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Verizon Heads Toward Top 10

2/01/2008 7:00 PM Eastern

A little more than two years after launching its first commercial video service, Verizon Communications has joined the ranks of multichannel-system operators that have more than 1 million television subscribers.

The New York-based telecommunications giant said it passed 1 million FiOS TV subscribers in the first few weeks of 2008, although analysts said the uptake on the telco’s fiber-optic services may have been a bit cooler than expected in the fourth quarter.

Verizon added 226,000 new FiOS TV customers in the fourth quarter, growing its base of TV subscribers to 943,000, from 717,000 at the end of September. The millionth customer came in January.

Growth Leveling Off?
FiOS TV’s sequential subscriber additions dipped to 11.9% last quarter.
Total Subs Subs Added TV Homes vs. Prior Quarter Total Passed Penetration
SOURCE: Verizon
3Q 2006 118,000 N/A 1,200,000 9.8%
4Q 2006 207,000 N/A 2,400,000 8.6%
1Q 2007 348,000 58.4% 3,100,000 11.2%
2Q 2007 515,000 18.4% 3,900,000 13.2%
3Q 2007 717,000 21.0% 4,700,000 15.3%
4Q 2007 943,000 11.9% 5,900,000 16.0%

If it were a cable company, Verizon would be closing in on a ranking as one of the top 10 operators. In the 2007 Multichannel News Blue Book, Insight Communications was ranked No. 10, at 1.3 million basic-TV subscribers.

By the close of last year, Verizon was marketing FiOS TV to 5.9 million homes in parts of 13 states. Its penetration for the service averaged 16% across all markets. Including satellite-TV customers signed up via its partnership with DirecTV, Verizon counted more than 1.8 million video customers.

The FiOS fiber-to-the-home network passed more than 9.3 million premises by year-end, and Verizon expects to continue the build-out to pass another 3 million homes this year, president and chief operating officer Denny Strigl said on a conference call with Wall Street analysts. Verizon is aiming to pass 18 million homes by the end of 2010.

FiOS Internet was available for sale to 7.5 million premises and had 1.5 million subscribers by year-end.

Still, Sanford Bernstein analyst Craig Moffett said in a research note that the FiOS results may be “a mild disappointment” to investors.

“The service is attracting more customers, but the rate of acceleration from the third quarter in video and broadband is modest — FiOS broadband net additions increased 7% sequentially; FiOS video subscribership increased 12% sequentially from 202K to 226K,” he wrote.

Strigl, on the analyst call, said, “I’m happy with the FIOS Internet and TV volumes.”

Verizon said demand for broadband and TV services raised average revenue per subscriber by 11% compared with the fourth quarter 2006 in legacy Verizon wireline markets (which exclude former MCI consumer markets), to $59.48 per month.

When asked about the effect of the free high-definition TV promotion, an incentive Verizon is using to drive FiOS subs, Strigl would not provide details. But, he said, “the impact of the free TV offer during the quarter was really not material to our overall costs.”

Strigl noted that one of the big customer losses for Verizon’s enterprise business in the quarter was a large cable provider, which he did not identify.

All told, Verizon posted $23.8 billion in revenue, up 5.5% from the fourth quarter of 2006, and net income of $1.07 billion, up 3.9% up from $1.03 billion a year earlier.

Verizon Wireless, a joint venture with Vodafone, continued to ring up subscribers with 1.6 million net customer adds. Total wireless customers increased to 65.7 million, up 11.3% year-over-year.

September