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Verizon FiOS adds outweigh DSL losses in Q1

Thu, 04/18/2013 - 2:07pm
Brian Santo

Verizon added a total of 188,000 FiOS Internet and 169,000 FiOS video subscribers in its first quarter. The company reported that total FiOS revenues were up 15.1 percent year over year, to $2.6 billion.

Verizon ended the quarter with a total of 5.6 million FiOS Internet and 4.9 million FiOS video connections. Respectively, those figures represented year-over-year increases of 12 percent and 12.5 percent.

Total broadband connections – FiOS plus DSL – totaled 8.9 million at the end of first-quarter 2013, a 1.4 percent year-over-year increase. Verizon reported that it had a net increase in broadband customers of 99,000 in the first quarter, as FiOS Internet net customer additions more than offset DSL subscriber losses.

The company long ago pulled in the reins on FiOS expansion, and capital spending on wireline in the quarter was down 6.7 percent to $1.4 billion (capex expenditures in wireless were up).

That said, it is still gradually expanding the reach of FiOS as it retires costly, poorly maintained copper and replaces it with fiber. In first-quarter 2013, Verizon said it migrated 83,000 homes to fiber, toward a target of 300,000 migrations within FiOS markets in 2013.

CFO Fran Shammo noted that the acceleration of the copper-to-fiber migration accelerated a bit in the quarter because the company had to rebuild anyway in the aftermath of the destruction caused by Hurricane Sandy. She said with the technology migration, the company not only improves network efficiency but gets the opportunity to upsell customers to FiOS. Her comments were from a transcript prepared by Seeking Alpha of a conference call with analysts held earlier today.

Responding to a question about the migration, she said FCC rules clearly allow it. “Now, I know some of the CLECs have urged the FCC to suspend or change these rules, but we need to encourage our customers and others to move to the new technologies in order to provide our customers with the best solutions that they have,” she said.

Continuing, she said, “And for many of our customers, that service is best delivered over fiber or even maybe a wireless network. And in some of these situations, we’re not going to rebuild the copper. It doesn’t make financial sense to lay fiber to some of these remote areas. So wireless may be a better solution here, and we’re working with the regulatory agencies on that.”

Shammo also noted that Verizon remains committed to its co-marketing arrangements with cable companies, offering Verizon Wireless in packages mostly outside its wireline network footprint.

But it was the company’s success in wireless that sent its shares to a 12-year high.

The stock, which is part of the Dow Jones industrial average, rose $1.57, or 3.2 percent, to $51.10 in morning trading. Just after the open, it hit a 12-year high of $51.55.

The New York-based phone company reported net income of $1.95 billion, or 68 cents per share, for the January to March period. That was up from $1.69 billion, or 59 cents per share, a year earlier.

Analysts polled by FactSet had on average expected earnings of 66 cents per share for the latest quarter.

First-quarter revenue rose 4 percent to $29.4 billion, just short of the average analyst estimate at $29.5 billion.

Service revenues at Verizon Wireless rose 8.6 percent to $16.7 billion, accounting for more than half of Verizon's overall revenue. At its closest rival AT&T Inc., wireless service revenue has been rising just over 4 percent per year.

The first quarter was a season of profit-taking for Verizon Wireless, after heavy spending in the fourth quarter to put the new iPhone 5 into 3 million hands. Like most other phone companies, Verizon subsidizes new smartphones by hundreds of dollars to bring the price down to $199 or less, then makes the money back in service fees over the run of a two-contract.

Verizon activated 7.2 million smartphones in the first quarter, down 2.6 million from the fourth quarter. That helped keep subsidies down and boosted operating income by 34 percent to $6.4 billion.

Verizon said 30 percent of its contract customers are already on the Share Everything plans it introduced last summer. The plans provide unlimited calling and texting and a "bucket" of data that can be shared across a family's Verizon devices.

Unfortunately for Verizon Communications, only 55 percent of Verizon Wireless' profits flow to its bottom line. The rest goes to joint-venture partner Vodafone Group PLC, the British cellphone carrier. Verizon Communications has a long-standing interest in buying out its partner, but so far, hasn't found a formula that it can afford and Vodafone will accept.

Verizon Wireless added a net 677,000 new devices under contract to its rolls in the quarter, meeting analyst expectations. That was up from 501,000 in the same quarter a year ago but down from the record-breaking 2.1 million in the fourth quarter.

Verizon said it activated 4 million iPhones in the quarter, half of which were the latest model, iPhone 5. Brian White at Topeka Capital Markets said the relatively strong iPhone sales are good news for Apple Inc., which reports its quarterly results on Tuesday, along with AT&T.

Apple's stock, however, was down 1.4 percent Thursday morning, hitting its lowest levels since 2011.

Verizon ended the quarter with 93.2 million devices under contract. That's nearly one for every U.S. household, and compares with 70.5 million with AT&T, as of the end of the year.

Verizon Wireless is the largest U.S. cellphone carrier, and keeps growing faster than its competitors, thanks in large part to its vast, fast and highly-rated network.

Analyst Christopher King at Stifel Nicolaus said the stock now appears fully valued, characterizing it as a situation of "perfection baked in ... but perfection should continue."

– The Associated Press contributed to this report

 

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