Figuring FiOS

Phil Harvey
The Philter
Phil Harvey, US Bureau Chief
9/27/2006



Will it really cost Verizon Communications Inc. (NYSE: VZ) more than $9,000 to bring fiber to your home?

Yes, it could. And bear with me, please: I'm about to attempt some FiOS math.

The company today said it plans to pass 18 million premises with its fiber network by the end of 2010. It also says it expects to invest $18 billion in net capital from 2004 through 2010 in deploying that fiber-fed network. (See Verizon to Pump $18B Into FiOS by 2010.)

I’m on my second bourbon and coffee, but it seems like Verizon has just copped to spending about $1,000 a home, on average, to pass 18 million homes, over a six-year stretch. Earlier, Verizon said it cost around $900 to pass a home, so let's go with that.

Verizon also says it will cost only about $650 to connect a "passed" home to its network by 2010.

So what does it cost to hook up a neighborhood? These aren't absolute figures, mind you, but let's assume that Verizon passes each home in a 400-home neighborhood, then nabs 10 percent of the homes (40 homes) as customers.

Take $900 and multiply it by 400 homes. That's $360,000.

Now let's hook up those 40 homes. That's 40 multiplied by $650. That's $26,000 added back to the cost to pass the homes, which was $360,000.

So now we have a figure of $386,000 spent in just one neighborhood. But what has Verizon spent per customer? Take $386,000 and divide it by the 40 homes and you get $9,650.

Millennium Marketing principal Kermit Ross worked out some very similar figures for me on a notebook after a session at Optical Expo 2006 last week. I recall his numbers/assumptions were also in the ballpark of $9,000 per subscriber.

Okay, now I'm on my third bourbon and coffee. But I think the larger point here is that even with all the cost savings Verizon has managed to achieve, this stuff is still really expensive.

"Obviously, in the early stages of a network, the cost to connect each home is astronomical and there's really nothing you can do about that," says Graham Finnie, an analyst at Heavy Reading.

So slice it anyway you like -- fiber to the home is damned expensive. And the payback takes years, maybe decades. But without a next-generation access network, carriers simply won't have a business.

— Phil Harvey, News Editor, Light Reading

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