IP Democracy: Verizon's Seidenberg: FiOs Broadband to Hit 30% Penetration in Four Years

Verizon is in the hot-seat with investors for its focus on expensive fiber-to-the-premise technology, but the telco’s CEO is convinced that the narrowband-to-broadband transformation is key to the company’s growth. Speaking at Citigroup’s Global Entertainment, Media and Telecommunications Conference today (webcast and presentation can be found here), Ivan Seidenberg left no doubt that he believes the $8+ billion in capex costs for FTTP is critical to Verizon’s survival.

“In the long-term creating a competitive network that competes with cable…comes with capital infusion in the business at this point,” Seidenberg said. “We’re very confident that the whole platform which focuses on speed and the futuristic things you can do on the network is going to sell.”

And sell it has, if take-rate statistics and projections are any indication. Seidenberg said that Verizon expects the penetration rate of its FiOs high-speed service to be in the 30% range within four years, noting that the company is “already scaling at a greater rate than this.”

Layered on top of the high-speed service is Verizon’s nascent FiOs TV service, which kicked off in Keller, TX last year. In Keller, FiOs TV has quickly obtained 20% penetration and Verizon will shortly launch FiOs TV in California, New York and Massachusetts, Seidenberg said.

The fiber-based network passes around three million homes today, and will pass an additional three million homes this year, and each following year, until Verizon hits 15 to 20 million homes passed, which will make the telco the third largest broadband provider behind Comcast and Time Warner. Seidenberg is more confident than ever that FiOs is the right strategy, and the internal numbers seem to back him up.

“All of our metrics are getting closer to our long-term targets. We’re very bullish about the fact that as we build this out we will get to a business model that works,” he said. (In terms of the 10 to 15 million homes in Verizon’s territory that aren’t projected to ever have FTTP available, Seidenberg said that by 2010, “we could make some judgments to prune [our] portfolio of access lines,” meaning that these territories are ripe for sale to another company.)

Of course Verizon expects to be a leader in not only terrestrial broadband services but also 3G wireless offerings. Seidenberg said that not only will Verizon Wireless maintain its mobile lead going forward, but also “we have a chance of widening the lead going forward.”

Verizon’s Vcast Music service, announced at CES, is one example of the kinds of new applications that will fuel Verizon Wireless’ continued growth. The music download option is kicking off with 500K music titles, a number expected to ramp up to one million by spring. The capacity of Vcast will soon expand so that users can store up to 1,500 songs on Vcast phones.

In terms of Verizon’s integration of MCI - the deal officially closed last Friday - Seidenberg said the synergies of the MCI merger promise to drive growth in cash flow, with EBITDA climbing from $500 million in 2006 to $826 million in 2007, and $1.1 billion in 2008.

Posted by Cynthia Brumfield on January 9, 2006 11:14 AM to IP Democracy