FiOS: Too Risky?

Posted by Sam Churchill on

Four years ago, Verizon Communications embarked on an ambitious and expensive plan to run fiber optic cables past 19 million homes, roughly half its territory, reports the NY Times.

When it was announced, Verizon’s $23 billion planned investment in the service, called FiOS, was met by a chorus of skeptics, both on Wall Street and among rivals. Verizon rejected cheaper broadband alternatives and decided to build the fiber system at an estimated cost of about $4,000 for every customer.

Now, as Verizon begins to roll out FiOS in its hometown, New York, the company argues that the service is proving to be more successful than it promised when it started the project.

Despite prices that average well above $130 for a bundle of Internet, TV and voice services, 20 percent of the homes where FiOS is available have signed up for its video service, and 24 percent buy the Internet service, which offers speeds up to five times faster than cable competitors.

Still, it might be a decade before anyone really knows whether Verizon’s bet on FiOS is a smart investment in the future or a multibillion-dollar black hole.

Craig Moffett of Sanford C. Bernstein, has a bearish take on both the traditional wireline phone business and on Verizon’s FiOS effort.

Through 2010 the company will pay an average of $817 to run the fiber past the 19 million homes, on poles or under the ground. It will also incur $172 per home passed in other costs related to the video infrastructure. He assumes that 40 percent of the customers passed will buy at least one FiOS service. That makes the cost of building the network $2,473 per home. Once someone decides to buy FiOS, Verizon will spend another $718, as Mr. Moffett calculates it, for equipment in the home and labor. There is another $130 in marketing expenses, and $576 for interest on money spent to build the network before it is completed. All this adds up to $3,897 in capital cost for every FiOS customer.

FiOS brings fiber-optic to the house but distributes television using coaxial cable inside the home.

The City of Portland is set to mount a city-sponsored “fiber-to-the-premises” initiative (staff report), according to Portland’s Willamette Week newspaper. Commissioner Dan Saltzman is heading the charge along with David Olson, who runs Portland’s cable and franchise office.

Count me among the skeptics.

I wouldn’t bet against wireless for the last mile. Cellular operators will have the speed — but not the spectrum. Next Generation Mobile Networks (like LTE) are aiming for 100 Mbit/s down and 50 Mbit/s up. The GSM Association believes mobile broadband will reach speeds of 100Mbps before fixed line broadband. But getting fiber to the tower, proximity to a transmitter, load and spectrum capacity are key factors. Clearwire has some 120 MHz in their pipe. That’s ten times the capacity of cellular data — and it’s cheaper to deploy than DSL. Mobile WiMAX speed will be boosted to 100 Mbps (with 802.16m) in a couple of years.

Whoa, baby!

A public/private partnership with city-sponsored, net-neutral, fiber backbone to neighborhood hubs might make sense as a first step. Fiber to the cell tower. A “net-neutral” approach to hubs might be a good fit for municipalities, lower costs and risks, and draw support from industry. Sell the backhoe.

Spending $4K per home seems risky if wireless competitors can deliver 100 Mbps for $100.

Look at the options; “white spaces” (in the television band), 700 MHz (licensed), the 1.7/2.1 Ghz band (licensed AWS), the 2.155-2.180GHz (”free” munifi), 2.4GHz (unlicensed wifi), 2.6GHz (licensed wimax), 3.65 GHz (lightly-licensed), 4.9GHz (licensed) public service, 5.4-5.8 GHz (unlicensed wifi/wimax) and 60 GHz (unlicensed).

Verizon’s FiOS can deliver 20 Mbps for $70/month — but if wireless can deliver 20Mbps service in a couple of years, it might deliver all you really need — with mobility and open architecture.

Triple play.

Other fiber optic articles on Dailywireless include; Municipal Fiber: Fits and Starts and Be Your Own Fiber Net.

Posted by Sam Churchill on Wednesday, August 20th, 2008 at 7:45 am .

Leave a Reply