Business Week reports that Verizon Communications has put a price tag on its ambitious fiber-optic initiative for the first time, estimating it will spend $22.9 billion to rewire more than half of its copper wire-based telephone network so it can sell cable TV and higher-speed (similar to Asia and Europe) Internet connections.
The estimate for the "FiOS" project appeared to be at the lower end of analyst projections. Verizon expects to offset the cost with $4.9 billion in savings from now until 2010 due to the reduced maintenance needed with a fiber network.
Verizon also issued more bullish subscriber forecasts, predicting the project will generate positive operating income beginning in 2009. Verizon's profitability projection is based on expectations of attracting up to 7 million FiOS Internet subscribers and up to 4 million FiOS TV customers by the end of 2010.
However, it's very important to consider Verizon's un-stated per subscriber revenue assumptions in order to determine if this goal is in fact possible, or even likely.
As an example, if Verizon is assuming that the current U.S. phone, pay-TV and Internet access bundle price of around $100/month is sustainable, then their prediction is unrealistic. The rationale: there is no reason to believe that current U.S. bundle pricing will not decline as rapidly as it has in more competitive markets such as the leading Asia-Pacific and European regions (where the same bundle price is currently $40-60/month).
Moreover, if the Verizon prediction also assumes that emulating the prior cable and satellite pay-TV programming model will be a viable strategy in 2009, then once again this assumption is based upon an unlikely scenario. Reason being, over-the-top delivery of on-demand and 'direct to consumer' video is already showing signs of disrupting the traditional pay-TV business model.
In summary, a superior next-generation network doesn't solve the apparent weakness in a go-to-market strategy that's based upon a previous-generation business model. Many analyst assessments fail to fully appreciate this issue, and as a result they tend to underestimate the inherent risk in launching an undifferentiated pay-TV service at a price point that's sure to rapidly decline.
The estimate for the "FiOS" project appeared to be at the lower end of analyst projections. Verizon expects to offset the cost with $4.9 billion in savings from now until 2010 due to the reduced maintenance needed with a fiber network.
Verizon also issued more bullish subscriber forecasts, predicting the project will generate positive operating income beginning in 2009. Verizon's profitability projection is based on expectations of attracting up to 7 million FiOS Internet subscribers and up to 4 million FiOS TV customers by the end of 2010.
However, it's very important to consider Verizon's un-stated per subscriber revenue assumptions in order to determine if this goal is in fact possible, or even likely.
As an example, if Verizon is assuming that the current U.S. phone, pay-TV and Internet access bundle price of around $100/month is sustainable, then their prediction is unrealistic. The rationale: there is no reason to believe that current U.S. bundle pricing will not decline as rapidly as it has in more competitive markets such as the leading Asia-Pacific and European regions (where the same bundle price is currently $40-60/month).
Moreover, if the Verizon prediction also assumes that emulating the prior cable and satellite pay-TV programming model will be a viable strategy in 2009, then once again this assumption is based upon an unlikely scenario. Reason being, over-the-top delivery of on-demand and 'direct to consumer' video is already showing signs of disrupting the traditional pay-TV business model.
In summary, a superior next-generation network doesn't solve the apparent weakness in a go-to-market strategy that's based upon a previous-generation business model. Many analyst assessments fail to fully appreciate this issue, and as a result they tend to underestimate the inherent risk in launching an undifferentiated pay-TV service at a price point that's sure to rapidly decline.