Is Verizon Losing Money on FIOS?

[tds4182]

There was a lengthy article on page C14 of yesterday's (1/26/2010) Wall Street Journal in which an analyst from a respected Wall Street investment firm stated that Verizon was losing $800.00 on each new FIOS customer they hook up.

This begs the question: If this is true, how long can Verizon keep this up?

 

[Juan]

u have to spend money to make money

 

[Peter Parker]

I did not see the article but that might be the subscriber acquisition cost and eventually offset by the subscription rates.

 

[rcbridge]

This is typical for many services they are set up to take an initial loss.
They will make money over time.

This is why they need to lock you in for a period and charge you a fee if you break the contract, it is the same for cell phones.

 

[Juan]

Does E* and D* lose money on new installs? yes they do

 

[riffjim4069]

FiOS has been a losing venture since it's inception, but it was their only alternative since the landline business has been bleeding customers. As I recall, Verizon has invested something like 26 billion into the FiOS buildout. I also recall reading in their 3Q report that FiOS would start making a profit in 2010. Regardless, is appears that Verizon has slowed the build-out and is focusing on increasing their penetration rates in existing markets. This action is partly due to the economy (the business and consumer markets are hurting) and mostly because they are spending buckets of money on their wireless segment - building out the 4G network. I guess Verizon Wireless doesn't want to be the butt of jokes after AT&T completes their wireless upgrades. FiOS is an outstanding product, but it is certainly not cheap running fiber-to-the-premise.

BTW, the $800 used to be something like $2500 back in 2007.

Riff...

 

[philhu]

Exactly

The Fiber run is enough to cost a fortune, but over time, the maintenance costs for fiber are way lower than old copper networks. As stated, that is why there is a 12 month minimum for service.

The thing that surprises me is that FiOS phone, still is POTS, just over fiber. I would have thought they would do VOIP behind the consumers back. They would save a fortune on LD tariff/carrier transport charges.

 

[Juan]

Exactly

The Fiber run is enough to cost a fortune, but over time, the maintenance costs for fiber are way lower than old copper networks. As stated, that is why there is a 12 month minimum for service.

The thing that surprises me is that FiOS phone, still is POTS, just over fiber. I would have thought they would do VOIP behind the consumers back. They would save a fortune on LD tariff/carrier transport charges.

not any more they are rolling out VoIP right now (its called SIP in Verizon lingo)

 

[riffjim4069]

Exactly

The Fiber run is enough to cost a fortune, but over time, the maintenance costs for fiber are way lower than old copper networks. As stated, that is why there is a 12 month minimum for service.

The thing that surprises me is that FiOS phone, still is POTS, just over fiber. I would have thought they would do VOIP behind the consumers back. They would save a fortune on LD tariff/carrier transport charges.

I recall reading an article a few months ago that stated FiOS was going to switch its phone services over to VoIP in the future (2010?). To be honest, Verizon's phone service/features (like voicemail, call logs, call forwarding, etc.) are woeful compared to those offered by my VoIP service Viatalk...and I only pay $199 for two-years of service for ViaTalk vice $45 a month for Verizon. Verizon used to offer a VoIP service (VoiceWing?) for $40-$45 per month, but I no longer see it offered on their website (probably because of FiOS).

Here is the article about FiOS' plans to offer VOIP...it was written in December 2008 - yes, over a year ago. Verizon FiOS getting VoIP in early 2009 - FierceVoIP According to the article, FiOS VOIP is supposed to be in "limited" circulation in VA and MD. Our FiOS service is in TX and we're still using the POTS model. FiOS customer: do you have FiOS POTS or VoIP?

As much as we love FiOS---phone, Internet and TV have been 100% reliable for almost 2-years---the phone systems (features) is a joke compared to the features being offered by VoIP at half the price.

 

[tds4182]

I did not see the article but that might be the subscriber acquisition cost and eventually offset by the subscription rates.

The analyst didn't go into detail but I'm pretty sure that's what he meant. Start up costs, costs of equipment,fiber cable and labor, programming costs, discounts on receiving equipment, etc, etc..

He also didn't go into how long (if ever) he thought it would take Verizon to recoup their investments on FIOS.

Time will tell I suppose!

 

[riffjim4069]

not any more they are rolling out VoIP right now (its called SIP in Verizon lingo)

Thanks...you just answered my question. My next question is can existing customers call-in and have their POTS coverted over to SIP?

 

[Juan]

Thanks...you just answered my question. My next question is can existing customers call-in and have their POTS coverted over to SIP?

they won't know when it happens ..it just will (it will be transparent). It will be Voip between the Ont an Olt standard phones will work like they do today. they will have a seperate VoIp offerering called fios voice but SIP will be the standard offering I am not sure what the actual difference is

 

[riffjim4069]

they won't know when it happens ..it just will (it will be transparent). It will be Voip between the Ont an Olt standard phones will work like they do today. they will have a seperate VoIp offerering called fios voice but SIP will be the standard offering I am not sure what the actual difference is

Thanks! I'll have to look at the bill and perhaps call Verizon to have it enabled. Offhand, it appears to have a zillion more features which makes it more like my Viatalk service. Here is the info I found on Verizon's website: Verizon | Local & Long Distance Phone - FiOS Digital Voice Service

Riff...

 

[Bob Haller]

Well their advertising to potential subscribers is close to if not complete harasement. And if you check DSL reports I am not the only sub to phone service who had troubles that no one at verizon cared about.

Some of their low penetration rate may be that word of mouth is now working against them. Honestly I have NO CONFIDENCE in their FIOS phone

And the ONE thing you want with a phone line is it to work 100% of the time, everytime!

FIOS saves them BIG BUCKS on repairs. COs no longer need to be manned, its all done by comuters and roming groups of technicians in the middle of the night

 

[riffjim4069]

Bob, Verizon has drastically reduced their marketing campaign...now sure why they are targeting you. Anyway, I think you should stick with Dish Network...

 

[JPL]

I recall reading an article a few months ago that stated FiOS was going to switch its phone services over to VoIP in the future (2010?). To be honest, Verizon's phone service/features (like voicemail, call logs, call forwarding, etc.) are woeful compared to those offered by my VoIP service Viatalk...and I only pay $199 for two-years of service for ViaTalk vice $45 a month for Verizon. Verizon used to offer a VoIP service (VoiceWing?) for $40-$45 per month, but I no longer see it offered on their website (probably because of FiOS).

Here is the article about FiOS' plans to offer VOIP...it was written in December 2008 - yes, over a year ago. Verizon FiOS getting VoIP in early 2009 - FierceVoIP According to the article, FiOS VOIP is supposed to be in "limited" circulation in VA and MD. Our FiOS service is in TX and we're still using the POTS model. FiOS customer: do you have FiOS POTS or VoIP?

As much as we love FiOS---phone, Internet and TV have been 100% reliable for almost 2-years---the phone systems (features) is a joke compared to the features being offered by VoIP at half the price.

Verizon has already been rolling out FiOS Digital Voice. I don't know if it's available in all areas yet, but it has been there for a couple months now.

As for losing money - yes, there is an initial investment that all these companies make when signing someone up. Someone has to pay for the hardware and installation costs. The fact that Verizon got the cost down to $800 per subscriber is considerable.

As others have said, Verizon HAD to do this. Otherwise they would be quickly get pushed out of the telecom industry. They would have nothing to compete against cable with. Also, fiber is expensive to roll out, but requires alot less maintenance. It's basically impervious to wear and tear (it doesn't break down like copper does), it's impervious to weather conditions/interference. About the only thing you can do to it is break it. Verizon anticipates significant savings in doing truck-rolls as a result of FiOS.

Next, there's the not insignificant cost associated with power. The architecture that Verizon operates is known as a passive optical network. Stress tha first word - passive. The light can travel a long distance, and arrives at your house unpowered. Traditional copper services require things like boosting stations to keep signals strong enough when they get to your home.

 

[Stargazer]

I take it that the $800 initial cost per subscriber does not include the original buildout of the fiber network but an additional cost to what the buildout costs?

If it only cost $800 per customer that is a bargain considering that it is over fiber which gives them major bandwidth for the future and having phone, internet and tv over the same line vs. in the past some cable companies spending almost this much in some markets when it was only tv service.

How quickly is fiber costs dropping? Perhaps it will drop to the point to where it will replace all copper in the future and allow areas to get fiber that in the past would not make sense to due to cost?

 

[riffjim4069]

Verizon has already been rolling out FiOS Digital Voice. I don't know if it's available in all areas yet, but it has been there for a couple months now.

I noticed it's available in our area, but we would have to sign-up for one of the new bundles (one of the new bundles).

As others have said, Verizon HAD to do this...

I know...I have been following FiOS deployment since 2004 and was involved with changing cable franchise law to level the playing field and bring competition to VA. Initially, we had a lot of FiOS TV interest when SatGuys hosted hightechtv.net, but when that closed everyone went to dslreports.com.

http://www.satelliteguys.us/verizon-fios/36928-verizon-va-info.html

http://www.satelliteguys.us/verizon-fios/46057-virginias-cable-competition-act-2006-a.html

 

[tds4182]

I take it that the $800 initial cost per subscriber does not include the original buildout of the fiber network but an additional cost to what the buildout costs?

If it only cost $800 per customer that is a bargain considering that it is over fiber which gives them major bandwidth for the future and having phone, internet and tv over the same line vs. in the past some cable companies spending almost this much in some markets when it was only tv service.

How quickly is fiber costs dropping? Perhaps it will drop to the point to where it will replace all copper in the future and allow areas to get fiber that in the past would not make sense to due to cost?

I'd suggest you go online or to your local library and read the article yourself, then make up your own mind.

The article did not say that Verizon was spending $800 on the cost per customer but was LOSING (on average) $800 for every customer they signed up to FIOS.

That's a huge difference!

 

[Juan]

I'd suggest you go online or to your local library and read the article yourself, then make up your own mind.

The article did not say that Verizon was spending $800 on the cost per customer but was LOSING (on average) $800 for every customer they signed up to FIOS.

That's a huge difference!

$800 to install not losing(They give customers a free install and that costs $800 on average)