Verizon FTTP: Plenty of Exits

You already know the bullish scenario for Verizon Communications Inc.'s (NYSE: VZ) FTTP fiesta: fiber everywhere, video-over-IP, and VOIP to the broom closet.

But there's a vocal minority pointing to the potential dark side, saying that Verizon is waffling on FTTP more than is publicly perceived. What if, the critics ask, Verizon's FTTP gig turns out to be just another Project Pronto -- SBC Communications Inc.'s (NYSE: SBC) scaled-down fiber project of the mid-90s.

Verizon president Lawrence Babbio last week told the crowd at the Progress & Freedom Foundation’s Aspen Summit that FTTP deployments could gain momentum if the government would be unambiguous in its regulatory treatment of fiber (see FTTP Bulls Talk Billions ). "I'd like to accelerate even beyond the additional 2 million homes next year, possibly going as high as 3 or 4 million homes," Babbio said, according to a report by Bloomberg.

But others point out that Verizon is also laying the groundwork for an elegant "out" on FTTP if things don't work out as planned. In the Federal Communications Commission (FCC), it's got a nice scapegoat.

Indeed, Babbio's remarks also called for the FCC to more explicitly define its hands-off approach to fiber. As the rules read now, the FCC doesn't require incumbent carriers to lease new fiber optic access lines to its competitors at wholesale prices.

Still, Verizon has pressed the FCC to provide additional rulings and more detail about its decision. Analysts say RBOCs still fear that the FCC might someday force them to share fiber access networks with competitors in areas where the copper-based plant has been retired.

"We're wanting greater regulatory clarity before we invest the types of dollars in some states that we already are investing in -- places like California, Texas, and Florida," says Verizon spokesman Bill Kula.

Analysts point out that Verizon appears to be talking one game and playing another when it comes to FCC politics.

"The regulatory climate is very much determinate in everything the RBOCs do," says Kermit Ross, principal of Millennium Marketing. "If there ever was lack of clarity, then why did Verizon make such grand pronouncements about FTTP and start spending money?"

The answer may lie in Verizon's diverse network. Right now, its FTTP service (Fios) is only available in the areas formerly served by GTE, which completed its merger with Bell Atlantic to form Verizon in 2000.

History lesson: GTE was a long-distance operator and data provider, not an RBOC. GTE retained local phone operations in 18 states and today Verizon operates local service in 29 states plus the District of Columbia.

So the rules governing its network are different than those for the rest of Verizon's territory. Verizon confirms that it wants to offer Fios in other states, but won't do so until regulators make it clear that they won't force Verizon to lease its fiber assets to competitors.

Ross says Babbio's comments are interesting because of the "striking similarities" between Verizon's FTTP initiative and Project Pronto. Project Pronto, too, was a multibillion-dollar broadband buildout, but it was eventually scrapped due to "regulatory uncertainty."

Ross says Verizon may be picking nits and that the FCC has "immunized" packet-based services and fiber access from unbundling rules. "What you really have here is Verizon getting more cloudy while the FCC remains clear," Ross says. "The RBOCs have gotten as much clarity as they're ever going to get from the FCC."

Why would Verizon need an escape hatch in its FTTP plans? Some would point to Keller, Texas -- Verizon's FTTP showcase, where Fios officially went on sale yesterday. In that city, Verizon has installed more than 700,000 feet of fiber optic cable since January (see Verizon's FTTP Texas Feeler). The cost to wire Keller -- which will eventually require some 1.2 million feet of fiber, plus loads of active electronics and components -- is around $15 million.

While Verizon's 100 or so test customers are ecstatic about their service so far, the company is looking at several years before it starts making back the money spent on its new network.

Despite the nay-saying, Verizon says it is staying the course. "Verizon remains very bullish on fiber," says spokesman Kula. "We believe there is a tremendous demand for the services that we'll be offering.

"We're interested in doing more -- not less -- fiber. This is our future network that we're building."

— Phil Harvey, News Editor, Light Reading