Verizon And Other Bells Make Broadband Gains
Verizon Communications added 345,000 high-speed
Internet customers in the first three months of 2004 — its best
quarter ever — as local Bell companies continue to chip away at
the broadband lead of cable TV firms.
It was a bright spot in an otherwise lackluster
earnings report, which failed to impress Wall Street. Verizon's
(VZ) shares fell 24 cents to 37.50 Tuesday.
The phone company earned $1.2 billion, or 43
cents per share, in the first quarter, down from $2.4 billion,
or 88 cents per share a year earlier. One-time charges tied to
early retirement packages for 21,000 workers clipped 15 cents
off earnings, Verizon said. All the local Bells have shed
employees to lower costs as revenue from core voice services
shrinks. Without the charges, Verizon's earnings were 58 cents —
a penny above analyst estimates.
Verizon's local service revenue fell 4.5% to $4.7
billion from a year earlier, but wireless revenue jumped 21% to
6.2 billion.
Two key growth areas for Verizon and other Bells
are speedy Internet access and wireless phone services. Verizon
served 2.7 million broadband customers as of March 31, up 46%
from a year earlier. These customers get fast Internet access
via digital subscriber lines. Verizon's 345,000 first-quarter
DSL subscriber additions topped the previous quarter's 203,000.
Verizon Chief Executive Ivan Seidenberg says the
company's DSL sales team is on a roll. "My expectation is that
we're going to continue the momentum," he told analysts in a
conference call.
Verizon cut DSL prices in May, 2003 and expanded
the availability of its DSL network to more areas. Earlier this
year, Verizon began selling consumers a package of DSL and
pay-TV through an alliance with satellite broadcaster DirecTV.
Both local Bells and cable firms view these
bundled service plans as a key tool to hold onto customers.
For the Bells, customers that order DSL are less
likely to disconnect local phone services. Cable firms,
meanwhile, are less likely to lose video customers that sign up
for cable-modem services.
Cable TV firms held about 65% of the high-speed
home Internet market at the end of 2003. Cable's share will
shrink this year if the Bells' momentum continues past the first
quarter, analysts say.
In the January-March period, SBC Communications
(SBC) added 446,000 customers for DSL service, while BellSouth
(BLS) added 156,000. Those marked new quarterly highs for SBC
and BellSouth.
Qwest Communications (Q) reports first-quarter
earnings May 4. Including Qwest, the four biggest local phone
companies are almost certain to garner more than 1 million new
DSL customers for the first time in the first quarter.
That's up from 766,000 in the October-December
period. Cable firms, meanwhile, have slipped.
The eight biggest U.S. cable firms added 1.01
million cable-modem customers in the October-December period,
says Merrill Lynch. That was down 176,000, or 15%, from a
quarter earlier. Many analysts believe cable firms will report
slow data growth in early 2004.
If cable firms lose significant market share in
2004, many analysts expect them to roll out more tiered pricing
plans. Those plans cost less than the typical $45 monthly cable
Internet fee, but data speeds are slower. The Bells already
offer discounts on slower DSL speeds.
"Tiered pricing is clearly what's looming next,"
said Bruce Leichtman, head of LRG research Group. Leichtman also
expects cable firms to strike more deals with content providers
in a bid to set themselves apart from phone companies.
The biggest cable TV firm, Comcast, (CMCSA)
reports first-quarter earnings Wednesday, as does Time Warner,
which owns the second-biggest cable company. Cox Communications
(COX) reports April 29.
Oppenheimer analyst Tom Eagan expects Comcast to
add 413,000 Internet customers in the first quarter, down
slightly from 423,000 in the fourth quarter. He projects Cox
will add 121,000 high-speed data subscribers, down from
144,000.
At Goldman Sachs, analyst Anthony Noto expects
Time Warner Cable to add 169,00 cable-modem customers in the
first quarter, down from 182,000. Lehman Brothers' Vijay Jayant
forecasts that Comcast will slip to 374,000.
