IP Democracy: Verizon Spills the Beans on FiOS

Verizon today released more detailed data on its FiOS fiber-to-the-premises initiative (what Andrew Schmitt called opening the FiOS kimono) during a conference call (slides here, press release here and webcast here.) The biggest news is the number of video customers Verizon serves with its new plant, a statistic kept under wraps until now.

Verizon says that for Q3 06, it expects to report 100,000 video customers and by the end of the year, 175,000 FiOS TV customers, representing a penetration rate of 10% based on 1.8 million homes capable of receiving the service.

By 2010, Verizon projects it will serve three million to four million video subscribers, based on its estimates that around 15 million households will be video-ready by then. That’s a projected penetration rate of 20% to 25%. Verizon has currently landed 161 video franchises that cover 3.3 million homes and expects to have 300 video franchises by year-end that reach 6.1 million homes.

Around 80% of FiOS TV customers are triple-play buyers and churn is very low, 1.5% per month.

In terms of FiOS high-speed service, Verizon expects to serve 725,000 FiOS Internet customers by year-end, representing a penetration rate of 15% of the five million homes capable of buying the service, up from 375,000 FiOS Internet customers at the end of Q2 06 and an expected 500,000 customers at the end of Q3 06. Because of the rapid growth rate, Verizon is upping its 2010 projections — the company now expects it will achieve six to seven million FiOS Internet TV customers by then, representing penetration of 35% to 40%, compared to its earlier 2010 projection of 30%.

Despite the optimistic outlook, it’s going to take some time for FiOS to turn profitable, which is not much of a surprise to industry observers. FiOS overall will start generating positive operating income in 2009, although it will turn cash-positive in 2008.

Net capex for the effort is $18 billion, net of approximately $4.9 billion that Verizon estimates would otherwise be required to maintain traditional copper-wire technologies over the same period. That’s spending from 2004 to 2010.

Capex per home continues to decline. In August, average capital expenditures to pass a home were $873. By year-end, Verizon hopes to get this expense down to $850.

Customer connection expenses, which include set-top boxes, are still pretty steep. In August they were $933 per customer, down from $1,220 in January 2006, but higher than the year-end goal of $715. Verizon now expects connection costs to be around $880, dropping down to $650 by year-end 2010.

Posted by Cynthia Brumfield on September 27, 2006 11:01 AM to IP Democracy