Verizon: Content owners are opening up to different models

Verizon CFO Fran Shammo, during a Q&A with analysts during the company’s earnings call, said the telco would be launching its over-the-top mobile first video product sometime this summer, and pointed to recent OTT developments with content owners and operators as a sign that the industry was at a turning point.

“There’s a lot of positive things coming out of the (current) environment; if you look at what Dish has done around some of their recent launches, look at CBS and their own launch of over the top with their own programming,” Shammo said. “This just leads us to a path of content owners are willing to open up their content to different models. And that’s exactly what we’re going to execute on. We’re working with many content providers to join that model and we’ll have a lot more to say about that” when they launch this summer.

As to what model Verizon intends to use for its nascent product, Shammo was reluctant to provide details, but said: “You should not think about it as a traditional linear model, it’s going to be a different type of a model.”

On the earnings side, Verizon reported that in Q4 2014 it added more than 2.1 million new subscribers to its retail wireless service, up from 1.7 million a year ago, as American’s increasingly turn to their mobile devices. The telco now has more than 108 million wireless subscribers.

Verizon also said it added 115,000 FiOS TV subscribers and 145,000  FiOS Internet subs. Verizon now has 5.6 million pay-TV customers and 6.6 million high-speed Internet subs, an increase of 7.4% and 9% respectively from a year ago.

That growth helped Verizon to an 11.6% increase in FiOS revenues Y/Y, to $3.3 billion. For the year, FiOS revenues were $12.7 billion, up 13.6% from 11.2 billion in 2013.

Verizon said 59% of its Internet subscribers had speeds of at least 50 Mbps.

During the quarter, Verizon also focused on improved wireless in the home, selling its FiOS Quantum Gateway Router, which can deliver speeds up to 800 Mbps over Wi-Fi. The gateway, which more operators will be turning to as they focus on reducing the number of high-cost STBs in a home and bring the Internet to center stage, separates high-bandwidth activities like HD video streaming and online gaming from regular data consumption (Web browsing and email).

Shammo told analysts the router will “improve intake of video into the home and will sustain the use of wireless devices insider the home.” That, he said, helps to produce significantly higher throughput and increases customer satisfaction.

Over the course of the quarter, Verizon also migrated 52,000 customers from copper DSL connections to fiber optic connections, enabling higher Internet speeds and more reliability. That means it’s migrated about 255,000 customers over to the potentially higher return network in 2014. Since the program began in 2011, Verizon has migrated more than 800,000 customers to fiber, retiring vast swathes of copper.

The migration, Shammo told analysts, is “really starting to pay benefits to us,” as it puts Verizon in the position to shut down central offices which allows Verizon to sell real estate and decrease staffing.

Finally, on the FCC’s Title II discussion, Shammo took time to clarify his – and Verizon’s – position on the debate, saying he didn’t believe the discussion was not “an issue about Internet rules, its about the FCC reclassifying broadband.”

And he said, a decision to include it in Title Ii governance would “impact Verizon’s and other company’s investment in the Internet” negatively.

“It’s an extreme and risky path,” he said, “that will tie up the industry and cause all sorts of litigation.

“It would certainly change the way we view our investment in our networks.”
By the numbers:

  • Verizon reported EPS were 71 cents, missing estimates by 2 cents.
  • Revenue was $33.2 billion up 6.8% Y/Y, and beating Wall Street expectations by $530 million. Full year revenues were up 5.4% to $127.1 billion from $120.6 billion in 2013.
  • Wireless revenue growth was 2.8% Y/Y ($18.2 billion). That’s down from 4.8% in Q3, 5.9% in Q2 and 7.5% in Q1.
  • Wireline revenue fell 1.6% to $9.6 billion.
  • Wireline consumer retail revenues continued to be a bright spot, growing 4.1% Y/Y; gains primarily were due to FiOS TV and FiOS Internet growth.
  • As has been the case over recent years, wireline voice connections continued to spiral, down 6.1% Y/Y to 19.8 million.
  • Verizon said it expects “at least 4%” 2015 revenue growth; analysts are looking at a more conservative 2.6%
  • In 2014, cash flows from operations totaled $30.6 billion, and free cash flow (non-GAAP, cash from operations less capital expenditures) totaled $13.4 billion. Capital expenditures totaled $17.2 billion for 2014, up 3.5 percent year over year.
  • Verizon plans to increase capex to between $17.5 billion and $18 billion, up from 2014’s $17.2 billion.
  • Verizon also sold 1.7 million tablets in the quarter, something Shammo talked about during the Q&A, saying tablets will continue to be “a very large piece of our growth into the future’ because it increases the amount of usage and video uptake on the network.”

Stay tuned.

Jim O’Neill is Editor of Videomind and Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn