Verizon Halts Further FiOS Expansion

Prohibitive costs stall any further expansion beyond the markets the company has already covered, but the door is not completely closed.

By Andy Patrizio | Posted Mar 26, 2010
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If you are waiting for Verizon Communications to bring its high-speed communications service FiOS service to your town… keep waiting. The communications giant said Friday that it doesn't have any further expansion plans for its fiber optic network.

FiOS has been the telecommunications giant's high-speed competition against cable companies and largely sold to consumers, although a business offering is also available. Verizon offers three services over fiber; Internet, phone and television. It offers three tiers of speeds: 15 megabits for downloads/5 megabits for uploads, 25 MBits/sec down/up, and 50 MBits down/25MBits up.

Verizon (NYSE: VZ) has not unequivocally said there will be no further FiOS expansion, but doesn't have any plans to continue expansion, either.

"We're simply doing what we originally pledged to do. We said we would enable approximately 18 million households to receive FiOS, and we stated that more than five years ago. We never said we would deploy our fiber optic service to 100 percent of all residences we serve," Bill Kula, a spokesman for Verizon, told InternetNews.com

The economics have not been in Verizon's favor. After approximately four years of build-out and availability, FiOS now covers just 12.7 million homes and has around 3.4 million subscribers in 16 states but is on track to cover 18 million by the end of the year. It's currently expanding in Washington, D.C., New York City and Philadelphia.

Verizon has faced quite a bit of competition in this area. Time-Warner has its RoadRunner service, Comcast has its Xfinity service and AT&T has U-verse. All three offer Internet, television and telephone. Plus, there's satellite providers like DirecTV and Dish Network and now comes the 800 pound gorilla, Google (NASDAQ: GOOG), which is planning its own fiber optic network.

Building out the network was an expensive proposition for Verizon. In January, while speaking at the Citgroup investor conference, Verizon CEO Ivan Seidenberg said that FiOS was close to being operationally positive in 2009 and he hoped it would be net positive in 2010. The last projection on the cost of the build-out came in 2007, which put the costs from 2004 to 2010 at $23 billion.

Kula said the plan now is to increase subscribers in the areas already covered. In some areas, FiOS has penetration as high as the mid-20 percent range. "This year, we've shifted our focus from honoring our deployment commitments to building on the popularity of the product by winning over FiOS Tv customers in areas where we have cable franchises," he said.

Following the European model

None of this surprises Rob Enderle, principle analyst with The Enderle Group. "The cost has been unacceptably high in both cases. They picked up only a small number of homes for the cost to put that in. I think somebody sat back and said what makes this better than what the Europeans are doing?" he told InternetNews.com.

European broadband makers have been moving slower, picking up a few cities at a time, and saturating the area. They don't move on to a new area until they pick up a large number of customers in the area. This kept the cost-per-house low because they were picking up new customers all in one area, as opposed to spreading it out over many cities like Verizon and AT&T with U-verse.

"[FiOS and U-verse] looked like this huge land grab and it doesn't do you a lot of good if the people in the area aren't buying the service. So mining the areas they've already got coverage is undoubtedly a better strategy," said Enderle.

Andy Patrizio is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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