Pike & Fischer: FiOS boosts Verizon's competitive strength, but also its investment risk

JULY 11, 2007 -- The report suggests Verizon is spending so much on FiOS that it could take a decade or more for the company to pay back its investment should it fall considerably short of its market-penetration goals. Alternatively, if FiOS exceeds its penetration goals by 10% and generates strong per-subscriber revenues, Verizon could see payback in just four to five years.

JULY 11, 2007 -- Though Verizon's FiOS (search for FiOS) service has so far shown healthy subscriber growth, the company continues to face substantial financial risks associated with its plan to pass 18 million homes with fiber-optics, concludes a new report from Pike & Fischer (search for Pike & Fischer).
 
Pike & Fischer analysts cite several challenges Verizon faces as it rolls out its FiOS service as an alternative to the cable industry's expanding "triple-play" bundles. For example, it takes Verizon far more time and money to roll out FiOS TV than it does for cable operators to deploy digital phone service, notes P&F consulting analyst Mitchell Shapiro.
 
The report suggests Verizon is spending so much on FiOS that it could take a decade or more for the company to pay back its investment should it fall considerably short of its market-penetration goals. Alternatively, if FiOS exceeds its penetration goals by 10% and generates strong per-subscriber revenues, Verizon could see payback in just four to five years.
 
"The tradeoff for Verizon's large FiOS investment is that it provides technical capabilities to outperform cable in terms of capacity and services," Shapiro says. "Verizon's return on that investment will depend in large part on how well it leverages those capabilities in an increasingly competitive market."
 
The analysis considers potential growth scenarios for FiOS availability, subscribers, revenue and margins, and their likely impact on Verizon's investment payback and the revenues of its cable competitors. It also considers key elements of Verizon's FiOS strategy, cable's competitive response, and potential impacts of third-network competitors and Web-based services.
 

For more information about the report, "Verizon FiOS Economics, Prospects, and Impacts," visit www.broadbandadvisoryservices.com.

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