Verizon Launches New FiOS Package Targeting Cord Cutters
Verizon (NYSE:VZ) has witnessed declining FiOS user additions in the first three quarters this year, and the carrier seems intent on reversing that trend in the fourth quarter. It recently launched a new double-play package offering 50 Mbps FiOS Quantum Internet service, FiOS TV local package, HBO and SHOWTIME for two years and a one-year Netflix subscription – all at a competitive price of just $60 per month. The package is available in all markets with FiOS coverage and can be availed by January 19, 2015. This is an extremely competitive offering considering an average Netflix subscription itself costs about $8-9 per month or about $100 per year. [1]
In addition to targeting rivals such as AT&T (NYSE:T), Comcast (NASDAQ:CMCSA) and Cox, who have also stepped up promotions to gain subscribers, Verizon’s latest offer seems to be targeting cord cutters- customers who cancel a wireline phone or pay TV service to opt for an alternative wireless or Internet-based service. The carrier’s offer seems better than similarly priced offers from AT&T, where the Internet speed is only 6 Mbps, as well as Comcast, where the average cost per month over a two-year period is higher at around $68 ($60 per month offer price for the first year and $75 per month for second year). We believe Verizon’s new offering will help it improve its FiOS user additions in the fourth quarter. In the third quarter, Verizon added 162,000 net new FiOS Internet connections and 114,000 net new FiOS Video connections, down about 16% and 6% y-o-y, respectively. Its total FiOS Internet and Video subscriber base at the end of September 2014 was 6.5 million and 5.5 million, respectively. [2] [3] [4]
We have a price estimate of $53 for Verizon’s stock, which is slightly ahead of the current market price.
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Verizon’s Third Quarter Wireline Performance
Verizon’s wireline revenues have remained under pressure over the last six years owing to growing competition in a largely saturated market. However, strong performance by the Consumer business segment offset much of the weakness in the legacy TDM-providing Wholesale segment in the third quarter.
The Consumer business, which provides broadband and video services (including FiOS), reported an increase of 4.5% in sales over the prior year quarter to about $3.9 billion. FiOS recorded double-digit revenue growth (12.3%), driven by strong customer additions, innovative pricing actions as well as growing adoption of its recently introduced high-speed Quantum service. By the end of the third quarter, about 57% of the carrier’s Internet subscribers subscribed to the Quantum service, which provides improved Internet speeds of 50-500 Mbps.
On the cost side, the company’s Wireline EBITDA and EBITDA margins were almost flat y-o-y at $2.2 billion and 23%, respectively. We expect the wireline business to improve its sales and expand margins going forward, as the company expands its FiOS offerings and works towards streamlining the business.
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- Verizon Website [↩]
- Verizon Communications Q3 2014 Results – Earnings Call Transcript, Seeking Alpha, Oct 21 2014 [↩]
- U-verse Packages, AT&T [↩]
- Comcast Double-Play Packages, Comcast Website [↩]