Verizon Wireline Profits All About the Job Cuts
Verizon Communications Inc. (NYSE: VZ)'s FiOS fiber-to-the-home initiative is garnering customers in the way the company always hoped it would, and the global enterprise business is up slightly. But as today's second-quarter earnings call made clear, that hasn't brought profitability to the telecom giant's wireline business. What is keeping that business in the black is Verizon's ongoing effort to shed jobs and cut costs. (See Verizon Reports Q2.)
FiOS revenues were up by almost one-third year-over-year, and the FiOS TV service has reached 26 percent market penetration. The average revenue per user for FiOS hit $145 a month and the average consumer ARPU rose to $81.
But the numbers that seemed to count the most were these: 11,000 Verizon employees in the Mid-Atlantic and Eastern regions accepted an "enhanced" retirement package, and 3,800 of those went off the payroll this quarter, enabling Verizon to improve its wireline unit EBITDA margin by 100 basis points.
According to John Killian, executive vice president and CFO of Verizon, the need to continue cutting costs on the wireline side isn't abating. Verizon will benefit in the third and fourth quarters from the departure of the rest of the "volunteers" and is considering "additional force reductions" in the coming months on the wireline side.
For example, similar "enhanced" offers will be made to Verizon employees in Western states, notably California and Texas, in hopes of generating more voluntary departures to save cash.
At the same time, Verizon is cutting its real estate, energy and supply chain costs, consolidating operations and vacating buildings, he added.
The race to the bottom makes sense when you consider two other numbers: Despite improved enterprise sales and better FiOS penetration, both global enterprise revenues and mass market revenues were essentially flat. On the global enterprise side, declining wholesale revenues were at fault while on the mass-market side, access lines continue to decline.
Those numbers set the stage for continued cuts on all fronts by Verizon, and other wireline operators.
— Carol Wilson, Chief Editor, Events, Light Reading