wireline business. The company has cut the wireline work force by more than 8,000 in the last 12 months, he noted, and plans to eliminate another 8,000 job positions, including contractors, in the second half of 2009. The 8,000 additional cuts represent 3.4% of Verizon's 235,326 employees as of June 30.

Verizon's recent price increases for new FiOS customers and those coming off contract should help increase the wireline business unit's profitability, Killian said. For the quarter ended June 30, Verizon's operating margin for the wireline unit dropped to 4.8%, versus 8.8% for the second quarter of 2008.

Verizon spokeswoman Bobbi Henson said the FiOS price increases Killian was referring to were instituted at the end of June and ranged from $5 to $10 per bundle, depending on package and market. However, she said, the packages included faster Internet speeds. “We didn't take the same bundle and just increase the price,” Henson said. “We increased the speeds as well.”

September