Weather Takes Toll on Telcos in Third Quarter

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Hurricane Irene smacked the TV and broadband
businesses of AT&T and Verizon Communications
in the third quarter, although overall, their wireline businesses
held up well, given the stagnant economy.

Verizon’s FiOS services turned in their worst performance
in five years, with the telco adding just 131,000
TV and 138,000 Internet customers in the third quarter.
The poor showing was largely because of a disruptive
two-week strike by 45,000 union workers and storms that
slammed its service areas — costing the telco about $250
million in the period.

Verizon had already lowered expectations for FiOS, announcing
last month that it was forced to delay more than
100,000 orders in the quarter because of the strike and
weather-related damage.

For Verizon, Irene knocked down
more than 4,000 poles, cut power to 254
central offices and generated 820,000
additional repair dispatches, chief financial officer Fran Shammo said on
the telco’s earnings call. “This storm
had an extremely significant impact to
our operating results,” he said.

AT&T also blamed the storm, as
well as a U-verse technology upgrade
for delivering TV gains below analyst
estimates. AT&T had to “pull back on
some installations” of U-verse TV in
the third quarter because of the upgrade
and storm, chief financial officer John Stephens said
on the earnings call.

AT&T added 176,000
Internet-protocol TV
subscribers in the third
quarter, reaching 3.6 million
total, which was below
Wall Street consensus
estimates of 215,000 net
adds and well off its pace
in recent quarters. While
it added 504,000 U-verse
High-Speed Internet subscribers
to reach a total of
4.6 million, it lost 501,000
traditional DSL customers
for a net gain of only
3,000 wireline broadband

Verizon’s total broadband
connect ions increased
2.8%, to 8.6
million, with FiOS Internet
connections offsetting
a decrease of 118,000 DSL connections.
That gave the telco a net increase of 20,000
broadband subs.

“With traditional DSL still outnumbering
fiber-based broadband for the telcos by
a 3-to-1 margin in the U.S., the cable companies
will continue to win the broadband
wars,” Sanford Bernstein senior analyst
Craig Moffett wrote in a research note.

Despite Verizon’s weak net additions, FiOS
penetration continued to climb: At the end
of September, FiOS Internet penetration was
35% (versus 31% a year ago), and TV penetration
was 31% (versus 27% last year). Verizon
now counts 3.98 million FiOS TV and 4.62
million FiOS Internet connections.


Both AT&T and Verizon are looking forward
to better results for U-verse and FiOS, respectively,
in the fourth quarter.

Verizon said that after clearing installation
backlogs, it anticipates adding at least
200,000 FiOS Internet and 200,000 FiOS TV
customers in the current quarter.

AT&T also expects U-verse TV subscriber
additions to improve in the fourth quarter.
“Sales remain strong,” Stephens said, adding
that the video service has 25% penetration
in areas marketed to for 36 months or more.

AT&T wireline IP-data revenue, which includes
U-verse and legacy digital subscriber
line broadband, now represents
an annualized revenue stream of almost
$11 billion, and was up 19% year
over year for the third quarter, Stephens

While AT&T’s overall wireline revenue
of $15 billion was down 2.2% versus
the year-earlier quarter, Stephens
pointed to some bright spots. Those included
the fact that wireline-segment
revenue was up sequentially for the first
time in three years and that broadband
for small businesses grew for the first
time in two years.

“I’m thrilled about our total wireline
business,” he said. “The growth was not
dramatic. I don’t think anyone would
have expected it to be dramatic in this
economic environment.”

Like AT&T’s, Verizon’s third-quarter
wireline segment revenue declined,
down 1.3% to $10.1 billion, although
consumer revenue was up 1.1% year
over year to $3.4 billion. Voice connections
continued to drop — down 7.6%
year over year to 24.5 million — but
Verizon noted that was the smallest
year-over-year decline since the fourth
quarter of 2006.


Asked about the U-verse technology
upgrade, AT&T executives were cagey.
Ralph de la Vega, president and
CEO of AT&T Mobility and Consumer
Markets, said the U-verse upgrade
would provide “new connectivity options”
for customers to connect smartphones
and tablets to the TV service
to access additional video content.

Stephens also noted that AT&T last week launched the
ability for U-verse TV customers to use social-TV apps that
integrate the telco’s TV and wireless platforms. “Our goal
is to take the best video experience and make it even better,”
he said.

For both AT&T and Verizon, the wireless sides of the
house shone far more brightly than wireline.

Verizon Wireless, a joint venture with Vodafone, added
1.3 million total connections in the third quarter, to stand
at 107.7 million total connections. AT&T posted a net gain
of 2.1 million total wireless subscribers, to reach 100.7 million
at the end of the quarter.

In addition, Verizon Wireless continued to expand
its 4G LTE mobile broadband network. As of last Thursday
(Oct. 20), LTE service was available in 165 markets
covering a population of more than 186 million across
the U.S.

AT&T launched LTE in the third quarter and expects
to cover 15 cities, serving 70 million POPs, by end of year.
Boston and Washington, D.C., are the next cities slated for
LTE, de la Vega said.