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Verizon recently launched its FiOS TV and fiber-based broadband service in New York City, The New York Times is taking stock of the service, which seems to be doing well. Verizon’s $23 billion investment into FiOS wasn’t viewed kindly, and Wall Street viewed AT&T’s cheaper U-Verse plan as more practical and affordable.
Despite such early shellacking on Wall Street, the company’s decision to go with the more expensive fiber is proving to be smarter, even though it is still not clear if (and when) Verizon is going to start making big money on its bet.
“If I were an auto dealer and I wanted to give people a Maserati for the price of a Volkswagen, I’d have some seriously happy customers,” said Craig Moffett, an analyst with Sanford C. Bernstein. “My problem would be whether I could earn a decent return doing it.”
Moffet estimates that the company is going to lose about $6 billion on FiOS all told. Others feel that 20 percent buy-in from potential customers makes it profitable. Wall Street seems to have warmed up to the Verizon story, impressed perhaps by its recent growth, especially when stacked up against AT&T.
My view is that all U.S. phone companies are in trouble because of major shifts that are going on in the industry. Verizon, with FiOS, at least has an offering that addresses the needs of the future broadband users. Whether they make money on it, who knows.
At the end of second quarter 2008, Verizon had more than 2 million FiOS Internet users and 1.4 million FiOS television users. In comparison, AT&T has 549,000 subscribers for its TV service. Verizon is offering better speeds than AT&T and is very competitive with its local cable rivals such as Time Warner Cable and Cablevision. In comparison, AT&T so far offers regular DSL packages whose speeds are spanked silly by cable offerings.
Anecdotally (and acknowledging the fact that technology blogs are skewed in favor of early adopters), it seems Verizon FiOS subscribers are happier with their Internet connections. I have no gauge of people’s reactions to FiOS TV. In comparison, AT&T U-Verse seems to elicit a response that can be summed up in one word: meh!
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