3Q11 Connections: U-Verse vs. FiOS
The duo of AT&T (NYSE:T) and Verizon (NYSE:VZ) added a combined 314k U-Verse and FiOS subscribers in the third quarter, as fiber services continue to provide much needed support for the wireline divisions at both companies. AT&T led the gains, adding 176k U-Verse subs, good for 5.2% QoQ growth, while Verizon’s grew its FiOS customer base 3.1% QoQ, adding 138k subscribers in 3Q11.
While Verizon has dominated the headlines over the past week with its $3.6b spectrum purchase from a consortium of cablecos, ceo Lowell McAdam has also made recent statements regarding the future of the telco’s FiOS expansion. Speaking at the UBS Media and Communications Conference this past Wednesday, McAdam confirmed that Verizon will halt its expansion of FiOS services in 2012 after the completion of its current rollouts. Verizon currently passes around 13m homes with FiOS, and plans to reach 16m homes by the end of 2012.
Verizon shelved the idea of additional FiOS rollouts, but its wireline segment has relied on FiOS for top line stability and ARPU growth in recent quarters. FiOS customers generated 60% of Verizon’s wireline revenue in 3Q11, and ARPU for FiOS users was $146—55% greater than Verizon’s overall wireline ARPU of $94.20. Similarly, U-Verse has been the main bright spot for AT&T’s wireline business. The ARPU for U-Verse customers was $170 in 3Q11, and U-Verse subs accounted for over 50% of AT&T’s wireline revenue. U-Verse’s ARPU compares favorably to FiOS’ per customer take, thanks to the fact 75% of U-Verse customers opted for triple or quad play bundles in 3Q11.
While U-Verse measures up better on ARPU, FiOS continues to achieve better penetration. In 3Q11, FiOS’ penetration of homes passed was around 30%, while U-Verse’s penetration was around 25% in service areas in which it has marketed service for at least three years. With AT&T’s fiber builds nearly complete, and Verizon ready to halt FiOS rollouts after 2012, the telcos’ ability to improve penetration in their current markets will determine if their fiber customer bases will continue to grow.
Verizon’s McAdam commented on Wednesday that he’d like to see FiOS penetration around 50% in the future, but delivering an additional 20% of homes passed could prove more difficult after its recent spectrum deal. As part of its purchase, Verizon agreed to cross-market the video services of its competitors, namely Comcast (Nasdaq:CMCSA) and Time Warner (NYSE:TWC), allowing the cablecos to bundle Verizon’s wireless service with their video options, even in FiOS markets.