Facing government spending cuts, a CPE sales drought and declining legacy transport sales, Verizon takes some comfort in consumer willingness to pay for higher broadband speeds

July 18, 2013

3 Min Read
A Glimmer of Good News for Verizon Wireline

Listening to earnings calls is something of an exercise in translation. No matter how bad things look, they are packaged in the best possible language to be positive. If doctors spoke like this, the need for amputation would be described as instant weight loss.

In fairness, much of what Verizon Communications Inc. had to share today was, in fact, positive -- but that's because most of what Verizon discussed on today's earnings call was about its wireless operation.

On the wireline side, the reality of a soft enterprise market could not be disguised by the focus on success of "strategic services."

For the earnings call novice, calling a service "strategic" means it's where the company is focused for the future and where it hopes the investors will be focused as well. Unfortunately, the breakout of earnings into "strategic" and "legacy" buckets is only necessary when the combined numbers are negative, and for Verizon's enterprise wireline business, they most certainly are.

Verizon saw revenues fall 4.8 percent in its global enterprise unit, 7.7 percent in global wholesale and 2.8 percent in small business. Those declines more than offset the 4.8 percent increase in "strategic" business service revenues and a 4.7 percent increase in consumer revenues and led to an overall 2 percent drop-off in wireline revenues.

And despite major cost-cutting efforts, those decreases in revenue meant an almost 6 percent decrease in EBITDA from the wireline segment.

Verizon CFO Fran Shammo attributed the drop in revenues to a continued decline in the sale of legacy transport, a vanishing market for CPE and even the impact of the federal government's sequester budget cuts.

"There is a big impact from the sequester already and there will be pull-back from the state and local and federal government," said the CFO.

On the consumer side, FiOS continues to do well, but the real benefit of that investment is only just beginning to be felt. Verizon stands to reap significant opex savings once it no longer pays to maintain the copper network that today is a shadow of its fiber overlay. And while the company moved 161,000 homes off copper so far this year -- on track for its annual goal of 300,000, that's a drop in the bucket when you consider the almost 15 million homes passed by FiOS. (See Verizon's Copper Migration Will Be Slow Going).

But I did promise the talk about a glimmer of hope, right? Here it is: As consumers move to FiOS, they are showing increased willingness to pay for the Quantum service, which delivers speeds of 50 Mbits/second. A third of FiOS customers are now subscribing at that speed and the sales of the higher speed services picked up steam in this quarter, Shammo said.

That is a significant upside, contributing to FiOS's average revenue per user of more than $150 a month.

That's good news, right?

— Carol Wilson, Editor-at-Large, Light Reading

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