Verizon Excels With DSL

Verizon Communications Inc. (NYSE: VZ) planted a big, wet kiss on its DSL equipment suppliers today in the form of first-quarter earnings that showed greater-than-expected growth in the carrier’s DSL business.

But what DSL subscribers giveth, they taketh away from Verizon's residential telephone lines, which declined 4 percent year-over-year during the quarter.

Overall, Verizon’s results for the quarter ended March 31 were positive. The company reported earnings of $1.6 billion, or 58 cents a share, before special and non-recurring items, beating analysts’ consensus estimate by 1 cent, according to First Call. Operating revenues rose to $17.1 billion, a 3.9 percent increase from the first quarter of 2003. The quarterly growth rate was Verizon’s highest since the first quarter of 2001.

“Our first-quarter results reflect strong operating performance in our key growth areas, particularly in wireless, consumer broadband, and business data transport,” said Doreen Toben, Verizon’s CFO, in a conference call today with analysts. “We continue to allocate more capital to our growth areas and new technologies such as Enterprise Advance, voice, and broadband technologies such as EV-DO and FTTP.” More than half of Verizon’s $2.6 billion in capital expenditures during the quarter went toward these growth businesses (see Verizon Suppliers Get Good News).

During the quarter, Verizon added 345,000 new DSL lines -- the most it has ever added in a quarter -- bringing the company’s total DSL lines in service to nearly 2.7 million. The company’s consumer DSL revenues during the quarter grew 42 percent year-over-year and 15 percent from the previous quarter.

That’s good news for Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI), which supplies DSL equipment to Verizon. AFC has not yet reported first-quarter results, but in a research note issued today, Simon Leopold, an analyst at Morgan Keegan & Company Inc., estimated that AFC derived 6 percent of its sales from Verizon last year and could derive 11 percent this year (see Smith Barney Pumps Up AFC).

Verizon’s DSL growth also potentially benefits Adtran Inc. (Nasdaq: ADTN), which, according to Leopold, is bidding for some of Verizon’s remote terminal business. In a conference call today with analysts, Verizon management repeatedly mentioned remote terminal deployment as a contributor to the carrier’s DSL growth in the first quarter. Sales to Verizon comprised 15 percent of Adtran’s revenue last year and 16 percent during this year’s first quarter.

The DSL growth came at the expense of second telephone lines that customers previously used for dial-up Internet connections. Verizon’s total switched access lines were down 4.3 percent year-over-year, though losses slowed slightly from the previous quarter. “If you look at consumer DSL and residential switched access lines together, you will see that we are relatively flat during the quarter, as DSL line significantly improved and switched access line losses slowed down somewhat,” Toben said.

Verizon’s enterprise data business improved during the quarter, too. Adtran, which also supplies HDSL equipment to Verizon, stands to gain from increased demand for the carrier’s DS1 service. “We are seeing some encouraging signs on the data transport side," said Toben, "as DS1 volumes have grown almost 5 percent year-over-year."

Verizon added that testing of its fiber-to-the-premises initiative is proceeding on schedule -- another encouraging sign for AFC. Deployment of Verizon’s FTTP service is scheduled for June (see AFC Finalizes Verizon FTTP Contract).

— Justin Hibbard, Senior Editor, Light Reading

themarketchecker 12/5/2012 | 1:55:30 AM
re: Verizon Excels With DSL Ok, I don't know much about Verizon, but last I heard, it was ALCATEL, who was the selected DSLAM provider to Verizon. They are the ones who are filling their coffers.

As for AFC, I believe they were selected for the FTTP, but have actually lost more money then they have made on this endeavor. Not that doing that in the long run is a bad thing, but they are not making money on this project....yet.

As for Adtran increasing their profit from this last quarters posting by Verizon, I do not see how that is possible since your article stated they are bidding on this new business. Again, Alcatel has the DSLAM business, which can be done remotely, if Verizon decided to do it that way.

Does anyone else have anything to add regarding to the validity of this article. I am really interested to hear.

hitekeng 12/5/2012 | 1:55:29 AM
re: Verizon Excels With DSL The article seems to be valid but could use more clarifications along the following lines:
- In referencing DSL for remotes and apart from FTTP, we would talking about NGDLCs with voice/data blades. Needless to say, AFC and Alcatel (with DSC's Litespan) are the leader in that space.
- For Adtran, they provide HDSL-based services to Verizon and this is vaguely referenced in the article.
themarketchecker 12/5/2012 | 1:55:26 AM
re: Verizon Excels With DSL Does Verizon deploy DSLAMs. Your last post did not talk to anything regarding that technology. If they do, who are the suppliers??? Also, what type of breakdown is it between voice/data lines and the dslam lines?
Phoneman 12/5/2012 | 1:55:09 AM
re: Verizon Excels With DSL Verizon primarily uses Alcatel's ASAM 7300 which is a DSLAM and pots/dsl splitter for there ADSL and G.SHDSL offerings. Verizon does use AFC's AccessMax DMAX1120 which is a multiservice platform that can provide local loop voice, data, and broadband DSL in a point-to point architecture.
dudley-do-right 12/5/2012 | 1:55:06 AM
re: Verizon Excels With DSL I am off an RT (SLC-5)here in Upper State New York and we are using the Catena DSL product I was told when I was setting up my modem. I asked the support member how many Catena system were deployed and he said "thousands of lines" Just an FYI ... and from Verizon I have great service and data rates .. Surprise surprise !!
ThurstonHowell3rd 12/5/2012 | 1:54:21 AM
re: Verizon Excels With DSL Ok... is it just me or does "themarketchecker" win the Gilligan award for asking the most number of stupid questions in a single posting?
Y2KickIT 12/5/2012 | 1:54:16 AM
re: Verizon Excels With DSL Remember when you ask does "Verizon use XYZ?" Verizon is a recent entity. It is made up of a number of legacy incumbents. When you acquire networks, you acquire multiple platforms.

Verizon even differentiates between Verizon East and Verizon West. Verizon East has made use of AFC equipment, it was AFC's assurance that its product's chassis, already in many Verizon East offices, could do FTTP.

The signs are it was a largely a vapor product and they haven't delivered on promises, thus the re-bid opportunity for Alcatel on FTTP.
stephenpcooke 12/5/2012 | 1:54:12 AM
re: Verizon Excels With DSL Y2KickIT, do you realize that this is part of probably the most successful equipment provider startup marketing plans; get your equipment into a smaller telco that gets bought by a big incumbent. Once it is installed it is almost never removed. In many cases this is the only way for those startups to penetrate the big carriers.
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