Despite a more competitive market in the fall and a more cautious approach, Verizon's twin FiOS Video and FiOS Internet services wrapped up 2013 in good form as they continued to make strong inroads against rival cable products.
Verizon Communications Inc. (NYSE: VZ) reported Tuesday that its fiber-fed FiOS platform picked up big bunches of video, broadband, and VoIP subscribers in the fourth quarter. The quarterly gains fell from a year earlier and from the third quarter, but they showed that FiOS is still growing steadily at a time when most large US cable operators are shedding video subscribers and some are losing broadband and VoIP subscribers.
Specifically, Verizon said FiOS netted 92,000 TV subscribers during the fall, versus 134,000 a year earlier and 135,000 over the summer. Even with that lower gain, FiOS Video added 536,000 customers for the year, nearly matching its 2012 pace.
As a result, the telco now has close to 5.3 million TV subscribers, more than all US cable operators except Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC). Further, FiOS Video's penetration rate climbed from 33.3% a year earlier to 35%.
On the broadband side, Verizon said FiOS Internet added 126,000 subscribers, versus 144,000 a year earlier and 173,000 in the third quarter. Even with that less robust addition, FiOS Internet closed out 2013 with 648,000 new subscribers, nearly 7% more than it gained in 2012. Thanks to these gains, Verizon now has almost 6.1 million FiOS Internet subscribers -- more than most US cable operators once again. Moreover, FiOS Internet's penetration rate climbed from 37.3% at the end of 2012 to 39.5%.
"We still took marketshare and increased our penetration," CFO Fran Shammo said during Verizon's earnings call Tuesday morning. The New York metro area, where it competes against Time Warner Cable Inc. (NYSE: TWC) and Cablevision Systems Corp. (NYSE: CVC), remains the fastest-growing FiOS market with the highest penetration rate.
Responding to analyst questions, Shammo conceded that FiOS growth slowed measurably from the third quarter. He blamed the drop on an "extremely competitive environment" and said rivals dropped prices and pitched more aggressive promotions while Verizon "responded cautiously" by staying pat. "We didn't want to chase some of those price points in the fourth quarter. We believed a lot of customers didn't want us intruding in their households during the holiday season."
Though he didn't name names, he was likely referring to TW Cable's aggressive holiday promotions in the fourth quarter. Seeking to make up for high video and broadband losses over the summer, TWC (which competes against Verizon in large swaths of New York and Texas) wooed new subscribers with offers of free tablets from Samsung Electronics Co. Ltd. (Korea: SEC). (See TW Cable Hemorrhages Subs.)
Shammo said Verizon converted 80,000 copper customers to fiber links in the fourth quarter, boosting its 2013 additions to 330,000, or 30,000 above its target for the year. The telco now has fewer than 1 million customers served by copper in its FiOS territories.
In addition, Verizon officials said 46% of FiOS Internet customers now subscribe to the highest Quantum tier, which offers speeds of 50 to 500 Mbit/s. That's up from 41% at the end of the third quarter. Shammo said Verizon will soon introduce a more powerful proprietary router to accelerate home networking speeds for its FiOS customers.
— Alan Breznick, Cable/Video Practice Leader, Light Reading