Verizon’s Ellis: Fiber is a key growth component for our wireline business

Verizon, like other wireline telcos, is at a network crossroads of sorts: The telco operates a copper-based business that continues to decline in terms of revenue, alongside a growing fiber business and increasingly fiber-centric network.

Matt Ellis, CFO of Verizon, told investors that fiber-based business and consumer products continue to contribute more revenues to its coffers.

Verizon CFO Image: Verizon
Matt Ellis

“Fundamentally, as you think about the wireline business, you’re thinking about really two assets: you have the legacy copper business that continues secular declines across our customer base and then you have the fiber side where we see continued growth and demand,” Ellis said.

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Verizon’s fiber growth is not confined to the ILEC’s Northeast wireline footprint either. The service provider has built out a sizable long-haul fiber network to satisfy its business and wholesale customers.

“The fiber growth is not just within the ILEC footprint—it’s more on a national scale,” Ellis said. “If you think around, we had the ultra-long-haul backbone for many years and earlier this year we expanded that with the XO acquisition, which added fiber metro rings in 45 of the top 50 top markets.”

When combined with the Northeast footprint, a network built to support Fios, Ellis said that the company has fiber assets that will position growth in the wireline segment and converging the wireless network.

“You should expect the fiber side of the wireline business to continue to grow and become more relevant,” Ellis said. “As part of that you have the convergence of the fiber network and the wireless network as we densify the 4G network and pre-position for 5G.”

Focus on network densification

A key element of Verizon's fiber expansion efforts is expanding the fiber network to support its upcoming 5G network builds. Besides purchasing XO Communications, Verizon bought a large portion of Wide Open West’s Chicago fiber network earlier this year, securing fiber to more than 500 macro-cell wireless sites and more than 500 small-cell wireless sites.

Additionally, Verizon signed a $1.1 billion, three-year fiber and hardware purchase agreement with Corning. The telco will purchase up to 20 million km (12.4 million miles) of optical fiber each year from 2018 through 2020. The telco also signed a $300 million agreement with Prysmian as a secondary fiber supplier.

While Ellis would not share specific fiber network capital spending plans, Verizon will continue to enhance its fiber network footprint in the coming year.

“You can expect us to continue to be deploying fiber around the country as we go forward to serve both wireless and customers across the rest of our businesses,” Ellis said.

Mixed wireline results

While Verizon has put together what it believes to be a sound fiber expansion plan, third-quarter wireline results were somewhat mixed. Like earlier quarters, the service provider saw continued uptick in Fios internet while video continued to decline. Meanwhile, in the business space, ongoing secular challenges had an impact.

Here’s a breakdown of Verizon’s key metrics:

Wireline Revenue: Total wireline revenues rose 1.1%, to $7.7 billion, comparing third-quarter 2017 with third-quarter 2016. However, total wireline revenues declined 2.7% year over year in the third quarter of 2017, consistent with the second quarter.

Total Fios revenue grew 4.8% year over year. During the quarter, Verizon added 66,000 new Fios internet subscribers but lost 18,000 Fios video customers.  

On the internet side, Fios Gigabit Connection continues to gain traction with customers, but the service provider did not break out how many customers subscribed to the 1 Gbps service.

“Wireline results were weak,” said New Street Research in a research note. “No changes to revenue and margin guidance; capex and taxes to come in at the low end of the range.”

Broadband and Video: In the third quarter, Verizon added 66,000 Fios Internet connections and lost 18,000 Fios video subscribers, reflecting the ongoing shift from traditional linear video to over-the-top offerings. At the end of the quarter, Verizon had 5.8 million Fios Internet connections and 4.6 million Fios Video connections.

Business Services: Business service revenue results were again mixed with each segment. Enterprise and Business market revenues declined 5% and 5.8% to $2.2 billion and $933 million, respectively.

Despite the declines, Ellis noted that Verizon is seeing an uptick in fiber-based services.

“Growth in fiber-based services continues,” Ellis said.

Partner Solutions, meanwhile, reported $1.24 billion in revenues, down 3.3%.

Financials: Verizon reported total operating revenues of $31.7 billion, up 2.5% from the third quarter of 2016. On a comparable basis excluding divestitures and acquisitions (non-GAAP), consolidated revenues declined 2.3%.

Third-quarter net income was $3.7 billion. EBITDA (non-GAAP, earnings before interest, taxes, depreciation and amortization) totaled $11.5 billion.