Verizon Communications, aiming to improve the profitability of its wireline unit, will no longer sell DSL over copper in areas where FiOS is available and is planning to implement additional price hikes for its FiOS bundles over the next two quarters, according to CFO Fran Shammo.
Verizon added 180,000 TV and 193,000 FiOS Internet subscribers in the first quarter of 2012, but lost 89,000 DSL subscribers in the period on a sequential basis and shed 440,000 total voice connections in Q1 to drop to 23.7 million.
Shammo referred to Verizon's initiative to migrate copper plant in FiOS markets to fiber as providing long-term benefits in terms of operating costs.
"It is better for us long-term to get most of these customers off of our copper network to our FiOS network," he said. "Number one, we will see a long-term benefit in our repairs and maintenance decrease over time. We will also get the upsell capability to start selling these voice customers on better speeds of FiOS and better experience, and also then into the linear TV product that we have to offer."
In the small number of areas Verizon converted from copper to fiber in trials last year, the telco is now starting to see a 30% sale upgrade on those customers.
For price-sensitive customers in FiOS-only areas, Verizon offers a 3 Mbps down / 1 Mbps up FiOS Internet service priced at $39.99 per month for a one-year contract on a standalone basis, spokesman Bill Kula said. "We merchandise the 3 / 1 Mbps FiOS offer to customers who do not want our FiOS speeds of higher than 15 Mbps and want to control their monthly broadband expenses," he said.
On another vector, Verizon in the current quarter is raising lease fees for FiOS TV DVRs by 6% -- from $15.99 to $16.99 per month -- and hiking set-top box rates in the New York metro area 17%, to $6.99 monthly.
In addition to that, over the next two quarters, "we're going to have several price-ups in our FiOS packages," Shammo said. Verizon also will "rebundle certain of our packages to better bundle our content in order to make it more profitable, based on the tier that you pick for us."
Verizon's wireline capital spending was $1.5 billion in the first quarter of 2012, about 4.9% higher than a year ago. Shammo attributed the increase to "timing," strategic spending in enterprise and some copper-to-fiber migration in its residential customer base.
Total wireline revenue declined 2% in the first quarter, to $9.9 billion. About 60% of the decline is a result of "targeted product rationalization actions we have taken to improve the quality of our revenue mix," Shammo said. That included a continued exit from unprofitable international wholesale routes and contracts, and in the enterprise segment a pullback on selling drop-ship hardware or customer premises equipment. Verizon also is exiting the calling card and public pay phone businesses entirely, Shammo said.
Meanwhile, Verizon is still in negotiations with the Communications Workers of America and the International Brotherhood of Electrical Workers, covering about 45,000 union workers in its wireline unit who have been on the job without a contract since August.
"I think it is safe to say that as we entered into this negotiation, we knew that this was going to be an extremely difficult negotiation," Shammo said. "We have said very strongly that we need cost structure within the wireline business. Obviously, if you look at the profitability of this business over the last five years, it has decreased, and this cost structure is not palatable going forward. So we need some concessions."
Verizon is "standing strong" in dealing with the unions, Shammo said.
"In order for us to be competitive with our [cable] competitors, who don't have these very lucrative benefits and average salaries of $90,000, with an incremental $50,000 of healthcare and pension on top of that, we need some cost restructure here," he said.
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