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.

Returns from Verizon's FiOS investment

The telecommunications industry is one that is characterized by large up front investments with uncertain future revenue streams. Verizon's FiOS project, is a classic example of such investment. I have blogged about this before (see this and this).  As this article points out, the early returns are encouraging for Verizon.

This article also points out the relationship between long term strategic investment, investor relations and competition.  Prior to this investment, Verizon had twisted pair loops that prevented them from offering "triple play" services. 

But this has not been without controversy, especially given the current regulatory climate in the US.  The short story is that Verizon is not required to offer these services on an unbundled basis.  Observers have reported that Verizon is killing the copper loops replaced by FiOS, preventing people from reverting to copper later, and also eliminating their requirement to offer unbundled loop elements to broadband competitors (see this, for example).  So Verizon is forestalling competition with both their own (older) technology and with potential competitors who might use this infrastructure. 

Do you think that this behavior should be regulated?  Some have argued that the public "owns" the infrastructure because they have paid for it through regulated rates for many years.  Do you agree with this?  If so, is Verizon right to remove the older infrastructure?