Telcos Turn Up Heat on TV Threat

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Telco TV was hot, hot, hot in the second
quarter — typically a time when cable television growth cools
off .

AT&T packed on a net 202,000 U-verse TV subs, moving
ahead of Cablevision Systems as the eighth-biggest U.S. pay-
TV operator. Verizon Communications kept the FiOS fires
burning, netting 184,000 TV customers, to remain at No. 7.

While the telco giants’ legacy phone and digital subscriber
line businesses continued their downward spiral, dragging
down wireline results, their respective wireless arms once
again reached new heights.


For Verizon, FiOS video, data and voice services generated
$2.03 billion in the three months ended June 30, up 20.7% year
over year. That represents 57% of consumer revenue, up from
48% a year ago, chief financial officer Fran Shammo said on
the telco’s earnings call last week.

“FiOS margins continue to improve … We are very concentrated
on the top-line growth of our revenue per customer,”
Shammo said. He added that the build-your-own-bundle
FiOS offers are helping to
drive up average revenue
per subscriber, for example,
by letting subscribers
upgrade to higher-bandwidth
tiers without expanding
their TV package.

At AT&T, consumer IP
revenue — which includes
broadband, U-verse TV
and U-verse Voice — now
represents 49.2% of total
wireline consumer revenue,
or about $2.7 billion
in the second quarter (up
from 40.4% in the yearearlier

Increased U-verse penetration
and growth of
triple- and quad-play options
drove 21.9% yearover-
year growth in IP
revenues from residential
customers and 5.6% sequential growth.

“U-verse has transformed our consumer business,” AT&T
chief financial officer John Stephens said on a call with analysts.
U-verse services now represent a $6.5 billion annual
run rate, with U-verse revenue up 57%
from the year-ago period and 10.7% sequentially.

Both telcos are in the final stages of
building out their next-generation broadband
and video networks — which raises
the question of how much more share
they can grab.

AT&T’s U-verse network now reaches
29 million living units, and the telco said
it is on track to complete the U-verse network
buildout — to reach 30 million — by
the end of 2011. Overall penetration of eligible
living units is 15.5%, while penetration
in areas marketed to for 36 months or more is 25%,
according to the company.

The FiOS network passed 16.1 million premises as of the
end of June, as Verizon nears the end of the fiber-optic buildout.
FiOS TV penetration was 29.9% while FiOS Internet penetration
was 33.9%.


The telcos continued to see DSL subscribers dropping service.

Verizon lost 123,000 DSL subscribers, which the FiOS Internet
gains more than offset, resulting in a net increase of 62,000
wireline broadband connections sequentially.

AT&T gained 439,000 U-verse broadband subs but lost
451,000 traditional DSL customers, for a net loss of 12,000 subscribers
from the first quarter of 2011. AT&T said the sequential
decline was “largely due to seasonality.”

Sanford Bernstein senior analyst Craig
Moffett wrote in a research note that at a
regulatory conference last week, “AT&T CEO
Randall Stephenson called legacy DSL ‘obsolete.’
Now we know why.”

On the AT&T earnings call, Stephens said,
“The reality is, we had over 400,000 customers
convert from DSL to higher-speed U-verse
broadband, including some small-business
customers. We’re transitioning the business
… to the next generation of services.”

On the mobile front, Verizon Wireless
handily beat Wall Street expectations. The
carrier added 2.2 million total connections, ending the quarter
with 106.3 million total connections, up 6.6% year over
year. Service revenue for the quarter was $14.7 billion, also
up 6.6% from the year-ago period.

In the quarter, Verizon Wireless activated
2.3 million iPhone 4 smartphones,
versus 2.2 million in the previous quarter
when it first obtained the rights to offer
the iPhone.

AT&T’s wireless unit posted a net gain
in total wireless subscribers of 1.1 million,
to reach 98.6 million in service. The telco
said it had record growth in “branded
computing” subscribers, adding 545,000
tablets, aircards, MiFi devices, tethering
plans and other data-only devices in the
quarter to reach 4.0 million.

AT&T said it continues to expect its bid
to acquire T-Mobile USA for $39 billion
to close in the first quarter of 2012, with
general counsel Wayne Watts saying the
telco was “comfortable” with the review
process. The company still needs regulatory
approval from the Federal Communications
Commission and Department
of Justice.