FiOS Figures Fail to Impress

Verizon's FiOS TV numbers exceeded the company's targeted projections this fiscal quarter, but the overall fiber project failed to dazzle Wall Street. Total takers for FiOS TV reached 118,000 in time for Verizon's Q3 results, reported Oct. 30. The company was shooting for just 100,000, with 175,000 by year end. The r
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Verizon's FiOS TV numbers exceeded the company's targeted projections this fiscal quarter, but the overall fiber project failed to dazzle Wall Street. Total takers for FiOS TV reached 118,000 in time for Verizon's Q3 results, reported Oct. 30. The company was shooting for just 100,000, with 175,000 by year end. The reported figure represents about 10 percent penetration of the 1.2 million household FiOS TV footprint.

Verizon said it added a net of 63,000 new FiOS TV customers in Q3, compared to 35,000 the previous quarter. FiOS Internet customers accounted for 147,000 of the net broadband additions in Q3, and now total 522,000 of the company's 6.6 million broadband customers (the rest being DSL). FiOS now passes 5.3 million homes, with a target of 6 million by the end of the year. Penetration of the broadband offering stands at 14 percent, with the service available to 3.8 million households.

Even though it's early in the FiOS rollout, analysts expected more, according to Reuters, which quoted Albert Lin of American Technology Research as saying, "One of the specific disappointments is the lack of strong growth in broadband Internet subscription."

The telco giant's stock fell nearly five percent, even after reporting quarterly revenues of $23.3 billion, up 26 percent from a year ago. A chief concern on Wall Street is the amount of money going into FiOS. Verizon announced in 2004 a six-year plan to invest $18 billion on a nationwide fiber-to-the-home network for residential broadband and video delivery.

Hooking up a single house to the network costs the company $1,795; that's $845 to pass the premises and another $900 to connect it. Those costs are slowly declining, but still represent a hefty capital outlay in a market where cable and satellite TV are already entrenched.

The work is also becoming more formidable as Verizon enters urban areas in cities such as Boston, New York, Philadelphia and Washington, D.C. The Boston Globe reported that Verizon crews could run about 20 feet of fiber per hour in urban areas compared to about 70 feet in the suburbs. Then there were the glitches with the Microsoft middleware and user interface that Verizon had to fix, The Wall Street Journal reported in September.

Still, those who sign up, stay. FiOS customer turnover is lower than expected at a churn rate of 1.5 percent.

Verizon launched FiOS TV in Keller, Texas in September 2005, and has since established service elsewhere in Texas, New York, California, Florida, Maryland and Virginia. The offering entails 200 all-digital video and music channels, hi-def, video-on-demand, an interactive program guide and multiroom DVR for $40 as a standalone, or a bit less with a broadband or voice add-on.

Verizon said it expects FiOS to cut into 2006 earnings by 31 to 32 cents a share, up from a previously expected 28 to 30 cents a share. Verizon doesn't expect FiOS to turn a profit on the network until 2009, should it have at least 7 million broadband customers and 4 million video customers on fiber by then. Meanwhile, regular landline customers are splitting the sheet. Verizon lost 419,000 primary residential lines in Q3, while it added 539,000 broadband and video customers (including 64,000 new takers for its DirecTV bundle).

The company was carried by the wireless division, where revenues jumped 18 percent year-over-year to $9.9 billion. Data revenues were $4.1 billion, up 89 percent; making up 32 percent of total wireline revenues. Total revenues for the wireline division were $12.8 billion, up 36 percent from last year, but adjusted expenses came in at $11.7 billion, up 43 percent from last year.