Verizon Communicationsannounced better than expected second quarter earnings before the bell. Earnings rose 12 percent, driven by its wireless business, as the company gains marketshare, adds net new subscribers and improves turnover rates. On the negative side, the company's 3.7 percent revenue growth fell short of Wall Street analyst expectations, as the company's land-line business loses customers and revenue faster than ever.
But the company was wholly optimistic, raising its forecasts and CEO Ivan Seidenberg saying "all key strategic areas" continued to grow "despite the economic headwinds." On the post-earnings conference call there was a question about whether AT&T's iPhone has hurt their business. On the contrary, the iPhone actually seems to be driving overall smart phone sales.
The big topic of conversation: FiOS, Verizon's fiber-optic TV service, which launches today in 300,000 New York City homes today, offering among other things, 100 channels of high-def TV. This past quarter the growth of new FiOS subscribers has been on the decline, raising concerns with some Wall Street analysts. The issue is that it seems it may be more expensive to acquire new FiOS subscribers than previously thought. But Seidenberg was also totally optimistic here-- pointing out that FiOS has 20 percent penetration in all the markets in which it's launched and that it's growth trajectory is strong.
FiOS debut in the Big Apple is dramatic because it's taking on Time Warner Cable's virtual monopoly in Manhattan. It's important, largely because so many investors live in the New York area and will now be exposed first-hand to this division in which Verizon has invested billions. Verizon says the whole city will be able to access FiOS by 2014, but with apartments in large buildings that requires negotiations with landlords. And since this is the first major metropolitan area Verizon has ever wired, it'll be a good test for future expansion.
Does FiOS prove a real threat to Time Warner Cable and Cablevision, which serve the five boroughs? Not really. Though certainly in the spotlight, Verizon would have to reach all of its goals in each of its markets over the next year or so, and then it would only be snagging a couple of percent of Time Warner Cable's business. So between now and the end of 2009, TWC has little to worry about. It certainly poses competition, and when subscribers are frustrated now they'll have somewhere to go when they want to jump ship.
You can bet Time Warner Cable has amped up its consumer service effort in New York City ahead of this big launch, but I doubt it'll be a huge blow to TWC's business anytime soon. But we'll see how eager people are to snag those 100 high-def channels. One thing working against Verizon: people are less likely to switch systems when they're not moving homes. A weak housing market suppresses a whole stream of revenue for the likes of Time Warner Cable as well as now Verizon as well.