Shammo: Verizon will increase FiOS video rates in Q4 to offset rise in content costs

Verizon Communications (NYSE: VZ) plans to increase the price of its FiOS Video service in the fourth quarter to offset the hike in content licensing fees that will go into effect Jan. 1, said a top executive today.  Speaking to investors during Verizon's third quarter earnings call, company EVP and CFO Fran Shammo said that the FiOS Video price hike is something the company did in fourth quarter 2013 and it will do again in 2014.

Fran Shammo, Verizon

Shammo (Source: Verizon)

Shammo's hint at the upcoming price hike is interesting as he also noted during the investor call that price increases in the FiOS Video service have more than offset programming costs indicating that FiOS is a very profitable business for the company.

Verizon's FiOS Video service continues to grow. In the third quarter the company logged 114,000 net adds for the service, bringing its total subscriber base to 5.5 million and giving it a 35.5 percent penetration rate in the markets where it can offer FiOS Video service. 

Shammo also provided an update on the company's LTE multicast initiative in which it plans to deliver live coverage of sporting events and concerts via its LTE network. Shammo said that the LTE multicast network was ready in August and that the chipsets to make the devices work on the network are going to be more widely available in the fourth quarter.  The company is hoping to build its base of subscribers with LTE multicast-capable devices over the next few months.  Once that base is big enough, Shammo said they will start to "get the attention of the content providers." 

Shammo added that he is not sure what revenue model will work for LTE multicast but hinted that it could be an advertising model, a revenue share or a consumer pay model.

Overall the company's third quarter consolidated revenue was $31.6 billion, a 4.3 percent increase over third-quarter 2013.  Capital expenditures totaled $12.6 billion for the first three quarters of the year, up 6.9 percent year-over-year. The company said it expects capital spending of around $17 billion for the full year. Most of that capex was put toward optimizing its LTE network including adding LTE in the firm's AWS spectrum.

Here's a breakdown of other key metrics:

Wireline financials:  Verizon reported revenues of $9.6 billion in third quarter, down 0.8 percent year over year. Consumer revenues were $3.9 billion, up 4.5 percent compared with third quarter 2013 with FiOS revenues representing 76 percent of that total. 

ARPU: Consumer average revenue per user for wireline services increased to $125.32 per month, up 10.3 percent compared with third quarter 2013.    

FiOS subscribers:  Verizon added 162,000 net new FiOS Internet connections and 114,000 net new FiOS Video customers.  Verizon had a total of 6.5 million FiOS Internet and 5.5 million FiOS Video connections at the end of third quarter.

OTT:  Shammo said that the recent flurry of over-the-top offers from content providers indicates that they want to reach the segment of the population that does not subscribe to satellite TV or linear TV and that they are trying to penetrate this market.  He does not think this trend will lead to a decrease in linear TV subscribers in the near-term.

For more:
- see this press release

Earnings roundup: Sizing up pay-TV in the third quarter of 2014

Related articles:
Verizon to debut LTE multicast in 2015
Verizon talking to TV manufacturers about supporting LTE Multicast programming
McAdam: Verizon talking to sports leagues, programmers about new streaming video models
Verizon buys cloud TV tech provider upLynk

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