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Verizon FiOS additions drove up consumer revenue 4.3% to $3.6 billion

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Verizon's (NYSE: VZ) wireline results in Q1 2013 were once again dominated by the growth of its FiOS Internet and TV offerings, which helped to drive up overall wireline consumer revenues 4.3 percent to $3.6 billion.

Verizon Q1 2013 slides

Click here for selected slides from Verizon's investor presentation.

While buying higher broadband speed FiOS data was a priority, a key trend during the quarter was that more consumers were purchasing multiple services.

These factors drove up FiOS ARPU to over $150 and consumer ARPU up 9.5 percent year over year to $107.15.

FiOS Internet penetration was 38.2 percent at the end of first-quarter 2013, compared with 36.4 percent at the end of first-quarter 2012. Likewise, FiOS video penetration was 34.1 percent, compared with 32.3 percent.

"In an increasingly saturated market, the company is accelerating subscriber, revenue and profit growth," said Roger Entner, lead analyst and founder of Recon Analytics. "FiOS continues to make inroads in the internet and video markets taking away share from the cable companies."

Here's a breakdown of Verizon's key operating metrics:

  • Landline losses: As expected, Verizon reported ongoing declines in its traditional landline voice business. During the quarter it lost 312 landline voice customers, ending the quarter with a total of 22,191 connections.
     
  • Broadband and video:  FiOS was the star in Verizon's broadband and video portfolio. Verizon added 188,000 FiOS Internet and 169,000 FiOS Video net additions, respectively. In Q1, FiOS revenues rose 15.1 percent year over year, to $2.6 billion. As of the end of quarter, Verizon had a total of 5.6 million FiOS and 4.9 million FiOS video connections, representing year-over-year increases of 12.0 percent and 12.5 percent, respectively. Overall, Verizon added 99,000 new broadband subscribers, ending the quarter with a total of 8.9 million total broadband connections. The telco said that FiOS growth offset the decline in DSL subscribers. It had a total of 3.28 million DSL subscribers, down from 3.37 million in Q4 2012.

    In an effort to reduce wireline repair costs, Verizon continued to replace high-maintenance, or what it calls "chronic" customers in Q1. During the quarter, it transferred over 83,000 homes from copper to fiber, pushing it closer to its FiOS 300,000 goal.

    "Aside from the obvious expense benefits and improvements in customer satisfaction, the conversion to fiber also provides customers the opportunity to purchase FiOS services, which could result in additional ARPU over time," said Fran Shammo, EVP & CFO, of Verizon, during the Q1 earnings call.

    Shammo would not break out specifically how many customers took multiple FiOS services when they were converted, but said that many of them were purchasing higher speed Quantum FiOS data tiers.

    "What's happening as we move people over to fiber they are coming over to our Quantum product; 27 percent of our base is on Quantum," Shammo said. "What we are seeing is they are buying up in the tiers because once they get that 15 and 30 Mbps tier, they are buying up to the 50 Mbps tier and that's what's helping to drive the stellar revenue performance in the consumer market of 4.3 percent."
     
  • Business and Wholesale: Verizon's business revenues declined 2.6 percent year-over-year to $3.8 billion due to expected declines in legacy voice and data service transport, in addition to CPE sales. However, it reported that global strategic enterprise services such as cloud, managed services, and Ethernet grew 6 percent. Despite the decline, it did sign a number of high profile enterprise service contracts with various private businesses and local government agencies, including Commonwealth of Pennsylvania, Ocean Exploration Trust, Quest Diagnostics and Synchronoss Technologies.

    Similar to Q4 2012, Shammo said the enterprise segment is operating in a tough environment that has not shown any specific signs of improvement yet from businesses that are right now in the cost cutting mode.  

    "In the enterprise market we continue to work through economic challenges," Shammo said. "We still see cautious behavior on the part of many enterprise customers in terms of new contracts and investment decisions."

    Likewise, the telco's global wholesale service revenues declined $134 million, or 7.2 percent, due to ongoing declines in transport services.  

    "I think if I had to predict what was going to happen during the rest of the year, I think we're going to be around this 8-9 percent decline in wholesale, and it is mainly around the drive of volumes of voice and data," Shammo said. "It points back to everything I talked about in enterprise because most of the volumes we get on wholesale are people that resell that to enterprise customers and other customers for voice and data."

From an overall financial standpoint, Verizon reported 68 cents in EPS in first-quarter 2013, a 15.3 percent increase compared with first-quarter 2012 earnings of 59 cents per share.

The company's Q1 2013 total operating revenues were $29.4 billion, up 4.2 percent from Q1 2012, while operating income

Verizon's shares on Thursday were listed at $51.12, up $1.58, or 3.19 percent, in morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- here's FierceCable's take

Earnings roundup: Wireline telecom earnings in the first quarter of 2013

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