Thursday, September 28, 2006 - Page updated at 12:00 AM

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Ambitious Verizon fiber-optic project to cost $18 billion

The Associated Press

Local fiber

Verizon Communications has been upgrading its infrastructure in the Puget Sound area as part of the FiOS initiative. So far, the new fiber is available to nearly 41,500 homes in Washington, in sections of Bothell, Redmond, Kirkland, Everett and Mount Vernon.

By year-end, Verizon hopes to reach at least 50,000 homes in Washington. New service territories will include Brier and Kenmore.

The fiber supports voice and high-speed Internet access but not television service (Verizon does not have cable-TV franchise rights in the area.).

NEW YORK — Verizon put a price tag on its ambitious fiber-optic initiative for the first time, estimating Wednesday it will spend $22.9 billion to rewire more than half of its copper telephone network so that it can sell cable TV and superfast Internet connections.

The estimate for the "FiOS" (fiber-optic service) project appeared to be at the lower end of analyst projections. Verizon expects to offset the cost with $4.9 billion in savings from now until 2010 due to a fiber network's reduced maintenance.

Verizon also issued more bullish subscriber forecasts, predicting the project will generate positive operating income beginning in 2009.

Despite the improved outlook, Verizon stock fell $1.18, or 3.1 percent, to $36.78 Wednesday after setting a 52-week high Tuesday ahead of the FiOS update.

The stock is up 22 percent this year after sliding in 2005 amid worries the hefty investment in FiOS might not pay off.

With traditional cable-TV companies now providing phone service to millions of their video subscribers, there's recognition that phone companies need to fight back by overhauling their networks to deliver multimedia capabilities.

However, investors and experts debate whether it makes economic sense to replace the copper wires all the way to every home. In doing so, Verizon will have far more capacity for next-generation services than any rival.

Verizon said its network overhaul is on track for the year-end goal of having fiber lines running through markets with 6 million homes, and within reach of 18 million households by the end of 2010.

There are about 33 million homes overall in the areas served by Verizon's local phone network.

The company has not been very specific about the pace or extent of any plans for network upgrades in the remainder of their markets.

FiOS Internet service is available in parts of 16 states: California, Connecticut, Delaware, Florida, Indiana, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Texas, Virginia and Washington.

FiOS TV has been launched in parts of Texas, California, Florida, Virginia, Maryland, Massachusetts and New York.

Verizon's profitability projection is based on expectations of attracting up to 7 million FiOS Internet subscribers and up to 4 million FiOS TV customers by the end of 2010.

With the third quarter ending, the company said it expects to report its subscriber base for FiOS broadband has grown to more than 500,000, a gain of at least 125,000 the past three months.

Trumpeting its success at winning customers thus far, the company set a year-end goal of 725,000 customers for FiOS Internet, an amount that would represent nearly 15 percent market penetration among the roughly 5 million homes that will have been offered service by then.

Verizon also raised its long-term goal for market penetration to between 35 and 40 percent in 2010 — from 6 million to 7 million subscribers — up from a target of 30 percent.

For FiOS TV, the company said it has about 100,000 subscribers among the roughly 1 million homes where that service is available.

Verizon set a target of 175,000 customers by year-end, with the service available to 1.8 million households.

The long-range target is for market penetration by 2010 of between 20 and 25 percent, or 3 million to 4 million of the 15 million homes that would have access by then.

Copyright © 2006 The Seattle Times Company


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