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Verizon Goes For The Triple Play

Posted: Sep 03, 2008 08:13 AM by Gregory S. Davis

Filed Under: Economics

Tickers in this Article: EQ, TWC, TWX, VG, VZ

Competition in the telecommunications industry is moving from the battle for consumer voices to the battle over television service choices. Verizon (NYSE:VZ) FiOS has landed in New York and hopes to find its way into your hometown.

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With incentive pricing set below the triple-play option (voice, internet and cable) that consumers can receive from competitors like Time Warner Cable (NYSE:TWC), Verizon is bringing the fight to customers' doors. The battle for larger invoices from customers could lead to gains for investors who follow the fortunes of telecom service providers. (Learn why competition is important in our Economics Basics Tutorial.)

The Challenger
Verizon FiOS runs on a 100% optical network and offers customers the same bundle of services offered by TWC. The FiOS signal can use the existing coaxial cables that most cable subscribers use in their homes. FiOS TV offers more than 200 digital channels with its premier package along with a dual-tuner DVR and various high-definition channels.

Verizon's First Half
While financials stumbled and oil prices climbed earlier in the year, people and businesses still needed to connect. Verizon’s consolidated revenues increased 4.6% to $48 billion for the first six months of the year over the same period in 2007. Although wireless services led the way to improved revenues over the previous year, the telecom provider increased its FiOS TV customers by nearly 13% for a total of 1.38 million FiOS TV customers at the end of Q2.

Verizon’s initial application to provide FiOS TV in New York expresses the possibility of its service reaching 3.1 million households. Since Jan. 1 Verizon’s stock has fallen 16%, but its 5% dividend yield has served as a good buffer for existing shareholders. (To learn more about this lucrative distribution of company profits, read The Importance Of Dividends .)

The Incumbent
TWC has more than 14 million subscribers to one or a bundle of its video, internet and voice offerings. About 90% of those customers are cable TV subscribers. TWC separated from Time Warner (NYSE:TWX) in May with TWE remaining as the largest shareholder in TWC.

Time Warner Cable's First Half
TWC also increased revenues for the first half of the year to $8.5 billion, representing an 8% gain over last year's comparable period. Subscription fees for its voice, high-speed data and video services led the way. TWC stock is basically flat since January 1.

Final Thoughts
With competition from online carriers like Vonage (NYSE:VG) and smaller cable carriers like Embarq (NYSE:EQ), telecom is a tough marketplace. Quality of service and price will ultimately determine which companies attract the most customers and offer investors the best opportunities for positive returns.

By Gregory S. Davis

Gregory S. Davis is the owner of G. Davis Capital, a Registered Investment Advisor with the state of North Carolina dedicated to providing independent investment research and education. His core methodology for choosing investments includes going against emotion eliciting headlines while focusing on asset diversification. G. Davis Capital also publishes the ETF education website, ETFReady.com . Gregory is a graduate of the Wharton School of Business and he has received an MBA from Bowie State University.

Filed Under: Economics

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