Verizon holds Fios steady, with fixed wireless broadband around the corner

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Verizon is holding its wireline business steady. (Verizon)

Verizon is mostly holding the line on its wireline business as it anticipates beginning, finally, to roll out a broadband wireless technology capable of supporting a high-quality residential video service.

On the wireline side, Verizon's overall first-quarter revenue was slightly down from the same period a year ago across all subcategories: consumer, enterprise, partner and business. Overall wireline revenue was $7.5 billion in the just-completed quarter, compared to $7.6 billion in the year-ago period. In the consumer segment, it was $2.24 billion versus $3.31 billion, respectively.

Verizon reported revenue results that excluded the impact of new reporting rules (ASC 606) that recently kicked into effect.

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From an operations standpoint, the breakdown in the consumer segment of its wireline business was consistent with long-term trends. The steady migration away from DSL continued, with a loss of 59,000 DSL subscribers. DSL losses get offset by pickups in Fios Internet, and in the first quarter Verizon more than compensated by adding 66,000 Fios Internet customers.

The incremental loss of FiOS video subscribers continued apace as well. In the first quarter, Verizon said goodbye to another 22,000. The company attributed the losses to the cord-cutting trend that's been bedeviling all video service providers for years.

Though the company lost more service accounts than it gained, it said 2018 first quarter revenue in the Fios segment only of its wireline business was up 1.9% compared to its 2017 first-quarter revenue.

The company noted that its wireless residential broadband service is going to launch in the second half of this year.

Verizon has long behaved as if its investment in wireline residential service was a placeholder until it could get wireless broadband up and running. Following the wrap of its initial build, the company devoted minimal capex to expanding the reach of its wireline network. Eventually it sold off entire regions’ worth of Fios, mostly to Frontier Communications.

It’s an obvious strategy for a company whose wireless segment is thriving in part because it is delivering more and more video on its wireless networks, but often overlooked is that wireless networks have never been entirely wireless. There is an absolute necessity for any wireless network to eventually connect to a wireline network. Wireless companies need to either expand their wireline networks to support the expansion of their wireless networks (a need that will become ever more acute with the evolution to 5G), or turn to erstwhile competitors for wireline network connectivity. Furthermore, “erstwhile” competitors are still competitors.

These considerations are beginning to be overt sources of concern.

A research note from New Street Research read, “We remain cautious on VZ given the company’s significant capacity gap relative to peers, and the ongoing threat of cable entry into wireless. We suspect that the company’s recent push into 5G fixed wireless broadband (FWB) is driven by a need to densify for the core wireless LTE business. A fiber deployment to support just a FWB business case would cost $35BN in capex; adding mobile wireless equipment to the deployment would push the cost higher. More importantly, CMCSA will start taking share at a much faster pace later this year; we expect them to double net adds by fourth-quarter 2018; and Charter will follow close on their heels.”

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