What is the FIOS Cost per Customer?
Broadband Reports is talking about the cost to Verizon of the FIOS service. Hint: it’s all about take rate.
The example (from Phil Harvey at Light Reading) assumes a take rate of ten percent. Based on published Verizon FIOS numbers, at that (low) take rate the investment costs is over $9,000 per customer.
That analysis is flawed. Most importantly is doesn’t take into account that if Verizon did NOT invest in FTTH, they would concede the broadband market to cable, not to mention also losing their profitable telephone revenue stream.
Second, Verizon’s goal is to crush the cable companies by offering significantly better service levels, more high definition programming and faster Internet access speeds. To the extent they succeed, their take rate should exceed 50 percent.
So $4,000 invested per FIOS customer up front translates into a cost basis of about $48 per month over a seven year period. In fact, the FIOS gear is probably realistically a ten year asset (or better) but let’s be conservative.
That means Verizon needs to generate $48 more profit per customer month with FIOS than they would without FIOS. That’s not far fetched. With a high end video bundle plus high speed internet plus phone, that’s a number they can meet or beat.
Or Verizon can plan go out of business.
This is not a terribly complex equation.