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Verizon's wireline consumer revenue rises to $3.6 billion on strong FiOS adds

But business services decline as customer spending slows
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Verizon's (NYSE: VZ) FiOS fiber to the home (FTTH) service continued to be the growth engine in its consumer wireline division, driving up revenues year-over-year 4.7 percent to $3.6 billion.

Verizon Q2 2013

Click here to view Verizon's slide presentation (.pdf)

Similar to Q1 2013, consumers purchasing dual and triple play bundles also had an effect on consumer APRU. As more customers migrated to FiOS during the quarter, consumer ARPU also rose 9.4 percent year-over-year, to $109.67.

FiOS broadband and video penetration rose to 38.6 percent at the end of Q2 2013, up from 36.6 percent and 32.6, respectively, in the same period a year ago. As of the end of the quarter, FiOS network passed 18 million premises.

However, the telco reported that despite a rise in strategic service sales, business services overall declined due to its customers cutting back on expenses or being cautious about spending.

Here's a breakdown of Verizon's wireline metrics:

Broadband and video: FiOS continues to be the star performer in Verizon's wireline portfolio. During the quarter, it added 161,000 net new FiOS Internet connections and 140,000 net new FiOS Video connections. As of the end of the quarter, Verizon had a total of 5.8 million FiOS Internet and 5 million FiOS video subscribers, representing year-over-year increases of 12.2 percent and 12.6 percent, respectively. FiOS broadband and video penetration also rose to 38.6 percent at the end of second-quarter 2013, up from 36.6 percent and 32.6, respectively, in the same period a year ago.

One of the key highlights of FiOS was the new Quantum speed tiers. The service provider reported that 35 percent of FiOS Internet customers subscribed to FiOS Quantum, which provides speeds ranging from 50-300 Mbps.

"Sales of our FiOS Internet product at speeds of 50 Mbps increased during the quarter and customers continued to buy up in the speed," said Fran Shammo, CFO of Verizon, during the earnings call. "At the end of the quarter one-third of FiOS Internet customers subscribed to Quantum with speeds ranging from 50-300 Mbps."

At the end of the quarter, Verizon reported that it had a total of 8.9 million broadband connections, up 1.9 percent year-over-year. Reflecting the ongoing customer migrations off of copper-based ADSL services to FiOS or churning to a cable competitor, the telco added a total of 45,000 broadband customers in the quarter. By migrating 86,000 homes to fiber in Q2, Verizon came closer to its goal of achieving 300,000 migrations within its FiOS markets by the end of this year.

"We continue to make progress with copper migration, increasing the number of service upgrades every quarter," Shammo said. "In the second quarter, we converted 86,000 customers and through the first half our total was 169,000 so we are more than half way to our target of 300,000 for the year."

Shammo added that the other benefits of the migration from copper to fiber besides lower maintenance costs and customer satisfaction is that it "gives customers the opportunity to purchase other FiOS services, which could result in additional ARPU over time."

Business services: Revenues were a mixed bag in Q2, down year-over-year to $3.6 billion--from $3.8 billion in Q2 2012--due to a decline in legacy services and CPE sales. Strategic services sales, including cloud and Ethernet, rose 4.8 percent and represented 57 percent of total enterprise revenues.

"We continue to work through economic challenges in the enterprise space," Shammo said. "Many of our customers are focused on improving their cost structure, which can result in reduced services with us."

Wholesale: Due to ongoing declines in legacy TDM-based transport services, global wholesale service revenues fell 7.7 percent to $1.67 billion from $1.83 in the same period a year ago.

Shammo said that its wholesale strategy will focus on ways to "better monetize our global IP and fiber network by driving a more efficient migration to Ethernet services." 

From an overall financial perspective, Verizon reported Q2 2013 operating revenues of $29.8 billion, up 4.3 percent year-over-year from Q2 2012. It earned 73 cents per share, surpassing analyst expectations of 72 cents.

Shares of Verizon were listed at $50.74, down 91 cents, or 1.79 percent, in morning trading on the NYSE stock exchange.

For more:
- see the earnings release

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

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