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Verizon will depend on LTE for growth

Fri, 10/21/2011 - 1:52pm
Brian Santo and Maisie Ramsay, Wireless Week

A day after AT&T reported lower subscriber adds for U-verse, Verizon reported lower subscriber growth for its FiOS service.

Verizon also underlined what has been said before: It isn’t planning to expand FiOS beyond its original target of 18 million homes passed – roughly two-thirds of its footprint. Broadband growth will therefore be based on increasing its penetration where its FiOS network is installed and elsewhere through wireless connectivity using its LTE network.

On a call with investors and analysts Friday, chief financial officer Fran Shammo said: “Our strategy is to complete the 18 million build for FiOS and transition that. And as you know, we've really concentrated on investing in FiOS and curtailing the investment in the copper network and moving people from copper to FiOS. And that is a big strategic initiative that (CEO Lowell McAdam) has set out for the business to accomplish.

“Now those lines that are outside that FiOS and outside of any potential of passing ever with FiOS – we will continue to be competitive in this area, but I think it's going to be around LTE,” Shammo continued. “We're not going to invest a lot of capital in the copper core network in those outlying areas. But I think we have a strategic bundle that we can go into those households with, give them a better experience than what they're currently having on their DSL line from a bundling of the wireless portfolio that we have. So that's the strategy that we're going to deploy.”

In the third quarter just completed, Verizon added 138,000 FiOS Internet and 131,000 FiOS TV subscribers. Those numbers were down from the similar period a year ago, when the company tallied 226,000 Internet subs and 204,000 TV subs.

The Q3 2011 numbers were also down from the immediately preceding Q2, during which the company signed up 189,000 Internet and 184,000 TV subscribers.

The company now has a total of 4.6 million FiOS broadband and 4 million FiOS TV customers. The company said that it is continuing to lose DSL customers, but that FiOS broadband adds more than compensated, for a net gain of 20,000 Internet customers, for a DSL-plus-FiOS total of 8.6 million Internet subscribers.

Last year, the company blamed storms for lower Q3 numbers. This year, the company blamed storms again, along with the strike conducted by wireline workers protesting the company’s demand for concessions on health and retirement benefits.

Operating revenues in the wireline business were down 1.3 percent to $10.1 billion. Overall corporate profit nearly doubled.

Verizon said it has a bit of a backlog after the storms and the strike. Looking forward, it expects to add about 200,000 new FiOS Internet connections and 200,000 new FiOS TV connections in Q4.

Wireless results
Verizon Communications took a bit of a hit on its wireline side in the third quarter from union strikes, Hurricane Irene and the economy, but that didn't slow down its wireless division. Verizon Wireless posted stellar results today on a healthy rise in new contract customers and LTE device sales.

The operator added 882,000 net postpaid subscribers in the third quarter, nearly triple the number of postpaid subscribers added by rival AT&T during the same period. Including wholesale customers and other connections, Verizon Wireless added 1.3 million net new subscribers.

Customers flocked to Verizon's LTE service. The operator sold 1.4 million LTE devices during the quarter, some of which were included in the 5.6 million smartphones sold to customers during the quarter. Nearly 40 percent of Verizon's customers now use smartphones, up from 36 percent last quarter.

Shammo said in a call with analysts that it was too early to give out numbers on the new iPhone 4S but said the ratio of the customers to upgrades was the same it had been in the past: 20 percent new customers to 80 percent upgrades from existing subscribers.

The strength of Verizon's smartphones helped improve churn while boosting sales and ARPU. Postpaid churn dipped to 0.94 percent, from 1.07 percent last year, and overall churn hit 1.26 percent, from 1.43 percent last year.

Postpaid ARPU rose 2.4 percent over last year to $54.89, and data ARPU rose 15.7 percent to $22.22. Verizon brought in $6.1 billion in data revenues, a 20.5 percent increase over last year. Data now comprises more than 40 percent of Verizon's service revenues, which rose to $17.7 billion.

"Verizon Wireless delivered impressive results across the board in the third quarter, and we are geared up for an even better fourth quarter, with new smartphones, tablets and data devices coming to market," Verizon Communications President and CEO Lowell McAdam said.

Overall, Verizon Communications made $1.37 billion on sales of $27.9 billion from both its wireline and wireless businesses.

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