Verizon told investors Wednesday that its fiber-based FiOS TV service is experiencing strong early growth and is poised to meet its 2006 goals for both homes passed and penetration.
In a presentation to analysts and investors, Verizon Telecom president Virginia Ruesterholz announced that FiOS TV, currently available in small parts of Texas, California, Florida, Virginia, Maryland, Massachusetts and New York, has already signed up over 100,000 subscribers. Ruesterholz added that Verizon is “well on our way” to reaching 175,000 FiOS TV subscribers by the end of the year.
The FiOS TV service currently passes over 1 million homes, with a goal of 1.8 million homes passed by the end of 2006. By 2010, the company expects three million to four million video subscribers and six million to seven million data subscribers. Video penetration would total 20% of “qualified” homes, while data penetration would be 36%.
Overall, video represents $20 billion of the $50 billion potential market for voice, video and data services across the 33 million homes and 3.6 million businesses that Verizon reaches, says Ruesterholz.
Verizon added that its FiOS Internet service is gaining traction faster than expected, signing up over 500,000 customers, 70% of which are new Verizon broadband subscribers. Verizon projects 725,000 data subscribers by year-end.
The high-speed data service is also helping to make FiOS TV “sticky” with customers, says Ruesterholz, as some 56% of FiOS TV customers are also taking the Internet service and 79% have signed up for the full “triple-play” bundle of voice, video and data. The churn rate for FiOS TV is less than 1.5%, she adds.
Verizon provided some other metrics on FiOS TV customers: 99% have signed up for premium services; 60% have HD and/or DVR-equipped set-tops; and 12% have adopted Verizon’s “Home Media DVR,” which uses a central DVR and existing coaxial cable to stream programming to multiple TVs in a subscriber’s home.
Verizon’s ability to gain local franchises to offer TV service was a question mark as it launched the service, but Ruesterholz says the company has been able to match the pace of franchise agreements to the buildout of FiOS TV’s fiber-based network, and currently has 161 franchises covering over three million households.
“This isn’t holding us back in our deployment of video,” she says.
Verizon also released some fresh figures Wednesday on the capital expenditure associated with the FiOS TV rollout. The company projects that the gross capital cost per home passed, which includes fiber and distribution hubs, will drop from $1,021 in 2005 to $700 in 2010, and said that in August the average number was $873, lower than the previous year-end 2006 goal of $890. The gross capital cost per home connected, which includes running fiber to the home and installing terminal equipment and set-tops, will drop from $1,163 in 2005 to $650 in 2010, Verizon estimates. In August, the average number to connect a home was $933, higher than the previously announced year-end goal of $715.
Because the new plant is much cheaper to operate, saving $1 billion on costs per year, the company estimates that the FIOS operation will break even on an operating basis in 2008 – not counting capital investment in extending the system to new towns. That’s years earlier than UBS telecom analyst John Houdlik had expected.
Verizon estimates that completing the FIOS network will cost $23 billion, or around $850 per home passed.
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