Verizon FiOS Lessons for 1-Gbps Access Providers

Two subjects from Verizon's first quarter 2012 earnings report jumped out at me, one being wireless data revenues, the other being FiOS penetration.

Data revenues were $6.6 billion, up $1.1 billion, or 21.1 percent, year over year, and now represent 42.9 percent of all wireless service revenues. Total revenues were $18.3 billion, up 8.2 percent year over year.

Also, retail postpaid average revenue per user grew 3.6 percent over first-quarter 2011, to $55.43. Retail postpaid data ARPU increased to $23.80, up 16.0 percent year over year. Retail service ARPU grew 3.4 percent, to $53.66.

The second subject was FiOS penetration. Verizon had a total of five million FiOS Internet and 4.4 million FiOS video connections at the end of the quarter. FiOS Internet penetration was 36.4 percent at the end of first-quarter 2012, compared with 33.1 percent at the end of first-quarter 2011, Verizon reports. 

In the same period, FiOS video penetration was 32.3 percent, compared with 29.1 percent in the same quarter a year ago. 

The conventional wisdom, and in fact the correct wisdom, is that Verizon growth is lead by mobile service revenues, and that mobile service revenues are lead by mobile broadband services. That clearly is the case at Verizon Wireless. 

Also, mobile broadband revenues seem to be kicking ARPU higher, despite the decades-long downward drift of average ARPU, industry wide. 

The other observation is that fiber to the home does not sell itself. Some of us tend to believe that the advantages of fiber to the home are so obvious Verizon would only have to "build it and they will come." Not so, it turns out. 

Some 36 percent of consumers able to buy FiOS broadband have done so. About a third of customers able to buy FiOS video services have done so. Some of us would say the former figure is less than we'd have expected, the latter about what we would have expected. 

Video competition is brutal, with Verizon facing two experienced satellite providers and a cable operator in every market. Getting a third market share is an accomplishment.

The continuing surprise is that broadband access penetration is not higher. 

Put another way, Verizon has built an extensive fiber-to-the-home network that provides one brand new service--video--and a better experience for an existing service. But that investment garners about one in three households for the new service, and only a bit more than that for the better broadband service. 

Though there is slow movement to higher access speeds, Verizon's experience suggests providers of 1-Gbps services should have realistic expectations about take rates.