Verizon’s third-quarter results seem to indicate that the second-largest US phone company is on the right track with its fiber-optic-delivered pay-TV and broadband FiOS service.
Dennis Strigl, Verizon COO, told financial analysts this week that the company is on track to make an operating profit – before interest, tax, depreciation and amortization – next year on the $23 billion investment it’s making in deploying the FiOS network. The cost of deploying FiOS reduced Verizon’s profits by nine cents per share in the quarter.
Some details from the quarterly report: FiOS TV – Verizon added 202,000 new subscribers in the quarter, bringing its total to 717,000. Verizon has run fiber optic cable past 4.7 million residences in areas where it has local government permission to sell pay-TV. Strigl said the company is ramping up the rollout.
Broadband – Verizon added 285,000 new broadband subscribers, both FiOS (229,000) and traditional copper wire-based DSL (56,000). The number was less than some had expected. Strigl said many of its DSL customers are upgrading to FiOS broadband. That raises the question of how many broadband subscribers Verizon is actually taking away from the cable TV operators. During the quarter, rival AT&T added 499,000 broadband subscribers – both Lightspeed fiber and DSL – to reach 13.8 million total broadband subscribers.
Mobile Phone – Competing directly with Apple’s iPhone, which runs exclusively on AT&T’s mobile network, Verizon Wireless added 1.8 million net retail customers in the quarter. That brings its total to 63.7 million. Strigl said the company is not overly concerned about the iPhone. “We have seen minimal impact from the iPhone thus far,” he said, adding that the iPhone caused “a jump in movement in the two to three weeks after its introduction” and again when Apple cut the iPhone’s price at the end of September. But, he said, the overall customer cancellation for the quarter didn’t change significantly. Verizon has said in the past that it has never had a quarter where it lost more subscribers than it gained.
AT&T added some two million iPhone subscribers during the quarter, with roughly 40% of them reportedly switching from another carrier to AT&T. Many of them, perhaps most, have come from Sprint (which reported poor Q3 results), T-Mobile and minor operators. It was the first quarter since 4Q06 in which AT&T added more subscribers than Verizon Wireless.
Revenues at Verizon Wireless increased 14.4% in the quarter, primarily from a 63.4% increase in data charges. Doreen Tobin, Verizon CFO, said the company believes that new handsets will keep data revenues growing. Most of the handsets that Verizon Wireless and others are now introducing are more digital-media friendly. They also have better screens and keyboards for texting.
Summing up the quarterly results, Verizon chief Ivan Seidenberg said, “Our third-quarter results show that we have hit our stride as a leading wireless, broadband and enterprise company. In recent years, we have transformed our business model and revenue base. Our results throughout 2007, and especially in the third quarter, show that our strategy has been successful. We expect to build on these results in the fourth quarter and beyond.”
The telco said the fiber-to-the-home network it’s building is essential to its future growth and for competing with the multi-service bundles the cable TV networks are offering.
Verizon is running a fiber optic cable all the way to the home, unlike AT&T, which runs fiber only to the neighborhood in existing residential developments. Another major difference between the two is that AT&T is using unproven technology based on Microsoft’s IPTV software, which Alcatel-Lucent is customizing and installing. Verizon is using the broadcasting technology that the cable TV operators have used for years and overlaid on it facilities for IP-based services.
Why are we still using “phone company” and “cable TV company” separately to describe companies that now do exactly the same thing – phone service, broadband, pay-TV and mobile phones? Wouldn’t it make more sense to call them all something like digital service providers? No one calls Microsoft an operating system company anymore even though that is still a significant part of their business.
This coverage first appeared in The Online Reporter from Rider Research, email [email protected] for contact details.