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from: Northjersey.com

Verizon's FiOS cost troubling investors

Tuesday, October 31, 2006

By MARTHA McKAY
STAFF WRITER

Verizon took a beating Monday after investors digested news that the company's new fiber network is costing slightly more than anticipated.

The company, which is building its high-speed FiOS network in numerous states, plans to file on Thursday with the New Jersey Board of Public Utilities for permission to begin selling FiOS TV service here. The BPU will have 45 days to review the company's application.

The company plans to spend close to $23 billion nationwide to build the new network, which can deliver television and high-speed Internet service as well as phone service, allowing Verizon to compete with cable companies that already offer customers a triple-play package.

Verizon's third-quarter profit was up 2.8 percent compared with the year-earlier period, with a strong showing by Basking Ridge-based Verizon Wireless, which continues to add customers.

The company's net income was $1.92 billion, or 66 cents a share, compared with a year ago when net income was $1.87 billion, or 67 cents a share. Revenues in the third quarter were $23.3 billion, up 26 percent from the year-ago quarter when the company reported revenues of $18.5 billion.

The new FiOS network will shave 31 or 32 cents a share from full-year earnings. Verizon said Monday. That's up from an earlier estimate of 28 cents to 30 cents.

Some investors reacted sharply to the news. Shares lost slightly more than 3 percent, closing at $37.65, down $1.19 from Friday's close.

Not all analysts shared the worries.

"We continue to believe FiOS provides Verizon clear differentiation that will pay significant competitive dividends down the road, despite near-term expenditures," analysts at Stifel Nicolaus & Co. wrote in a note to investors Monday.

Verizon added 63,000 new FiOS TV customers in the quarter, up from 35,000 new customers in the prior quarter. The FiOS service now has 118,000 TV subscribers and 522,000 Internet customers, the company said.

Overall, Verizon lost 419,000 local phone lines but added 539,000 residential broadband Internet and video users, a number that includes the high-speed Internet service DSL.

In New Jersey, Verizon, which has its operational headquarters in Basking Ridge, plans to have TV service available to more than 2 million households in the next couple of years.

Earlier this year, Verizon lobbied successfully for a law change that gives it, or any cable provider, the option of applying for a statewide video franchise instead of applying for permission town by town.

Verizon said it will offer New Jerseyans a package of 190 channels for $40 a month. The price will be $35 a month for consumers who purchase the service along with phone and high-speed Internet service.

E-mail: mckay@northjersey.com