Verizon's FiOS revenues rise 14.4% to $3.1B on strong broadband, video adds

Verizon's (NYSE: VZ) FiOS results bounced back in the second quarter, with revenues rising 14.4 percent year-over-year to $3.1 billion due to an uptick in both broadband and video subscriptions.

FiOS Internet penetration was 40.1 percent at the end of the second quarter of 2014, up from 38.6 percent at the end of the second quarter of 2013. During the same period, video penetration was 35.3 percent compared with 34.5 percent a year ago. The FiOS network passed 19.3 million premises by the end of the second quarter of 2014.

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

Total wireline revenues were $9.8 billion, up 0.3 percent year-over-year, which was the first quarterly gain in what Verizon said was over seven years. Wireline operating income margin was 2.7 percent in second-quarter 2014, up from 0.8 percent in the second quarter of 2013.

Consumer revenues rose 5.3 percent year-over-year to $3.9 billion, with FiOS revenues making up 75 percent of the total. Meanwhile, consumer wireline service APRU was $123, up 11 percent from the same period a year ago.

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

Broadband and Video: During the quarter, Verizon added 139,000 net new FiOS Internet connections and 100,000 net new FiOS video subscribers. At the end of the quarter, Verizon had a total of 6.3 million FiOS Internet and 5.4 million FiOS video connections, representing year-over-year increases of 9.3 percent and 7.6 percent, respectively.

The service provider continued to see more of its customers subscribe to its higher speed FiOS Quantum broadband tiers, which provide speeds ranging from 50-500 Mbps, up 51 percent sequentially from the end of the first quarter of 2014.

"We continue to see strong adoption of Quantum as 55 percent of our FiOS Internet customers subscribe to the higher speeds ranging from 50 to 500 Mbps," said Fran Shammo, CFO and EVP of Verizon Communications, during the earnings call.

To make its FiOS offerings more attractive, Verizon announced this week that it is automatically updating existing and new FiOS customers for all of its six main tiers with symmetrical broadband speeds for no additional charge.

Overall broadband connections were 9.1 million, up 1.5 percent year-over-year. Net broadband connections increased by 46,000 in second-quarter 2014, as FiOS Internet net additions more than offset declines in DSL-based broadband connections.

Verizon also continued to migrate more of what it calls "chronic" residential copper customers to fiber, a move that it says enables it to reduce repair costs and improve the ability to upsell customers more services. In the second quarter of 2014, the service provider migrated an additional 70,000 customers off copper and onto its fiber network.

"This network initiative continues to be important as we systematically upgrade our network and provide higher quality of service," Shammo said. "Aside from the maintenance savings and improvements in customer satisfaction, customer conversions to fiber provide an opportunity for customers to purchase FiOS services, which result in recurring revenue."

Business Services: Per the trend seen in earlier quarters, Verizon's sales of strategic services such as private IP, Ethernet, data center, cloud, security and managed services to enterprise customers rose 3 percent year-over-year.

However, overall Global Enterprise revenue declined 1.9 percent, or $70 million year-over-year, as more of its customers migrate off of legacy TDM, frame relay and ATM services.

"Revenue declines in legacy transport services and CPE continue to outweigh growth in strategic applications which are smaller in scale," Shammo said.

Wholesale: Due to ongoing declines in legacy TDM-based revenue, global wholesale revenue down $92 million, or 5.5 percent, year-over-year $1.57 billion.

"While we continue to see healthy demand for Ethernet services, positive growth continues to be more than offset by price compression, technology migration, and other secular challenges," Shammo said.

From an overall financial perspective, Verizon reported that total operating revenues in second-quarter 2014 were $31.5 billion, up 5.7 percent over second-quarter 2013. By carrying out what it said was more "effective cost management," the telco's operating revenue rose 17.2 percent year-over-year to $7.7 billion.   

Looking forward, Verizon forecast consolidated top-line growth of 4 percent and adjusted consolidated EBITDA margin expansion in 2014. It said it expects "positive contributions to profitable growth from both wireless and wireline."

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

Special report: Wireline telecom earnings in the second quarter of 2014

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