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Verizon Pushes Fiber Network While Rivals Wait

Verizon Communications Inc. on Wednesday will provide more details about its $1 billion plan to build fiber optic networks in nine states, a risky strategy some analysts say may be the only salvation for beleaguered local telephone companies.


by Justin Hyde


The company has committed to making the new network available to one million homes and businesses by the end of the year -- more than tripling the number of customers with access to fiber optic connections.

But analysts express skepticism that Verizon can meet its goal, and question how many customers will actually pay to connect to the network. Plus, newer technologies such as high-speed wireless services could emerge as viable, lower-cost options -- just as Verizon tries to recoup its investment.

The "Baby Bells" have long regarded networks built on fiber optic cables as the ultimate weapon to fight off challenges from cable companies and new competitors. Such networks could carry video on demand, telephone calls and Internet downloads at speeds more than 30 times faster than today's fastest home broadband links.

The Bells have pushed into new markets as the local phone business erodes and demand for high-speed Internet service continues to rise. But Verizon's rivals have been reluctant to build fiber networks, citing uncertain federal regulations, high costs and payoffs that might be a decade away.

"Right now, there's not really supply or demand for the speeds that fiber provides," said Yankee Group analyst Patrick Mahoney. "This is a massive investment and a massive cost ... they don't want to commit to anything when there's too much uncertainty."

POLE POSITION

Fiber optic cables use light to transmit data at far greater speeds than copper wires, but cost far more to install and only about 70,000 U.S. homes have such connections today.

Wall Street analysts put the cost of connecting one customer to fiber at between $1,300 and $1,700, compared with $1,000 for a conventional phone line. Merrill Lynch analyst Tal Liani estimates running fiber optics to 10 percent of U.S. households might cost more than $10 billion.

Experts say Verizon's approach will likely try to minimize costs, such as targeting towns where it can run cables on poles rather than burying the lines.

IDC analyst Sterling Perrin says that by focusing on extending its network, Verizon is betting it can wait to connect customers until the prices for home equipment -- which can be three-fourths of the overall cost -- fall.

SBC Communications Inc. and BellSouth Corp. have been more cautious about their fiber network plans. Both have trials running in small towns and both have made no commitments on future roll-outs.

Their executives say federal regulations are a major roadblock. The Bells must lease their copper-wire local networks to competitors at government-set rates, but they argue they should not be forced to do so for new technologies.

The Federal Communications Commission has said the Bells do not have to share any new fiber connections they make directly to customers. But the commission has yet to decide whether the Bells have to share fiber upgrades to neighborhood central offices.

Many analysts say the other Bells cannot afford to wait too long before launching their fiber efforts.

"At least fiber gives the (Bells) a rock solid platform upon which to rebuild their business model," said Deutsche Bank analyst Viktor Shvetz in a recent report.

"That has to be better than the current situation, where the Bells are not really masters of their own destiny."


© 2004 Reuters

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