The penetration of FiOS among Verizon’s (VZ) broadband users has increased multifold in the past few years from around 2% in 2005 to around 34% in 2009. At 5x higher speeds compared to DSL, FiOS is gaining tremendous momentum among broadband users who are consuming more data by downloading movies, playing music, gaming and using other multi-media rich applications.
We expect increasing data consumption trends to continue. With FiOS, Verizon can compete with cable broadband providers like Comcast (CMCSA) and Time Warner Cable (TWC), satellite broadband providers like Dish Network (DISH) and DirecTV (DTV), and telecom providers like Sprint (S) and AT&T (T).
We currently have a Trefis price estimate of $31.69 for Verizon’s stock, which is close to the current market price.
Verizon’s FiOS broadband is based on high-speed fiber optic technology which offers internet speeds of up to 30-50 mbps. In comparison, DSL broadband has speeds of up to 7 mbps. Broadband users are constantly seeking higher internet speeds that can handle data intensive applications. Demand for internet speeds will increase as devices such as smartphones, tablets, netbooks and handhelds like gaming consoles are able to connect to the internet.
We believe these factors will increase FiOS penetration even further in the coming years. While we expect the penetration of FiOS broadband to total Verizon broadband subscribers to increase from around 49% in 2010 to 81% by 2016, the Trefis community projects an increase from 63% to 86% during the same period corresponding to a slight upside to our price estimate of $31.69.
Disclosure: No position