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Financial Times, July 29, 2008 article



Verizon sets stage for cable war with fibre optic service

By Paul Taylor in New York

Published: July 29 2008 03:00 | Last updated: July 29 2008 03:00


Verizon Communications, the second largest US telecommunications group, launched its fibre optic-based FiOS video service yesterday in New York City, setting the stage for a fierce battle with the incumbent cable network operators, Time Warner Cable and Cablevision.

Verizon, which also announced solid second quarter earnings yesterday buoyed by the continued strong performance of its Verizon Wireless joint venture with Britain's Vodafone group, will initially offer FiOS in 108 New York neighbourhoods with "triple play" voice, video and data packages starting at $95.

The telecom operator is aiming to offer the combined voice, data and video service to 500,000 New York City homes by the end of this year and expand the service area to about 3m businesses and homes within "a few years".

Verizon, which has garnered nearly 1.4m FiOS Video subscribers across the US since the service was launched last year, is attempting to differentiate its video service by offering more high definition channels than its cable rivals. In New York it is offering 100 HD channels initially.

Verizon added 176,000 FiOS video customers in the latest quarter, a figure described by most analysts as somewhat disappointing, and added 187,000 broadband internet customers, substantially below analysts estimates.

Taken together, Verizon grew its broadband and video revenues by almost 53 per cent but like AT&T, the largest US telecoms operator, which reported its second quarter earnings last week, the latest figures suggest that US cable TV network operators are continuing to be more successful signing up new broadband and triple play subscribers.

"Given the still very rapid rate of network expansion, it is remarkable to see FiOS growth already slowing," said Craig Moffett of Sanford Bernstein.

Verizon, like its rivals, is also continuing to lose residential fixed line customers. Residential phone lines fell 11 per cent to 22.4m while total phone lines, including business customers, fell 8.5 per cent to 38.3m.

Once again, however, strong subscriber growth and low churn rates at Verizon Wireless underpinned a 12 per cent increase in Verizon's second quarter profits. Net income climbed to $1.88bn, or 66 cents a share, from $1.68bn, or 58 cents, a year earlier, boosted by wireless revenues which climbed by 12 per cent to $12.1bn after the unit added 1.5m users.

Both Verizon Wireless and AT&T, which added 1.3m subscribers in the second quarter, have been taking customers from Sprint Nextel, the struggling third largest US operator.

Verizon agreed to buy Alltel, a regional US wireless operators, for $28.1bn in cash in June in a deal expected to close by year end.




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