Verizon posts higher wireline revenues thanks to FiOS

Verizon's (NYSE: VZ) FiOS service continues to be a shot in the arm for its wireline side, as the carrier posted a 2.5 percent year-over-year rise in consumer wireline revenues in Q2 2012, with 65 percent of those generated by FiOS. Wireline operating revenues declined 3.1 percent to $9.9 billion.

Overall, Verizon's total operating revenues climbed to $28.6 billion, or 3.7 percent more than the second quarter of 2011.

Second quarter earnings per share climbed to 64 cents, a 12.3 percent increase from last year and 5 cents higher than the first quarter, the company said. Verizon generated $7.8 billion of free cash flow in the quarter which, Executive Vice President-CFO Francis Shammo said, was "more than twice the amount we generated in the first half of 2011."

While FiOS was credited with rebooting the flagging wireline business, the fiber optic service showed a substantial decline in year-over-year video and data subscriber additions. Video subs grew by 120,000 compared to 184,000 a year ago; data subs were up 134,000 compared to 189,000. Both fell below market and Verizon projections.

On the other hand, the carrier added 350,000 more digital voice residence connections compared to 218,000 last year. Non-FiOS residential connections declined 199,000 in the quarter which, while a 6.6 percent decline, represented an improvement over the 240,000 line loss posted last year.

Shammo, in a Q&A with analysts after the earnings announcement, blamed the slower growth on seasonal factors, including an "unusually high move season in the month of June compared to prior second quarter."

"But more importantly, I think that we have refocused more on our profit on the FiOS side …. (and) you saw some of the benefits there," he continued. "We are focusing on the profitability of FiOS. the profitability increase in wireline this quarter was really centered around FiOS, really progress that we made on a quarter-to-quarter basis."

Shammo also said that the carrier is accelerating its copper shutdown.

"From a FiOS-to-copper migration or copper-to-FiOS migration, we nearly doubled the amount of migrations that we did," said Shammo. "We're being as aggressive as we possibly can in these areas."

On the whole, the lower FiOS subscriber additions could have a ripple effect on Verizon's attempts to purchase AWS spectrum from a consortium of cable operators known as SpectrumCo and standalone operator Cox Communications. Linked to that purchase is a separate joint marketing agreement between Verizon Wireless and the cablecos where Verizon Wireless would resell cable service in its regions and cable operators would sell Verizon Wireless. That plan has come under attack from those who believe it would slow FiOS growth as a cable competitor.

The cable spectrum purchase deal and another planned purchase from Leap Wireless are "at varying stages of review by the FCC and the Department of Justice," Shammo said. "We continue to expect approval and to close those transactions this summer."

Shammo, in a prepared statement, attempted to readjust expectations for FiOS subscriber additions to a "more natural range" that falls 20,000 to 30,000 below the previous range of 180,000 to 200,000 net adds each quarter.

"We are confident that at these levels we can still maintain an increasing revenue growth trajectory and expand profitability," he said.

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