Is FiOS a Budget-Buster?

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The first thing to realize about this piece, which claims to offer inside and non-too-flattering information about Verizon's FiOS project, is that it comes from Cable Digital News. The site started out and remains -- despite a change in ownership -- cable-oriented, as its name implies. That's not to suggest that the information is not accurate. It's simply that the source should be noted.


That said, this is pretty damning stuff. The writer, who claims to have been on a call with a Verizon insider, says the carrier spent a whopping $1,595 per home connection as of the end of 2006. The explanation is a bit vague, but the writer makes a distinction between how cable operators and telephone companies gauge expenditures, and claims that the true measure Verizon's outlays is a combination of fixed and variable costs. Cable has an advantage on costs because more of its infrastructure is shared in neighborhoods, while Verizon's deployment is based on bringing fiber a longer distance to each customer premise.


The second point is that union recalcitrance in the east is leading to install times that are more than double those experienced in non-unionized areas out west (nine hours versus four hours). The union workers supposedly are upset that one technician is expected to do a FiOS install, while four were called on for plain old telephone system (POTS) hookups.


Finally, the writer says the problem reports were about equal for FiOS compared to older copper hookups. This is counter to Verizon's assessments that FiOS is vastly more reliable. FiOS' superiority may be true of outside plant, but computer problems in the home result in unhappy customers and busy contact centers regardless of the fact that the telcos generally aren't at fault. The problems are exacerbated as the promised speeds increase. The writer rightly points out that this is a problem with which cable operators must also contend.


The bottom line is that it's big news if FiOS costs are higher than analysts realize. If there really is a different set of variables -- a set that is more difficult to sustain -- the project could be in trouble. Less dramatically, but no less significantly, significant changes in perceived costs could affect which type of fiber rollout telcos end up favoring.