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FiOS Slows But Still Grows

Alan Breznick

Despite a more competitive market in the fall and a more cautious approach, Verizon's twin FiOS Video and FiOS Internet services wrapped up 2013 in good form as they continued to make strong inroads against rival cable products.

Verizon Communications Inc. (NYSE: VZ) reported Tuesday that its fiber-fed FiOS platform picked up big bunches of video, broadband, and VoIP subscribers in the fourth quarter. The quarterly gains fell from a year earlier and from the third quarter, but they showed that FiOS is still growing steadily at a time when most large US cable operators are shedding video subscribers and some are losing broadband and VoIP subscribers.

Specifically, Verizon said FiOS netted 92,000 TV subscribers during the fall, versus 134,000 a year earlier and 135,000 over the summer. Even with that lower gain, FiOS Video added 536,000 customers for the year, nearly matching its 2012 pace.

As a result, the telco now has close to 5.3 million TV subscribers, more than all US cable operators except Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC). Further, FiOS Video's penetration rate climbed from 33.3% a year earlier to 35%.

On the broadband side, Verizon said FiOS Internet added 126,000 subscribers, versus 144,000 a year earlier and 173,000 in the third quarter. Even with that less robust addition, FiOS Internet closed out 2013 with 648,000 new subscribers, nearly 7% more than it gained in 2012. Thanks to these gains, Verizon now has almost 6.1 million FiOS Internet subscribers -- more than most US cable operators once again. Moreover, FiOS Internet's penetration rate climbed from 37.3% at the end of 2012 to 39.5%.

"We still took marketshare and increased our penetration," CFO Fran Shammo said during Verizon's earnings call Tuesday morning. The New York metro area, where it competes against Time Warner Cable Inc. (NYSE: TWC) and Cablevision Systems Corp. (NYSE: CVC), remains the fastest-growing FiOS market with the highest penetration rate.

Responding to analyst questions, Shammo conceded that FiOS growth slowed measurably from the third quarter. He blamed the drop on an "extremely competitive environment" and said rivals dropped prices and pitched more aggressive promotions while Verizon "responded cautiously" by staying pat. "We didn't want to chase some of those price points in the fourth quarter. We believed a lot of customers didn't want us intruding in their households during the holiday season."

Though he didn't name names, he was likely referring to TW Cable's aggressive holiday promotions in the fourth quarter. Seeking to make up for high video and broadband losses over the summer, TWC (which competes against Verizon in large swaths of New York and Texas) wooed new subscribers with offers of free tablets from Samsung Electronics Co. Ltd. (Korea: SEC). (See TW Cable Hemorrhages Subs.)

Shammo said Verizon converted 80,000 copper customers to fiber links in the fourth quarter, boosting its 2013 additions to 330,000, or 30,000 above its target for the year. The telco now has fewer than 1 million customers served by copper in its FiOS territories.

In addition, Verizon officials said 46% of FiOS Internet customers now subscribe to the highest Quantum tier, which offers speeds of 50 to 500 Mbit/s. That's up from 41% at the end of the third quarter. Shammo said Verizon will soon introduce a more powerful proprietary router to accelerate home networking speeds for its FiOS customers.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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User Rank: Light Sabre
1/26/2014 | 2:53:02 PM
Re: What's upper limit?
Well, I think it is a bit hard to judge where it will top out.  Let's look at competitive factors:

1 - Sattelite has some significant market share overall about 25%

2 - With FiOS at 35% that leaves cable at 45%.

3 - If we say about 5% of folks are cord cutters or OTA only, maybe cable's real market share is 40%.

I suspect it will be hard to get a larger market share than cable has now.


User Rank: Blogger
1/26/2014 | 1:44:30 PM
Re: What's upper limit?
Interesting. So I repeat my question, rho. Howv high do you think Verizon can go with FiOS, assuming they really want to? 40% penetration? 45%? 50% or more?  
User Rank: Blogger
1/22/2014 | 4:54:48 PM
Re: What's upper limit?
I buy that in Manhattan, less so in the other boroughs...
User Rank: Light Sabre
1/22/2014 | 4:48:02 PM
Re: What's upper limit?

If you read the comment for detail, you will see that the biggest issue that is reported is building owners who won't let Verizon in their buildings.  It may not be the only issue or the biggest real issue.  I know that Verizon wanted us to build VDSL2 ONTs for buildings for this reason (so they did not have to get new riser access).  That turned out to have its own issues (like say run lots of VDSL2 in a binder group and try to get max throughput from it).  As far as I know, they abandoned that concept post the trial phase.



User Rank: Blogger
1/22/2014 | 2:55:07 PM
Re: What's upper limit?
Hell, FiOS isn't in all of NYC yet...


User Rank: Light Sabre
1/22/2014 | 9:37:12 AM
Re: What's upper limit?
There's still quite a few cities up and down the east coast where Verizon has promised full or broad deployment under their franchise obligations (Philly, DC, NY, Pittsburgh), but lack of interest in low income neighborhoods and ugly wrangling with landlords has held them up. Much of the growth is either there, or in DSL users they want to convert over to the fiber plant.

Outside of that, growth will be limited as these telcos have their eyes squarely fixed on wireless revenues.

You'd think Verizon could nab more cable market share with just some modest movement on price competition. For example their cheapest standalone FiOS plan is upwards of $70 for 15/5 Mbps, and they're actually reducing the number of promotions they're using in NYC.
User Rank: Blogger
1/21/2014 | 6:02:50 PM
What's upper limit?
Like AT&T's U-verse, FiOS continues to make inroads against cable, particularly in NYC. But its growth did slow down in the 4th quarter. Is this a sign of things to come or just a fluke? What's the upper limit for its growth? I would've thought it would have topped out by now.
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