Why are Verizon shares falling? Well it seems the massive costs of its FIOS initiative has investors wondering if the fiber to the home strategy makes the most sense or is AT&T’s cheaper plan to use copper in the last mile via its U-Verse initiative a better choice?.
A great concluding paragraph from a related article on TheStreet.com is worth sharing:
"People were OK with FiOS until they saw the cable companies were actually doing better, not worse," says one money manager with no Verizon positions. "Winning phone customers is always a lot easier for cable companies than winning TV customers is for phone companies."
My take on all this is AT&T is doing the right thing in the short term and Verizon is doing the right thing in the long run. What am I talking about? Well simply stated copper bandwidth can be increased and increased but to a point. Sooner or later consumers are going to demand gigabytes of bandwidth to play multiple 3-dimensional games and to watch 3-D movies and to take advantage of telepresence. The question is how far can we stretch copper technology? Certainly there are a slew of companies working on this problem but in the end fiber has virtually unlimited bandwidth and copper does not. At least not for now.
So the battle here is over making the right decision for the long haul and I believe Verizon is doing the right thing. Especially in light of the fact that they have to compete with cable companies who have coax. Wall Street may not get all of this and that is probably the reason the stock is getting punished. In addition Wall Street usually won’t focus on a few years down the road – just a few quarters ahead.
Still, making the right long-term choice as a public company may be as difficult as getting through the holiday season at TMC without getting tempted by the delicious daily gift baskets sitting in the kitchen. At least at TMC the problem erodes after Christmas – well really after Easter. Verizon will have to struggle much longer.