FiOS Stunted By Strike, Storms In Q3

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Verizon Communications' FiOS services turned in their worst performance in five years, with the telco adding just 131,000 TV and 138,000 Internet customers in the third quarter largely because of a disruptive two-week strike and two major storms that slammed its service areas.

The storms and the strike by 45,000 unions workers in the Northeast and Mid-Atlantic regions cost Verizon about $250 million in the third quarter.

Verizon already had lowered expectations for FiOS, announcing last month that it was forced to delay more than 100,000 orders in the quarter because of the strike and repairs to weather-related damage from Hurricane Irene and Tropical Storm Lee.

For Verizon, Irene knocked down more than 4,000 poles, cut power to 254 central offices and generated 820,000 additional repair dispatches, Verizon chief financial officer Fran Shammo said on the earnings call Friday. "This storm had an extremely significant impact to our operating results," he said.

AT&T also blamed the storms, as well as a U-verse upgrade, reporting Thursday that it added 176,000 TV subscribers -- below analyst estimates.

Verizon is looking forward to better results for FiOS in the fourth quarter, saying that after clearing installation backlogs it anticipates adding at least 200,000 FiOS Internet and 200,000 FiOS TV customers.

"In FiOS, we expect to capitalize on pent-up demand and deliver stronger growth in the fourth quarter," Verizon president and CEO Lowell McAdam said in announcing the results.

Actually, in the third quarter, Verizon netted more FiOS subscribers than it expected given the storms and strike, according to Shammo. The telco expected a "50% run rate," or half its normal installations, but Verizon cleared the order backlog better than that, he said.

Despite the weak net adds, FiOS penetration continued to climb: At the end of September, FiOS Internet penetration was 35% (versus 31% a year ago) and TV penetration was 31% (versus 27% last year).

Verizon now counts 3.98 million FiOS TV and 4.62 million FiOS Internet connections. The telco touted an 8.8% year-over-year increase in consumer average revenue per unit (ARPU), to $94.20 in the period, with FiOS consumer services now representing 59% of total consumer revenues.

Like AT&T, Verizon's Q3 2011 wireline segment revenues declined, down 1.3% to $10.1 billion, although consumer revenues grew 1.1% year-over-year to $3.4 billion. Voice connections, including FiOS Digital Voice and legacy landlines, continued to drop -- down 7.6% year-over-year to 24.5 million -- but Verizon noted that was the smallest year-over-year decline since the fourth quarter of 2006.

Verizon's total broadband connections increased 2.8%, to 8.6 million, with FiOS Internet connections offsetting a decrease of 118,000 DSL connections. That gave the telco a net increase of 20,000 broadband subs.

As with AT&T, the wireless side of the house shone far more brightly for Verizon, although its 882,000 net new retail postpaid customers were slightly below analyst estimates.

Verizon Wireless, a joint venture with Vodafone, added 1.3 million total connections in third-quarter 2011, to stand at 107.7 million total connections. Total wireless revenue was $17.7 billion, up 9.1% year-over-year, with operating income margin of 29%. Verizon Wireless generated $7.2 billion of earnings before income tax, depreciation and amortization in the third quarter of 2011, up 7.5% from the year-ago period.

In addition, Verizon Wireless continued to roll out its 4G LTE mobile broadband network. As of Thursday, LTE service was available in 165 markets covering a population of more than 186 million across the U.S., already exceeding the company's 2011 target of covering a population of 185 million.

Overall, in the quarter ended Sept. 30, 2011, Verizon revenue was $27.9 billion on a consolidated basis, up 5.4% compared with the third quarter of 2010. Net income attributable to Verizon was $3.5 billion, up 87% from $2.7 billion in Q3 2010. Earnings in the year-ago period included one-time charges including 19 cents per share for pension settlement losses.