Verizon bucks Q3 seasonal trend as FiOS drives wireline revenues to $3.7B

Verizon's (NYSE: VZ) Q3 2013 FiOS fiber to the home (FTTH) broadband revenues rose 13.4 percent to $2.8 billion during a quarter that's normally known for seasonal broadband net subscriber losses.

Verizon Q3 2013

(Source: Verizon investor relations)

The increase in FiOS revenues again drove up consumer wireline revenue 4.3 percent to $3.7 billion. As it signed up more customers, a majority of them purchased more than one service, a factor that drove up consumer ARPU 8.7 percent year-over-year. 

While it has halted new buildouts, the FiOS network passed 18.3 million premises.

However, the telco again reported that business sales continued to be impacted 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. It added 173,000 FiOS Internet subscribers, ending the quarter with a total of 5.9 million FiOS Internet customers.

Verizon FiOS Internet penetration was 39.2 percent, up from 37 percent at the end of third-quarter 2012. In the same period, FiOS video penetration was 34.9 percent, compared with 32.9 percent. It added 135,000 new FiOS subscribers.

As of the end of the quarter, it had a total of 9 million broadband customers, up 2.6 percent year-over-year. Similar to previous quarters, the carrier added 56,000 net broadband customers as FiOS additions offset the ongoing declines in DSL subscriptions.

Customers also continued to sign up for its higher speed Quantum offerings, which provide speeds of 50-500 Mbps. Over 40 percent of its existing FiOS customers subscribed to a Quantum tier.

"More than half of our FiOS Internet sales in the quarter were at speeds in excess of 50 Mbps," said Fran Shammo, CFO and EVP of Verizon Communications, during the earnings call. "The incremental revenue from higher broadband speed is contributing to overall consumer revenue growth."

At the same time, the service provider continued to make progress in transferring its problem copper customers to FiOS. Over the past nine months, the service provider said it migrated almost 250,000 homes to fiber, adding that it is on track to exceed its target of 300,000 migrations this year. At the end of 2013, Verizon forecasts that it will have less than 1 million remaining customers served by copper in FiOS markets.

Shammo said that besides the maintenance expense savings, "conversions to fiber provide customers the opportunity to purchase FiOS services, which could result in additional ARPU over time."

Business services: Business revenues declined to $3.7 billion due to the impact of slow sales in the public sector and larger enterprises that have put off purchases.

However, Verizon reported that global enterprise strategic services, including cloud and data center services, security and IT solutions, rose 5.2 percent year-over-year.

Slow spending and the government shutdown continue to have an effect on enterprise sales. Shammo said he remains cautious about fourth quarter business revenues.    

"I don't see anything changing between 3Q to 4Q and our federal and state government are declining faster than the rest of the segment," Shammo said. "The positive to this is within our cloud services; it's fairly flat, so where we see the federal government pulling back in some areas during this sequestering period they are buying some of the data center and cloud products."

Wholesale: Due to ongoing declines in legacy TDM-based transport services, global wholesale service revenues fell 6.3 percent or $113 million.

Although the Q3 wholesale results improved, revenue pressure continues to come from declines in its legacy voice and data services.

Shammo said that Verizon's "wholesale strategy is to better monetize our global IP and fiber network by driving a more efficient migration to next-generation Ethernet services."

From an overall financial perspective, the telco reported $30.3 billion in total revenue. It reported 78 cents in earnings per share, up from 56 cents in the same period a year ago.

Shares of Verizon were listed at $48.80, up $1.55, or 3.28 percent in morning trading on the New York Stock Exchange.

For more:
- see the earnings release

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