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Summary:

Verizon, for the first time gave a clear outline of its FiOS (fiber to the home) plans, telling investors that the company’s big fiber network upgrade is going to cost a total of $18 billion, At present the cost to pass a home is about $933 […]

Verizon, for the first time gave a clear outline of its FiOS (fiber to the home) plans, telling investors that the company’s big fiber network upgrade is going to cost a total of $18 billion, At present the cost to pass a home is about $933 but the company wants to bring it down to $850 per home and continuously drive down that cost, Associated Press reports.

Light Reading’s Phil Harvey says that it is going to cost about $9000 per home, which seems a bit preposterous to Ron Jeffries. I have a feeling this debate is going to escalate. Instead, time to turn attention to other stuff, which is getting lost in the general optimism around the news.

Verizon said that FiOS TV had about 100,000 subscribers among one million homes where the service is available. That works out to about one in ten FiOS TV ready homes or 10% of the addressable market. By end of 2006, that number is going to increase to 175,000 as service becomes available to 1.8 million households or 10.28% of the total addressable market.

These numbers show that no one is dropping everything and rushing out to buy FiOS TV right now. Verizon’s low-end estimate of 20% market penetration by 2010 (3 million the 15 million homes) seems a tad optimistic, but then who knows what future will bring. The company says profits will come in 2009…. just not soon enough.

Now FiOS Broadband – that is a whole different story. They will have 750,000 customers (though 30% are Verizon DSL switchers) by end of 2006, 15% of their total addressable market. Verizon get $40 a month for FiOS TV service (200 channels etc.) and $40 a month for 10 megabit Internet service. Essentially the same amount of money, thought clearly more people are interested in faster speeds that anything else.


Maybe instead of mucking around with TV, Verizon should be selling more premium tiers, and start making more money right now. And they have headroom when it comes to boosting speeds. Dave Burstein of DSL Prime says BPON allows them to do 100 megabits per second down, and 30 megabits per second up. GPON would allow 250 down, 120 megabits/second up.

“Dynamic bandwidth allocation means the 2.4 gig down, 1.2 gig up is effectively shared, so that 99+% percent of the time any user needing speeds in the hundreds of megabits can access them,” he writes in his special bulletin today.

“It is refreshing to see such a large company aggressively deploying new technology, particularly going against the grain of short-term oriented Wall St. thinking,” writes Andrew Schmitt and he is right. Just now if they could think fresh!

  1. Now FiOS Broadband – that is a whole different story.

    Interesting that 10% of the addressable market means “no one is dropping everything to get it” but 15% is “a whole different story.” While the difference between 10% and 15% can certainly be the difference in profitability, that seems a tad hyperbolic. Especially when, as you note, 30% of the broadband customers are switchers from Verizon DSL, meaning that about, oh, 10% of the addressable market for FiOS broadband are new Verizon Internet access customers, whereas all the TV ads are pure new adds.

    It’s true that the customer numbers are quite different, but at the same time they don’t (aren’t able to?) offer FiOS TV in all the places that they offer the broadband service.

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  2. I am an early FiOS customer and love the service. Zero glitches since Day One. I got it “unbundled” (I have no voice association with Verizon any longer) which was the deal-clincher for me. My feeling is the transition to FiOS will accelerate with the new video services being offered – especially iTunes, but including Vongo and CinemaNow. FiOS is great for high-volume downloads.

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  3. John,

    FiOS Broadband – look at their subscriber numbers by year end, and basically on the broadband side of things, they are limited by the number of people who can install the equipment.

    the demand for the service is fairly strong, and market checks show that. they could easily get to 25% market penetration by next year, my unofficial sources are saying.

    people want more speed right now, and verizon can sell them. 15% = 750,000 customers paying $40 a month for FiOS broadband. 175,000 paying $40 for FiOS TV. Its fairly easy to see where the demand is right now.

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  4. i would love to get FIOS too bad it is only offered in one neighborhood in philadelphia.

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  5. Om … you hit it. I’ll say it more directly. Carriers are gonna get killed on TV. I want download TV — like iTunes, Guba, etc are doing. I’ve paid for the highest speed my provider has for the past years and will continue doing so. It makes my eMusic, audible, and ITunes experience sooooo much better.

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  6. FiOS Broadband – look at their subscriber numbers by year end, and basically on the broadband side of things, they are limited by the number of people who can install the equipment.

    Yes, yes. And on the TV side of things they’re limited by the number of people who can install, and the difficulty in getting localities to give them cable franchises. The signup numbers as a percentage of eligible customers aren’t that far off between FiOS TV and FiOS Broadband.

    I just don’t see how it’s justified to use the difference between 10% and 15% to say that customers aren’t interested in FiOS TV but love FiOS broadband. Now, Verizon may not be able to get TV franchises everywhere, but they’d like to in order to leverage the FiOS investment. Since the signups as a percentage of eligible customers is fairly similar to that of Broadband (and extremely similar from a revenue standpoint if you compare new adds to new adds, and don’t count the cannibalization of DSL customers), I don’t see how you can make the statement that Broadband is a roaring success than people are falling over to sign up for but TV is something customers don’t care about.

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  7. 15% = 750,000 customers paying $40 a month for FiOS broadband. 175,000 paying $40 for FiOS TV. Its fairly easy to see where the demand is right now.

    That reflects the number of communities which have given Verizon franchise rights. FiOS Broadband is AVAILABLE in FIVE times as many households due to the franchise situation. How can you reasonably compare the subscriber numbers based on that?

    That’s like saying that customers prefer cable modems or DSL to FiOS Broadband because a greater number of raw customers are signed up for either than for FiOS. “It’s easy to see that the demand right now is for cable modems and DSL, not FiOS Broadband. Just look at these raw higher customer numbers.” In reality, of course, FiOS isn’t available everywhere, but it’s share of eligible households is quite good. Same goes for FiOS TV.

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  8. I have to agree with John Thacker here. Fios Broadband helps sell Fios TV and vice versa, but they are not both available in the same areas yet. Didn’t Comcast just gush about how sucessful bundling has been for them? That also plays on just what Verizon offers in terms of broadband speeds. If they make that broadband service too good at too low a price, their video and voice services become a lot less compelling than Internet-based options. This is why they will continue to push for tiering, so that they can create the performance difference even when you have a 100 Mbps symetrical connection. Don’t expect Verizon to unleash FiOS’ true potential, except in markets where they have an aggressive competitor like Cablevision, until they get a strong indicator that tiering will be ok with Congress and the FCC. Meanwhile, why is nobody addressing the major issue that Verizon can’t/doesn’t really offer the true FiOS package to existing MDU. As someone who doesn’t expect to stop being an apartment dweller any time soon, FiOS is largely irrelevant to me (much like DirecTV and it’s coveted NFL package).

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  9. john and jesse,

    this is a first. disagreement between us. however, the backlogs for fios broadband are much higher right now, thank TV stuff. they have approvals in 161 communities, and if it was all that it would have much higher adoption, given how much people hate their cable companies.

    having said that, FiOS broadband is truly new, offers better experience than DSL and Cable Broadband. If I could, I would sign up for it right now and pay $50 a month for a dependable 10 meg connection.

    by the way, all the cable triple play success is fine for now, wait till the promotions run out and the price bumps up from $30 a month to $45 or so a month. i want to see what happens then.

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  10. I switched to FIOS Internet/TV when my Comcast/TW cable started getting twitchy. I live in Texas where we are one of the early benefitiaries of FIOS. The neigbhoring Keller was the first city to get it. I regret not getting it sooner as it has been without any issues now for 3 months. Getting the FIOS TV was a no brainer as the installer was going to take the same time one way or other.

    Even though I am very much a big-corp hater, I have to say that this service beats my Comcast cable anyday. Go, call them.

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