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Verizon's FIOS Plan, A Win-Win?

Wednesday, 31 Mar 2010 | 9:57 AM ET

Verizon has invested $29 billion to bring its FIOS Internet and TV service to 18 million homes, and now it's announced it's not going any further.

Instead of expanding to additional areas, it's focusing on growing share of those markets. This is hardly Verizon claiming defeat — the company is simply sticking with its original plan, which it laid out when it began its FIOS rollout back in 2004. Wall Street analysts tell me this is a natural move, and a smart one — the company should get a better return on investment from increasing penetration in their existing markets rather than going into new ones.

It's worth noting that Verizon says it's too expensive *for now* to expand its fiber optic footprint. The company is leaving the door open to expand to more of its landline customers when costs decline. Raymond James analyst Frank Louthan tells me he won't be surprised if Verizon announces in a few years that it's adding more cities.

For now, Verizon's going to ramp up its marketing campaigns and pull out all the stops with competitive triple-play packages to take on the cable companies. In areas like New York, where FIOS competes with Cablevision, we can expect some stiff competition. FIOS Internet has 25 percent of markets its in, while FIOS TV service has 28 percent of its markets. The company aims to grow those numbers to between 35 and 40 percent within the next few years.

But for cable giants Time Warner Cable and Comcast Verizon's decision not to expand FIOS is actually a good thing. Yes, FIOS will be stepping up the competition and perhaps inciting pricing wars in the areas where the companies overlap. But the fact that FIOS — which has grown faster than many expected — isn't going into even more territories is a good thing for the cable giants. And perhaps most of all, this announcement provides much needed clarity. Now the cable giants can accurately assess strategy and move forward with aggressive marketing campaigns in the areas where FIOS isn't going.

What about AT&T?

AT&T's U-Verse is also trying to steal share from the cable giants, but it doesn't compete with Verizon head to head. U-Verse will try to catch up to Verizon, in terms of customers, in the next couple of years. But AT&T faces a disadvantage. Just yesterday U-Verse launched its fastest broadband service. But AT&T spent less on its tech upgrade than Verizon did, and U-Verse speeds are less than Verizon and even cable industry rivals.

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.