FiOS: No Longer a High Flyer?

10:25 AM -- Verizon Communications Inc. (NYSE: VZ) is taking a different tack on its FiOS sales, in light of the economy’s continued struggles, chairman and CEO Ivan Seidenberg told financial analysts today.

Analysts were generally disappointed with FiOS sales in 2009, given that Verizon added fewer than 1 million new customers -- about the same total as in 2008 -- despite continuing to build out the network and pass more homes. The fourth quarter was particularly bad, with only 153,000 new FiOS homes.

Seidenberg and CFO John Killian generally blamed the disappointing performance of the entire wireline segment on an economy that is not showing the most essential sign of recovery: job growth. Seidenberg said Verizon’s future FiOS promotions will reflect expectations of continued economic problems in 2010.

So instead of trying to buy market share by “overheating” the market, is Verizon willing to be the market tortoise, building share slowly and steadily? Apparently so.

“We are confident that we are getting the market we want [for FiOS] and that we don’t have to sacrifice profit,” Seidenberg said. “We are not happy that the economy has slowed things down on the business side. We need to offset some of that by not being too aggressive on the FiOS side. We think we are going to get the market, but we are timing it differently. We expect to have a really aggressive focus on our cost structure.”

Some of that is already happening: Verizon pulled its fourth-quarter $150 cash-back promotion in favor of a lower overall cost plan -- an $89 triple play -- intended to lure in customers that Verizon can then upsell, Killian said. The company is counting on the fact that consumers who buy FiOS tend to keep it: Churn rates are roughly 1 percent.

As the FiOS buildout winds down, Verizon is opening up fewer new markets and reducing the hoopla associated with that process, which Seidenberg admitted can “overheat” the competitive market and lead to price-based promotions by competitors.

As for the general economic picture, Seidenberg is fairly gloomy. Business won’t pick up much until late in 2010, especially on the business and wholesale side, he told analysts. But the Verizon chairman expects a better 2011 and will focus on getting his company’s organization and cost structure ready for the next growth spurt.

— Carol Wilson, Chief Editor, Events, Light Reading

paolo.franzoi 12/5/2012 | 4:44:09 PM
re: FiOS: No Longer a High Flyer?

Not just the upstream is better, but the current advantages would include a better downstream, a smaller split ratio, and better quality RF.  Remember, the O/E conversion of the RF is on the side of a single home so there is less issue with cable degradation.

So, here is what is better - more bandwidth spread across fewer customers.



cnwedit 12/5/2012 | 4:44:11 PM
re: FiOS: No Longer a High Flyer? The upstream channel in an FTTP network such as FiOS is always better than HFC as currently deployed. No debating that one. The telcos' real problem right now is that video is a low-margin service-they pay for that content every month, which is a very different model from the one they grew up on. That's why they need to add services to the mix to justify the cost. As for the economics of building FTTH, that's an argument that can easily be made both ways.
Cooper10 12/5/2012 | 4:44:11 PM
re: FiOS: No Longer a High Flyer?

I don't think you can presume that FTTX services are "better" than what can be delivered via an HFC network.  The telcos are capturing market share largely by cutting price - and that becomes more difficult to maintain as their core revenue streams and margins from POTS continues to decline.  Also, they are less encumbered on video product innovation by having less of a "legacy" base of technology and customers, but that is a short-lived advantage.

The economics of building fiber all the way to the home have always been suspect - and the spotlight on this issue will shine brighter as their penetration growth slows.

Cooper10 12/5/2012 | 4:44:12 PM
re: FiOS: No Longer a High Flyer? and more expensive to drive penetration if you're not continually lighting up new footprint. Access line losses continue to swamp the positive results from wireless and FiOS, and overall revenue is up 1%. Not exactly a growth story.
cnwedit 12/5/2012 | 4:44:12 PM
re: FiOS: No Longer a High Flyer? I have to admit that as someone who would LOVE to get an FTTX-based service but can't get FiOS or U-verse, it's hard to relate to what you are saying. But I think your comments prove that just offering a better service isn't enough in today's market, especially when you are selling the bundle.
gocowboys 12/5/2012 | 4:44:12 PM
re: FiOS: No Longer a High Flyer? Agreed...it is even worse if you make that investment and your capture rate is not extremely high.
gocowboys 12/5/2012 | 4:44:13 PM
re: FiOS: No Longer a High Flyer?

I was a Verizon land line customer and changed out due to signal degradation in the copper plant. I really did not want to buy the complete bundle from Verizon. I am happy with my internet service and don't want to go through the pain of changing my email address (yes, I could have set everything up with a redirector). In addition, I actually like DirecTV.

In this economy, it is difficult to get wholesale bundled business. The gee whiz factor has faded with FIOS and the early technology adopters have been farmed. I would be much more receptive if I could buy an unbundled portion of the offering at least to start. Oh, by the way I do have a nice coil of optical fiber right next to my foundation...I get to mow around it. :-)

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