Fios Spending: $9,650 for Each Home? The true cost of residential fiber deployment Wednesday Sep 27 2006 18:26 EDT 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. |
1 recommendation |
Of course it will be profitableOver 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. | |
| | |
Re: Of course it will be profitableI 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 Kid8f The Nyquil Kid join:2001-01-06 Brick, NJ |
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 | |
| | bentand Inga Premium Member join:2004-10-04 Loveland, CO |
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. | |
| | |
to Zorglub8
$650 for install- $9,000 for all the suits. | |
|
rawgerzThe hell was that? Premium Member join:2004-10-03 Grove City, PA |
rawgerz
Premium Member
2006-Sep-27 6:51 pm
Once again..You HAVE to SPEND money to MAKE money... Fiber is nothing new, and we're ALL long over due for it | |
| | |
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. | |
|
1 recommendation |
NumberCruncher
Anon
2006-Sep-27 6:55 pm
A little lessThere 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
2006-Sep-27 9:59 pm
Re: A little lessGood 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. | |
| | wentlancYou Can't Fix Dumb.. join:2003-07-30 Maineville, OH |
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 | |
| | | |
Re: A little lesssaid 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
Anon
2006-Sep-28 7:07 pm
Re: A little lessre: "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 |
Reminds of their earlier attempt at FIOSThis 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
2006-Sep-27 7:10 pm
Don't forgetDon'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. | |
| HangmnDon't Fight It...It's Inevitable Premium Member join:2000-04-08 Philadelphia, PA |
Hangmn
Premium Member
2006-Sep-27 7:20 pm
BULLSHITPA 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 | |
| ameniteThe Soylent - It's People Premium Member join:2002-11-21 Ridgewood, NJ
1 recommendation |
amenite
Premium Member
2006-Sep-27 7:27 pm
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? | |
| |
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. | |
| | malvado6I pee on Bushes. join:2003-09-13 00001 |
Fuzzy MathWhat 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. | |
| | | |
Re: Fuzzy MathCopper is at its limits. It is either this or face extinction. | |
| | | 1 edit |
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
2006-Sep-27 9:19 pm
No Limit/RestrictionsWith 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. | |
| | |
Re: No Limit/Restrictionsgawd, 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. | |
| | | PashuneCaps stifle innovation Premium Member join:2006-04-14 Gautier, MS |
Pashune
Premium Member
2006-Sep-27 10:27 pm
Re: No Limit/RestrictionsHmm, 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
Member
2006-Sep-28 12:17 am
Re: No Limit/RestrictionsYes, 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 | |
| | | | | HangmnDon't Fight It...It's Inevitable Premium Member join:2000-04-08 Philadelphia, PA |
Hangmn
Premium Member
2006-Sep-28 6:58 am
Re: No Limit/Restrictionssaid 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
Member
2006-Sep-28 10:29 am
Re: No Limit/RestrictionsThis 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 | |
|
| | | | wentlancYou Can't Fix Dumb.. join:2003-07-30 Maineville, OH |
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
Member
2006-Sep-27 10:16 pm
Got itI just got my 9,650.00 installed monday and I'm lovin it! Goodbye Cable | |
| 1 edit |
The "nab" rateThe "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
2006-Sep-28 2:07 am
Re: The "nab" rateNo 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. | |
|
batterupI Can Not Tell A Lie. Premium Member join:2003-02-06 Netcong, NJ
1 recommendation |
batterup
Premium Member
2006-Sep-28 1:18 am
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. | |
| | •••• | |
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
2006-Sep-28 11:11 am
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. | |
| | | CableToolPoorly Representing MYSELF. Premium Member join:2004-11-12 |
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! | |
|
| |
|
|