Verizon Sees FiOS Price Hikes Helping Margins

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Verizon's recent price increases for new FiOS customers and those coming off contract should help increase the wireline business unit's profitability, chief financial officer John Killian said on the company's earnings call Monday.

"There are a number of things we're also doing on the FiOS side including we have a price increase going in for new customers and customers that will be coming out of contract so that will also help us from that perspective," Killian said, responding to an analyst's question about margins in the wireline unit.

For the quarter ended June 30, Verizon's operating margin for the
wireline unit dropped to 4.8%, versus 8.8% for the second quarter of
2008.

Verizon spokeswoman Bobbi Henson said the price increases Killian was referring to were instituted at the end of June and ranged from $5 to $10 per bundle depending on package and market. However, she said, the packages included faster Internet speeds.

"We didn't take the same bundle and just increase the price," Henson said. "We increased the speeds as well."

For example, Verizon increased the speed of its entry-level FiOS Internet service from 10 Mbps down and 2 Mbps up to 15/5 Mbps, and raised the price of the triple-play bundle from $99 to $109.99 per month. The midtier offering increased from 20/5 Mbps to 25/15 Mbps, and the bundle price increased $10, to $119.99 per month. Those prices do not include FiOS TV equipment charges.

In the second quarter, Verizon added a net 300,000 TV subscribers -- bringing its tally to 2.5 million -- and a record 303,000 FiOS Internet customers. Verizon had pushed a $99 FiOS triple-play bundle in the period, targeting cable customers with a $150 cash-back offer in the form of a prepaid gift card.

While the telco posted strong gains for FiOS, its traditional voice service and DSL products suffered. Total residential lines fell 12.3%, to 19.66 million as of June 30.

Verizon lost 117,000 DSL-based connections in the quarter, although those were more than offset by the FiOS Internet gains. Overall, Verizon stood at 9.11 million broadband subscribers, up 9.4% from 8.33 million in the year-ago period.

The average revenue per unit (ARPU) per month across all of Verizon's residential wireline customers in the second quarter was $72.59 a month, while monthly ARPU for FiOS customers was more than $135.

Verizon plans to cut more than 8,000 jobs in the second half of 2009, representing about 3.4% of its current headcount, with most layoffs occurring in the third quarter, Killian said on the call.

"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.

The consumer-oriented wireline mass markets group had $4.96 billion in revenue, up 0.2% compared with the year prior. Overall, however, the wireline unit reported operating revenue of $11.49 billion, down 5.2% from a year ago, with weaker sales of enterprise and wholesale services. Wireline operating income fell 47.8% versus the year-ago period, to $555 million.

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