Verizon Posts Record FiOS Adds

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Verizon Communications added a record-high 303,000 FiOS TV subscribers in the last quarter of 2008, a data point that seemed to defy the fizzling economy, although the telco's legacy landline business continued to shrivel and sales in the enterprise services unit were hit harder than expected.

The telco ended the year with just over 1.9 million TV customers, more than doubling its base in a year, making it the ninth-largest U.S. video distributor after the six biggest cable operators and two satellite providers.

The FiOS network passed 12.7 million homes at the end of 2008 -- about 40% of the homes in Verizon's territories -- putting the company slightly ahead of plan on reaching 18 million homes passed by the end of 2010.

"We're clearly building momentum and gaining critical mass," Verizon chief financial officer Doreen Toben said, on a conference call with investors Tuesday. "FiOS is on plan, both financially and operationally, and will continue to provide us great opportunity to drive revenue growth and customer growth."

During the quarter Verizon ramped up sales of the fiber-optic TV and broadband services in New York City, where it would have mainly won share from Time Warner Cable. But Toben said FiOS's presence in New York "was only one factor in strong results across the board."

The telco also posted a quarterly record of additions for FiOS Internet, with 282,000 new broadband customers to stand at 2.5 million at the end of the year, up 63% from the end of 2007.

While "FiOS was a bright spot," the wireline unit's revenue dropped 2.7% for the quarter on a drop in enterprise revenue and margins fell as well, Sanford Bernstein senior analyst Craig Moffett noted in a report. Given the state of the economy Verizon's fourth-quarter results were "significantly better than what most companies can expect," Moffett wrote, but "without guidance, 2009 remains something of a black box."

Verizon chairman and CEO Ivan Seidenberg, on the earnings call Tuesday, acknowledged that the economic recession could put a damper on 2009 results. "We don't have perfect visibility in the economy," he said.

However, Seidenberg said, "we see no reason why the momentum we've developed in terms of our progress in the marketplace should not continue in some way."

Verizon's consumer broadband and video revenue totaled $1.2 billion for the quarter, a 42% year-on-year increase, out of the wireline segment's $11.9 billion operating revenue. Toben noted that FiOS average revenue per subscriber increased to more than $133 per month, and, she added, "the FiOS triple-play ARPU is even higher."

Of the nearly 10 million homes to which FiOS Internet is available, 93% can purchase the triple play up from 80% a year ago, Toben said.

Over all, Verizon reported $24.6 billion in revenue for the quarter ended Dec. 31, up 3.4% year over year, and a net profit of $1.2 billion, up 15.2% from the year prior. Verizon's capital expenditures of $17.2 billion for 2008 were down about 2%, compared with $17.5 billion the year prior. Toben said the company's capex/revenue ratio would continue to come down in 2009.

In the fourth quarter, Verizon recorded $424 million for severance and related expenses for previously announced layoffs. In 2007, the Verizon Telecom group cut 10,000 jobs.

As part of cutting costs, Toben said Verizon is aiming to manage inventory of FiOS TV set-top boxes more aggressively into 2009. "We are very focused on set-top box management going forward, also to some extent handsets," she said.

At another point on the call, Verizon president and chief operating officer Denny Strigl mentioned that the company will "continue to look for ways to partner" to build sales. Verizon has struck a strategic partnership with consulting firm Accenture to engage in joint marketing and sales initiatives, first in the U.S. and then overseas, Strigl said.

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