Verizon Shares Lose Weight On High Fiber Diet

How does a company reverse a huge strategic decision that may have gone wrong? Perhaps it can’t.

Criticism of Verizon’s decision to spend $23 billion to build out a fiber-to-the-home network seems to attract more detractors every day.

Verizon’s (VZ) stock is up a little over 10% during the last year. But the shares of smaller rival Qwest (Q) are up 35%. How humiliating. Qwest is a dog. And, it is not building a fiber network. Shares in AT&T (T) are also up about 35% over the period.

Verizon plans to have its service available for 23 million homes by 2010.

Fortune recently quoted an analyst who is concern about the Verizon plan: "We view this as a multiyear issue," says Citigroup telecom analyst Michael Rollins, who predicts that the pain will carry into 2008. "The market needs to be braced for a longer period of dilution and higher-than-expected costs from this FiOS build."  Not a very nice thing to say.

The business magazine points out another negative: "FiOS’s awesome speed presents a potential long-term challenge: It may encourage consumers to download movies, TV shows, and other interactive services directly from the Web, bypassing Verizon’s video offerings entirely."

Cable is light years ahead in terms of offering the dreaded "triple play" of TV, broadband, and phone service (VoIP) to consumers. Why a customer would switch to the Verizon fiber product is a mystery.

Perhaps Verizon should stop building and use the money to buy a satellite TV company instead. There are two that may be available.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.