Verizon's FiOS A $6 Billion Bomb? Sure Beats Bankruptcy (VZ)
In a report summarized by the New York Times, Moffett argues that even if Verizon got to 40% market share in the areas it serves, it'd still be losing money over a 15-year period:
...The operating profit, in present value terms, that Verizon will earn from FiOS customers will be $2,520 for those that buy video and phone service, 3,068 for Internet and phone service, and 3,334 for customers that buy the so-called triple play. None of those are above the $3,897 per-customer cost of building the network.
The bottom line, after assuming how many customers will buy each type of service, is that Verizon will lose $769 on each FiOS customer, according to Mr. Moffett’s vast spreadsheet.
Hardly ideal. But in Verizon's defense, does it have many options -- besides going out of business? None, says Moffett -- they're screwed, period.
Mr. Moffett starts with the premise that the 130-year-old phone network based on copper wire will become extinct.
“It is an obsolete technology,” he said. “It’s not like horses lost share of the transportation market until they stabilized at 40 percent market share.”
...To be sure, Mr. Moffett says that FiOS is not a “bet the company” move by Verizon. Because the company has a vibrant wireless business, it has the money to absorb the cost of building FiOS and the inevitable decline of the rest of its wireline network, Mr. Moffett said.
...Qwest, which doesn’t have a cellphone business to fund any capital expenditures, is the only phone company that has come up with what Mr. Moffett defines as the right answer: do nothing.
“Qwest decided there is no return to any of this stuff, so let’s run the business for cash,” he said.
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Additionally, Verizon can make inroads against the cable companies through the value proposition -- and not just through the quad-pack of services. In New York and New Jersey, FiOS already offers 100 HD channels unlike TWC, Comcast and Cablevision. Plus, FiOS' SD channels are more abundant than at least Comcast's offerings. Also, FiOS is the only service with a networked DVR. Additionally, FiOS Online is faster than cable modem. In short, Verizon is offering more of everything for the same or lower price.
As a former Comcast customer who switched to FiOS last year, I can say that Verizon is on the right track, and Moffett really has no clue.
I had to blink at the screen when I read the ending of the article indicating that Moffet thinks the best thing to do now is nothing??? huh??? Like the horse cart manufacturers did as the car came on the scene eh? Where are they now? No, only someone on LSD would do nothing, by acting NOW Verizon does several things.
a) They get first mover in marketing the converged service that will be cheaper for them and us, more powerful in terms of bandwidth provisioning, more reliable thanks to the optical fiber that doesn't need replacement nearly as often as copper.
b) They get to compete with a superior service against the permanently crippled (thanks to their copper cables) cable providers. Even if they take an early hit now, like the proverbial tortoise and hare , the technology advantage of fiber will provide the competitive pressures that really eat into their cake.
c) They get an early start on building or providing network access to products in the home that currently are not networked. The companies that provide the interfaces to these devices will be the ones people go to and recommend to their friends, that can amount to a huge advantage in market dominance as far as mind share is concerned.
The type of analysis that Moffet did suffers from one major thing, his ignorance of all the ways that Verizon can profit from the new network that are not even currently envisioned by us today. It is like some one mentioned earlier, what if Edison and Westinghouse decided it was too expensive to build out the wirelines. They had no idea that devices like microwave ovens, Radar sets, FM Radio's , CD Players, TV's and computers would ever be connected to them...all they cared about what light and maybe morse code...yet the networks provided the ability for those products to spread to every wired home. Moffet needs to realize he's just as ignorant (or more) of the coming enabled applications that FTTP (fiber to the premises) will provide as Edison was about the usefulness of wired lines.
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