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Verizon's FiOS Engine Cools Off In Q2

The subscriber growth rate of Verizon Communications' FiOS services eased up in the second quarter -- with 134,000 Internet and 120,000 TV net additions -- while the telco suffered continued declines in DSL and legacy voice connections.

Still, Verizon's revenue from FiOS services increased 17% year-over-year, to $2.4 billion in the quarter, accounting for 65% of wireline consumer revenues.

As of the end of June, Verizon had 4.47 million FiOS TV subscribers, 5.14 million FiOS Internet subs and 2.64 million FiOS Digital Voice residential customers. But the net adds for broadband and TV were well off the pace from Q2 2011, when the telco had net adds of 184,000 FiOS Internet and 189,000 TV subs.

Total wireline operating revenue was $9.9 billion, a decline of 3.1% year over year, while consumer revenue grew 2.5% -- the highest increase on the residential side in several years. Wireline operating income margin was 1.9%, versus 1.6% in Q1 2012 and 3.1% in Q2 2011.

FiOS average revenue per subscriber for increased to more than $149 in the quarter, up from $146 a year ago. FiOS Internet penetration was 36.6% at the end of Q2 (versus 33.9% a year ago) and TV penetration was 32.6% (versus 29.9%). The FiOS network now passes more than 17 million premises.

During the quarter, Verizon hiked pricing for FiOS bundles -- $10 to $15 per month for most customers -- while increasing Internet connection speeds. The telco also raised lease fees for FiOS TV DVRs and set-tops, with DVRs increasing from $15.99 to $16.99 per month and set-top rates in the New York metro area jumping 17%, to $6.99 monthly.

Verizon's traditional phone business kept dwindling, with the company losing 422,00 voice connections in the quarter to stand at 23.28 million total (down 6.9% year over year). On the broadband side, the telco shed 132,000 DSL customers -- for a net add of just 2,000 broadband customers in the period. At the end of June broadband connections totaled 8.8 million, a 2.6% year-over-year increase.

Revenue in the telco's global enterprisesegment fell 3.4% from a year earlier, to $3.82 billion in the quarter, while global wholesale revenue dropped 10%, to $1.83 billion.

Verizon had 88,600 wireline employees at the end of the quarter, down from 93,200 a year earlier.

Overall, Verizon total operating revenue was $28.6 billion in Q2, up 3.7% year over year. Cash flow from operating activities was up markedly, to $9.3 billion, a 20.1% increase compared with second-quarter 2011. Net income attributable to Verizon increased 13.4%, to $1.83 billion.

For Verizon Wireless, a joint venture with Vodafone, service revenue in the quarter totaled $15.8 billion, up 7.3% year-over-year. Included in that is $6.9 billion in data revenue, up 18.5%. Verizon Wireless added 1.2 million retail net customers in the second quarter, including 888,000 retail postpaid net customers.

At the end of the second quarter, the company had 94.2 million retail customers, a 4.9% increase year over year, including 88.8 million retail postpaid customers.

In the quarter Verizon Wireless continued to roll out its 4G LTE mobile broadband network, which now is available to more than 230 million people in 337 markets across the U.S., or nearly 75% of the U.S. population.

Verizon Wireless on June 28 launched the ShareEverything Plan that offers customers unlimited voice minutes, unlimited text, video and picture messaging, and a shareable data allowance for up to 10 devices. In the second quarter, HomeFusion Broadband, a service that provides high-speed in-home Internet access, became available nationwide.