Seidenberg not fazed by access line loss

Ivan Seidenberg, chairman and CEO of Verizon, today told analysts that the increase in access line losses is neither surprising to the company, nor a major cause for alarm, saying Verizon expected the change and prepared for it by building its FiOS fiber-to-the-home network.

“We are not surprised at access line losses; we have been saying for some time that this would happen: that DSL itself is going to be less potent, that wireless is natural substitution,” Seidenberg told analysts at the close of the third-quarter earnings call. His comments came not in response to a question but as part of his final remarks.

“Wireline margins and access line losses — trying to balance this issue on the head of a pin has been difficult,” Seidenberg added. “But we have momentum in all of the growth areas, as we get through this tunnel and see the light at the end of it.”

In particular, Seidenberg said, Verizon’s capex-to-spending ratios are starting to go down, after five years of multibillion-dollar investments in FiOS. “All this investment is starting to give us some leverage,” he said. “We think an 8% return is a very good result, along with a 7% dividend.” Seidenberg also painted Verizon as uniquely positioned to do well, even in a period of economic uncertainty.

Overall, Verizon’s earnings report was surprisingly upbeat, given that analysts had expected the company might suffer from iPhone envy. Profits were up 31% over 2007’s third quarter, and Verizon actually added 1.5 million wireless customers, although its wireless churn rate was up to 1.33% from 1.03%, a fact Denny Strigl, chief operating officer, attributed to the iPhone.

“FiOS continues to show good subscriber growth, deeper penetration and growing ARPUs,” Strigl said. “We have more than doubled our video subscribers to 1.6 million and increased penetration about 500 basis points. For the quarter, we had 233,000 net ads and opened 1.2 million additional homes for sale in the quarter. Despite the rhetoric of cable companies and their advocates, FiOS is a growing formidable competitor. In three months, we reached 10% penetration in Staten Island.”

The average FiOS penetration is 17% in the first year and 26% within two years, Strigl said. “The numbers are better than anticipated,” he added. Verizon is now two-thirds of the way through its buildout and is on plan, both operationally and in terms of sales, Strigl said. “FiOS is scaling and clearly helping to grow consumer ARPU and enhancing margins. This has been our strategy, and we continue to see it work,” he said.

The other major point that Seidenberg, Strigl and Doreen Toben, chief financial officer, all stressed is that competition is putting price pressure on Verizon Business, particularly where long-term enterprise requests for proposal are concerned. Verizon’s plan is to balance the need to win those major deals with its determination to protect margins, Toben added. “We will be disciplined in our approach,” she said.