With Verizon's (NYSE:VZ) sale of its less profitable rural lines in 14 states to Frontier Communications (NYSE: FTR) complete, it would be logical to think that it could now sharpen its focus on next-gen fiber-based FiOS service and of course LTE wireless. Not so, says a report from Sanford Bernstein analysts Craig Moffett and Robin Bienenstock, which argue that the sale will have a detrimental effect on Verizon's wireline operating revenues.
Given Wall Street's appetite for near-term results, Moffett and Bienenstock have already downgraded their price target for Verizon stock from $27 to $25.
"Without these access lines, we project that the wireline segment--which still accounts for about 70 percent of Verizon's asset base (proportionate for VZ's 55 percent ownership of VZW)--will produce negative operating income going forward," the analysts said in their research report, adding that while "the divested properties accounted for just 8.8 percent of Verizon's wireline revenues in 2009, they contributed an incredible 53.7 percent of wireline's pre-tax operating free cash flow [EBITDA less capex]."
One area Moffett continues to criticize is Verizon's Fiber to the Premises (FTTP) FiOS initiative. Although Verizon previously decided to focus on investing in existing FiOS markets, the service provider has tried to make the service more competitive with cable by eliminating long-term contracts.
Verizon may not be ecstatic about FiOS subscriber take up (it added 185,000 net new FiOS Internet customers and 168,000 net new FiOS TV customers in Q1), but as pointed out in a Broadband DSL Reports post subscriber installation costs have continued to come down and the service gives it a fighting chance against cable's DOCSIS 3.0 assault.
- Broadband DSL Reports has this post
- Connected Planet has this article
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