Verizon FiOS rebounds in Q3, adds 90K subs following labor strike

Fran Shammo
Outgoing CFO Fran Shammo. Image: Verizon

Verizon saw its FiOS fortunes turn around in the third quarter after rebounding from a second-quarter decline in new net connections due to the wireline labor strike. The service provider added a total net of 90,000 FiOS internet connections and 36,000 FiOS video connections. Net broadband subscribers rose by 24,000 in the quarter.

Fran Shammo, the outgoing CFO of Verizon, told investors during the third quarter earnings call that FiOS additions in the third quarter were at “pre-work stoppage levels.”

This is in contrast to the second quarter, where the labor strike caused the telco to lose 13,000 FiOS customers. It could also not fulfill new FiOS orders during that period, prompting some customers to purchase broadband from local cable operators.

Driven by consumer FiOS revenue growth of 4.2 percent, retail consumer revenues grew 0.2 percent, to $3.2 billion. Total FiOS services revenues grew 4.4 percent, to $2.8 billion year-over-year.

About 16 percent of the company’s FiOS internet base opted to purchase 100 Mbps or higher, compared with 11 percent in second-quarter 2016.

“The growth in FiOS was driven by a higher customer base, strong retention programs, and a demand for higher internet speeds,” Shammo said.

Verizon’s third quarter FiOS results were quite a turnaround for the telco. The two-month wireline workforce in the second quarter resulted in the loss of 13,000 internet subscribers.

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However, wireline revenues declined 2.3 percent, to $7.8 billion year-over-year from third-quarter 2015. Wireline operating income was $156 million in third-quarter 2016, compared with a loss of $109 million in third-quarter 2015. Verizon said it believes it will continue to make progress in expanding wireline EBITDA margin.

Financial analysts were satisfied with Verizon’s wireline results.

“The wireline segment results were largely in line with expectations, although VZ showed better than anticipated FiOS net add growth,” said Jennifer Fritzsche, senior analyst for Wells Fargo, in a research note.

Despite the uptick in FiOS, Verizon continued to see challenges in the Global Enterprise and Global Wholesale segments.

Global Enterprise revenues declined 3.4 percent year-over-year to $2.89 billion from $2.98 in the same period a year ago. Likewise, Global Wholesale declined 3.9 percent to $1.24 billion, down from $1.29 billion in the third quarter of 2015.

Shammo said he does not see much relief in the enterprise and wholesale segments coming anytime soon.

“Trends in our global enterprise and global wholesale remain consistent with prior periods,” Shammo said. “However, we expect that in the fourth quarter we will see a decline in wholesale in the range of 7-9 percent due to non-recurring items in the prior year.”

Verizon’s overall total third-quarter 2016 revenues were a bit of a disappointment, declining 6.7 percent year-over-year to $30.9 billion. Excluding third-quarter 2015 revenues from since-divested local landline businesses, total operating revenues on a comparable basis (non-GAAP) would have declined 2.9 percent year over year.