Verizon expanded its FiOS broadband subscriber base by 2.1 percent in its fourth quarter. Three out of five FiOS customers are now subscribing to a broadband tier of at least 50 Mbps.
In comments with analysts, CFO Fran Shammo also teased about an over-the-top product that might be introduced, or at least announced, in the summer. He also reiterated Verizon’s opposition to Title II reclassification. Shammo also noted that the Internet of Things (IoT) is now a defined, growing business with specific revenue attached.
The company reported loss for the quarter, which it attributed to charges associated with benefit plan and pension accounting. Revenue growth was driven by its mainline business – wireless, as well as FiOS.
The company reported 4.1 percent year over year quarter increase in revenues in its overall wireline business. FiOS, when broken out by itself, experienced 11.6 percent growth.
Verizon added 145,000 net new FiOS broadband subscribers for a running total of 6.6 million, and 116,000 new FiOS video accounts to reach a total of 5.6 million. The year-over-year increases were 9 percent and 7.4 percent, respectively.
At the end of 2014, the company reported, 59 percent of consumer FiOS Internet customers subscribed to FiOS Quantum, which provides speeds ranging from 50 to 500 Mbps, up from 57 percent at the end of the third quarter, and from 46 percent at the end of 2013. The company does not break out the numbers of subscribers to the different Quantum tiers.
The company continues to lose DSL subscribers. With DSL losses counted against FiOS broadband gains, the company added a total of 59,000 broadband connections. Counting DSL with FiOS, Verizon now has a total of 9.2 million broadband customers.
The company has been praising its new in-home Wi-Fi router, the FiOS Quantum Gateway Router, which is capable of transmission rates up to 800 Mbps. Shammo said Verizon expects that as more people use more wireless-enabled devices in the home, the gateway will make FiOS broadband even more attractive.
Asked about plans for video in 2015, Shammo referred to Dish Network’s announcement of a 20-channel over the top bundle and CBS’s intention to offer broadband-based subscriptions directly to consumers.
“On the over-the-top strategy, I guess I’m not going to disclose as to too much what we are going to do,” Shammo said. “But I think if you look at the environment, there is a lot of positive things coming out of the environment. So if you look at what Dish has done around some of their recent launches, look at CBS and their own launch of over-the-top with their own programming. This just leads us to a path of content owners willing to open up their content to different models and that’s exactly what we are going to execute on it. And we are working with many content providers to join that model and we will have a lot more to say about that and Marni and I obviously, Lowell will talk more about that when we launch our first product come this summer.” (The references are to Marni Walden, responsible for new products at Verizon Wireless, and Lowell McAdam, the company’s CEO.)
Verizon has been incrementally ripping out copper in favor of fiber since 2011. In Q4, it made the switch for another 52,000 customers, bringing the 2014 total to around 255,000. Verizon has converted more than 800,000 customers to fiber since it began this phase of copper replacement.
“We are now in the position of starting to shutdown central offices, which free up real estate for us to monetize and get out of,” Shammo said. “It reduces the property tax around this. So there’s a lot of efficiencies that come from this.”
Also during the quarter, Verizon Enterprise Solutions began deploying a package of network, cloud, security, mobility and other business solutions, and signed up Allstate, Marriott International, Pitney Bowes, Warner Bros. Entertainment, the Centers for Medicare and Medicaid Services, and the Defense Information Systems Agency among others.
The company’s main business, its wireless operations, were successful, with 2.1 million net retail connections; 2 million net retail postpaid connections, for totals of 108.2 million and 102.1 million respectively, and an 11 percent increase in total operating revenue. Verizon wrapped its buyout of Vodaphone’s share in Verizon Wireless during the quarter.
When it comes to the Internet of Things, Shammo said the company currently counts 15 million connections. “New revenue streams from the Internet of Things and telematics are beginning to emerge,” he said. “In 2014, these revenues totaled about $585 million, with growth of more than 45 percent.” (Analyst meeting comments are drawn from the transcript provided by Seeking Alpha.)
He said IoT cuts across multiple industries, with new applications emerging rapidly. One example he cited is Verizon Vehicle, the company’s wireless connected vehicle service, announced after the fourth quarter closed. He said Verizon plans to launch the service commercially in the second quarter.
“The addressable market is more than 200 million vehicles on the road today that are not connected to the Internet, or have a GPS unit. We believe that this large unserved market stands to greatly benefit from this new car Wireless connectivity solution,” Shammo said.
Shammo said capital expenditures were up 3.5 percent in 2014 from 2013, and that the focus was on growing capacity and improving quality on the company’s 4G wireless network.
The need for capacity was driven by constantly increasing data and video usage. About 84 percent of the company’s total data traffic was on the 4G LTE network, Shammo reported.
He said Verizon “will continue to curtail CapEx on the wireline side. And some of that’s, because we are getting to the end of our committed build around FiOS. Penetration is getting higher. We are reconnecting homes that we’ve already connected.” The company passes over 19 million homes and claims 41 percent penetration for FiOS broadband and 35 percent penetration for FiOS video.
On the issue of FCC reclassifying broadband as a Title II service, Shammo said “this will absolutely affect us and the industry on long-term investment in our networks. And that can be seen factually as to what happened in the rest of the world where you have high regulation, the networks are not invested in, there are not good quality of service networks and that’s where this will put us.”
