unday, February 13, 2005
By MARTHA McKAY
STAFF WRITER
DANIELLE P. RICHARDS / THE RECORD
Kim Lewis, a Verizon field technician, splicing fiber-optic lines in Rockland County, N.Y., in preparation for rollout of new product that will provide super-fast links to the Internet plus TV and telephone service
It's the fastest connection to the Internet ever piped into American homes. It's a multibillion-dollar gamble that includes plans to piggyback television and telephone service.
And it's coming to New Jersey.
That makes 13 states where Verizon workers are digging up streets, installing boxes on phone poles and replacing traditional copper phone lines with thin glass fibers that transmit data at the speed of light.
The new product, dubbed FiOS (fiber-optic service), is capable of delivering super-fast Internet access at speeds that can easily surpass cable. Think of a stream of water: If a cable modem is a garden hose, fiber is Niagara Falls.
With this enormous capacity, Verizon later this year plans to offer a level of TV service it hopes will tantalize and amaze - and get you to yank out your cable or pull down your satellite dish and send your dollars to Verizon instead.
About New Jersey, Verizon will say only that FiOS is coming "soon." As in other states, the service will be available initially only in select areas. Sources say FiOS will be deployed in more than a dozen towns in Bergen and Passaic counties, as well as elsewhere in the state.
This is all part of a shifting telecommunications landscape where technology advances have created what's shaping up to be a ferocious fight between cable companies, which now sell phone service, and phone companies, which are gunning for a piece of the lucrative TV market.
For Verizon, a leap into the TV business, although filled with challenges, "is a gamble they have to make," said Gregory P. Miller, telecommunications analyst with Fulcrum Global Partners.
The company's ambitious plan to offer FiOS to 3 million customers by the end of this year comes with a hefty price tag that analysts estimate could top $2.4 billion. Simply selling Internet service won't recoup that investment, so the phone giant is hedging its bets by promising TV.
Verizon says fiber-optic TV will look and feel like cable TV and will be priced competitively. The company is busy making deals with content providers, lining up entertainment offered by Discovery's 14-channel lineup, Court TV and others. Verizon is keeping mum about most of its TV offerings except to promise it will deliver vast amounts of high-definition content.
"There will come a time when high-definition [video] will become the standard fare, not the exception," said Marilyn O'Connell, senior vice president of broadband solutions at Verizon.
"We want to roll out into the market the capacity for all of the high-definition content that is available today. There's now a lot of content. It's growing every day. But we would have no limitation on what we could do relative to today's library of content, and really for the foreseeable future."
For Ron Kauders, a 46-year-old salesman for a German manufacturer who works from home, moving from a sluggish dial-up connection to FiOS in December proved to be an eye-opener. He chose the most basic FiOS level, which is roughly equal to cable Internet service.
Downloading reports for his job - a task that used to take 45 minutes every Sunday morning - now takes less than two.
"It's phenomenal," said Kauders, who lives in Syosset, Long Island.
And when Verizon starts to sell television service sometime later this year, Kauders, now a satellite dish subscriber, will consider switching. That's the kind of customer Verizon is looking for - and seems to be finding.
In the first town to get FiOS - Keller, Texas - more than 20 percent of those offered FiOS have signed up since last summer, the company said.
Parts of New Jersey were slated to get FiOS last summer, too, but Verizon was irritated over an unrelated state regulatory decision and delayed the plan.
Ironically, New Jersey consumers may already be seeing the effects of Verizon's FiOS in the form of faster Internet service from Verizon's chief competitors, the local cable companies. Cablevision and Comcast both recently increased the speed of their Internet service, without raising prices.
Fiber feint
When Verizon announced plans to offer FiOS to 1 million homes by the end of 2004, it gave many analysts pause. There was the steep cost - estimates are $800 to $1,500 per home - and the phone company has a history of grand announcements. Verizon's predecessor, Bell Atlantic, also rolled out bold plans for a fiber network complete with high-speed Internet and television service in New Jersey - on May 19, 1994.
But the company insists this time the plans are for real, pointing to technology that is better, faster and cheaper.
Second, phone companies have lost local lines and revenues. More ominously, they have watched cable companies offer phone services. Cablevision, which has 1 million customers in North Jersey, recently marked a milestone: 250,000 subscribers to its flat-rate, unlimited local and long-distance phone service.
Verizon needed to "future-proof" its network, as the phone executives like to say. They wanted to sell super-fast Internet connections, video on demand, TiVo-like digital video recording capabilities, hundreds of TV channels and high-definition content. And all this required the largest-capacity wire available. Although some believe the cable industry, which over the last decade spent close to $85 billion to upgrade its networks, is now better positioned to compete for customers, others point out that a fiber-to-the-home strategy will give the phone company a long-term advantage.
Cherry-picking
Some analysts estimate less than 20 percent of Verizon's entire 29-state territory will ever be served with the fat fiber-optic pipes. So far, the FiOS rollout is mostly targeting affluent towns, whose residents have plenty of disposable income and a propensity to spend on communications and entertainment.
"Verizon doesn't need to have a strategy to give fiber to everybody - they need a strategy to make money," said Tom Nolle, a telecommunications analyst and president of Voorhees-based Cimi Corp., a telecommunications consulting firm.
The cable industry has the most to lose if the phone companies gain ground, and it is already criticizing phone-industry fiber plans on grounds of unfairness.
At a speech in December to the Washington Metropolitan Cable Club, Robert Sachs, president of the National Cable & Telecommunications Association, raised the issue of "redlining," the practice of discriminating against an area because of a perceived economic risk.
"Serving only high- and middle-income neighborhoods in a community is both discriminatory and anti-competitive," Sachs said, referring to fiber plans proposed by SBC Communications, a Baby Bell based in Texas.
Countering suggestions that it limits its communications technology to affluent regions, Verizon notes that it sells broadband DSL in practically every part of its service area in New Jersey, including urban areas.
With FiOS, said Verizon spokesman Rich Young, the company is simply focusing on areas with strong demand for broadband, asking, "Are there a lot of customers who buy DSL or cable modem service?"
Verizon also looks for clusters of potential customers, he added. "It's more efficient to deploy where there are more dense pockets of homes and businesses. Since we want to get [FiOS] to as many customers as quickly as we can, we will choose to go to areas where we can deploy most efficiently," said Young, who also said that Verizon "is committed to serving cities."
TV franchise fight
One hurdle may loom larger than Verizon anticipated and put the brakes on a rapid rollout of TV in some locales.
To sell TV service, Verizon needs a franchise agreement with each New Jersey municipality it serves, and the approval process can take six to 18 months. The franchise fees paid by cable companies to a town - and passed along to every cable customer - are essentially a tax paid to use a public right-of-way. Towns also frequently require cable companies to provide money for public and government channels, and facilities and equipment to broadcast public events.
Franchising may become an all-out battle fought on many fronts - federal, state and local. The cable industry is arguing already that the phone companies must agree, as the cable companies did years ago, to serve entire communities, not just parts of a town.
Verizon counters that it already uses the public rights-of-way for its phone network. The company also calls for expedited franchising rules and complains that cable companies didn't have to re-apply for franchises when they began selling phone service.
Verizon is trying various tactics to win franchises.
In Virginia, the company is using a statewide approach, getting a state lawmaker there to introduce a bill to speed the process.
In other states, Verizon is seeking franchises on a town-by-town basis.
Verizon said it was premature to talk about New Jersey, which has 566 municipalities, and what approach it might take here.
The end game
For their part, analysts are still divided on whether Verizon's gamble will pay off.
If the company spends $800 to wire a home and a customer buys only FiOS Internet service at $35 a month, it could take up to two years to recoup its investment, a rough calculation that doesn't include servicing the customer. On the other hand, Verizon says fiber costs less to maintain than copper lines, which saves money on network costs.
But even Verizon executives admit they won't see any early returns on their FiOS investment. They are making a billion-dollar wager and counting on customers like Eddie Kilkenny.
He has five computers in his home and hates the cable company.
"Cablevision has had a monopoly on Long Island for many years, and the prices they charge for cable TV are exorbitant. A little competition will go along way in stabilizing, and possibly even reducing, the price I pay monthly for cable TV," said the Massapequa, Long Islander.
Kilkenny has signed up for FiOS Internet service that's three times faster than that of his Syosset neighbor, Kauders, and the father of two can't wait for the rocket-like speed.
"You can never have enough bandwidth," he said.
Robert E. Calem contributed to this article. E-mail: mckay@northjersey.com |
