FiOS could give more 'economic stimulus' to Verizon than others

Bloggers from Verizon and The New York Times slugged it out on Friday over parts of the economic stimulus package considered by Congress that give broadband providers extra incentives for ultra-fast services like FiOS.

In the NYT's Bits blog on Friday, Saul Hansell suggested that wording tucked into the Senate version of the economic stimulus bill would supply Verizon with a larger share of the stimulus pie than most of its rivals.

But responding soon afterward in Verizon's own PolicyBlog, David Fish, company spokesperson for national-level policy issues, defended the proposed incentives as sparking "additional deployment of ultra high-speed networks across the country that will generate jobs, stimulate the economy, enhance international competitiveness, and improve productivity."

A major plank in the stimulus package now being weighed by Congress, and passed by a largely Democratic vote in the House, is to extend broadband access to rural areas, low-income neighborhoods, and other "underserved" populations.

But where the House version of the bill would provide $6 billion in grants to broadband providers, the Senate version raises the grant money by another $3 billion.

The Senate version also adds tax credits as another incentive. Providers would receive a 20% tax credit on investments in "current-generation" broadband, running at 5 Mbps or higher, plus an additional 20% credit for much faster "next-generation" services operating at 100 Mbps or higher.

"But further down in the bill sits a significantly expanded definition of what sort of customers can be served by a company that qualifies for the [next-generation broadband] tax credit: 'A qualified subscriber, with respect to next generation broadband services, means any nonresidential subscriber maintaining a permanent place of business in a rural, underserved or unserved area, or any residential subscriber,'" Hansell observed.

The NYT blog post further suggested that, unlike the tax credit for slower "current-generation" broadband, the extra tax credit for faster services would apply to all home subscribers, not just those in "underserved" populations.

Verizon's FiOS is reportedly the largest provider of ultra-high-speed broadband services in the US right now, although new DOCSIS 3.0 technology also allows Comcast and some other cable providers to apply for the additional credit. Comcast announced it's rolling out DOCSIS 3.0 services to the Chicago area just this week.

Not exactly surprisingly, Verizon's Fish applauded the additional credit for providers building out faster broadband networks.

"In order to qualify for the tax credits for next-generation networks under the current draft as we understand it, companies would have to increase the speeds that are now available on our wireless and wireless networks. The [Senate] Finance Committee should be commended for its effort to promote the development of a next generation communications infrastructure for America," according to Fish.

As previously reported in Betanews, Verizon is under pressure to build out its ultra-high-speed network in FiOS' main initial stomping grounds of New York City, where the provider faces a different kind of incentive.

Under its franchise deal in New York City, Verizon is required to pay the city $4 million for wiring municipal facilities, along with an annual franchise fee equivalent to 5% of Verizon New York's gross annual cable revenues.

But also, Verizon must meet its annual coverage goals, or it could be charged millions of dollars per year. Unless 79% of New York City is FiOS-ready by 2012, for example, Verizon will need to cough up $10 million.

Those numbers pale, however, in comparison to the $1.6 billion the provider could reportedly receive in tax credits under the Senate's version of the economic stimulus plan, as currently written.

During the conference call, Toben said that the availability of FiOS in New York City was "only one factor" in FiOS' success at the end of 2008. She also remarked that Verizon will continue to expand FiOS' "Triple Play" availability as FiOS enters new markets in the US, and that FiOS "remains at the center" of Verizon's consumer strategy.

Verizon added 303,000 new FiOS TV customers and 282,000 new FiOS Internet customers in the fourth quarter of 2008, said Doreen Toben, Verizon's executive VP and CFO, in delivering financial results on Tuesday that showed solid growth in both revenues and earnings over the same quarter last year, even during the world financial crisis.