Verizon FiOS 75 Mbps Quantum adoption rises amidst Q1 wireline revenue decline

Verizon (NYSE: VZ) is seeing more of its FiOS customers adopt its symmetrical 75 Mbps Quantum speed tier, a factor that's helped the telco offset an overall decline in first-quarter 2015 wireline revenue.

Similar to earlier quarters, the service provider reported that 62 percent of FiOS Internet customers subscribed to FiOS Quantum. Interestingly, the highest growth rate in Quantum was the 75 Mbps tier, to which over 20 percent of FiOS customers subscribe.

"Our FiOS Quantum product is scaling well and has a higher profitability contribution," said Fran Shammo, EVP and CFO of Verizon, during the first-quarter earnings call. "At the end of the quarter, 62 percent of our consumer FiOS Internet customers subscribed to a data speed of 50 Mbps or higher."

Shammo added that the company is "seeing the highest rate of growth in the 75 Mbps speed tier, where just over 20 percent of our consumer FiOS customers currently subscribe."

FiOS revenues rose 10.2 percent year-over-year to $3.4 billion. At the same time, consumer revenues rose 4 percent to $4 billion.

However, total wireline revenue declined 2 percent to 9.5 billion, down from $9.7 billion in the same period a year ago as it reported declines in its Global Enterprise and Global Wholesale service units.

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

Broadband: FiOS broadband adoption continued to ramp in the first quarter with penetration reaching 41.5 percent at the end of first-quarter 2015, compared with 39.7 percent at the end of first-quarter 2014. During the quarter, Verizon added 133,000 net new FiOS Internet connections.

Total broadband connections at the end of the first quarter of 2015 were 9.2 million, up 2.4 percent year-over-year. Verizon said that net broadband connections rose by 41,000 in the first-quarter 2015, as FiOS Internet net additions more "than offset declines in DSL-based High Speed Internet connections."

The service provider also continued to move forward with its copper-to-fiber initiative where it continues to replace parts of its residential copper network to with fiber, which it says increases customer satisfaction and reducing repair costs. In the first quarter of 2015, Verizon migrated 47,000 customers onto fiber, helping it come closer to reaching its 2015 goal of 200,000.

"We plan to convert 200,000 copper customers to fiber and we're also in the process of decommissioning ten Central Offices," Shammo said. "Post conversion we're seeing improvements in customer satisfaction and a lower cost to serve and these conversions provide a long-term opportunity for these customers to purchase FiOS services from us."

Shammo reiterated the idea that the service provider will not expand FiOS into new markets, but instead will focus on attracting more profitable customers in existing markets. As it moves to sell its wireline assets in California, Florida and Texas to Frontier, the telco's FiOS strategy will focus on growing out the service in the Northeast corridor from Washington, D.C., through Massachusetts.

"Our focus in 2015 will be to continue adding quality customers, driving higher penetration in existing markets, and generating profitable growth," Shammo said. "Residential broadband and video are highly competitive markets and we will be disciplined and rational in our approach to customer acquisition."

Video: In the first quarter of 2015, Verizon added 90,000 net new FiOS video connections, ending the quarter with a total of 5.7 million video customers. Overall video penetration increased 7.9 percent to 36.0 percent, compared with 35.0 percent in the same period a year ago.

Business, Wholesale Services: Global Enterprise and Global Wholesale revenues continued to see struggles in the first quarter due to ongoing declines in its legacy service lines. Total business revenues declined 6 percent to $3.3 billion

Shammo said that there are a number of economic and technology migration challenges that impacted Global Enterprise revenues.

"The overall story remains unchanged as declines in legacy revenue and CPE continue to outweigh growth in strategic applications which are smaller in scale," Shammo said. "Revenue from services in the IP layer has been impacted by competitive price compression, which is offsetting growth in applications and services."

Likewise, on the wholesale services side, challenges with technology migration and price compression revenue declined 3.7 percent to $1.52 billion.

In Global Wholesale, Verizon is seeing similar challenges as growth in Ethernet services are outweighed by legacy service declines.

"Healthy demand for Ethernet services continues, but revenue declines from price compression, technology migration and other secular challenges more than offset this growth," Shammo said.

From an overall financial perspective, total first-quarter 2015 operating revenues were $32 billion, up 3.8 percent year-over-year from the same period a year ago. Excluding first-quarter 2014 revenues from a business that has since been sold, the comparable year-over-year growth rate (non-GAAP) would have been 4.2 percent.

The first quarter was another moment of transition for Verizon. During that period, Verizon reached a deal to sell its local wireline operations serving customers in three states to Frontier Communications, sold its wireless tower assets to American Tower, and announced an accelerated share-repurchase program to return $5 billion in capital to shareholders.

Shares of Verizon were listed at $49.50, up 12 cents or 0.24 percent, in Tuesday morning pre-market trading on the New York Stock Exchange.  

For more:
- see the earnings release
- hear the earnings webcast

Special report: Wireline telecom earnings in the first quarter of 2015

Related articles:
Verizon's FiOS growth continued to cushion the blow of wireline revenue declines in Q4
Verizon's McAdam: Some wireline assets would be better off in someone else's hands
Verizon's enterprise weakness is offset by FiOS revenue strength in Q3
Verizon expands reach of its 100G network in Asia-Pacific

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