Verizon Bets a Bundle on Fiber

By James R. Hood
ConsumerAffairs.com

October 22, 2004
Verizon, the nation's largest telephone company, is betting $2.8 billion it can go head-to-head with cable TV companies in providing bundled broadband service offering telephone, high-speed Internet, television programming and video-on-demand.

Verizon announced it will begin building fiber-optic networks in parts of five states, enabling it to provide Internet speeds up to 10 times faster than most existing services and a wide-ranging package of cable-style television, as well as traditional telephone service.

The initial build-out is scheduled for the Washington, D.C., suburban areas in Virginia and Maryland as well as parts of Delaware, New York and Pennsylvania. Nationally, Verizon says one million homes and businesses will be on the new network by the end of the year and three million by the end of next year.

For years, technologists have talked in gee-whiz tones about the potential of fiber-to-the-home to revolutionize telecommunications. Verizon now confronts the gritty reality of digging up streets and stringing thousands of miles of the expensive, delicate fiber-optic cable to make that potential a reality.

Cable television systems have installed fiber-optic networks in recent years but they are nearly all "fiber-to-the-curb," meaning that fiber brings signals into a neighborhood but service to individual homes and businesses is still by traditional coaxial cable.

Verizon is trying to be the first to take the plunge into solving what engineers call the "last-mile problem," the loss of signal quality that occurs when lower-grade copper or coaxial cable carries video, voice and data signals from a neighborhood distribution point to individual homes.

Telephone companies have been talking about building fiber-optic networks since the 1980s, when the field was relatively wide open. Today, Verizon faces a growing band of competitors, including:

• cable television companies, many of which are already providing telephone and Internet service as well as video,
• satellite television providers, which are increasingly offering Internet services as well as video; and
• wireless phone service, which while not a big factor in Internet or video is taking a big bite out of the traditional telephone business as consumers abandon fixed land lines for wireless phones;
• the newest entrant, electric utilities which recently got the go-ahead to offer BPL, or Broadband Power Line, service, which could deliver telephone, Internet and perhaps video over existing electrical wires.

Conspicuously missing in the new line-up are the long-distance companies -- AT&T and MCI -- which had once aspired to be players in providing bundled telephone, video and Internet service. They tried to do so on the backs of the incumbent telephone providers instead of building their own local networks, a battle they have lost.

Financial analysts and competitors questioned whether Verizon would be able to sell enough of the new services fast enough to cover the staggering cost of the build-out, which will require an additional 3,000 to 5,000 employees.

Besides marketing challenges, the uncertain regulatory atmosphere that surrounds the telecom business could mean that Verizon will have to provide space on its system to competitors at prices it finds unattractive. The next Congress is expected to tackle that question as it revisits issues last dealt with in the Telecommunications Act of 1996.

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