FiOS Hits Brakes At End Of 2009
Verizon Hits 2.9 Million TV, 3.4 Million FiOS Internet Subs
By Todd Spangler -- Multichannel News, 1/26/2010 8:39:31 AM
After blistering growth in the first half of 2009, Verizon's FiOS ended the year with a comparatively sluggish quarter, adding 153,000 subscribers for both TV and Internet services.
Meanwhile, the telco continued to post strong wireless gains, as its legacy residential landline business shrank 12.3% in 2009.
Verizon had 2.9 million FiOS TV customers as of the end of 2009, and 3.4 million FiOS Internet customers. Year to year, Verizon boosted FiOS TV subs by 49% (with a 24.5% penetration rate in the fourth quarter of 2009), and FiOS Internet subs by 38% (with a 28.1% penetration rate).
But after adding 599,000 TV customers in the first half of the year, it added 344,000 in the last six months of 2009.
Video net additions in the fourth quarter of 2009 were down a "startling" 50% from the year-ago period, noted Sanford Bernstein analyst Craig Moffett in a research note. "Wireline results were at least as weak as Wireless was strong, and Wireline remains the company's center of gravity," he wrote.
The 153,000 net adds for FiOS TV and Internet were "a serious miss in the growth of their FiOS business," Moffett added. He had forecast Verizon's TV gains at 205,000, which was already below analysts' consensus of 224,000.
In the fourth quarter, total broadband and video revenues were $1.7 billion, a 25.5% increase compared with the fourth quarter 2008. On the wireless front, Verizon Wireless -- a joint venture with Vodafone -- added 4.6 million retail net customers in the full year excluding acquisitions and adjustments, to stand at 87.5 million retail customers, an increase of 25% year over year.
"We focused on expanding wireless data and set the stage to deploy a nationwide 4G network later this year. We also expanded the scale of FiOS and our global IP network," Verizon chairman and CEO Ivan Seidenberg said in announcing the results Tuesday. "We saw growth in all these areas in 2009, and we expect continued growth in 2010 and beyond, with a goal of delivering long-term shareowner value."
And yet despite FiOS growth and cost-cutting measures including layoffs, Verizon's wireline unit continued to suffer. Wireline operating revenue for the fourth quarter was $11.5 billion (down 3.9% year over year) while operating margin fell to 2.5% (vs. 6.0% a year prior). Verizon had 18.4 million primary residential phone line customers at the end of the year, versus 21.0 million at the end of 2008.
Overall broadband connections including DSL climbed 6.3% in 2009, to 9.2 million. However, in the fourth quarter, Verizon continued to drop DSL subscribers, losing 107,000 in the period.
As of the end of 2009, the FiOS network passed 15.4 million premises, or approximately 48% of total households in areas currently covered by Verizon's wireline network. Verizon expects the network to pass more than 18 million homes by the end of 2010.
For 2010, Verizon expects capital spending to be between $16.8 billion and $17.2 billion. That compares with $17.0 billion in capex for 2009, which was below the company's previous range of $17.4 billion to $17.8 billion.
Overall, the company in the fourth quarter recorded a net loss of $653 million, versus a net profit of $1.2 billion in the year-ago period, while revenue increased 9.9% to $27.1 billion (most of the revenue growth attributable to the acquisition of Alltel). For the full year 2009, net income fell 43.2%, to $3.7 billion, and operating revenue was $107.8 billion, up 10.7% compared with 2008 (excluding Alltel, revenue was up 1.5%).
In the fourth quarter, Verizon's earnings included a $3 billion pretax charge (equating on an after-tax basis to $1.9 billion, or 66 cents per share) for severance, pension and benefit charges in connection with workforce reductions in the fourth quarter and continuing into 2010; $127 million (2 cents per share) for merger integration and acquisition costs primarily in connection with the Alltel transaction; and $246 million (9 cents per share) for other charges, including costs related to the pending spinoff of "non-strategic" wireline access lines to Frontier Communications, which Seidenberg said was on track to close in the second quarter of 2010.
In 2009 Verizon laid off 13,000 wireline workers, about 9% of the unit's workforce, with about 5,000 cut in the fourth quarter, according to chief financial officer John Killian. The telco expects a similar number of layoffs in 2010 for the wireline unit, Killian said.
Verizon announced that in future quarterly earnings reports, the company will no longer adjust reported results for non-operational or special items. However, the company said, it will "continue to provide information to help investors understand reported results on a comparable basis with historical periods."
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