The Business of FiOS

I had a really interesting conversation the other day with an analyst who believes Verizon Communications Inc.’s FiOS project is really a Trojan Horse for its business services strategy.

A new study by BIA Financial Network and Telecom Pragmatics Inc. says that, contrary to conventional wisdom in the telecom industry, Verizon's access strategy is not based on delivering fiber to residential customers, but rather it is centered around the deployment of high-speed bandwidth links to as many large enterprise customers as possible.

Sam Greenholtz, principal at Telecom Pragmatics, tells me that when he first started to study the map of the placement of Verizon’s FiOS fiber services, it became clear to him that the vast majority of current projects and those being planned were in a 40-mile-wide swath along the Interstate-95 corridor that runs between Boston, and Richmond, Va. He says the large majority of major business in the Verizon footprint is located within this same area.

Greenholtz isn’t positioning this as some kind of conspiracy theory, he just says that “The FCC said to them ‘if you build fiber-optic routes to supply residential areas with broadband services, we will not force you to unbundle them for use by your competitors.’ Therefore, it only makes sense to take full advantage of the ‘offering’ and, at the same time, cover your most important customers (business) with the ability to have fiber optics right outside their front doors.”

In fact, Greenholtz says Wall Street probably would look upon Verizon’s (alleged) double-barreled FiOS strategy favorably since some articles have lambasted the company for the high costs of its residential FiOS strategy. That’s because Verizon originally said it would be less than $1,200 per customer to do FiOS, but now is saying FiOS averaged $2,600 in 2005 and projects these costs to drop to $1,605 in 2006. However, if you factor in the additional income from the fiber-to-the-business initiative, he says, it’s a more attractive outcome.

He adds that the FCC probably would be cool with this dual-mode FiOS strategy as well, as long as Verizon continues to push forward with its residential broadband strategy (which FCC Chairman Martin keeps saying is the main reason he’s pretty much giving AT&T Inc. and Verizon whatever they want these days).

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