Broadband Battle: Verizon's Fiber Strategy Working But Enterprise DisappointsSpencer Ante
A quick thought on this morning’s earnings from Verizon. The most noteworthy news out of the announcement, besides the fact that Verizon’s business model is mostly holding up during the recession, is the strong performance of the company’s audacious fiber optic investment. Still, Wall Street seems to be focusing more on the negative data points, as its stock is down around $2, or 5%.
A few years ago, Verizon took a lot of heat from Wall Street for announcing it would invest more than $10 billion in upgrading its -network from copper lines to much faster fiber optic cables. Now, that investment looks like it is starting to pay off. Growth of its two fiber products, Internet access service and TV, is accelerating. Meanwhile, DSL service continues to fade like an 8-track player in the 1990s. Conclusion: American consumers want their broadband fast, and they want it now.
Verizon said its FiOS TV and Internet service, which competes with cable service providers, grew at its fastest pace ever. It reported 303,000 net new FiOS TV customers, compared with 226,000 in the fourth quarter 2007. The company had 1.9 million FiOS TV customers at year-end 2008, adding nearly 1 million FiOS TV customers since year-end 2007.
Verizon added 282,000 net new FiOS Internet customers, compared with 244,000 in the fourth quarter 2007. The company had nearly 2.5 million FiOS Internet customers at year-end 2008, adding nearly 1 million FiOS Internet customers since year-end 2007.
These two revenue streams are becoming meaningful. Broadband and video revenues from consumer customers totaled nearly $1.2 billion in the fourth quarter 2008 — representing year-over-year quarterly growth of 42.0 percent. This means Verizon is starting to pose more of a threat to the cable industry, which has had far more success poaching phone customers from the telcos to date.
The FiOS numbers also helped cushion the blow from sales declines at its enterprise business unit and slightly slower growth in subscribers at Verizon Wireless, owned by Verizon and Britain’s Vodafone Group Plc. Most investors wanted to know how many Blackberry Storms the company sold but it declined to specify the number. Given that the company only signed up 1.4 million wireless customers in the fourth quarter (down from 2 million subscribers a year ago), I would take that as a sign that the launch was not a smashing success—certainly it doesn’t compare to the iPhone launch, which sold more than 2 million units. I have also heard anecdotal reports that Storm customers like the device less and less as they use it; most of the complaints are about its new touch screen.
Verizon’s enterprise unit, which serves corporate customers, saw its sales decline 2.2%, compared to Sanford Bernstein’s forecast of a 1% decline. In a research note this morning, Bernstein analyst and telecom bear Craig Moffett wrote that enterprise is “the most cyclically exposed part of the portfolio” and the poor performance suggests a “full-year ‘09 decline that is significantly worse than our below-consensus (3.3%) forecast.
Still, Moffett gave Verizon’s earnings a “passing grade” and said that its overall results were “significantly better than what most companies can expect.”
— Spencer Ante also publishes the Creative Capital blog. Click here to see more.
Update: In a story in the Wall Street Journal today, Verizon President and Chief Operating Officer Denny Strigl said the company sold 1 million Storm units since the device was released in late November, and could have sold another 200,000 units if inventory wasn’t limited at launch. This means Storm launch sales could approach iPhone launch sales, since the phone was introduced in the middle of the fourth quarter.