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FiOS: A Key Growth Driver of Verizon Wireline in 2Q15

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Jul. 21 2015, Updated 10:05 a.m. ET

FiOS is a key growth driver

In the last part of this series, we learned that FiOS is driving the growth in Verizon’s (VZ) consumer wireline revenue. We also learned that FiOS is Verizon’s fiber-based video, Internet, and voice service. It’s similar to AT&T’s (T) U-verse. Also, it’s comparable to cable companies’ offerings like Comcast (CMCSA), Time Warner Cable (TWC), and Cablevision (CVC). Verizon offers FiOS service to both consumers and businesses. FiOS is a key growth driver of Verizon’s wireline division. FiOS revenue continued to grow significantly by ~10.20% YoY (year-over-year) in 1Q15. We expect the robust growth in FiOS revenue to continue in 2Q15.

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Balanced FiOS revenue growth in 1Q15

With an ~$3.4 billion revenue stream, FiOS represented ~35% of Verizon wireline’s total revenue in 1Q15. Its significant YoY revenue growth during the quarter was due to both a larger connection base and YoY growth in unit revenue during 1Q15.

FiOS digital connections rose by ~8.30% YoY in 1Q15. The company added 90,000 FiOS video subscribers. Verizon also added 133,000 FiOS Internet connections—the sought-after customers for wireline telecom companies—during the quarter.

In terms of profitability, Internet subscribers are more profitable for wireline telecoms than video customers. The margins generated on video services are negatively affected by high content costs that telecom companies have to pay to media networks.

On the consumer side, the adoption of FiOS Quantum—the high-speed Internet service—continued to grow in 1Q15. The penetration of this high ARPU (average revenue per user) service in consumer FiOS Internet customers rose from ~51% in 1Q14 to ~62% in 1Q15.

You can get diversified exposure to Verizon by investing in the iShares Core S&P 500 ETF (IVV). IVV held ~1% in Verizon on June 30, 2015.

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