Verizon’s Ellis: We’ll look at all options to expand our fiber network

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Verizon says it’s going to weigh all options, including its own builds or purchasing another regional provider to expand its fiber network, to satisfy various emerging wireless and wireline needs.

The service provider put a big bet on its fiber network earlier this week with a large purchase order with Corning, one that it says positions itself to satisfy multiple uses—wireless 5G, business, and FTTH broadband.

Matt Ellis, CFO of Verizon, told investors during its first quarter earnings call that as it moves forward with its One Fiber initiative, the service provider will require a new set of fiber network infrastructure.

RELATED: Verizon signs $1.1B fiber purchase agreement with Corning, supports wireline, wireless broadband initiatives

Matt Ellis, Verizon

“Our fiber network is going to light up small cells, enterprise buildings and smart cities and IoT solutions,” Ellis said. “As we think about how you build that network out, you’re going to need fiber that’s not out there today, which is why we had the announcement we had earlier this week.”

Weighing fiber options

In some cities like Boston, Verizon devised a $300 million, six-year investment plan that will replace the city's aging copper network infrastructure with fiber.

Under that plan, Verizon is replacing copper with fiber in Dorchester, West Roxbury and the Dudley Square neighborhood. It is also installing fiber in other areas of the city like Hyde Park, Mattapan, and other areas of Roxbury and Jamaica Plain. The service provider will use the fiber network to support not only Fios, but also its 4G LTE and future 5G wireless networks and various smart city applications.

Outside of Boston, Verizon will look at various options to either build out new fiber itself or purchase a regional fiber provider that has desirable assets to fulfill one of its network expansion efforts.  

“Depending on the location, it may mean us building the fiber network,” Ellis said. “If there are great assets already in place and there’s an opportunity to acquire them we’ll look to do that.

Verizon will also work with partners by entering into indefeasible rights of use (IRUs) dark fiber agreements with other providers.

“There’s other ways to work with partners through leasing and other arrangements where we don’t have to build or outright buy,” Ellis said. “We will look at all those opportunities as how we get access to that fiber that we need to build the network for the future and provide the solutions that are customers want as we go forward.”

Whatever method Verizon chooses, Ellis said that being able to get fiber facilities it needs to support its multiple use cases in each city or town is the priority.

“We look at every way we get access to that fiber,” Ellis said. “What it’s critically about is getting access to the fiber we need to deliver the solutions we need to do and there’s multiple ways we can get there.”

Wireline results remain a mixed bag

While Verizon saw some increases in Fios broadband subscriptions, the service provider reported declines in the video base as more consumers turn towards over the top video options.

Likewise, the service provider reported varying results in its business and wholesale segments. 

Here’s a breakdown of Verizon’s key first quarter metrics:

Wireline revenue: Total wireline revenues declined 0.6% year-over-year, to $7.9 billion, from first-quarter 2016. Excluding revenues from XO Communications in first-quarter 2017, Verizon noted that consistent with recent trends and on a comparable basis, this decline was 3.2%.

Wireline operating income was $293 million in first-quarter 2017, compared with a loss of $67 million in first-quarter 2016. Segment operating income margin was 3.7% in first-quarter 2017.

Broadband and video: In first-quarter 2017, Verizon added a net of 35,000 Fios internet connections and lost 13,000 Fios Video connections. This was down from the 68,000 new FiOS internet net customers and 21,000 new FiOS video customers Verizon added in the fourth quarter.

At the end of first-quarter 2017, Verizon had 5.7 million Fios Internet connections and 4.7 million Fios Video connections, reflecting year-over-year increases of 3.3% and 0.1%, respectively.

Ellis noted that “22% of our Fios broadband customers percent of broadband are on plans with 100 Mbps or more” which is up from 75 Mbps in previous quarters.  

Fios total revenue growth of 4.7 percent to $2.9 billion, up from first-quarter 2016. This supported revenue growth of 0.7% in consumer markets and 2.3% in business markets.

Business and Wholesale: Business and wholesale saw declines during the quarter. Enterprise Solutions revenues were $2.47 billion, down 4.3% year-over-year from $2.53 billion in the first quarter of 2016. Verizon Enterprise Solutions and Verizon Business Markets entered into new agreements or continued work with a number of clients, including Block Institute, the State of Connecticut, Georgetown University, HRC ManorCare and Xplor.

Ellis said the decline in business and wholesale was due to pricing issues and customers moving off of legacy TDM to IP-based services.

“The customer migration from legacy services such as voice to advanced communications is creating a revenue headwind in the near-term, while increasing customer satisfaction and decreasing serving costs over the long term,” Ellis said.  

Business Markets, which serves government and education customers, saw revenues rise to $890 million, up year-over-year from $870 million in the same period a year ago.

The telco’s wholesale division Verizon Partner Solutions saw revenues slide to $1.26 billion.

Financials: Total consolidated operating revenues in first-quarter 2017 were $29.8 billion, a 7.3% decrease compared with first-quarter 2016. On a comparable basis excluding divestitures and acquisitions in the period (non-GAAP), consolidated revenue declined approximately 4.5%.

Looking forward, Verizon has forecast that 2017 consolidated revenues will be fairly consistent with 2016.