Apparently, Verizon is very aggressively marketing its FTTH/FIOS service to consumers by sending them second day air UPS letters. This whole FTTH and FIOS TV is cash money when el-cheapo Bells are spending the big moolah! However, there might be another angle to it. By end of 2006, VZ will have fiber in nearly 200 towns in New Jersey alone, which means some serious capital investments. (That clearly is not going down too well with the Wall Street, especially those in the ‘dividend’ and ‘quality-bond’ realm.)
Merrill Lynch crunched some numbers recently and pointed out that Verizon trades at a significant discount to AT&T’s3.3x EBITDA for Verizon versus 4.5x for AT&T on 2006E – because the market is taking a dim view of VZ’s wireline operations. This is a reflection of a very pessimistic view of VZ’s FIOS efforts, the research firm writes.
The basic difference is that Verizon is deploying an available technological solution, with an uncertain business case. AT&T is banking on technology development to support a more attractive business case argument. [Merrill Lynch]
At the end of 3Q 2005, Verizon had about 100,000 FIOS high speed customers, and the numbers must have received some serious boost during the 4Q 2005. The big metro deployments in cities like NY, Boston and Philadelphia (especially in high rise buildings) could help boost the number of Internet subscribers. But on the video side, it is slow going. The company seems to have video franchise deals with about 50 odd-munis, and is trying to get states to change the rules. New Jersey is particularly irksome and that “statewide franchise legislation” is becoming a political hairball.
Which brings me back to the UPS and aggressive marketing tactics…. Verizon really needs to show that it is on target to deliver the 20% adoption metric it has been talking up with the investors.