Despite its clearly slowing growth rate, Verizon's FiOS family of services is continuing to exert more competitive pressure on cable operators and satellite TV providers.
Verizon Communications Inc. (NYSE: VZ) reported Tuesday morning that its fiber-fed platform racked up fewer TV and Internet subscribers in the third quarter than it did a year ago, continuing a recent pattern as it reaches the limit of its FTTP network buildout in its 13-state region. FiOS also added substantially fewer digital voice customers in the summer period than it did in 2013.
Specifically, Verizon said FiOS picked up 114,000 video subscribers in the third quarter, down 16% from 135,000 a year ago. Still, the telco now has more than 5.5 million pay-TV subscribers, more than all US cable operators except Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC).
Similarly, on the broadband side, Verizon said FiOS netted 162,000 new broadband subscribers, down 6% from 171,000 a year earlier. Nevertheless, due to these gains, Verizon now has nearly 6.5 million FiOS Internet subscribers and more than 9.1 million overall broadband subscribers, more than nearly all US MSOs once again.
With the all-fiber FiOS network now passing 19.7 million small homes and businesses, Verizon executives maintain that they still have some room to grow even though it's getting harder and harder to see where that growth will come from. They stress that the penetration rate of their two prime services continues to rise, with FiOS Video's penetration rate now at 35.5% of homes marketed and FiOS Internet's penetration rate now at 40.6% of homes marketed, both all-time highs.
Verizon officials say they will concentrate on boosting penetration rates further by offering higher-quality broadband and video products than their cable rivals. On the broadband side, for instance, they are rapidly rolling out their new "SpeedMatch" initiative, which upgrades FiOS' upstream capacity to deliver much faster upload speeds on all of its Internet tiers. Under this program, announced in July, FiOS will offer symmetrical upload and download speeds on every broadband tier, including up to 500 Mbit/s on its fastest Quantum tier, at no extra charge. (See Verizon FiOS Boosts Upload Speeds .)
Company executives say they have already upgraded nearly 5 million FiOS Internet subscribers, or most of their customer base, to the higher upload speeds. Plans call for carrying out the rest of the upgrades by the end of the year. In addition, they note that 57% of their FiOS Internet customers now subscribe to the highest Quantum tier, up from 55% at the end of June.
"Our focus in FiOS is to drive higher penetration by adding quality customers," said Verizon EVP & CFO Fran Shammo. He also cited the new FiOS Quantum TV product, which was also introduced earlier this year. Quantum TV offers a whole-home HD-DVR service that provides six tuners and 1 terabyte of DVR storage.
Questioned by analysts about Verizon's lagging results on the commercial services side, Shammo admitted that cable operators are generally continuing to make inroads with small firms and smaller mid-sized companies. He also said Verizon is suffering from lower pricing as business customers come off three-year or five-year contracts and upgrade to less costly IP-based products and services.
But Shammo said Verizon is more than holding its own against cable in the commercial market in those areas where it has rolled out FiOS business services. "Where we have FiOS and compete in business markets, we're gaining share," he said. "But that's only in 13 states."
— Alan Breznick, Cable/Video Practice Leader, Light Reading