Verizon's new $18 billion bet on fiber doesn't add up
Verizon's spending an additional $18 billion to connect 18 million homes to its new Fios fiber-optic network. That works out to a neat $1,000 per customer, right? Think again, writes networking news site Light Reading. The real cost per actual customer could be as high as $9,650, if you assume that only 1 out of 10 potential customers sign up for service. And at the Nyquist Condition blog, venture capitalist Andrew Schmitt points out that it will cost Verizon another $880 to hook up a customer even after the fiber connection is built. The fiber bills just keep on coming.
Ten thousand smackers is a pretty hefty bill to sign up just one customer. If the goal is to provide television service to compete with cable, Verizon might be better off throwing in 15 years of free satellite TV for every phone customer that doesn't defect to cable. Of course, there is a financially sound reason for Verizon to convert its network from copper to fiber, Schmitt also notes: Fiber is 80% less likely to break and require replacement, leading Verizon to believe it will save $1 billion a year in operating costs by 2010.
The facts already contradict the assertion that Verizon will only get a 10% penetration rate. Here on Long Island, where Verizon FIOS has been available for at least six months, uptake rates may be as high as 30-40% as cuastomers flee Cablevision. FIOS is a bet the farm winner. Look for VZ to triple in price over the next five years as it starts to layer on new advanced services that FIOS bandwidth will support.
Living 25 minutes from Manhattan still does not afford me the ability to use FIOS. Not only will I not be switching over once it is available, but I refuse to ever purchase service from Verizon again.
Strategically, Verizon really needs to do this. Their core business is declining. Meanwhile the cable monopolies are fat with profits. It's a natural decision to go where the money is. They have the technical capability and scale to pull this off. Economies of scale will come and this will prove to be a very smart business decision. Too bad AT&T is so much more risk averse, as we on the left coast have no access to direct fiber service.
Once you understand all the options that fiber cable to the premises brings to a huosehold over cable, you will understand that the a 10% penetration is way understimated. Besides FIOS TV is not the only product Verizon plans to deliver over FTTP.
10% is heavily understated. I have switched to FiOS and Cablevision has called three times and knocked on my door once for me to switch back, all expenses paid. Triple-threat now with Fios, left Optimum3. If it was only 10%, they wouldn't be trying this hard for me to come back
CNNMoney.com Comment Policy: CNNMoney.com encourages you to add a comment to this discussion. You may not post any unlawful, threatening, libelous, defamatory, obscene, pornographic or other material that would violate the law. Please note that CNNMoney.com makes reasonable efforts to review all comments prior to posting and CNNMoney.com may edit comments for clarity or to keep out questionable or off-topic material. All comments should be relevant to the post and remain respectful of other authors and commenters. By submitting your comment, you hereby give CNNMoney.com the right, but not the obligation, to post, air, edit, exhibit, telecast, cablecast, webcast, re-use, publish, reproduce, use, license, print, distribute or otherwise use your comment(s) and accompanying personal identifying information via all forms of media now known or hereafter devised, worldwide, in perpetuity. CNNMoney.com Privacy Statement.