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Verizon Nets Another 299,000 FiOS TV Customers

Even if the economy is fizzling, FiOS is sizzling.

Verizon Communications turned in a near-record quarter for its FiOS TV service, with the telco adding 299,000 subscribers in the first three months of 2009, and racked up 298,000 FiOS Internet users.

At the same time, Verizon continued to see an overall decline in its wireline business - losing 2.9 million consumer phone lines year over year, down 12.5% - and operating income for the wireline unit fell 33.6%.

The company now has 2.217 million FiOS TV subscribers, up 84% from the year-ago period, and 2.779 million for FiOS Internet, up 55.5%.

"In spite of the macroeconomic environment... I'd say the consumer market is holding up very well overall," Verizon chief financial officer John Killian said on a call with investors Monday.

Verizon's growth in video subs tracks with AT&T's momentum in the sector. AT&T last week reported 284,000 net adds for U-verse TV, to stand at 1.329 million as of the end of March.

"All in all, the results for Verizon are close to a carbon copy of what we saw with AT&T," Sanford Bernstein senior analyst Craig Moffett wrote in a note. "The telcos perhaps deserve their moniker of ‘defensives'; the results speak to the macro-economic implacability of the telco behemoths (especially in wireless), and their high dividend yields perhaps deservedly make the telcos popular safe havens."

The penetration rate for FiOS TV is currently 22.9%. Killian said the company expanded the availability of the FiOS triple-play to 9.7 million homes at end of March up from 6.5 million a year ago.

Verizon's FiOS network passed an additional 500,000 premises in the first quarter, to about 13.2 million premises. Killian also noted that major markets slated for FiOS launches this year include Washington, D.C., and Philadelphia.

But aside from the FiOS markets, Moffett wrote, "things in the wireline business continue to go from bad to worse," pointing to legacy landline losses, a cyclical drop in enterprise services revenue (down 3.4%, to $3.7 billion) and DSL declines (with a net loss of 46,000 for the quarter).

The wireline unit's total first-quarter operating revenue was $11.6 billion, down 3.8% from the first quarter 2008. Revenue growth from broadband and video services drove average revenue per consumer to $69.97 in the first quarter 2009, up 13.7% year over year, according to Verizon.

Overall, Verizon an 11.6% increase in operating revenues, to $26.6 billion for the quarter, as the company added revenues from its acquisition of Alltel in early January 2009. On a pro-forma basis revenue growth was 3.3%.

Cash flows from operations totaled $6.4 billion for the first three months of 2009 -- up 19.1% over the same period last year -- and free cash flow (cash flows from operations minus capital expenditures) was $2.7 billion, up $1.5 billion from the first quarter 2008.

Verizon Wireless, a joint venture with Vodafone, posted continued growth to end the quarter with 86.6 million customers, which includes 13.2 million net total customer additions from the Alltel acquisition. Verizon Wireless added 1.3 million net retail customers excluding Alltel customers.

Verizon president and chief operating officer Denny Strigl said the company has an opportunity to improve margins in the wireline unit, noting that the wireline unit's work force is down 13,000 from the end of 2007 through the first quarter of 2009. Wireline total operating expenses were $10.9 billion, a decline of 1.0% compared with the first quarter 2008.

Capital spending in Verizon's wireline business declined to $2.0 billion, down 15.8% from the year-ago quarter.

Strigl, responding to a question about the Verizon Wireless Hub - a voice-over-IP device introduced in February  - said sales have not been material to date.