Verizon: Fiber Net Is Pointed Toward ProfitabilityVerizon: Fiber Net Is Pointed Toward Profitability

Verizon Communications' massive fiber network rollout, originally the subject of much skepticism, may be headed toward profitability. Verizon said Wednesday it expects to spend $18 billion on the initiative, called FiOS.

Under pressure from cable TV service providers, which are delivering telephone service, the former Regional Bell Operating Company (RBOC) said it is scoring initial success among customers who are showing a preference for FiOS video offerings.

Verizon said FiOS will begin recording positive operating income in 2009. Verizon based its estimates on growing revenue from FiOS services and dropping costs attributable to improved fiber efficiencies, the company said.

"Our FiOS targets are based on what we view as achievable customer take-rates, reasonable pricing levels and conservative estimates of customer-retention metrics," said Doreen Toben, executive vice president and chief financial officer, according to a press release. "Based on our experience deploying fiber, we see declining cost-trends to pass and connect homes, and we see significant ongoing operating expense savings."

Verizon said that almost 80 percent of FiOS TV subscribers are receiving the service in a Verizon bundle of video, data, and voice.

Begun slowly in 2004 in a few communities, the FiOS deployment has been gathering momentum in recent months and Verizon said Wednesday that it plans to pass 18 million premises with FiOS by the end of 2010. That represents more than 50 percent of the some 33 million households in the RBOC's 28-state wireline service area.

In recent months, Verizon has moved to dispose of some of its traditional low-tech assets like its directories unit while it concentrates more on FiOS, its acquisition of MCI and its Verizon Wireless service.

The other major RBOC, AT&T, is also deploying fiber throughout its customer region, although AT&T's approach does not generally bring fiber directly into customer premises. AT&T, formerly SBC Communications, is in the process of acquiring BellSouth.

In providing details of its FiOS deployment to investors and analysts Wednesday, Verizon set ambitious goals for the service, targeting 725,000 customers by the end of 2006. In its territory with 5 million premises, that would represent a 15 percent market penetration. Verizon added that it has a 2010 goal of obtaining 35 to 40 percent market penetration -- from 6 to 7 million FiOS customers.

Verizon also titillated investors and customers by alluding to "future opportunities for convergence with Verizon Wireless." The firm said: "Verizon Wireless already provides broadband services over its national EV-DO network, and BroadbandAccess and V CAST from Verizon Wireless ring music, video and broadband data to mobile customers." The firm did not elaborate on any future convergence possibilities.

In spite of the bullish news, Verizon's stock dipped slightly after the FiOS information was released.