Verizon's McAdam: Gap between broadband, linear video subscriber adds is widening
Verizon (NYSE: VZ) may still be one of the largest telco TV players, but the telco is seeing that in the markets where it offers its FiOS services, wireline broadband is becoming the dominant product.
Lowell McAdam, CEO of Verizon, confirmed this trend to investors during the 42nd Annual J.P. Morgan Global Technology, Media and Telecom Conference.
"We used to sell a TV service and an equal number of broadband services and we're seeing the gap now increase significantly," McAdam said. "You saw that in the first quarter where we had 20, 30 and 40 percent more broadband sales than linear TV sales."
Evidence of this trend was seen in the first quarter where Verizon's FiOS broadband and video results slowed down.
The telco only added 98,000 FiOS Internet customers, down from the 126,000 new subscribers added in the fourth quarter of last year and the 188,000 users it added in the same period a year ago. It also only added 57,000 FiOS video customers in the first quarter, down from 92,000 customers last quarter and 160,000 subscribers one year earlier.
While it will continue to sell the traditional linear FiOS TV product, McAdam emphasized that the company will continue to drive video services over a mix of wireless, over-the-top services and wireline broadband pipes.
"I think this gets back to our philosophy of mobile first, over the top and a broadband play is where we want to be well positioned for versus the continuation of linear TV," McAdam said. "Because the content costs are going up so much, I think a pure broadband play is at least or more attractive for us and we're encouraged by that trend."
While the On Cue platform was created initially to deliver linear TV services, the telco envisions using it to allow customers to choose whatever content is relevant to them.
"If you look at the video jukebox sort of services like Netflix (NASDAQ: NFLX), Hulu and Kindle Fire and you create something like that where a customer can pull down from the cloud what they want and when they want it and you have a broader array of content, I think that is a very attractive model for us," McAdam said. "We're not in the mode of having 80 channels bundled running over On Cue for Verizon, but we are in the mode of having an over the top play where customers can pull down what they want when they want it."
Verizon may be keen on enhancing its video delivery capabilities, but McAdam once again dashed any hope that Verizon will ever expand the FiOS service into new areas outside of those markets it already operates in today.
The telco plans to stay on track with its plan to deepen its footprint in markets like New York City where it can easily extend the fiber it has running throughout the city into high rise buildings. Its penetration in New York City is approaching 35 percent.
"The way we think about it is if you expand the borders of where you are and go deeper into the franchise area you have, that's going to be the general rule of thumb for us," McAdam said. "New York is the best example of pushing out a little farther into the neighborhoods, which is a relatively cheap expansion for us versus coming into a Greenfield market where you got probably one or two competitors already."
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