FiOS TV Cracks 2.5 Million Subscribers

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Economic curveballs didn't hurt Verizon's FiOS TV high batting average in the second quarter.

The telco snagged 300,000 net FiOS TV subscribers for the three months ended June 30, to stand at nearly 2.52 million. However, the telco said it remains focused on cutting costs in its wireline unit -- which saw quarterly revenue fall 5.2% -- with plans to cut 8,000 jobs in the second half of 2009.

Verizon's FiOS TV is now larger than Bright House Networks, which has about 2.4 million subscribers. The FiOS TV results, coming after two quarters of similar numbers of net adds, "were solid in what is normally a seasonally weak quarter, and in the wake of relatively slow rate of new passings in Q1," Sanford Bernstein analyst Craig Moffett wrote in a research note.

In addition, Verizon added a record 303,000 net new FiOS Internet customers, counting 3.1 million as of the end of June, a penetration rate of 28.1%.

"We had another great quarter of FiOS performance," Verizon chief financial officer John Killian said on a conference call Monday with analysts. "We are taking market share from cable and... we are successfully upselling FiOS to our existing broadband customers."

The FiOS triple-play was available for sale to 10.3 million premises by the end of the quarter; FiOS TV penetration increased to 24.6%, compared with 19.7% a year ago.

"The key point here is that we've been able to replicate the operational financial success we experienced in smaller, early markets like Texas across our newer and larger markets," including Virginia and Maryland region, Killian said.

The Verizon fiber-to-the-home network currently passes 13.8 million homes -- 43% of all households in its service areas. The FiOS buildout will be "substantially complete" by the end of 2010, to pass more than 18 million homes, Killian said.

Verizon expects FiOS to cover 70% of its telecom footprint, after it completes the spin-off of operations in 14 states to Frontier Telecom, expected within the next 12 months.

Within the wireline group, the consumer-oriented mass markets sector had $4.96 billion in revenue, up 0.2% compared with the year prior. Verizon noted consumer broadband and video revenue (which include both consumer and small-business customers) totaled more than $1.3 billion in the second quarter 2009, up 31.5% from the year-ago period.

But enterprise and wholesale services dragged down overall wireline results, which had operating revenue of $11.49 billion, down 5.2% from a year ago, and operating income of $555 million, a 47.8% year-over-year drop.

In the small-business segment, Verizon president and chief operating officer Denny Strigl downplayed competition from cable operators, saying in response to an analyst question, "We think we're holding share; there has been limited impact due to cable competition."

Killian said Verizon will continue to be "very focused" on cutting costs in the wireline business. He noted the company has cut the wireline work force by more than 8,000 in the last 12 months, and plans to eliminate another 8,000 job positions (including contractors) in the second half of 2009. The 8,000 additional cuts represent 3.4% of Verizon's 235,326 employees as of June 30.

"Although we are taking steps to mitigate the negative impact of the economy in the short term, we also need to more significantly reduce the wireline cost structure over the next 12 to 18 months," he said.

On the wireless front, Strigl said Verizon Wireless plans to conduct trials of Long Term Evolution high-speed broadband in Seattle and Boston later this year. In 2010, it is aiming to roll out LTE to up to 30 markets in 2010 covering a population of 100 million.

Verizon Wireless, a joint venture with Vodafone and the biggest U.S. wireless carrier, added 1.1 million net wireless customers, to stand at 87.7 million at the end of the quarter. Wireless currently makes up 57% of Verizon's total revenue.

Overall, Verizon's net income was $3.2 billion in the quarter, down 7.2% year over year. (Net income attributable to Verizon was $1.5 billion, down 21.2% from the year-ago quarter.) Total operating revenue was $26.9 billion, up 11.3% from a year earlier (including revenues from Alltel, which was acquired in January 2009). On a pro-forma basis (consolidating operating results of Verizon and the former Alltel as though the acquisition had occurred on Jan. 1, 2008) operating revenue growth was 1.9%.

Capital spending in the quarter was $4.4 billion, up 5% from the year prior. In the second quarter, Verizon took a $253 million charge for pension settlements related to previously announced job reductions.

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