Verizon: New fiber rollout isn't cheap

Verizon will spend $17.5 billion to $17.9 billion on capital expenditures in 2007--most of allocated to a fiber to the premises (FTTP) rollout--and take an 11 cents a share hit in the first quarter as it continues to bet big on leapfrogging rivals in broadband.

While the company reported solid fourth quarter results and added 2.3 million Verizon Wireless customers, analysts are watching Verizon's big bet on its FiOS service, which rides on FTTP. For the uninitiated, Verizon is going through neighborhoods and laying down fat fiber optic pipes that will pump broadband access into your home. Verizon is also hoping you'll buy TV service on that same pipe.

If Verizon's bet pays off, it'll recoup the billions it is spending to lay new fiber optic lines. These lines are designed to feature broadband speeds as high as 50Mbps to the home. If customers flock to FiOS, Verizon will have a moat around its business to fend off Comcast and AT&T. If the bet doesn't pay off Verizon will have a lot of explaining to do.

It's early, but it appears Verizon's FiOS is getting some traction. At least Verizon's cable rivals realize they won't have a monopoly much longer. Verizon's FTTP network passes 6 million homes as of the end of 2006, more than double its 2005 tally. FiOS TV was also available to 2.4 million homes at the end of the fourth quarter, double the number in the third quarter. The company had 687,000 FiOS broadband connections in the fourth quarter.

Verizon said the peak of its FiOS expenses will come in the first quarter and then decline gradually. Success from here out will depend on FiOS adoption.