Verizon Announces FiOS: Fiber Internet Coming to Your Doorstep

While SBC is running fiber to neighborhood cabinets and calling it good, Verizon just announced something more audacious: fiber all the way to your house. Not to a curb cabinet. Not to a node down the street. The actual physical strand of glass terminating at the side of your home, with potentially gigabit-class bandwidth available whenever Verizon decides to turn it on.

The service is called FiOS — short for Fiber Optic Service — and it just went live in Keller, Texas, a suburb northwest of Fort Worth. Keller is a small town of about 30,000 residents, but it's the leading edge of what Verizon is calling the largest fiber-to-the-home (FTTH) deployment in U.S. history.

If Verizon's plan plays out, fiber is coming to 1 million homes by the end of 2004, and 3 million by the end of 2005. That's a staggering deployment pace, and it represents a fundamentally different bet than what any other major U.S. broadband provider is making.

The FiOS Tiers

Verizon is launching FiOS internet with three speed tiers:

| Plan | Download Speed | Upload Speed | Price/Month | |------|---------------|--------------|-------------| | FiOS 5/2 | 5 Mbps | 2 Mbps | $34.95 | | FiOS 15/2 | 15 Mbps | 2 Mbps | $44.95 | | FiOS 30/5 | 30 Mbps | 5 Mbps | $199.95 |

The pricing is aggressive at the low end — $35 for 5 Mbps undercuts most cable internet offerings on a price-per-megabit basis. The middle tier at $45 for 15 Mbps is competitive with Comcast and Cox's premium tiers but generally faster.

The 30 Mbps tier is priced for early adopters and small businesses, not regular households. But the fact that Verizon can offer 30 Mbps at all over a residential connection is significant. Cable internet maxes out around 6 Mbps for most consumer plans. DSL tops out around 3 Mbps. FiOS at 30 Mbps is in a different league.

More importantly, the fiber infrastructure can support speeds much higher than 30 Mbps. The current tiers are limited by Verizon's pricing strategy and equipment, not by the underlying capacity of the fiber. As demand grows and Verizon's equipment improves, FiOS speeds will scale up to numbers that cable internet — and certainly DSL — cannot match.

Why Fiber to the Home (Instead of FTTN)

Verizon's strategy stands in sharp contrast to SBC's Project Lightspeed, which runs fiber only as far as neighborhood nodes and then uses existing copper for the last mile. SBC's approach is cheaper to deploy but caps out at VDSL speeds (20-25 Mbps under ideal conditions).

Verizon's FTTH approach is much more expensive — estimates suggest $1,000 to $1,500 per home for the initial deployment — but it provides essentially unlimited future capacity. Once the fiber is in the ground, upgrading speeds is largely a matter of swapping electronics at each end. The fiber itself doesn't need to be replaced.

Verizon executives have been blunt about the rationale. They believe that within a decade, broadband demand will outstrip what FTTN can deliver. By spending more upfront on fiber, Verizon is positioning itself to dominate the next generation of broadband while competitors are stuck with the limitations of copper.

It's a bold bet. If Verizon is right, FiOS will be a generational competitive advantage. If demand for ultra-high-speed broadband grows more slowly than expected, Verizon will have spent tens of billions building infrastructure that's underutilized for years.

The Triple Play Vision

Internet is just the opening act. Verizon's longer-term plan for FiOS includes television service to compete with cable and satellite. Fiber's massive bandwidth makes it possible to deliver hundreds of channels of high-definition video alongside fast internet and traditional phone service.

FiOS TV isn't launching with this initial rollout, but Verizon has confirmed it's coming — likely in 2005 or 2006, depending on regulatory approval. The company will need to negotiate franchise agreements with each local jurisdiction, which has historically been the cable industry's way of locking out competitors. Several states are passing legislation to streamline this process.

The endgame is a "triple play" bundle: voice, internet, and television all delivered over a single fiber connection, billed as one monthly fee. Cable companies have been offering similar bundles for years, but their voice and data products are limited by their hybrid fiber-coaxial network architecture. Verizon believes pure fiber gives them a structural advantage.

The Keller Deployment

Why Keller? It's a planned community with relatively new construction, which simplifies fiber installation — no decades-old underground utility tangles to navigate. The population is dense enough to justify the deployment cost but small enough to serve as a manageable pilot. And the local government was cooperative on permitting and franchising, which isn't always the case.

Verizon technicians spent months running fiber-optic cable through neighborhoods, terminating it at small enclosures called Optical Network Terminals (ONTs) mounted on the outside of each home. The ONT converts the optical signal to electrical signals that conventional networking equipment can use — Ethernet for internet, RJ-11 for phone, eventually coaxial for TV.

For Keller residents, the FiOS install is roughly comparable to other broadband installations: a technician comes to your house, mounts the ONT, runs an Ethernet cable inside, and configures the connection. The whole process takes a few hours.

What FiOS Means for Cable

Cable companies are watching FiOS very nervously. For years, the cable industry has positioned itself as the speed leader in residential broadband — and rightfully so. Cable internet is faster than DSL in most markets and continues to improve.

FiOS changes the equation. In areas where Verizon deploys fiber, cable suddenly looks like the slower option. A consumer choosing between Comcast's 4 Mbps cable plan and Verizon's 15 Mbps FiOS plan at similar pricing is going to pick FiOS most of the time.

The cable industry's response is twofold. First, they're investing in DOCSIS 2.0 cable modem technology, which can push cable speeds higher (we're starting to see 6-8 Mbps cable tiers in some markets). Second, they're betting that FiOS deployment will be slow and limited enough that most cable customers will never have FiOS as an option. Verizon's footprint covers about 33 million homes — even if every one of them got FiOS, that's still less than a third of U.S. households.

For most Americans, FiOS won't be available for years, if ever. Cable internet remains the dominant broadband technology by a wide margin.

The Skeptics

Not everyone is convinced FiOS will succeed. The skeptics point to several risks:

Cost overruns. Telecom infrastructure projects routinely exceed their initial budgets. Verizon's projected $20+ billion deployment cost could easily balloon if installation runs into unexpected complications.

Slow consumer adoption. Will customers actually pay more for fiber? In Keller, early take-up rates will be the first real test. If Verizon can't sign up enough subscribers in fiber-served neighborhoods, the economics don't work.

Regulatory headwinds. Local franchise battles for FiOS TV could delay the company's plans by years. The cable industry isn't going to roll over and let Verizon walk in.

Technology obsolescence. What if wireless broadband technologies (WiMAX, eventually some flavor of cellular data) make wired fiber less critical? Verizon would be left with billions sunk into infrastructure that customers don't need.

Should You Care?

If you live in or near Keller, Texas — or in one of the next few markets Verizon adds to its FiOS footprint — yes, you should care a lot. FiOS represents a meaningful upgrade over any other broadband option on the market today.

If you live elsewhere, FiOS is something to watch. Verizon's footprint includes much of the Northeast, parts of California, and Texas. If you're a Verizon phone customer, you're potentially in line for FiOS at some point in the next few years.

If you're not in Verizon's territory at all — say you're served by SBC, BellSouth, or Qwest — FiOS doesn't directly affect you. But it does pressure your local providers to offer faster broadband to keep up. Competition is good. Even from a distance.

For now, mark FiOS down as the most ambitious broadband bet in the United States. We'll find out over the next several years whether it's also the smartest one.