An Ignoble Experiment

2. DirecTV boosts U.S. revenues to $6.09B, but net income declines

Given the opportunity to come down favoring or opposing Comcast's (NASDAQ: CMCSA) bid for Time Warner Cable (NYSE: TWC), Verizon (NYSE: VZ) CFO Fran Shammo stood firmly in the middle.

Shammo

"We don't really publicly state for or against anything," Shammo told an early morning Miami audience at Jefferies 2014 Global Technology, Media and Telecom Conference. "We compete with Comcast today; we compete with Time Warner Cable today. One replaces the other (and) we compete with each other."

The way that competition takes place, at least with FiOS, could be changing as Verizon increasingly moves away from a linear TV model into something more flexible, Shammo said.

"I'm more intrigued with the multicast technology that's coming on wireless which will in essence enable us to give you 24-hour programming extremely efficiently in the wireless network," Shammo said. "I think that sports, news, concerts, those types of things that people want to view real-time will be an ecosystem that can be created around content that doesn't disrupt or affect the linear TV model."

Shammo suggested that these ecosystem changes will occur "over the next 12 months to 24 months."

By then Verizon will have already made its next big FiOS move: going all-IP with a video server and removing the need for set-top boxes. That's expected to happen by the middle of this year, Shammo said, with Verizon driving entire residential services over IP.

"The real benefit for the customer is that you have one piece of equipment in your home," he said.

The other benefit to Verizon, of course, is reduced installation time and reduced CPE costs.

"All I have to do is connect that media server up to our ONT, light it up, get the IP technology in the home working and we believe it cuts our install time by about 50 percent," he said.

Which is great for those who are in markets that can get FiOS; not so good for those looking in from the outside with FiOS envy. That's a situation that's not going to change … ever.

"We'll continue to fulfill our FiOS LFAs (license franchise agreements). We will complete (the FiOS buildout) with about 19 million homes passed. That will cover about 70 percent of our legacy footprint; 30 percent we're not going to cover," he said.

That 30 percent will continue to be served by legacy copper networks.

"We will continue to harvest that copper network and those customers and keep them as long as we can but we will not be building FiOS out to those areas," Shammo said.

There has been some concern that this strategy is stifling FiOS growth--especially after Verizon reported very low FiOS TV and broadband additions in the first quarter. That's not the case, Shammo said, blaming a "harsh winter" in the Northeast as a reason for install slow-downs.

"Coming out of that quarter I saw positive things when the weather broke," Shammo said. "I think the second quarter will be a better quarter for us."

Then, too, there are only so many subscribers to be added in some markets, he cautioned.

"Some of our markets are at 40 percent penetration; we have markets at 50 percent penetration. Those markets will slow," he conceded.

On the other hand, there are markets like New York where "there's still a lot of room for growth in the FiOS area."

Read more about: Shammo, multicasting
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By Jim Barthold

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3. Fibe TV bolsters Bell Canada wireline business, with 54,680 subscriber adds

DirecTV (NASDAQ: DTV) reported a 4 percent year-over-year revenue improvement in the first quarter when, worldwide, the satellite provider brought in $7.86 billion. But earnings per share fell to $1.09 compared to $1.20 a year previously, below analysts' estimates, as net income fell to $561 million.

U.S. operating profit expanded year-over-year for the third consecutive quarter, "highlighting our commitment to profitably grow our business through significantly improving the customer service experience, disciplined expense management and productivity initiatives," President-CEO Mike White said in an earnings release.

U.S. revenues for the quarter were $6.09 billion, compared to $5.79 billion in the year-ago period, the company's statistics showed. ARPU also went up to $100.16 a month versus $96.05 a year ago as average monthly subscriber churn stayed even at 1.45 percent.

Year-over-year net subscriber gains were 12,000 as DirecTV now has 20.27 million U.S. subscribers. Gross subscriber additions of 891,000 were about the same as last year's 893,000.

Latin American revenues and ARPU were down. Revenues of $1.72 billion were $8 million less than the same period in 2013 and ARPU of $48.83 was down from $54.23 year-over-year.

"In Latin America, despite challenging macroeconomic headwinds, we continue to profitably expand our share of the growing pay TV market while delivering adjusted OPBDA (Operating Profit Before Depreciation and Amortization) margin of 30 percent," White noted in the earnings release.

The results drew praise and caution from analyst Craig Moffett of MoffettNathanson who, in an analyst note, said that "DirecTV is exceptionally well managed, they have very good product, they generate a ton of cash and they buy back a tremendous amount of stock."

On the other side of the ledger, though, DirecTV is noticeably lacking in an element every video player needs these days: a broadband connection. That's led to some speculation of late that the satellite provider will be acquired by AT&T (NYSE: T) for what some believe will be about $40 billion.

That's not the most sensible move out there for either company, Moffett said. The most sensible move would be to merge with fellow satellite provider Dish Network (NASDAQ: DISH) but "that avenue is very likely blocked" by regulators.

"Neither DirecTV nor Dish Network is a particularly good fit for AT&T," Moffett noted, but if a merger is going to happen for reasons other than fit, "DirecTV brings by far the better brand, the better management team and the better business … but no spectrum."

Dish, on the other hand, has been stockpiling spectrum which every wireless provider covets more than gold. But Dish, Moffett continued, has "a weak brand and a struggling business."

For now, DirecTV will have a challenged business model because "cable's ability to bundle broadband and video presents an almost insurmountable pricing challenge to satellite TV."

For more:
- DirecTV has this earnings release
- MoffettNathanson has this analyst note (sub. req.)

Read more about: AT&T, Broadband
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By Jim Barthold

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4. AOL revives Moviefone for push into TV listings space

Fiber-to-the-home (FTTH)-based IPTV service Fibe TV helped Bell Canada offset ongoing declines in its traditional wireline business in the first quarter.

Bell Canada added 54,680 net new Fibe TV customers in the first quarter, a 15.2 percent increase over the first quarter of 2013. The Canadian telco now has 534,110 Fibe TV customers across a footprint which grew by more than a million homes to reach 4.5 million by the end of the first quarter. High-speed Internet net customer additions increased almost four times year-over-year from 3,952 to 15,627 as the carrier ended the quarter with 2.2 million high-speed subscribers.

Overall Bell wireline operating revenues decreased 1.8 percent to $2.46 million in the quarter while wireline data revenue was up 2.1 percent to $1.46 million.

In the non-wireline TV segment, the carrier reported that Bell Satellite TV losses improved 22 percent to 26,119 as fewer retail customers deactivated service "despite aggressive customer conversion offers from cable TV competitors."

The end result was a net increase of 28,561 Bell TV subscribers and a subscriber base of 2.307 million TV subscribers for the Canadian telco.

Additionally, Bell Aliant revenues were down 1.2 percent to $676 million from $684 million thanks to declines in voice revenues and the "adverse revenue impact from intense competitive pricing in both its consumer and business markets that were not fully offset by continued solid growth in data service (Internet and TV) revenues, the carrier said in the press release.

Overall, Bell Canada reported a 4.4 percent increase in operating revenues to $4.54 billion.

"Bell's strategic investments in advanced broadband networks and services, improved customer service and Canadian content development (via Bell Media) are driving the growth services--wireless, TV, Internet and media--that are rapidly transforming our business," George Cope, president and CEO of BCE and Bell said in the press release.

Cope specifically called out Fibe TV's contributions.

"Fast-growing Fibe TV is increasing Bell's share of the household as it drives significant gains in high-speed Internet additions and reductions in home phone losses," he said.

For more:
- see this earnings release

Read more about: Bell Canada
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By Jim Barthold

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