Verizon's FiOS Internet growth slows in second-quarter 2015 despite uptick in 75 Mbps speed adoption

Verizon (NYSE: VZ) reported that while it continued to see an uptick in customers purchasing its 75 Mbps Quantum speed tiers, overall FiOS growth slowed during the second quarter of 2015.

During the quarter, Verizon added 72,000 new FiOS Internet and 26,000 new FiOS video customers, a decline from the 139,000 FiOS Internet and 100,000 connections it added in second-quarter 2014.

Analysts from Jefferies had forecast Internet adds of 120,000-123,000 for the quarter.

"In the second quarter we experienced the slowing of FiOS customer growth, which we attribute to triple-play offer changes at a time of increased competitive intensity," said Fran Shammo, CFO and EVP of Verizon, during the second quarter earnings call. "We have since made some promotional adjustments and our exit rate sales volumes have shown improvement."

Despite the overall slowdown of FiOS growth, FiOS Quantum Internet, which provides speeds ranging from 50 to 500 Mbps, was once again a factor in the second-quarter with 64 percent of consumer FiOS Internet customers subscribing to a Quantum tier. Verizon said that the highest growth rate is in the 75 Mbps speed tier, to which 23 percent of FiOS customers subscribe.

"Quantum FiOS continues to scale and with a higher profitability contribution," Shammo said. "At the of the quarter, 64 percent of our FiOS Internet customers subscribe to data speeds of 50 Mbps or higher and we're seeing the highest rate of growth in the 75 Mbps speed tier where 23 percent of our consumer FiOS customers currently subscribe."

The service provider also introduced a new symmetrical 100 Mbps tier targeting the New York City metro area.

Wireline consumer revenues for the quarter were $4 billion, up 4.5 percent from second quarter 2014. Verizon said that consumer revenues have now grown by at least 4 percent for 12 consecutive quarters, with FiOS revenues representing 79 percent of the total.

Overall FiOS revenues grew 10 percent, to $3.4 billion, from the same period a year ago.

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

Broadband: FiOS broadband continued to be a star performer in Verizon's wireline portfolio as the telco added a total of 72,000 new subscribers, ending the period with a total of 6.8 million Internet connections. FiOS Internet penetration was 41.4 percent at the end of the second-quarter 2015, up from 40.1 percent at the end of second-quarter 2014. However compelling this growth was, it was lower than the 139,000 FiOS Internet connections it added in second-quarter 2014.

The service provider continued to make progress with converting more of its customer base from copper to fiber. During the second-quarter 2015, Verizon migrated 51,000 off of copper to fiber, making more progress towards reaching its full-year goal of 200,000.

"In the second-quarter we converted 51,000 copper customers to fiber, bringing our first-half total to 98,000," Shammo said. "Post conversion we experience significant improvements in customer satisfaction and a lower cost to serve."

Video: During the quarter, Verizon added 26,000 net new FiOS Video connections, ending the quarter with a total of 5.8 million connections. FiOS Video penetration was 35.7 percent, compared with 35.3 percent in the second-quarter 2014. Similar to FiOS Internet, FiOS video growth was down from the 100,000 net new FiOS video subscribers Verizon added in the second-quarter of 2014. A particular area of growth was Custom TV packages, with more than one-third of FiOS Video gross customer additions opting for Custom TV and migration demand from existing customers. The telco said that while "Custom TV adoption has an initial negative impact on revenue growth, it is expected to improve profitability."

Enterprise, Wholesale Services: Verizon reported declines in both its Global Enterprise and wholesale service revenues. Global Enterprise and Global Wholesale revenues were $3.2 billion and $1.5 billion, down from $3.4 billion and $1.6 billion, respectively, in the same period a year ago.

Shammo said that Global Enterprise revenues continued to be impacted by pricing and declines in legacy TDM revenues offsetting the growth of next-gen IP services like Ethernet.

"Declines in legacy transport revenues and CPE continue to outweigh growth in newer and strategic applications, which are smaller in scale," Shammo said. "Services in the IP layer have been impacted by the competitive price compression which is offsetting growth in applications."

While Wholesale revenue results were better than expected, revenues Shammo said the segment will continue to be pressured by various factors such as the migration from TDM to IP services and other factors.

"We expect continued price compression, technology migration and other secular challenges to pressure wholesale revenues, which we expect to decline in the 5-6 percent range for the whole year," Shammo said.

From an overall financial perspective, Verizon reported second quarter total operating revenues of $32.2 billion, up 2.4 percent year-over-year from the second-quarter 2014.

Shares of Verizon were listed at $46.90, down $1.20, or 2.49 percent, in Tuesday morning trading on the New York Stock Exchange.

For more:
- see the earnings release
- hear the webcast (reg. req.)
- see FierceWireless' take

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

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