Verizon Expects FiOS to Turn a Profit by 2009

A year after launching its FiOS fiber-optic based video service, Verizon this week released new details on where it's been and where it's going.

The nation's largest telco painted a rosy picture for the future of the service, for which it's shelling out a total of $18 billion dollars between 2004 and 2010. Verizon expects FiOS--which encompasses both a broadband Internet service and separate video service--to become profitable by 2009, that is, if it gets 7 million FiOS broadband customers and 4 million FiOS TV customers by the end of 2010.

"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, Verizon executive president and chief financial officer. "Based on our experience deploying fiber, we see declining cost-trends to pass and connect homes, and we see significant ongoing operating expense savings."

The company said it expects to pass 6 million premises by the end of this year, and 3 million each year through 2010. By the beginning of 2009, Verizon predicts that FiOS will be available to 18 million premises, or more than 50 percent of the approximately 33 million households in its 28-state wireline coverage area.

For its FiOS TV service, Verizon has set a target of 175,000 subscribers by the end of 2006, out of a potential 1.8 million households, representing a market penetration rate of approximately 10 percent. By 2010, the company hopes to have a 20-25 percent market penetration rate--or from 3 million to 4 million FiOS TV customers, based on its estimate that approximately 15 million households will be video-ready by then.

Monthly churn rates of 1.5 percent for FiOS TV mirror those of its FiOS broadband Internet service. Verizon said it now spends $1,806 in average capital expenditures to pass and connect one home to FiOS and hopes to reduce that to $1,730 per home by the end of the year.

All of these predictions for FiOS TV, at least, could be greatly affected by existing franchise laws. In most states, the telco has to go through the same process as cable operators, although, it has been battling such franchise laws on both the federal and state level. Currently, Verizon has 161 local franchises in New York, California, Texas, Florida, Maryland and Virginia. And despite spending reportedly $19 million in lobbying to overturn franchise rules just in California, for example, Verizon officials said such regulations are not slowing the progress of FiOS TV.