Even as FiOS subscriber growth rebounded somewhat from the second quarter, Verizon experienced some worrisome, if expected, negative revenue trends on the video side.
Specifically, while overall FiOS revenues were up for the three-month period, those numbers were driven by broadband increases. Video revenues, on the other hand, suffered from a combination of limited sub growth and revenue pressure generated by a continued migration of customers to cheaper, "skinny" bundles.
"As we expected," said Verizon Communications Inc. (NYSE: VZ) CFO Fran Shammo on the third-quarter earnings call, "there was a change in the consumer revenue growth trajectory. The primary reason for the decline is driven by lower pay-tv subscriber growth, and an increase in customers right-sizing their existing bundles."
By "right-sizing", Shammo was referring to continued subscriber uptake of Verizon's Custom TV skinny-bundle packages, which were first introduced last spring. (See Verizon Skinnies Down With FiOS.)
On average, the cost of a Custom TV bundle is about $20 less than a traditional FiOS TV package. According to Shammo, there is an incremental margin gain for Verizon from skinny bundles because of the associated content costs, but the overall pricing hurts top-line revenue.
Even though Custom TV looks like a losing proposition for Verizon, the company says it will continue to support the service in an acknowledgement that the linear television landscape is changing.
"Millennials don't want linear TV content," commented Shammo. "And that goes to why we are launching Go90 with a mobile-first perspective, and that's attacking that entire segment that a FiOS brand does not attack today through a linear TV product."
In short, Verizon believes it needs to offer skinny bundles to retain FiOS subscribers, but the company hopes to make up the financial difference through success with the Go90 mobile video product. Go90 is less than a month old, but Shammo said that Verizon is getting very encouraging feedback on the service even with no advertising or promotion thus far. Shammo also noted that there are now more than 10,000 video assets in the Go90 library, including two exclusive video episodes, with 48 more exclusive content deals due to be implemented before the end of the next quarter. (See Verizon's Go90 Is Live – Will Anyone Watch?.)
As for Verizon's overall wireline broadband and video numbers, the company reported an increase of 114,000 FiOS Internet and 42,000 FiOS video subscribers. That was up from 72,000 and 26,000 respectively in the second quarter, but still below increases in the first quarter of 133,000 for broadband subs and 90,000 for video customers. Overall, Verizon now has a total of 6.9 million FiOS Internet and 5.8 million FiOS video subscribers.
FiOS revenues were at $3.4 billion in the third quarter, up 7.5% compared to the year-ago quarter, but roughly equivalent to revenues in the second quarter of this year. Total consumer wireline revenues came in at $4 billion, again roughly equal to revenues reported three months ago. (See FiOS Growth Slows, Verizon 'Custom TV' Soars.)
Of note, the Verizon numbers reported today include wireline assets in California, Florida and Texas that the company is in the process of selling to Frontier Communications Corp. (NYSE: FTR). That deal already has approvals from the US Department of Justice, the Federal Communications Commission (FCC) and the state of Texas, and is expected to close by the end of the first quarter of 2016. (See Verizon Sells Towers & Wireline Assets for $15B.)
On the enterprise side of the business, Verizon once again suffered a dismal quarter, with global enterprise revenue down 4.9% year over year to $3.2 billion, and global wholesale revenue down 5.1% year over year to $1.47 billion. Verizon continues to cite declines in its legacy transport business and pricing pressure in other areas for its disappointing enterprise results.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading