FiOS: Verizon Thinks Farther Ahead than Analysts

With Monday's NYT article on Verizon's $23 billion FiOS plan for running fiber-optic cable to 19 million homes, the debate begins again as to whether the company was visionary or stupid. Frankly, I think you need to toss the usual stock market analysis aside and look at competitive fundamentals. Over the next five to 10 years, FiOS may prove to be a giant club in Verizon's hands because it will have the bandwidth for the Internet's future, not its past.

Some critics like Sanford Bernstein analyst Craig Moffett say that Verizon is toast. Moffett thinks Verizon will end up losing $6 billion when all is said and done, and that the cable companies will win the telecom wars.

I find myself more aligned with Om Malik in thinking that Verizon "at least has an offering that addresses the needs of the future broadband users." Except that I go a step further: Verizon has an answer that no one else seems to, and that puts it in a position to control a lot of data business.

On the Internet, data and files only get bigger. Consider not financials, but theoretical download speeds. Verizon is solidly ahead on what it could deliver with a potential of 400 mbps, whereas cable will top out under 200, and DSL and wireless aren't even in the picture. By investing now, Verizon is positioning itself as a natural service leader for consumers and businesses. For anyone else to catch up would require an equivalent network build-out, and the numbers for, say, AT&T's stay-slow strategy aren't that appealing:

[CEO Randall Stephenson] at AT&T should be having nightmares. [The international cable model standard] DOCSIS 3.0 real speed is 4 to 50 times as fast as any service AT&T will have for the better part of a decade. Their top tech people pointed out in 2003 that [AT&T's] U-Verse was a big gamble, because it is far behind what DOCSIS 3.0 will deliver. Randall saved $10 to $20 billing by not running fiber. AT&T's capex is 30 percent less than depreciation. Great for current earnings and cash flow, of course, and [former AT&T CEO Edward Whitacre] made $100 million or more in 2006 on his options and then retired.

Underinvestment is not good for AT&T customers or the nation; it's still unproven what serves shareholders in the long run.

Speeding taxi image courtesy Erik Sherman, all rights reserved.