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from: Philadelphia Inquirer

Verizon's push into TV to cost $18 billion
The second-largest U.S. telephone company wants to compete with Comcast and other cable providers.

By Christopher Stern and Rebecca Barr
Bloomberg News

Verizon Communications Inc., the second-largest U.S. telephone company, said yesterday that it planned to spend $22.9 billion expanding its fiber-optic Internet and television network through 2010, placing a price tag on its effort to compete with the cable-TV business for the first time.

The company will generate a profit from the network, which will pass 18 million houses across the United States, in 2009, New York-based Verizon said today in a statement. Verizon will save about $4.9 billion because it will not be operating a copper-wire network, putting the net cost at $18 billion.

Verizon is spending the money to compete with Comcast Corp. and others for Internet, television and phone services. The company yesterday set a target of 175,000 television customers and 750,000 Internet subscribers by the end of the year, ahead of some analysts' estimates.

"It's something they have to do, and they are exceeding my expectations on penetration, albeit early in the process," said Christopher King, an analyst at Stifel Nicolaus who rates the stock "hold" and said he did not own it. "Now it's going to depend on their ability to take market share."

The company forecast it will sign up 100,000 television customers by the end of this month and 500,000 Internet users.

Verizon is battling Philadelphia-based Comcast, which had 10.5 million subscribers for its digital-television service at the end of the second quarter, an increase of 15 percent from a year earlier. The company, with 21.7 million basic-cable customers, has more than 1 million telephone customers.

Verizon estimates that about two-thirds of its new video customers cancel their cable-TV service when they sign up.

"We feel we are well on our way to meeting our end-of-year objective," Virginia Ruesterholz, president of Verizon Telecom, said on a Webcast.

Verizon said the average cost to connect a home to the network was $933 last month, exceeding the $715 average forecast by the company and prompting it to raise its prediction for the rest of the year to $880. The total capital spending figure is for 2004 through 2010, Verizon said.

Shares of Verizon, up 22 percent this year, fell $1.18, or 3.1 percent, to $36.78 yesterday in New York Stock Exchange composite trading. The decline was not related to the news, King said. UBS AG analyst John Hodulik said he might increase his price target on Verizon from $40 because of the forecasts.

Shares of Comcast, up 41 percent in 2006, gained 25 cents, to $36.52, in Nasdaq Stock Market composite trading.

The company's video plans will remain on track regardless of whether Congress passes national rules to streamline the video-franchise process, Verizon said.

The lack of a single law allowing Verizon to offer television service across the United States is not hindering the company's ability to offer service because several states have streamlined rules and Verizon has negotiated deals with local governments, Ruesterholz said.

"I really don't see that as a necessity to have nationwide relief on that," she said.

The company remains a leading proponent of legislation, awaiting a U.S. Senate vote, which would let phone companies offer video service more quickly to compete with cable-TV companies such as Comcast.

"National legislation could bring choice to more consumers sooner," Verizon spokesman David Fish said yesterday in an interview after the conference call.

The U.S. House of Representatives approved national video-franchise rules June 8 in a 321-101 vote. The Senate is unlikely to vote on its version of the legislation until after the November elections, Sen. Ted Stevens (R., Alaska), who wrote the measure, said last week.