Verizon's (NYSE:VZ) results were in line with the Street's expectations. VZ earned $1.03 billion in Q4 of 06 vs $1.66 billion in Q4 2005; they also added 2.3 million customers. vs the Street's estimate of 2.1 million, most of them prized monthly subscribers. However, VZ's profit came short thanks to restructuring costs.
Wireline revenues were in line with weaker consumer offset by strong business trends. FiOS video was also strong, while data was a bit softer than expected. However, the Street continues to believe demand remains robust for the new service.
VZ’s business segment fundamentals will continue to gradually improve in 07, thanks to improving pricing trends (in enterprise and consumer revenues) and realized merger synergies. VZ seems to be progressing well with its growth strategy and expects a stronger focus on cost cutting going forward.
Competition in the industry has intensified thanks to the entry of cable companies in the telephone services sector. Declining service prices, coupled with the introduction of new and sophisticated technologies to improve the overall service quality, are enabling the wireless companies to rapidly add new customers.
Hence, wireline companies are losing ground to wireless as well as cable companies. Furthermore, VoIP has resulted in lower rates of telephonic services is leading to loss of subscribers for the wireline companies. According to the IDC, the VoIP subscriber base is expected to reach 27.0 million by 2010 from 4.2 million in 2005.
Wireline margins were 28% for Q4, higher than expected. The strength appears due to a $100 million sequential step-down in SG&A. In contrast to last Q, wireline margins were better than expected, which leaves room for optimism in 2007. Total wireline revenues were $12.7 billion.
FiOS Internet subscribers increased to 687K in Q4 vs 522K in Q3. FiOS TV subscribers grew to 207K vs 118K and homes open for sale doubled to 2.4 million from Q3. Management expects FiOS dilution to peak in 1Q07 at $0.11, and then gradually decline, for a total negative impact on 2007 EPS in the $0.30 range.
Strength continues in the wireless industry, as the national carriers added 6.3 million net additions vs 5 million estimate. Q4 net additions were down 12% YoY better than the 15% decline in Q3.
VZ's Wireless division reported strong growth with total revenue of $10.10 billion vs Street's estimate of $9.9 billion. Service revenue came in at $8.68 billion, higher than expected, and OIBDA of $3.75 billion came inline with expectations. These results can be credited to higher customer growth in the quarter, particularly strong data revenue growth of 87.6% in the quarter.
Total enterprise revenues came in positive territory (up 2.5% YoY vs -1.5% last year), thanks to growth in managed network data and IP-based services, which outpaced continued pressures in traditional voice and circuit-switched volumes. Strategic data revenues grew 7.5% sequentially to $1.1 billion on growing demand for Internet, Ethernet and ring services.
According to the Telecommunication Industry Association [TIA], the industry’s revenues are expected to grow at a CAGR of 9.5% by 2008, reaching $1.10 trillion. The industry is mainly divided into two segments. Broadband subscribers totaled 41.2 million in 2005 and are expected to grow at a CAGR of 13.9% to 69.2 million by 2009.
The Diversified Telecommunications Services sector generates total revenues of about $697.00 billion, the Wireless Communication Services sector brings in revenues worth $153.50 billion. The industry is witnessing fastest growth in the broadband market due to the falling prices of services and improvement in infrastructure.
VZ 1-yr chart