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Why Are Verizon’s Consumer Wireline Segment Revenues Growing?

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Mar. 31 2015, Updated 9:06 a.m. ET

FiOS drives growth of Verizon’s consumer wireline

In the previous part of this series, we learned that Verizon’s (VZ) wireline division revenues declined year-over-year in 4Q14. We also learned that, among the large segments of the wireline division, the consumer wireline segment grew during the quarter. Now, we’ll analyze this segment to find out what’s driving this demand.

The growth of Verizon’s consumer wireline revenues came predominantly from FiOS customers during the quarter. Consumer wireline revenues from this high-growth segment increased ~11.1% year-over-year in 4Q14.

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FiOS is Verizon’s fiber-optic voice, data, and video solution. It’s similar to AT&T’s (T) U-Verse. FiOS provides high-speed Internet connections that are much faster than traditional DSLs (digital subscriber lines). Its internet speeds are comparable to that of cable companies such as Comcast (CMCSA) and Time Warner Cable (TWC).

Verizon offers FiOS to both consumers and businesses. However, FiOS derives most of its revenues from the consumer wireline segment. Consumers contributed to an estimated ~93% of FiOS revenues in 4Q14.

FiOS continues to grow within the consumer wireline segment. As you can see in the chart above, FiOS’s contribution to Verizon’s consumer wireline revenues evenly increased from ~73% in 4Q13 to ~77% in 4Q14.

Legacy voice services dampen consumer wireline revenue growth

Despite high year-over-year growth of FiOS consumer revenues, consumer wireline revenues increased at a slower ~4.1% rate in 4Q14. This difference should be due to shrinking legacy voice services in the residential segment. Telecommunication companies’ legacy wired voice services are declining due to customer migration to wireless and VoIP (voice over Internet protocol) services.

If you want to take on diversified exposure to Verizon, you can invest in the Technology Select Sector SPDR Fund (XLK). The ETF held ~5% in the company on March 19, 2015.

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