FiOS gains subscribers, just not as many as expected

Verizon (NYSE: VZ) CFO Fran Shammo thought FiOS video subscriber growth would be a little better than it ended up in the third quarter. Shammo last month told analysts that the FTTH video service would gain about 150,000 subs in the third quarter; instead, numbers remained flat with about 119,000 new subscribers coming on board compared to the 120,000 who joined in the second quarter. Those numbers are also below the 131,000 subs Verizon raked in a year ago.

During a question-and-answer following the earnings release, Shammo admitted that the carrier hadn't met expectations he'd set in September.

"Yeah, I think that I gave a range of 150 to 170 [in September]," Shammo said, adding he is "very confident that we will get to that 150-plus for net adds in the fourth quarter so I think that's a good target."

Verizon only added 136,000 new FiOS subscribers--both broadband and video--in the quarter as its total numbers hit 5.3 million, of whom 4.6 million take video service. The company also suffered a loss of about 144,000 DSL subscribers in the quarter, meaning it probably had a net loss of "broadband" subscribers.

The disappointing FiOS video numbers, Shammo said, were the result of "a couple of things. We moved away a little bit too much of a promotional activity, so we picked that up in September."

Additionally, he said, the "third quarter is a very high seasonality of moves for us and this is always a third quarter issue with FiOS because people move out of the area and we can't retain them because they move to an area that does not have FiOS availability to them."

Shammo also said earlier this year that there would be fewer areas--or perhaps, more fairly, the same number--where subscribers can go to sign up for service because Verizon isn't going to expand FiOS beyond its existing markets. In this market, he said, the carrier is making an extra effort to connect new customers in existing homes that already have a FiOS ONT.

"You're going to see a lot more activity around that," he said.

An issue that Verizon probably can't solve easily is consumer pushback on a price increase, although Shammo held out hope that more stable prices will lead to more stable subscriber acquisitions.

"I'm very comfortable that we'll get back to that 150,000-plus for new add projection," he insisted.

Year-over-year, the carrier's broadband connections numbers were up 2.3 percent to 8.8 million. And those FiOS subscribers are money-makers.

"Wireline consumer revenue growth accelerated to 4.6 percent, a sharp increase from 2.5 percent in the second quarter, driven by increased FiOS revenue-per-customer," Shammo said in prepared remarks.

For more:
- Verizon issued this third quarter earnings news release
- Seeking Alpha produced this transcript

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