FiOS Keeps Chugging Along

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Verizon's wireline business turned in healthy second-quarter results, as the telco continued adding customers for broadband and video services provided over its FiOS fiber-optic network -- although at a slower rate than in the past.

The telco added 174,000 net new FiOS TV customers and 196,000 net new FiOS Internet customers, to stand at 3.2 million TV and 3.8 million Internet customers at the end of June. That's compared with 300,000 FiOS TV and 303,000 Internet net adds in the second quarter of 2009.

Meanwhile, broadband connections totaled 9.3 million at the end of the second quarter 2010, a net increase of 28,000 sequentially as the increase in FiOS Internet connections more than offset a decrease in DSL connections.

On just about every front, Verizon's results were in-line with or better than Wall Street expectations, said Sanford Bernstein senior analyst Craig Moffett. Notably, he said, the company's wireline margins increased sequentially: segment EBITDA margin (non-GAAP) was 22.7% compared with 21.7% in the first quarter of 2010 (down from 24.5% in the second quarter of 2009).

"FiOS numbers, despite a slowdown in deployment, were solid... And wired broadband, while weak, was a (small) positive number, decidedly better than AT&T's subscriber loss," he wrote in a research note.

Verizon shares were trading up about 3.7% Friday morning, to $28 per share, amid a decline in the broader market.

FiOS TV penetration was 25.9% by the end of the quarter, with the product available for sale to 12.4 million premises. As of the end of June, the FiOS network passed 15.9 million premises.

Total wireline broadband and video revenues were $1.8 billion in the quarter, up 20.1% from the year-ago period. FiOS-based services accounted for 43% percent of consumer wireline revenue in the quarter, versus 33% a year earlier. Consumer ARPU for wireline services was $80.76 in the quarter (up 11.4% year over year) while ARPU for FiOS customers was more than $145.

Verizon lost 466,000 residential phone lines in the period, ending the quarter with 17.4 million total residential switched access lines in service.

Overall, Verizon posted second-quarter revenue of $26.8 billion (down 0.3% year to year) and a net loss of $198 million (versus net income of $1.48 billion a year ago). The Q2 2010 results included $2.3 billion in pretax costs for voluntary workforce reductions that eliminate approximately 11,000 jobs this year, Verizon said.

"Verizon showed solid improvement in operational results in the quarter," chairman and CEO Ivan Seidenberg said in announcing the results. "In addition, the wireline spinoff to Frontier [Communications] on July 1 improves our future growth profile."

Verizon's consolidated second-quarter 2010 results included wireline businesses covering 4 million access lines that were spun off and merged with Frontier, as well as certain wireless properties until they were divested in April and June to comply with conditions imposed in connection with regulatory approvals of last year's acquisition of Alltel Wireless.

Verizon Wireless, a joint venture with Vodafone, added 454,000 total retail customers in the quarter (excluding divestitures and adjustments) as well as 896,000 reseller customers to reach 92.1 million.

In addition, Verizon Wireless plans to launch the U.S.'s first 4G LTE (Long Term Evolution) network in 25 to 30 markets by the end of 2010 and cover "virtually all" of its current nationwide 3G footprint by the end of 2013.

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