In a sign that its FiOS platform may have saturated the market, Verizon Communications Inc. (NYSE: VZ) reported Thursday that it signed up far fewer new video and broadband subscribers in the first quarter. Verizon also signed up significantly fewer TV and data customers for FiOS than AT&T Inc. (NYSE: T) did for its similar U-verse suite of services. (See AT&T U-verse Gains Broadband, Video Subs.)
Verizon picked up just 57,000 FiOS Video customers in the winter quarter, down markedly from 92,000 customers in the previous quarter and 160,000 a year ago. As a result, the telco ended the quarter with 5.3 million FiOS Video subscribers, still more than most US cable operators but increasingly less than U-verse's total.
Likewise, Verizon netted a relatively modest 98,000 FiOS Internet subscribers over the first three months of the year, as it continued to switch its dwindling base of copper DSL subscribers over to its fiber network. That's well below the 126,000 new subscribers that it added in the fourth quarter and the 188,000 that it added a year earlier. Verizon closed out the quarter with 6.2 million FiOS high-speed data subscribers, more than most cable operators again, but now well behind U-verse.
The growth slowdown appears directly related to Verizon's decision not to extend FiOS's reach beyond its existing markets. Although the penetration rates for FiOS's two main services continue to edge up, both take rates have now scaled 35% of the homes in FiOS markets, indicating that there's little room for more growth. Verizon now offers FiOS to 18.8 million homes, far fewer than AT&T has accumulated in its still-expanding U-verse universe.
Not surprisingly, Verizon executives played down FiOS's decelerating growth in its earnings report this morning. Instead, they stressed the still-growing penetration rates for FiOS Video and FiOS Internet, which now stand at 35.0% and 39.7%, respectively. They also emphasized the healthy increases in FiOS revenues, which rose to $3 billion in the quarter, up 15.5% from the year-ago period.
Verizon officials said that a majority (51%) of their FiOS Internet subscribers now take FiOS Quantum, its highest broadband tier with download speeds of 50 Mbit/s to 500 Mbit/s. That's up from 46% of FiOS Internet subs at the end of last year.
— Alan Breznick, Cable/Video Practice Leader, Light Reading
Re: Unfortunate I have certainly seen smaller operators doing well deploying fiber, even in low density semi-rural and rural areas. One such, TDS, just bought out a small telco in a nearby town here in NH and has started running fiber along all of the existing copper. Their plans are to decommission the copper after the fiber build-out has been completed. The copper is in such bad shape it was cheaper for them to replace it with fiber than to build out new copper. I don't know if they're building out using PON architecture or point-to-point, but this isn't the first time they've done this. It appears they've been able to make it work. I guess they don't feel the need for a quick turnaround and are willing to go for the long term return.
So you were a semiconductor (ASIC guy at AFC)? Even more interesting as I was a network architect at National Semi for Ethernet, FDDI and hate to admit it but ATM, then moved to Nortel R&D as a sytems guy and was FSAN lead.
Enjoyed working with the triBoC on the PON project after being one of the founders of MEF. Still frustrated though with slow VDSL from at&t in my locale.
Yes, there is a relatively (compared to NY + Boston + Philly) small number of subs in SoCal. There are slow growth parts of AT&T (mostly in the former Ameritech properties). But if you compare the overall demographics you will see that Verizon has a lot higher percentage of low/no growth properties. If you look at the way that Verizon has sold off properties, they only kept the growth GTE properties. Texas - Florida - California.
As an aside, SoCal used to have the highest percentage penetration of FiOS - even higher than Keller.
I have no idea if you know me or not. I was not a big fan of going to FSAN meetings and I used to send our systems guys to them.
You hit the nail. As one of the creators of GPON in FSAN, many times we discussed that once the fiber is into the home you win. It is just the cost of deployment and maybe more, getting the municipalities to allow free access.
So while I agree that LR posters etc need to do their homework, I don't agree with you that "Verizon is located in primarily low growth to negative growth population states." When you worked for AFC you should remember that there are a lot of Vz (ex GTE) subs in So. Calif. I think that the reason is surely ROI but more that Ivan and Mark are no longer execs and the VZ Wireless crew is running the show.
Re: Unfortunate Is it possible that Verizon might not see the investment in FiOS as worth the payoff. Is the subscription rate meeting their goals and expectations? In other words, in the areas served are a sufficiently large percentage of households subscribing to the service to make it pay off?
Re: Unfortunate There may be limited growth as costs rise and customers determine it's just not worth the extra tariff to get those higher speeds. It's still surprising to me just how slow a connections allows one to view video without problems. Why pay for super high speed at double or more the cost when an economy price will do the job for most consumers.
Re: Unfortunate The "many" who are paying $70 for Google's product are located in cherry-picked cities and cherry-picked neighborhoods, where Google campaigned for years to entice the population to pressure their politicians to give Google a free pass on regulatory hurdles and have the taxpayers assume the corporate liability for the network.
Whether these chosen cities are profitable or not, will likely never be known - despite their celebrity status among writers like you, and despite their pledge to not be evil, they are certainly not going to be forthcoming with the actual financials for each Fiberhood, especially if such disclosures might threaten their ability to maintain their 3% net corporate tax rate or subject them to anti-trust scrutiny.
I can only imagine the headlines you'd write if Verizon did the same, and required entire neighborhoods to take a loyalty pledge - prefund and sign contracts, prior to obtaining service commitments for Fios.
Re: Unfortunate The phone company here, CenturyLink, is offering 12-40Mbps fiber speeds for $20 a month (for one year or else for multiple years if you bundle with phone service).
I don't know what happened with FiOS except that it seems like they've taken an exceedingly long time to roll it out, and then there's word of Google maybe offering 10Mbs speeds for free (charging only for their 1Gbps service).
Can anyone tell me -- with fiber -- do all these companies run their own fiber cables? The reason for monopolies in cable TV was that they didn't want to have run 3, 4 or 5 cable lines in the same neighborhoods. Isn't it the same with optical fiber?
Really, I thought it was the local phone companies who laid fiber to the COs for VoIp and that we are only talking about the last mile from the CO to the home for fiber. Or does each company (google, FiOS, CenturyLink) have its own complete network from home to backbone?
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