Preston Gralla

Why Verizon's fiber project could kill the company

November 20, 2006 1:06 PM EST
Verizon is alone among the major telcos in building an extremely expensive fiber to the home (FTTH) network rather than less-expensive fiber to the node (FTTN). This extra cost could end up killing the company.

In Verizon's FTTH network (also called fiber to the premises, or FTTP), fiber is laid all the way to people's home. With FTTN, by way of contrast, fiber goes to a neighborhood node, and existing copper lines carry the signal to the home. FTTN is far less expensive than FTTH.

Verizon argues that it's worth the cost, because it will be able to deliver higher-quality services, and get increased revenue because of that. But that doesn't appear to be the case. Other telcos say that they can deliver the same services, but at far lower cost.

The most recent critic is Paul Reynolds, CEO of BT Wholesale, part of BT, formerly known as British Telcom. According to Telecommunications Online, Reynolds recently gave a speech at the DigiWorld 2006 Summit, where he said, "I really don’t see a business case for widespread FTTH. It is not immediately apparent where the incremental revenue would come from that."

Reynolds isn't alone. Other telcos say the same thing. And Verizon is in essence betting the company on FTTH, because it's enormously expensive to deploy it, far more expensive than FTTN. The Mercury News, back in September, noted that AT&T's FTTN project will cost about $5.1 billion to wire up 19 million homes. The newspaper added, "That's less than a quarter of the capital commitment Verizon is making to completely rewire markets serving 18 million homes."

There's simply no way Verizon can compete with companies deploying a far-less costly network. It's betting the company on FTTH, and that may kill it.