Verizon Communications' new high-speed fiber optic network will never make as much money as its old copper network, an executive said on Wednesday.
The company has spent roughly $23 billion on building FiOS, a high-speed Internet and television service that runs on this new network. But Chief Financial Officer Fran Shammo said that returns from the new service will be limited.
Let's face it, the FiOS cost structure will never be as profitable as the legacy wireline structure, Shammo said during the Webcast of an analyst meeting on Wednesday.
Shammo cited fierce competition in the TV market as well as high-fees for digital content as reasons why FiOS will not be as profitable as its legacy service.
Last summer, the company shut off its copper-based service for about 300 customers in Texas and replaced it with FiOS, a company spokesman said.
Shammo said the company will continue to cut off its copper-based service in smaller markets that have high rates of FiOS subscribers.
Verizon is looking into doing this in Wesley Chapel, Florida, a rural town outside Tampa Bay, a spokesman said.
Shammo said the dynamics of the TV market means its wireline business needs a fundamental cost change.
The company's attempts to lower costs have crystallized as a strike by almost half of its wireline workforce.
On Sunday, 45,000 workers from the U.S. Northeast went on strike, saying that Verizon's proposed contract asked for too many concessions in healthcare contributions, pensions, sick days and other work rules.
Shammo said the cable market that Verizon is now competing in doesn't give its employees similar benefits, putting Verizon at a disadvantage.
MOVING FORWARD WITH PREPAID
Shammo also said that Verizon might be moving its trial of a prepaid unlimited data plan for $50 per month from its two trial markets.
The trial has gone very, very well for us, he said. You may see us take that in a few other markets.
Shammo said the prepaid plan had not taken service from its customers under contract. The company did not want its prepaid plans competing with its crown jewel contract plans, Shammo said.
Michael Nelson, an analyst at Mizuho Securities, said the prepaid plan, which typically sells to a lower-income market, should not impact Verizon's contract business.
Verizon Wireless really does have premium pricing for their post-paid service, Nelson said. Arguably, prepaid is a segment outside of their existing subscriber base.
Shares of Verizon closed down 1.8 percent at $33.66.
(Reporting by Roy Strom; Editing by Richard Chang and Gunna Dickson)