dslreports logo
Fios Spending: $9,650 for Each Home?
The true cost of residential fiber deployment

Light Reading editor Phil Harvey e-mails us to let us know he's crunched some numbers based on Verizon's Fios statements (discussed in full this morning), and has come to some interesting conclusions. According to Harvey, it's costing Verizon over $9,000 to wire each home (at least at first), with his math worked out as such:

"Verizon also says it will cost only about $650 to connect a "passed" home to its network by 2010. So what does it cost to hook up a neighborhood? These aren't absolute figures, mind you, but let's assume that Verizon passes each home in a 400-home neighborhood, then nabs 10 percent of the homes (40 homes) as customers. Take $950 and multiply it by 400 homes. That's $360,000.

Now let's hook up those 40 homes. That's 40 multiplied by $650. That's $26,000 added back to the cost to pass the homes, which was $360,000. So now we have a figure of $386,000 spent in just one neighborhood. But what has Verizon spent per customer? Take $386,000 and divide it by the 40 homes and you get $9,650."
He notes that Millennium Marketing analyst Kermit Ross came to some similar figures last week. Despite this, Verizon this morning stated they should see profitability by sometime in 2009.
view:
topics flat nest 
Zorglub8
join:2000-11-18
Fremont, CA

1 recommendation

Zorglub8

Member

Of course it will be profitable

Over how many years do they depreciate their network? 10, 15, 20 years?

Verizon certainly intends to grab more than 10% of the market, so that math is very short sighted. If Verizon can grab 40% of the market, and I don't why they would not, then the math works out to $2900 per user.

Furthermore, it's the network that will carry Verizon for the next 50 to 100 years. They will definitely take a hit for the next few years, but that's called investing in your own products.
doonboggle3
join:2005-09-18
Elgin, TX

doonboggle3

Member

Re: Of course it will be profitable

I really don't care what it costs the providers. Being in a non-municipal area, and way 'out in the boonies' ... I'd almost give anything to get a DEPENDABLE and fast internet speed service.
doon

NyQuil Kid
8f The Nyquil Kid
join:2001-01-06
Brick, NJ

NyQuil Kid to Zorglub8

Member

to Zorglub8
This is in many ways how cable was viewed when it was first rolled out. It was costly at first, but 10-20 years later, the cash is rolling in (also keep in mind that cash flow, not net income, is much more important from a financial analysis perspective).

[8F] The NyQuil Kid

bent
and Inga
Premium Member
join:2004-10-04
Loveland, CO

bent to Zorglub8

Premium Member

to Zorglub8
40% might even be conservative, especially in the long run. Let's face it. Copper is going to be obsolete, and Verizon is one of the few companies that can see beyond it's next SEC disclosure.
bamabrad
join:2006-01-27
Port Orange, FL

bamabrad to Zorglub8

Member

to Zorglub8
$650 for install- $9,000 for all the suits.

rawgerz
The hell was that?
Premium Member
join:2004-10-03
Grove City, PA

rawgerz

Premium Member

Once again..

You HAVE to SPEND money to MAKE money...
Fiber is nothing new, and we're ALL long over due for it

Fountainhead
Premium Member
join:2003-10-25
New York, NY

Fountainhead

Premium Member

Re: Once again..

If they can grab each home for multiple services, the math gets much better than if you just sign up for broadband.

NumberCruncher
@dynamiccity.com

1 recommendation

NumberCruncher

Anon

A little less

There is a modest error in the calculation above. $950*400 = $380,000 (vs. $360,000) + $650*40 = $406,000 / 40 = $10,150. The math can also be calculated as $950/.10 (10% take rate) + $650 = $10,150.

According to slide 11 of the FIOS presentation referenced above, their 12 month penetration is 15%. Take $950/.15 = $6,333 + 650 = $6,983.

According to the FCC (»hraunfoss.fcc.gov/edocs_ ··· 11A1.pdf.) the value of a cable subscriber is $3,785. While one can argue that a FIOS subscriber may be more valuable than a cable subscriber, using this value as a benchmark, Verizon will need to achieve a 30% take rate for its costs to equal the value of a subscriber. ($3,785 - $650 = $3,135. $950/$3,135 = .30)
disc
join:2005-12-31
Raleigh, NC

disc

Member

Re: A little less

Good analysis, but I'm wondering if they're two different types of investments. For instance, $3785 represents the purchase price of the business that's being purchased. On one hand, their assetts are being purchased, but what's also being purchased is that they're a business that is generating cash flow. It has other costs such as OPex built into it.

In comparison, VZ's investment represents CAPex per sub, but not OPex, Rev, etc. Would it maybe be better to use the 10 Year NPV of Verizon's business case and divide that across the number of subscribers? Maybe some Year greater than 10? I don't know. It would be interesting to know how the buyout firms actually do this type of calculation.
wentlanc
You Can't Fix Dumb..
join:2003-07-30
Maineville, OH

wentlanc to NumberCruncher

Member

to NumberCruncher
I hate the way these guys do math. It costs them $950 per home to pass, and $650 to connect "later on sometime" according to the article. So, every home costs $1600 to connect. It does not cost more per home to connect FEWER subscribers. It does cost to pass. Their math artificially inflates the cost per home based on the take rate to liquidate the overall cost for a single neighborhood. Assume 400 homes in a neighborhood. That is a $640K cost to connect all homes. Assume that they got 80% saturation for telephone service only, 400 homes, times the $1600 each to connect, $640,000 paid for over 30 years would be about $5.50 a month per subscriber assuming 320 subs. How realistic is it that they could get 80% of the telephone market? Now add in television and HSI and you tell me that it is too expensive. They are just playing with numbers to make it all sound horrible, when in fact they will still make money hand over fist.

Assume a their theoretical 10% take rate. (again, that is the immediate take rate, no long term predictions there)

$380K to offer service to a neighborhood of 400 subs.
+
$26K to connect their immediate 10% take rate.
=
$406,000
240 payments over 30 years per sub
9600 payments of $42 a month to pay that back.

Assume that they force conversion of telephone subs to fiber. Assume that they only have 50% of telephone subs in this neighborhood (low IMHO).

$130K to connect those 200 subs
=
$510,000
48000 payments of $10.62 a month to pay back over 30 years.
Much better return rate. If they can get a single service from the majority of their users, they will pay off the network in no time.

Assume 90% of the neighborhood uses them for phone..

$234K to connect those 360 subs.
=
$614,000
129,600 payments of $4.73 a month to pay back over 30 years.

Sound expensive now? Sure there will be fluctuations depending on take rate, and many other things, but they will not lose money, and it does not cost them what they are advertising, to connect you. It is BS marketing to gain sympathy. Will they come back and lower your prices later on when it is less expensive becuase more people signed up? Doubt it.

puritan

wwdubbia
join:2002-06-03
Clinton, NY

wwdubbia

Member

Re: A little less

said by wentlanc:

I hate the way these guys do math. It costs them $950 per home to pass, and $650 to connect "later on sometime" according to the article. So, every home costs $1600 to connect. It does not cost more per home to connect FEWER subscribers. It does cost to pass. Their math artificially inflates the cost per home based on the take rate to liquidate the overall cost for a single neighborhood. Assume 400 homes in a neighborhood. That is a $640K cost to connect all homes. Assume that they got 80% saturation for telephone service only, 400 homes, times the $1600 each to connect, $640,000 paid for over 30 years would be about $5.50 a month per subscriber assuming 320 subs. How realistic is it that they could get 80% of the telephone market? Now add in television and HSI and you tell me that it is too expensive. They are just playing with numbers to make it all sound horrible, when in fact they will still make money hand over fist.

Assume a their theoretical 10% take rate. (again, that is the immediate take rate, no long term predictions there)

$380K to offer service to a neighborhood of 400 subs.
+
$26K to connect their immediate 10% take rate.
=
$406,000
240 payments over 30 years per sub
9600 payments of $42 a month to pay that back.

Assume that they force conversion of telephone subs to fiber. Assume that they only have 50% of telephone subs in this neighborhood (low IMHO).

$130K to connect those 200 subs
=
$510,000
48000 payments of $10.62 a month to pay back over 30 years.
Much better return rate. If they can get a single service from the majority of their users, they will pay off the network in no time.

Assume 90% of the neighborhood uses them for phone..

$234K to connect those 360 subs.
=
$614,000
129,600 payments of $4.73 a month to pay back over 30 years.

Sound expensive now? Sure there will be fluctuations depending on take rate, and many other things, but they will not lose money, and it does not cost them what they are advertising, to connect you. It is BS marketing to gain sympathy. Will they come back and lower your prices later on when it is less expensive becuase more people signed up? Doubt it.

puritan
The funny thing is that in 30 years Fios will be the equivalent of today's copper, so they can do ANOTHER deployment then of the latest and greatest technology and someone can dig up this thread and compare the numbers...

Phil Harvey
@69.15.x.x

Phil Harvey

Anon

Re: A little less

re: "They are just playing with numbers to make it all sound horrible... "

Not really. I don't think spending $9K+ a home for a network connection that will be cutting edge for decades is a bad idea.

I'm playing with numbers to point out that installing fiber is not cheap. If it were, AT&T, Qwest, and the old BellSouth would have already done it to 100 percent of their homes.

Verizon's definitely breaking new ground with FiOS, but the cost of doing nothing is far, far greater.

ph
dcs2281
join:2004-09-14
Santa Clarita, CA

2 edits

dcs2281

Member

Reminds of their earlier attempt at FIOS

This reminds me of the GTE/Verizon Americast days. They deployed it, waited 2 years, were lossing their shirts on it, and sold it to the local CableCo's. The excuse was it was to costly to maintain.
neftv
join:2000-10-01
Broomall, PA

neftv

Member

Don't forget

Don't forget Verizon stole I mean was given state (at least from Pennsylvania) money for Fios so it's money that was already there from our pockets from taxes already paid. So some of those costs should be offset. If not then there is problem of honesty within Verizon.

Hangmn
Don't Fight It...It's Inevitable
Premium Member
join:2000-04-08
Philadelphia, PA

Hangmn

Premium Member

BULLSHIT

PA RESIDENTS HAVE ALREADY PAID FOR THEIR FIBRE...In tax breaks and inflated bills...these number are skewed because they DO NOT take into account all monies given to these scumbags

amenite
The Soylent - It's People
Premium Member
join:2002-11-21
Ridgewood, NJ

1 recommendation

amenite

Premium Member

What about the (yanked) copper?

Isn't there some gain by not having to maintain the copper? Even if it's going away one location at a time? They're pulling it for good when you get your FIOS. What's the cost of maintaining one vs. the other?
rdmiller
join:2005-09-23
Richmond, VA

rdmiller

Member

What about existing DSL users?

If Verizon already has 25% DSL penetration in this neighborhood (picking a number out of my ass, the same way the author of this study did), don't Verizon have a captive audience that is eager to jump to FIOS? Just asking.

malvado6
I pee on Bushes.
join:2003-09-13
00001

malvado6

Member

Fuzzy Math

What ridiculous calculations.
I was the first home out of my CO to be wired for FiOS.

I don't know how many homes were passed at the time the service went available (let's go with the magic 400).

So by this clown's math, my home cost $360,950 to wire.

Whatever. Verizon has only hit the tip of the iceberg on their deployment.

Need BB
join:2001-12-21
New York, NY

Need BB

Member

Re: Fuzzy Math

Copper is at its limits. It is either this or face extinction.

wwdubbia
join:2002-06-03
Clinton, NY

1 edit

wwdubbia to malvado6

Member

to malvado6
said by malvado6:

What ridiculous calculations.
I was the first home out of my CO to be wired for FiOS.

I don't know how many homes were passed at the time the service went available (let's go with the magic 400).

So by this clown's math, my home cost $360,950 to wire.

Whatever. Verizon has only hit the tip of the iceberg on their deployment.
using these numbers, technically, that's correct.

So if Verizon spends $400k to wire a neighborhood of 400 homes and you're the only guy on the block who signed up, it cost them $400,650 to get your business including hookup.

CCTVTech
Premium Member
join:2003-04-23
Phoenix, AZ

CCTVTech

Premium Member

No Limit/Restrictions

With fiber Verizon will never have a speed limit (From Verizon To The Customer), plus they can offer tons of different services over that fiber. Copper is old technology that can't handle the speeds of the future, cable says they can provide the bandwidth but that is only for a few more years.

For the people who say no one needs that much bandwidth are the same type of people who said no one needs faster than 56K back in BBS days.

I see a day where I can have 2 HD streams, Transfer a Gig of photos to family, and check the inventory of my fridge from the grocery store all at the same time with bandwidth to spare.
retsam6
join:2004-09-02
Red Bank, NJ

retsam6

Member

Re: No Limit/Restrictions

gawd, what a stupid thread. lets see, people bitch that america is falling behind in broadband. then when a company actually goes through with a state of the art network those say people bith about the costs!....get a life loosers.

Pashune
Caps stifle innovation
Premium Member
join:2006-04-14
Gautier, MS

Pashune

Premium Member

Re: No Limit/Restrictions

Hmm, if you think about it; Those OTHER countries who have better broadband than we do also have better pricing...

Also, do a spellcheck. Thanks.
pepe7
join:2003-08-25

pepe7

Member

Re: No Limit/Restrictions

Yes, they do. And did you every consider why this is the case? Well for starters they also have varying forms of government subsidies to fund business development in some cases which we do not. Combine that with a generally smaller area of land to cover, and you can quickly see how their prices could be better for faster service.

-Pedro

Hangmn
Don't Fight It...It's Inevitable
Premium Member
join:2000-04-08
Philadelphia, PA

Hangmn

Premium Member

Re: No Limit/Restrictions

said by pepe7:

Yes, they do. And did you every consider why this is the case? Well for starters they also have varying forms of government subsidies to fund business development in some cases which we do not. Combine that with a generally smaller area of land to cover, and you can quickly see how their prices could be better for faster service.

-Pedro
Pah lessse
Di you ever consider that with more customers per square mile our Telcos have MADE MORE MONEY?
Not to mention sweet heart deals exonerating them from BILLIONS is taxes they just aren't living up to their side of the deal?
The Telcos have been fucking consumers for DECADES time to pay.
pepe7
join:2003-08-25

pepe7

Member

Re: No Limit/Restrictions

This discussion seems to come and go here @ BBR along with several tangents. I'm not sure why you feel I disagree with your point of view regarding the grip of the telcos based on one statement(?)

Anyway, the smaller footprint/difference in scale combined with higher levels of govt subsidies in Europe is one catalyst for easier deployment. They also have much more standardized plans for rolling out broadband technologies nationally (and across the EU), again, which is ultimately easier based on the fact that they are not covering such a spread out land mass. I'm not disputing that the Telcos have been screwing with us all along, as it's common knowledge. It's similar to the oil companies, auto manufacturers and airlines who always get their way forcefully in congress and get bailed out with our tax dollars. The fact that the telcos constantly protect their territories akin to a pissing match does not help us progress either. Without a doubt, certain industries/businesses have much better access to a free ride overall in the U.S. If more Americans would concern themselves with what goes on in local/national politics the greedy telcos might be more willing to work more closely to combine their own shareholder agenda with national plans to modernize our technological infrastructure. Or perhaps these ideas are too much in opposition(?)

-Pedro
wentlanc
You Can't Fix Dumb..
join:2003-07-30
Maineville, OH

wentlanc to pepe7

Member

to pepe7
said by pepe7:

Yes, they do. And did you every consider why this is the case? Well for starters they also have varying forms of government subsidies to fund business development in some cases which we do not. Combine that with a generally smaller area of land to cover, and you can quickly see how their prices could be better for faster service.
Hmm... sounds like you just described municipal access to me! Smaller area to cover makes prices cheaper. And the gov's are already providing funding through tax breaks to these corps like Verizon. I'd rather see their quarterly bonuses turned into one more neighborhood online.

puritan
rhard49
join:2001-04-12
Merrick, NY

rhard49

Member

Got it

I just got my 9,650.00 installed monday and I'm lovin it!
Goodbye Cable

wmcbrine
join:2002-12-30
Laurel, MD

1 edit

wmcbrine

Member

The "nab" rate

The "10 percent" hookup estimate is way too low. In my neighborhood, it's a lot closer to 90%. No joke. And that's just since February.

Dolgan
Premium Member
join:2005-10-01
Madison, WI

Dolgan

Premium Member

Re: The "nab" rate

No it is not too low. The rate of users subscribing to FIOS in Bell Atlantic Region and the states of Texas, Florida, and California{Ex GTE Region} is holding steady at about 8%. The highest take rate has been in Ft Wayne,IN with about 12%. Over 3 million homes have been passed by FIOS and there are only 350,000 people on the service. FTTP is the wave of the future, but the average consumer is slow on the uptake presently.

batterup
I Can Not Tell A Lie.
Premium Member
join:2003-02-06
Netcong, NJ

1 recommendation

batterup

Premium Member

The great unwashed doesn't want broarband they want TV.

When a national TV franchise is passed the great unwashed will flock to FIOS. Internet is only important to 10%, TV is important to 80% when HD pay-pre-view porn is added to the mix. Don't piss on my leg and tell me it is raining.

That is why net-neutrality sucks,I don't want porn from Microsoft. I only dwell in the dark underbelly of a free and unregulated internet.

••••
tmc8080
join:2004-04-24
Brooklyn, NY

tmc8080

Member

higher densities..

verizon KNOWS that the cost of NOT moving IS worse than anyhthing! But seriously, while it is NOT cost effective to deploy a 400-home community it IS more profitable to wire a 4000 home community. As said, 9000 to wire each home becomes $900 when you multiply by a factor of 10. Now ROI is much lower... 2 years with customers bundling 2 services, not 3,... bundling 3 basic services cuts ROI by 6 months.. Subscribing to higher grade services such as 20/5, 50/5, and premium cable channels are ICING taken from cableco's cake.

verizon built a huge warchest from the good old ma'bell days and has a large foot print, that is while not GEORGRAPHICALLY bigger than the other telcos, has probably the MOST POTENTIALLY PROFITABLE markets in the country as far as telco/cable services goes. VOIP was the catalyst for initial spending by telcos.. and did what years of regulation, failed dsl deployments, carrots and sticks did not... erode profits. companies know ONE THING.. the bottom line.. just like the top 3 auto makers know, gasoline won't be cheap or locatable in large quantities out of terrorists backyard forever and they need to make changes sooner rather than later to solve out fuel consumption dilema.

btw, i know i'll catch flack for this, but isn't a 400 home community rather RURAL? Especially in 2006, of course unless your talking about greater New Orleans, but they have an excuse...

haamster
Premium Member
join:2002-12-02
Monroe Township, NJ

haamster

Premium Member

Re: higher densities..

You're missing the point. The author used 400 homes with 40 installed. It doesn't matter what number you use. It's the ratio of homes installed to homes passed that is the issue. Go ahead. Use a 9000 home community as an example. If you use 10% installed, 900 homes, the amount per home comes out the same. The author is just taking any representative slice of the whole figure of 3 million homes passed and 300,000 homes installed.

Verizon is paying to wire neighborhoods and to wire individual houses. The author just combined those costs into one figure per house installed, which is a fairly reasonable way to figure out how much revenue they need to generate from each sub to break even. It turns out it's a lot.

CableTool
Poorly Representing MYSELF.
Premium Member
join:2004-11-12

CableTool

Premium Member

Re: higher densities..

said by haamster:

Verizon is paying to wire neighborhoods and to wire individual houses. The author just combined those costs into one figure per house installed, which is a fairly reasonable way to figure out how much revenue they need to generate from each sub to break even. It turns out it's a lot.
I love how people think that fiber just APPEARS and everything you do with it is pure take away profit.

Even with copper, a node that has a capacity of 500 homes needs at least 100-125 operating off of it to make the cost to deploy, run and mantain that node and its run profitable.
Then look at verizon, Three Million homes passed, 350,000 subscribers.. there is no money being made.

I know everyone wants fiber and I am smart enough to know cable will be barking up that tree as well, replacing its last mile with fiber at some point, but these numbers make sense. Its funny how crazy people get when Verizons White Night gets put into perspective. And when people DONT switch to verizon when it is available they are idiots and shortsighted and all other kinds of things..
Hilarious. This mob cracks me up!