August 1, 2006 1:33 PM PDT
Verizon's Fios services build momentum
Verizon plans to spend $20 billion over the next several years to build a fiber-optic network that reaches directly to the side of its customers' homes. Over that period, it expects to make access to the network, called Fios, available to 60 percent to 70 percent of its current customer base.
For the first time, the company discussed details of the project's progress. More than 25 percent of the 440,000 new wireline broadband customers that Verizon signed up came from Fios Internet services, executives said.
In total, Verizon said, it now has 375,000 Fios customers, or about 12 percent of the available market. More than 3 million homes and business are able to get Fios service today. The company said momentum is building, with about 111,000 Fios Internet customers signing up in the second quarter alone.
Fios is Verizon's best hope of competing with cable companies, which are now offering voice services as part of a "triple play" bundle that also includes television service and Internet access. Comcast, the largest cable operator in the country, reported during its second-quarter earnings call that it has added 306,000 customers to its telephony service.
The competition factor
Doreen Tobin, chief financial officer for Verizon, said that Comcast's aggressive push into the voice market is having an impact on competition in the market. AT&T also noted during its second-quarter earnings call that it has noticed the increased competition.
"It's fair to say with the new Comcast service we're seeing increased competition in those areas where they've turned up the service," she said.
For the past couple of years, Verizon has seen sharp declines in the number of customers using its traditional phone service. And the second quarter was no different. Verizon reported it had lost 553,000 residential phone lines. Some of this comes from the loss of the MCI residential phone business that Verizon has stopped marketing. But a good portion of this figure is likely due to customers using their cell phone or subscribing to a voice over Internet Protocol (VoIP) service from a company like Vonage or from the cable companies.
In effort to compete for the triple-play customer, Verizon is offering Fios TV service. The company said it made significant progress during the second quarter in securing the local franchise agreements necessary to deliver the TV service. Fios TV is now available in 60 markets across seven states. After only three months in a market, Verizon reported, it had signed up on average about 7 percent of available customers. After six months, it averages about 10 percent of the available market, the company said.
While Verizon's Fios network helps the position the company for the future, it has been expensive to build. As a result, the company has been pressured to cut costs.
But executives seem confident that the new network will ultimately pay off by attracting new customers, who will be willing to pay more money for more services.
"Could we go higher in terms of penetration?" Verizon's chief executive, Ivan Seidenberg, said during the call. "I expect we will. But our experience to date is what it is. We're not going to come off the trends in any big way soon, but if we continue to do what we've been doing, we can beat the progress we're making now."
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