Verizon kicks off a week of earnings calls by missing Wall Street’s revenue projection: It posted $23.8 billion for Q4, below the consensus of $23.96 billion. Adjusted EPS was in-line at $0.62.
During the telco’s conference call (see notes below), executives said they have not felt meaningful impact from any economic weakness, through January, and weren’t anticipating any significant impact during 2008. They said some small markets in the Midwest were relatively weak, and that there has been some increase in Verizon Wireless customers not paying their bills, but overall, no changes to normal trends.
As anticipated, wireless led growth: The company acquired 2.0 million net new subscribers during the quarter — fewer than rival AT&T, but still strong. Verizon Wireless finished 2007 with 65.7 million subs. Wireless data revenue grew 53% year-over-year — meaning growth slowed from last quarter, when it increased 63% y/y, and last year’s Q4, when data revenues “doubled” year-over-year.
The good news: On average, VZW “retail” subscribers (vs. wholesale subs on Verizon’s network through a reseller) spent $11.06 per month on data services during Q4, like messaging, wireless Web access, ringtones, etc. — up 47 cents, or 4.4%, from Q3. The bad news: Their average monthly bill decreased 68 cents during the period, from $52.17 to $51.49. So while data revenue grew from Q3 to Q4, it didn’t make up for declining revenue for plain-vanilla mobile phone calls.
Verizon says it has passed 1 million subscribers to its fibre optic ‘FiOS’ TV service, including 226,000 net subscriber additions during Q4, and 943,000 FiOS TV subs at the end of 2007. And the telco all but confirmed that its DSL business is dead as a growth driver: Of Verizon’s 264,000 net new broadband Internet subscribers, 245,000 were via FiOS. Release, Slides (PDF), Webcast
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Live Webcast Notes
8:30 Wonder how much business Verizon gets by playing commercials leading up to conference call vs. music?
8:32 Call begins. Strigl and Toben on the call. Standard safe harbor disclaimer.
8:35 Doreen: 5.8% top line growth. Standard financial summary from slides/release.
8:37 Net $2.1 billion in dividends from Vodafone in Dec. Cash flow from cont ops $23.6 billion. Just over $31 in debt, paying down more than $5 b. $17.5b capex. Wireline under $11b, wireless $6.5b.
8:38 Segment results. 2 million wireless net adds, 1.9 million retail. Total churn up to 1.2% from 1.14%, still good.
8:39 Retail ARPU up to $51.49. Data revenues 21.3% of total service revenue vs. 15.8% a year ago. Full year data revs up 65%. “See enormous potential for growth in wireless data for years to come.”
8:41 Marketing FiOS TV to 5.9 million homes. Almost half of increase of homes open for sale came in Dec. FiOS TV at 16% penetration, FiOS Internet at 21% penetration. FiOS areas lower higher line losses, i.e. FiOS helps keep customers from jumping to cable.
8:44 Verizon Business revs up 0.5%, not good. Expect growth to be “back on track” during 2008.
8:45 Data represented 38% of total wireline revenue, grew nearly 12% for the year. Making good progress toward fixing profitability. 9 cents estimated earnings dilution from FiOS. Focusing on both revenue growth and cost cutting.
8:47 More wireline sales layoffs in 2008. 7000 cuts in 2007.
8:48 Targeting 30%-33% for wireline EBITDA margins. Capex below $17.5 billion in 2008. Targets set slightly lower for this year.
8:49 Lots of speculation about economy: Not seen a change in sales through January. Not expecting meaningful impact. Expecting a solid 2008.
8:50 FiOS homes passed: 9.3 million more than targeted? What is plan there? Wireline margins a little better than thought. Over what time frame expect to 30%-33% Where strength in Q4? Wireline margins over “planning period” or 3-5 years. Biggest bump of headcount reductions came in Q4, thus higher than expected margins. Some synergies from Verizon Business starting to help. FiOS homes passed, 3 million more this year.
8:53 Premium channel signups increased since self-service provisioning.
8:54 Some impact from economy in the Midwest, very small number of lines, so not impactful at all. Not seeing anything in urban areas. Some impact on over-90 day uncollectables at Verizon Wireless. A lot more customers under contract than ever had, much more international exposure. Looking at this on daily basis and not seeing trend changes. FiOS markets stronger.
8:56 If we did see any weakness, we could make adjustments — cutting travel, force, contractors, etc. Looking to a very strong year despite talk about economic weakness.
8:56 As we get north of 80% wireless penetration, quality of new subs could be worse. Mix of volume/ARPU driving revs in ’08 vs. ’07. Still targeting EBITDA positive on FiOS this year? Yes, 80% pen. levels in wireless. Continue to expect to take disproportionate share of gross adds. Focus on growth and industry leading margins. Have seen more adds coming from prepaid. Enhanced our prepaid products last year, expect some increase on that side of the business. ARPU driven in large part by growth in data revenues, retail data rev grew 44% in 2007. Expect to see strong data growth into 2008. Wireline margins: EBITDA positive in ’08, improvement during 2008 but no pinpoint number.
9:00 More detail on what’s happening with DSL, especially outside of FiOS markets? If you look at combined net adds for FiOS, DSL, net add numbers fairly constant. What’s changed is mix. You see some DSL migration to FiOS Internet, wireless broadband. Churn fairly constant. DSL subs grew during 2007, and revenue grew.
9:04 SME: What’s driving growth? Is FiOS helping? Update on progress with some of big metro areas? FiOS is helping in small business market, but not to great extent. As we put in place more big city franchises, you will see us passing more multiple dwelling units, which will help with small businesses, apartment housing. Where do we stand? You will see in the course of 2008 that we will have a few major cities where we expect to have franchises granted. Impact toward end of 2008 and 2009. Also will help significantly on the cost side.
9:06 What is your estimate of broadband penetration in households in major markets? What is growth opp there? Close to 75%. Relatively high penetration already. As far as doing higher speed DSL, yes, we’re actually looking at that, some announcements of 7 megs, rolling out more of it this year.
9:07 FiOS trends and lead time, free TV impact, update on Fairpoint deal, request for less debt. FiOS: Have made some significant progress throughout the course of 2007. Eliminated 2-3 hours off install time during the year, confident we can be more efficient. Have some good upside. Happy with FiOS TV and Internet volumes, made some steady progress in reducing overall costs, expect to be able to continue that during 2008. During Q4, did allow more overtime to meet heavy customer demand. Impact of free TV offer was really not material to overall costs. Fairpoint expecting to close in Q1. Delevering not a huge number.
9:09 Call concludes.
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