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Hazlett on Verizon FiOS Project

As Verizon announced the end of its five-year project in central New York to compete with cable companies through a high-speed fiber optic network (FiOS), Professor Thomas Hazlett says the surprise is not that the company has stopped, but rather that it pursued the project this far.

"Obviously, if they thought they were making a lot of money, or any money, they would simply continue the build-out," said Hazlett. "But the incremental investment has been high."

While Verizon will continue to place fiber in areas that have signed cable TV franchises, the company will not expand the service further into new areas, leaving a patchwork of service throughout central New York. The company's focus will change to maximizing sales revenues, rather than expanding through continued construction.

Verizon's move to position itself in competition with Time Warner Cable, however, has benefited consumers by lowering prices and improving service.

"There's been a lot more competition coming into the market," Hazlett said.

Some CNY communities won't get FiOS as Verizon halts expansion, Post Standard, April 6, 2010. By Tim Knauss.

Excerpt:
"Verizon estimates that building FiOS -- which brings high-bandwidth fiber-optic cable direct to the home -- costs $750 for every household passed, plus another $600 in equipment and manpower to connect each new customer. Less than 30 percent of households passed have signed up so far.

"One analyst who follows the company, Craig Moffett, of Sanford C. Bernstein & Co., estimated in 2008 that Verizon would spend close to $3,900 for every FiOS customer acquired.

"The surprise is not that Verizon has stopped the expansion, but that it pursued it this far, said Thomas W. Hazlett, a law and economics professor at George Mason University and former chief economist of the Federal Communications Commission.

"'Obviously, if they thought they were making a lot of money, or any money, they would simply continue the build-out,' Hazlett said. 'But the incremental investment has been high.'"

"Verizon started building the FiOS network in Central New York in 2005. Last year, after installing video equipment, the company starting signing TV franchises and selling cable TV.

"As of December 2009, the company's fiber lines passed an estimated 150,000 households in the greater Syracuse area.

"In some communities, such as the city of Syracuse, Verizon has fiber available in a few neighborhoods but is not pursuing a TV franchise. That's because franchise agreements require the company to build its network throughout the community on a deadline -- typically five years -- and that's new construction for which Verizon no longer has an appetite."

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