FiOS Unphiltered

One of the benefits of working for the Light Reading journalistic juggernaut is gaining access to telecom "deep throat" sources loyal to The Philter.

Light Reading's official FiOS Tracker was kind enough to include this cable guy in a recent call with an executive operating deep within the Verizon Communications Inc. (NYSE: VZ) FiOS ecosystem. The takeaway? The telco's fiber-to-the home (FTTH) network appears sleek as a Ferrari, but it's still a bit clunky under the hood.

FiOS trackers will remember that Verizon executives provided their first public deep dive into its FTTH economics during a presentation back in September. (See Verizon to Pump $18B Into FiOS by 2010).

As reported then:

Average capital expenditures to pass a home were $873 in August, less than the previously announced year-end 2006 goal of $890. The new year-end target is $850 per home. The cost to connect has declined from an average of $1,220 in January 2006 to $933 in August, but that was higher than the announced year-end 2006 goal of $715. The new year-end target is $880 per home in connection costs, Verizon said.

A key point to consider with these numbers: In cable land, when some MSOs report homes passed and per-customer capex figures, they are often different views of the same data set. Not so for FiOS. The costs to pass and connect homes are separate and incremental charges — in other words, fixed and variable capex line items. Thus, the total gross cost for each new FiOS customer installed at the end of 2006 was $1,595 ($715 + $880). Ouch!

The Philter's source shed some light on the economic pain points for FiOS, reporting that installation times can average as much as nine hours on the east coast (Verizon's classic RBOC footprint) versus four hours in the western U.S. (the former GTE properties). The lion's share of the install time is for in-home wiring. The optical network terminal (ONT) is typically plugged in lickety-split.

Why the geographic disparity? The western install teams are reportedly non-union. In the east, Verizon's union teams are said to be "dragging their feet" because they don't want to FiOS to succeed.

There's a good reason for it too. A typical POTS line install reportedly involves four different union techs working at different levels of the network hierarchy. FiOS is installed by a single technician [whose job classification is new and different than the old union POTS tech jobs].

During the September presentation, Verizon execs were gung-ho about the operational savings available as the telco migrates its customers from copper to fiber. Indeed, such opex efficiencies are a key driver for the FiOS business model. At that time, Verizon said its report rate for outside plant problems was 80 percent lower for FiOS than copper. Pretty peachy when combined with the headcount reduction opportunity.

However, according to The Philter's source, when looking at the whole enchilada — including the in-home network and CPE — today, "FiOS has an error rate similar to the POTS network." As one would expect, most of the problems relate to computers. In particular, customers buying promised speeds of 15 Mbit/s or more are quick to call tech support about throughput issues. The typical culprits are PC problems, particularly bugaboos like spyware that eat up processing power.

The lesson: FTTH may be a cheaper access network to operate, but in the home, Windows PCs are still a tech support black hole. Ironically, fiber speeds may actually exacerbate that cost center. As MSOs continue to ratchet up their cable modem speeds, they may face similar issues.

— Michael Harris, Chief Analyst, Cable Digital News