12 March 2010

Verizon FiOS buildout

This story is interesting:
They [Verizon] have now canceled planned FiOS deployments for all new territories such as Alexandria, Virginia. According to Bryant Ruiz Switzky in the Washington Business Journal, Verizon is "suspending Fios franchise expansion nationwide." They are "indefinitely postponing" building Alexandria after telling the city they would begin construction several months ago. Alexandria is one of the richest suburbs in the world and a natural part of the network with a lower than average likely construction cost. Verizon "will now focus on installing its network and gaining market share within the areas where it already has agreements." Bostonians and 10M other Verizon customers are apparently screwed.

Verizon has buildout commitments to New York and other cities that will keep some crews working, but had already suggested they might cut FiOS builds by 2/3rds in 2011. This is now a further cutback, canceling areas that for years they had been promising to serve. Verizon's Harry Mitchell sends their perspective. "The bottom line is that Verizon said in 2004 we’d build to pass about 18 million homes by year-end 2010, and we’re on track to do that with the franchises we currently have. Of course, we will also meet any buildout commitments we made in individual jurisdictions beyond 2010."

The article goes on to speculate that Verizon is hoping to get Federal support for this buildout under the broadband plan. If this is the case, then it is a classic illustration of the "moral hazard" of government interventions in markets. Why should a company take private risks when public funding is available?

But this may not be the only explanation. Others have speculated that the business case for FiOS (and similar systems) is weak to begin with. If this is the case, then Verizon's actions are rational.

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