TV Driving Telco Wireline

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Video and advanced broadband
services continue to surge ahead for AT&T
and Verizon Communications’ residential
wireline businesses, driving growth for
the telcos as their legacy phone line and
DSL connections dwindle.

AT&T’s U-verse TV zoomed along with a
net add of 208,000 subscribers to reach 3.79
million in service in the fourth quarter of
2011. Verizon Communications pulled in a
solid net gain of 194,000 FiOS TV customers,
to stand at 4.17 million total.

Verizon and AT&T — the seventh- and
eighth-largest pay TV providers in the U.S.
— are nearing the size of Charter Communications,
which counted 4.37 million video
subs at the end of September 2011.

But while AT&T added 587,000 U-verse
broadband customers in the fourth quarter,
that wasn’t enough to off set the loss of
636,000 traditional, lower-speed DSL lines.

“[W]here broadband gains were offsetting
access-line losses a year ago, now
broadband, too, is in decline,” Sanford
Bernstein senior analyst Craig Moffett
wrote in a research note.

For its part, Verizon added 201,000 net
new FiOS Internet connections — for a total
of 4.8 million at the end of 2011 — mitigating
a loss of 103,000 DSL connections
in the period.

As of the end of 2011, AT&T
said, it has substantially completed
its U-verse deployment, which
passes more than 30 million living

U-verse revenue for full-year
2011 was $6.7 billion, up 15.9%. In
the fourth quarter, consumer IP
revenue represented 53.2% of $5.3
billion in wireline consumer revenues
(up from 45% in the year-earlier

“As we scale, U-verse margins
continue to improve,” AT&T chief
financial officer John Stephens
said on an earnings call with analysts.

Overall, U-verse penetration was 15.9%
in the fourth quarter, and 25% across areas
marketed to for 36 months or more.
Average revenue per subscriber for U-verse
triple-play customers was nearly $170, up
2.5% year over year.

Verizon will probably hike prices for
some FiOS services this year, even as
the telco looks to continue to drive up
penetration of its fiber-optic video, data
and voice services, chief financial officer Fran Shammo said on an earnings
call with analysts.

“I know folks are saying that we are
overly competitive in pricing [on FiOS],”
Shammo said on the call. “But what I
would say is that the pricing has not actually
changed. And, if anything, if you look
at it, there was a price increase in 2011, and
there will probably be some more price increases
in 2012 as we go here.”

For the full year, FiOS revenue grew
20%, to $8.3 billion. New York is FiOS’s
highest-growing market, Shammo said,
and he noted that in 2011, FiOS TV penetration
surpassed 40% in Virginia.

To try to preserve legacy voice customers
and cut operational costs, Verizon in
2012 will begin strategically migrating
copper plant over to the FiOS plant in areas
where there are “chronic copper problems,”
Shammo said.

Shammo said FiOS will continue to
compete aggressively with cable, even
with the deals Verizon Wireless entered
into with Comcast, Time Warner Cable,
Bright House Networks and Cox Communications.

Under those agreements — which require
approval by the FCC and the U.S.
Department of Justice — the MSOs propose
to sell Advanced Wireless Services
spectrum to the carrier, and the cable
operators and Verizon Wireless will resell
each other’s products.

Verizon expects FCC and DOJ approval
of the deals with cable operators by midyear,
Shammo said.