Verizon’s Fios: $18 Billion Investment, But How Much Is That Per Customer?

Verizon released an extensive presentation on broadband infrastructure and IPTV service Fios to investors yesterday, prompting a wave of speculation about the real cost of roll out. First off, key stats from the release:
— Investment will total $18 billion between 2004 and 2010. That total is net of $4.9 billion that would be needed to maintain traditional copper-wire networks over that period and Verizon expects profitability in 2009.
— Fios will be in 6 million homes by end 2006 increasing by 3 million each year to a target of 18 million homes by 2010, or 50 percent of households in Verizon’s 280 state territory.
— Current Fios internet customers are predicted to be around 725,000 by end 2006, a market penetration of 15 percent. Verizon is targeting 30-40 percent by 2010, and reports that 70 percent of its current subscribers are new Verizon broadband customers.
— Verizon predicts Fios TV customer numbers at 100,000 by end Q306 with a 175,000 target at end 2006, market penetration of 10 percent. The penetration target is 20-25 percent, or 3-4 million customers, by 2010.
— Nearly 80 percent of customers have purchased triple-play. Churn for all services is below 1.5 percent.
On the rates for an individual home, Verizon said it will have reduced the cost of passing a home from $890 at end 2006 to $700 by 2010.
Phil Harvey on Light Reading: He did some lengthy back-of-the-napkin sums and reckoned it would cost Verizon more than $9,650 to connect every home.
Ron Jeffries: He said that analysis is flawed because it doesn’t take into account the cost to Verizon if it doesn’t invest in Fios. He said $4,000 invested per customer over a four-year period: so Verizon needs to generate $48 per customer to make Fios succeed and said that’s not far fetched given the proposed triple play services. The alternative is to go out of business.
Andrew Schmitt on Nyquist Capital: Described the announcement as a solid stake in the ground by which investors can judge ROI and market success. “Verizon is totally committed to cannibalizing its copper plant and DSL customers. 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.”
Om Malik: 2009 just isn’t soon enough to be profitable. “Maybe instead of mucking around with TV, Verizon should be selling more premium tiers, and start making more money right now.”
ZD Net: Reports a story by Dave Burstein of DSL Prime that Fios is 12-18 months away from set-top delivery of all web videos. Bernstein: “If they follow through, they will have accepted the most important issue in net neutrality – honest consumer access to content of her choice.”
Release | Presentation | Webcast

This article originally appeared in MediaGuardian.

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