Verizon Opens the FiOS Kimono

Historically, Verizon (VZ) has held it’s FiOS FTTH subscriber numbers close to the vest, and has not provided detailed information about penetration rates or success metrics. Today, they opened the kimono.

Here are the highlights:

1. 375k broadband subscribers today. 725k by year end.
2. 70% of subscribers are new Verizon broadband customers. 30% are cannibalized DSL customers.
3. On track to offer services to 5M homes by end of 2006, 18M by 2010, which is over 50% Verizon current subscriber penetration.
4. 1.8M potential FiOS TV subscribers by end of 2006, 170k subscribers. 2/3 are Cable defectors. (Are the others satellite? This seems low.)
5. Targeting 6-7M Broadband subscribers and 3-4M video subscribers by 2010.
6. $1BB in annual Opex savings by 2010 when compared to copper. That’s $110 per subscriber. Field failure rate is 1/5th that of copper.
7. 15% broadband market penetration achieved within one year of install.
8. $850 target cost to pass a home, $880 to connect it when service is ordered. Expect this to drop to $700 and $650 by 2010. In 2004 it was $1400 and $1200. Verizon has cut deployment costs by 1/3 in two years. MOCA is a key technology (see ‘Verizon Uses MOCA to Reduce FiOS costs‘).
9. Financial models target 27% operating income margins assuming 37% broadband penetration and 24% video penetration after 5 years of serving a community.

Verizon has now put a solid stake in the ground by which investors can judge ROI and market success. While much of the above news is not new, I expect Verizon will provide updates with this granularity on a quarter by quarter basis.

It’s clear to me that Verizon is totally committed to cannibalizing it’s copper plant and DSL customers. It is refreshing to see such a large company aggressively deploying new technology, particularly going against the grain of short-term oriented Wall St. thinking. I use the FiOS service at home, and it is remarkable. (See my install notes here)

Verizon, more than any other company in the world (with the exception of NTT), has evolved the corporate DNA to deploy last mile fiber cheaply and make it work. It will be interesting to see the impact if (when?) they decide to apply this expertise to business customers. This could have a stunning effect on competitive telecommunication providers, as Verizon would not be forced to lease their new optical right-of-way, and competitors would be forced to use a deteriorating plant, maintained by Verizon, and all additional costs passed on to the lessee.

A full copy of the presentation can be found here. The Wall St. Journal also has an overview here.