By Ryan Knutson And Chelsey Dulaney
Verizon Communications Inc. is feeling the bruises of a fight it
picked with content companies.
Growth in subscribers for its FiOS video service fell 74% in the
second quarter from a year ago while it added only half as many new
customers for its FiOS Internet service. The growth rate was the
slowest in six years, according to research firm MoffettNathanson
LLC.
At the same time, Verizon cut its full-year revenue forecast as
the carrier is slashing prices amid growing competition for
mainstream wireless subscribers. Shares of Verizon fell more than
2% in recent trading.
The slowdown for its FiOS services comes after Verizon launched
so-called skinny bundles that provide fewer TV channels and allow
customers to purchase select content packages of particular content
categories like sports, kids or pop culture, instead of buying
hundreds of channels in bulk.
The new service drew anger from content companies. ESPN sued
Verizon for allegedly breaching their contract, a claim that
Verizon is disputing. And Verizon said advertisements for the new
service, called Custom TV, were blocked in big markets like New
York and Philadelphia for 45 days, which crimped its ability to
sign up customers.
"Given the disputes that we had in Custom TV, we also were
blacked out for many content providers in advertising this
product," Verizon Chief Financial Officer Fran Shammo said during a
call with analysts. "It took us out of market."
Also an aggressive customer-acquisition campaign from Comcast
Corp. and Time Warner Cable Inc. following their failed merger
earlier this year also hit growth, according to Mr. Shammo.
Mr. Shammo said interest in Verizon's skinny bundles exceeded
the company's expectations with one-third of gross customer
additions choosing the skinny bundle, and some existing customers
migrated to it as well. Verizon added net 26,000 FiOS video
subscribers in the three months ended June 30, and a net 72,000
subscribers to FiOS Internet service.
Meanwhile, Verizon added 1.1 million new postpaid wireless
subscribers, or 21% fewer than it did a year ago. Verizon again
leaned heavily on tablets for growth in the latest quarter,
continuing a recent trend for the industry. The company said it
added a net 852,000 tablets and a net 321,000 of the more lucrative
handset customers.
Postpaid churn, or the rate at which customers canceled service,
edged down to 0.9% from 0.94% a year earlier. Verizon said it was
its lowest churn rate in three years.
Verizon, the first big telecom company to report its earnings
for the quarter, has faced tougher competition as rivals like
T-Mobile US Inc. and Sprint Corp. have offered generous deals and
paid subscribers to switch.
Overall, Verizon's net income edged slightly higher to $4.23
billion from $4.21 billion a year earlier. Revenue grew 2.4% to
$32.2 billion.
Write to Ryan Knutson at ryan.knutson@wsj.com and Chelsey
Dulaney at Chelsey.Dulaney@wsj.com
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