Verizon's FiOS growth continued to cushion the blow of wireline revenue declines in Q4

Verizon (NYSE: VZ) reported that strong consumer services and FiOS revenues helped the telco ease the pain of an overall decline in wireline revenues during the fourth quarter.  

Total wireline revenues were $9.6 billion, down 1.6 percent year-over-year due to expected declines in legacy voice and data services.

As part of its ongoing effort to increase the efficiency in its wireline business, Verizon cut 2,300 workers from its headcount in 2014. 

The telco's consumer revenues rose 4.1 percent year-over-year to $4 billion, with FiOS revenues representing 77 percent of the total.

Overall FiOS revenues grew 11.6 percent $3.3 billion over the same period a year ago. For the full year 2014, FiOS revenues totaled $12.7 billion, up 13.6 percent compared with $11.2 billion in 2013.

The rise in FiOS revenues helped drive up both total wireline and consumer revenues, helping to offset legacy declines in its business and wholesale divisions.

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

Broadband and Video:  Verizon added 145,000 net new FiOS Internet connections and 116,000 net new FiOS Video connections. The service provider ended the year with a total of 6.6 million FiOS Internet and 5.6 million FiOS Video connections, representing year-over-year increases of 9.0 percent and 7.4 percent, respectively.

Penetration of FiOS reached 41.1 percent at the end of 2014, compared with 39.5 percent at the end of 2013. During the same periods, FiOS Video penetration was 35.8 percent, compared with 35.0 percent. The FiOS network passed more than 19.8 million premises by year-end 2014.

Interestingly, the service provider reported that more of its FiOS Internet subscribers purchased a FiOS Quantum package, which provides speeds from 50 to 500 Mbps. As of the end of the quarter, 59 percent of its FiOS Internet customers subscribed to Quantum, up from 57 percent in the third quarter of 2014.

In tandem with increasing the availability of higher speed pipes into the home, Verizon also responded to the need for higher speed home networking capabilities with the debut of its FiOS Quantum Gateway Router, which it says can deliver speeds up to 800 Mbps over Wi-Fi.

Fran Shammo, CFO and EVP of Verizon, said during the earnings call that consumers will "begin to see more marketing of this router and its capabilities shortly."

Overall broadband connections rose 2.1 percent year-over-year to reach a total of 9.2 million at the end of 2014. Verizon said that net broadband connections increased by 59,000 and 190,000 for the full year, "as FiOS Internet net additions more than offset declines in DSL-based High Speed Internet connections."

Shammo reiterated Verizon's strategy to continue to extend FiOS to more customers in existing markets.

"Looking ahead our focus will remain on driving higher penetration in existing markets, which in turn will generate profitable growth and further improve our investment returns," Shammo said.

The service provider also continued to make progress with its copper-to-fiber migration strategy. During the fourth quarter, Verizon switched an additional 52,000 customers to fiber, bringing the full-year total to around 255,000. Since beginning this initiative in 2011, Verizon has converted more than 800,000 customers to fiber.

"Aside from the maintenance savings and improvements in customer satisfaction, conversion to fiber provides long-term opportunity for customers to purchase FiOS services, which result in additional recurring revenue," Shammo said. "In 2015, we plan to convert another 200,000 copper customers to fiber."

In addition to the copper-to-fiber migration, Verizon continued to consolidate its Central Office footprint. 

"During 2014, we also continued our consolidation efforts around Central Offices, which will create additional efficiencies," Shammo said. 

Business Services: In Verizon's Global Enterprise segment, the growth story continued to be strategic services such as cloud and Ethernet, which rose 1.5 percent year-over-year to $2.1 billion over the fourth quarter of 2013.

However, overall business services revenues declined to $3.4 billion year-over-year from $3.5 billion in the same period a year ago.

"In the enterprise space we continue to work through economic and secular challenges," Shammo said. "Declines in legacy transport revenue and CPE continue to outweigh growth in the newer and strategic applications which are smaller in scale."

Shammo added that revenue from "services in the IP layer has been impacted by competitive price compression, which is offsetting growth in application services."

Global Wholesale: Similar to business services, global wholesale revenues declined year-over-year to $1.5 billion from $1.6 billion due to ongoing declines in legacy services.

Shammo said that while they are seeing more revenue from next-gen Ethernet services, legacy declines are outweighing those gains in the wholesale segment.

"On the positive side, 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, Verizon reported total revenues of $33.2 billion, up 6.8 percent year-over-year from the fourth quarter of 2013. For the full year 2014, operating revenues were $127.1 billion, a 5.4 percent or $6.5 billion increase from the full-year 2013.

Excluding the 2013 public sector business revenues Verizon divested at the beginning of the third quarter of 2014, the service provider's comparable revenue growth rates (non-GAAP) would have been 7.3 percent for fourth-quarter 2014 and 5.7 percent for the full year.

Looking toward the rest of 2015, Verizon has forecast consolidated revenue growth of at least 4 percent.

Shares of Verizon were trading at $47.65, down 60 cents, 1.24 percent in Thursday morning pre-market trading on the Nasdaq stock exchange.

For more:
- see the earnings release

Editor's Corner: Verizon's desire to sell parts of its wireline network could kick off new consolidation trend

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