June 21, 2007 12:04 PM PDT

Verizon's fiber-optic payoff

Verizon's fiber-optic payoff
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CHICAGO--Wall Street analysts who doubted Verizon Communications' aggressive move to build a fiber network directly to people's doorsteps are eating crow as the company subscriber rates for its high-speed Internet and TV service fly through the roof.

At the NXTComm trade show here Wednesday, Ivan Seidenberg CEO of Verizon said the telephone company had signed up its 1 millionth Fios Internet customer and now has almost 500,000 Fios TV subscribers.

Verizon has been building the Fios all-fiber network throughout its territory for the past three years. The network takes fiber directly to the side of people's homes and provides near-limitless bandwidth that can be used to deliver a "triple play" of services including high-speed Internet connectivity, telephone service and TV. The company already offers Internet service that runs at 50 megabits per second. And it's testing service at 100Mpbs.

While the largest phone company in the U.S., AT&T, took what appeared to be a less risky approach to broadband-network deployment--taking fiber only into the neighborhood and using existing copper lines to deliver service to homes--Verizon's Seidenberg was adamant from the start that the all-fiber network would give the company the headroom it needed to ensure growth for the future. In 2004, when Verizon started deploying Fios, naysayers said that the budgeted $18 billion it would take to dig up streets and hang fiber from utility poles made the initiative too expensive and too risky to bear fruit.

But now these doubters are being proven wrong, say analysts.

"Seidenberg did the right thing," said Patrick Comack, an equities analyst with Zachary Investment Research. "And (Ed) Whitacre (AT&T's former CEO) got it wrong. Kudos to Seidenberg for having the courage and long-term vision."

The Fios service has transformed Verizon's business.

"Five years ago, Verizon had 1.6 million broadband customers," Seidenberg said during his keynote speech on Wednesday. "Less than 10 percent of telcom revenues came from data. Today, we have over 7 million broadband customers, hundreds of thousands of video subscribers and for the first time in a long time, consumer revenue is growing again."

Much of this growth has been fueled by the success of Fios. Subscriber rates for the service have exploded as the company ramped up deployment during the past several months. At the end of the first quarter of 2007, Verizon reported that it had signed up 864,000 Fios customers, with a penetration rate of 16 percent. And now it has hit the 1 million subscriber mark. More important, Verizon is also selling video to almost 50 percent of those subscribers.

The video factor
Seidenberg said the company now has close to half a million Fios TV subscribers, which will likely put the company at about 200,000 net additions in the second quarter of 2007. Verizon ended the first quarter with 348,000 Fios TV subscribers. These are impressive figures, says Comack.

"Adding more than 100,000 subscribers in a quarter is impressive for any industry," he said. "And Verizon is probably going to do double that this quarter. It's crazy."

Video is turning out to be the most significant element of the company's bundle. Nearly 80 percent of all Fios video subscribers sign up for the triple-play package of services. Bundles are a key element to Verizon's strategy because they help keep customers loyal to the service.

It was this package, and the promise of better and more reliable service, that attracted the Bayer family of Massapequa, N.Y., on Long Island. Rich Bayer, the father of this family of five, said he was frustrated by the quality of his voice and Internet services from cable provider Cablevision Systems. So the family switched to Verizon, becoming the 1 millionth Fios customer Verizon has signed up.

The Bayers have been using the Fios Internet, telephone and TV service for about two weeks now, and Rich Bayer says he and his family couldn't be happier with the service. They also were surprised by "extras" that were offered, such as the multiroom digital video recorder. When the Bayers had cable service they had only one DVR, in the living room.

"Monday nights always turned into a big fight," Bayer said. "This one wanted to watch 24 and someone else wanted to watch American Idol. Now they can go to their rooms and watch whatever they've recorded."

Bayer said Fios is delivering more high-definition TV channels than he had before--Verizon offers 28 HD channels, Cablevision 25--and noted that his bill for Fios is about the same as it was for cable--about $160 a month for the whole package. (Cablevision announced on Thursday, however, that it will add another 15 HD channels next week for a total of 40 channels of HD content.)

Crossing swords over bandwidth
Cablevision is by far one of Verizon's toughest competitors. The company has spent millions of dollars in the past few years upgrading its network to deliver its own triple-play of services. And its services stack up well against those offered by Verizon, with Cablevision's highest level of advertised broadband service pegged at up to 30Mbps of download capacity. It also offers a special 50Mbps service.

The top tier of Verizon Fios broadband is up to 50Mbps. As of the first quarter of 2001, Cablevision reported it had a total of 2.1 million broadband subscribers, or roughly 46 percent of the available market in its territory, which covers parts of New Jersey, New York and Connecticut.

Cablevision has also done very well winning over Verizon phone customers. Cablevision ended the first quarter with 1.3 million voice customers, attracting a third of the available telephony market in its territory

As for Rich Bayer's comments about his experience, a Cablevision spokesman discounted them as pure Verizon marketing.

CONTINUED: Hybrid-tech strategies…
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Cablevision should worry
I live on Long Island, where the Bayer Family does, and I find CableVision's remarks in this article smug and offensive. I'm a current CableVision customer only because there was no competition, we had to take whatever CV gave us. It's been a joke whenever they say they are increasing channels, ie, adding more value. Ummm... I don't need another foreign-language or home shopping channel or golf channel <eye-roll>.

And they are doing HD wrong... if you have technical knowledge one can easily deduce that they are overly compressing many of their HD channels and the picture quality suffers sometimes. Many times I can get a better OTA HD signal of my local stations than what CV is pushing down the coax.

I have no love of Verizon, but as consumers we need competition in order to make the pricing fair and quality of service hold up. CV (and other cable companies) have had a monopoly for far too long... I can't wait for FIOS to come to my neighborhood so I can kiss CV good-bye.
Posted by tonyc666 (15 comments )
Reply Link Flag
"'We doubt too many of the 1.3 million customers who have said goodbye to the phone company and chosen Optimum Voice (Cablevision's telephony service) would put much credence in transparent phone-company talking points delivered as part of a publicity stunt,' he said."

So I am one of the folks who went with Comcast's triple package in my area. The daily outages, the abysmal upload rates, and the higher prices mean that I would go with FiOS easily if it were offered in my area. The cable company doesn't have anything up on the phone company when it comes to customer service or reliability.
Posted by samkass (310 comments )
Link Flag
I agree
I'm also a Cablevision customer and have been for 8+ years. When I first got Cable internet, it was WAY faster than the previous connection I had (verizon 786Kbps). At that time, CV was the way to go and optimum online ranked number 1 in the country for it's speed. Lately however, as bandwidth requirements are going up for high volume web sites, dsl prices coming down to almost dial up prices, and competition from other ISPs, I'm thinking of making the switch when it's possible. I heard GREAT things about FiOS and I hope to make the switch when it's available in my area, provided Cablevision doesn't bring down their prices.
Posted by belal12 (23 comments )
Link Flag
...goodbye Comcast.
Posted by J_Satch (571 comments )
Link Flag
FiOS delivers everything they promise
We got FiOS about a week after it was made available in our area, and I couldn't be happier with the service or the support. Installation was punctual, fast and professional, the service has been rock-solid, the few outages we've had have been addressed promptly and with virtually no action on our part, and the price is right.

Basically, it provided everything our former cable broadband service promised but didn't deliver very well.

Current rumors suggest Verizon's TV service will be available to us in the next month or so. We've already decided to sign up for it the minute it arrives, so we can finally ditch the cable company (Time Warner Cable) for good.
Posted by UnnDunn (55 comments )
Reply Link Flag
Cable is Slow to change and Upgrade!
FIOS is the way to go. The pace of change and upgrade to the technologhy with cable is a joke. Cable gives you just a little and charges you alot. When FIOS comes to Washington D.C. , I'm going to switch my ISP. Speed and services are the way to go. Just like Blu-ray over HD DVD, storage size wins out.
Posted by QuietStormX (48 comments )
Reply Link Flag
A phone company with a clue?
Congrats to Verizon. I never thought I'd say this, but for once a phone company got it right. Fiber always has and always will beat coax, twisted pair, or wireless. Hopefully this will be a wakeup call for the operators trying to squeeze blood out of those legacy turnips.
Posted by solrosenberg (124 comments )
Reply Link Flag
I agree.
Contrast Verizon's competitive outlook with AT&T and their vision-
less execs and we see what smart equipment investment is about.
I have had FIOS for over a year now and it has been rock solid.
Posted by 3tire (261 comments )
Link Flag
So Nice!
On the business side for anyone with an office/home office and server(s), they have a 5Mb/5Mb plan for $209/month (static IP, 2yr commitment).

Finally someone offers a decent mid-range plan!

It bridges the gap between Business Class cable, which in my area maxes out at 10Mb/2Mb for about $300/month and TW Telecom fiber which is about $2000/month for 15Mb/15Mb.
Posted by TheRealJizzler (7 comments )
Reply Link Flag
Stuck with at&t
Ya, I'm stuck with att. Live in Central Florida where Brighthouse is the cable provider and att is the phone company. Ever since I heard one of the att exec's say (basically) "we think 6mbps is all the customer needs" I have lost hope. I kind of believe this because if you do research on att U-verse IPTV you will see that they are using all the bandwidth for the TV service and they still need way more because for example if you are recording a HD channel with U-verse TV you can't even watch another freaking channel. :-( This is their choice as a company but I think it sucks for me as a consumer. Wonder if I can get my wife to move<lightbulb>?
Posted by matte989 (6 comments )
Reply Link Flag
Verizon FIOS
I noticed that Comcast was not mentioned in the story and for good reason. FIOS is kick them in the rear if you ask me. I'm so much happier with Verizon FIOS 15mpbs sped over the Verizon DSL we previously had and the cable TV offering has so much more than Comcast cable. I love the variety of offerings FIOS has over Comcast and for the record I'm a Maryland resident.
Posted by lecountb (1 comment )
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