While it continues to make market inroads against cable and satellite TV providers, FiOS's growth rate is definitely slowing down as the Verizon fiber-to-the-premises (FTTP) platform runs out of room to run.
Verizon Communications Inc. (NYSE: VZ) reported Tuesday morning that FiOS added fewer TV and Internet subscribers in the second quarter ending June 30 than it did a year ago, continuing a recent pattern as it reaches the limit of its FTTP network buildout. FiOS also added substantially fewer digital voice customers in the spring.
Specifically, Verizon reported that FiOS picked up 100,000 video subscribers in the second quarter, down from 140,000 a year ago. Still, the telco now has 5.4 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 139,000 new broadband subscribers, down from 161,000 a year earlier. Nevertheless, due to these gains, Verizon now has 6.3 million FiOS Internet subscribers and 9.1 million overall broadband subscribers, more than nearly all US MSOs again.
With the all-fiber FiOS network now passing 19.3 million homes and small businesses, Verizon executives maintain that they still have some room to grow. But, with FiOS Video's penetration rate now at 35.3% of homes marketed and FiOS Internet's penetration rate at 40.1% of homes marketed, it's getting harder to see where that growth will come from.
Seeking to seize the competitive broadband edge from cable operators, Verizon announced Monday that it's upgrading FiOS's upstream capacity to deliver much faster upload speeds on all of its Internet tiers. Under this program, FiOS will offer symmetrical upload and download speeds on every broadband tier, including up to 500 Mbit/s on its fastest Quantum tier, by the end of the year. That makes Verizon the first US broadband provider to take that step. (See Verizon FiOS Boosts Upload Speeds .)
Verizon executives said they're making this move because of internal projections that upload activity on the FiOS network will double by late 2016. They also cited a recent IDC study that more than 20% of US broadband households are now "power users," uploading nearly as much content as they download. IBC projects that the number of power users will rise by 60% by 2017.
The across-the-board FiOS upstream increases will undoubtedly put more pressure on cable operators to do the same. Although US MSOs like Comcast, Time Warner Cable, and Cox Communications Inc. have matched or come close to matching FiOS's speed increases on the downstream side through the use of DOCSIS 3.0 technology and fiber-fed lines, they are more constrained on the upstream side until the next-generation DOCSIS 3.1 standard gets deployed.
On the video side, Verizon is seeking to re-stoke FiOS's growth momentum by pumping up FiOS Quantum TV, a whole-home HD-DVR service that provides six tuners and 1 terabyte of DVR storage. In its latest promotion, FiOS is now offering free Quantum TV-enhanced service for 24 months to new triple-play customers who sign up by September 20.
— Alan Breznick, Cable/Video Practice Leader, Light Reading