Verizon's Shammo: We'll continue to migrate problem copper customers to FiOS

Fran Shammo, CFO and VP of Verizon (NYSE: VZ), said that if customers want their FiOS Fiber to the Premises (FTTP), they should pay a premium.

Looking to up the revenue gain it gets from FiOS, the service provider increased prices on its FiOS service in the second quarter, a trend that Shammo reiterated will continue into the third quarter.

“On the revenue side of the house, we really concentrated this year on getting our price points equivalent to where the rest of the market was,” he said. “We were actually underpriced with a superior product to cable so the concerted effort was to do some price ups that will continue into to the third quarter.”

Beginning in the first quarter, the price increase effort has begun to pay off in terms of increasing FiOS profitability in the second quarter. Verizon reported that it had a 2.5 percent mass market revenue increase during Q2.

One of the other notable changes with FiOS in the recent quarter was that it had a significant speed increase on a number of its key data tiers and introduced a new 300 Mbps tier.

The service provider increased the speeds on three of its current levels: 25/25 increased to 50/25; 35/35 climbed to 75/35 and 50/20 rose to 150/65. A new speed tier, 300/65, doubles the current 150/35 top tier.

As part of its move to increase profitability of its FiOS service at a time when its DSL subscriber base continues to defect to cable in areas where the FTTH service is not available, the company began migrating some customers over to the fiber service.

“We are really on a concerted effort to really spend our capital and our dollars more efficiently from getting people off the copper network and onto the FiOS network,” Shammo said. “You have probably seen us shift a little bit between going after our growth adds and mining our base.”

Shammo added that it gets two benefits from mining that existing copper-based broadband customer base.

First, a copper customer who is classified as a “chronic customer”–who has two truck rolls to service the copper line during a six month period–will have those on-site service calls minimized by moving to FiOS.

“When you think about this customer, that’s four truck rolls a year, and I am losing money on that copper customer,” Shammo said. “If I can take that chronic customer and move them to FiOS, I deplete the amount of operational expense to keep that customer on and they get the benefit of FiOS Digital Voice, which is clearer, and put their DSL service onto a FiOS Internet where they realize the FiOS speeds.”

The second benefit is that Verizon is seeing voice and DSL customers bundle more FiOS services.

“What we are seeing preliminary is that even if we take a voice and DSL customer and move them, they are starting buy-up in bundles because they are seeing the value of the higher speeds,” Shammo said. “Then, we open up the sales routine to go after them for the FiOS TV product.”

This effort in the near-term may have had a negative effect on how many subscribers Verizon added in the second quarter, among other reasons.

During the quarter, the telco reported that video subscribers grew by just 120,000 compared to 184,000 a year ago, while data subs were up 134,000 compared to 189,000. Both video and data subscriber numbers fell below market and Verizon projections.

At the same time, 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.

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