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Wealthy Targets

4/17/2005 8:00 PM Eastern

Some of the wealthiest neighborhoods in Verizon Communications Inc.’s footprint have been the first to receive its fiber-delivered FiOS Internet Service, and they may eventually be the first communities to get the telco’s upcoming video product.

A look at the demographics of the 55 communities where Verizon recently launched FiOS Internet shows that the average median household income in these localities is $81,920. That’s nearly twice the national median household income average of $41,994, according to U.S. Census Bureau data analyzed by Multichannel News.

Well-Heeled FiOS Rollouts
Town Population Median Family Income Incumbent Operator
Scarsdale, N.Y. 17,823 $200,000+ Cablevision
Chevy Chase View, Md. 863 $139,468 Comcast, RCN
McLean, Va. 38,929 $137,610 Cox, RCN, Comcast
Southlake, Texas 21,519 $136,023 Charter, Comcast
Garrett Park, Md. 917 $126,662 Comcast
Armonk, N.Y. 3461 $122,066 Cablevision
Colleyville, Texas 19,636 $121,499 Comcast
Upper Makefield, Pa. 7,180 $114,065 Comcast
West Pikeland, Pa. 3,551 $111,760 Comcast
Andover, Mass. 31,247 $104,820 Comcast
Toppsfield, Mass. 6,141 $104,474 Comcast
Hopkinton, Mass. 13,346 $102,550 Comcast
FiOS Market Demos
Data on the locales where Verizon will roll out service:
Verizon Fios Towns National Average
Median household income $81,920 $41,994
Median family income $92,322 $50,046
Median age 39.4 35.3
White 81% 75.1%
Black or African-American 4.5% 12.3%
Hispanic 12.1% 12.5%
Asian 6.8% 3.6%
Some other race 4.8% 5.5%
Two or more races 2.4% 2.4%
Source: U.S. Census Bureau data

Verizon is still in the early stages of rolling out FiOS Internet, priced at $34.95 per month to existing phone customers for an entry level 5 Mbps Internet service, which is faster and less expensive than high-speed Internet offerings from most cable companies.

Verizon has only announced a few carriage deals with programmers, most recently with Starz Entertainment Group last Thursday.

While Verizon plans to eventually market FiOS high-speed data and video services nationwide, executives at the telephone company said they’ve initially rolled out FiOS in towns that have the highest penetration of broadband cable-modem and DSL Internet services.

“Our initial deployment areas, they’re where we’ve seen an appetite for broadband and where we think people will want to buy it. As time goes along we’ll deploy it in more and more of our service area,” Verizon spokeswoman Sharon Cohen-Hager said.

Those initial FiOS rollouts are also taking place in some of the most prosperous cities of the country, from the affluent New York City suburb of Scarsdale, N.Y., where the median family income is some $200,000 annually, to Southlake, Texas, where the median family income is $136,023.

More than half of the towns where Verizon has deployed FiOS Internet have populations of less than 20,000. The largest city to receive FiOS to date is Oyster Bay, N.Y., population 293,925, where Cablevision Systems Corp. is the incumbent.

Like its cable competitors, Verizon must weigh political pressure to deploy its broadband Internet and video service to every city within its footprint, regardless of local income levels, versus rolling out high-speed service first to the wealthiest cities, which tend to have more broadband Internet customers to target.

When Comcast Corp. launched cable-modem service in Washington, D.C., in 2002, it rolled out the high-speed product first to the district’s Southeast area. Known as the poorest area in Washington, the Southeast contains many public housing developments, and its residents are predominantly black.

Verizon hasn’t yet deployed FiOS in Washington. But in February, it began marketing FiOS in several of the wealthiest suburbs just outside of the Capitol, including McLean, Va., where the median family income is $137,610, and Chevy Chase View, Md., where it is $139,468.

Verizon will compete with Comcast, Cox Communications Inc. and RCN Corp. in the Washington metropolitan area.

The first FiOS Internet launch was last August, in Keller, Texas, where Verizon competes with incumbent cable operator Charter Communications Inc. Charter vice president of government affairs Margaret Lejuste said the MSO’s Forth Worth system has lost some cable-modem customers to Verizon in Keller and other nearby towns with access to FiOS, but she wouldn’t quantify how many.

Cohen-Hager said Verizon has already picked up a 20% share of the broadband market with FiOS Internet in Keller, but said it was too soon to discuss penetration numbers in other towns.

Charter recently upgraded the speeds of its cable-modem service to 5 Mpbs, to match Verizon’s entry-level high-speed service, which costs $34.95 per month. Charter’s high-speed product costs $5 more monthly than Verizon’s.

Texas will also host Verizon’s first FiOS video rollout later this year. The company has won local franchise agreements in Keller, Sachese, Westlake and Wylie, in addition to Beaumont, Calif.

Lejuste said Charter isn’t fighting Verizon’s efforts to obtain more franchise agreements with cities. Rather, she said the MSO wants to ensure that the telco isn’t given any unfair advantages by franchise authorities.

“We’re happy to compete as long as the requirements of the franchises are the same. And we’ve had conversations with Keller and Southlake [franchise officials], and talked about competing on a level playing field,” Lejuste said. “We can compete as long as the rules are fair.”

Lejuste wouldn’t say whether or not she believes Verizon is “redlining,” or targeting the wealthiest communities to market its product to cable customers and delaying FiOS rollouts in poorer neighborhoods. “I can’t answer that question,” Lejuste said.

Officials at the National Cable & Telecommunications Association also declined to comment last week on questions involving Verizon’s selection of wealthy neighborhoods for initial FiOS deployments.

But in December, former NCTA president Robert Sachs accused another telco, SBC Communications Corp., of redlining in the rollout of its upcoming fiber-delivered video service, warning that “operators must be vigilant about plans by phone companies to circumvent the local franchising process to gain unfair competitive advantage by redlining or any other means.”

Earlier this month, at the National Show in San Francisco, new NCTA president Kyle McSlarrow told attendees during a keynote address that “all multichannel-video providers should continue to make service available to all residents, regardless of income.”

Verizon chairman Ivan Seidenberg fielded questions on redlining at a House Energy and Commerce Committee hearing in March, where Consumer Federation of America director Mark Cooper accused Verizon of shirking public-interest obligations by seeking “to be excused from serving undesirable customers and simultaneously seek to prevent local governments from serving those very same customers.”

Seidenberg dismissed Cooper’s allegations. “Not only do I disagree, it’s offensive to me because that’s not the way we do business. We deploy our technology; we don’t redline,” Seidenberg said.

Verizon’s first FiOS Internet rollouts occurred last summer, but most of the deployment activity has occurred during the last month. Comcast and Cablevision will feel the brunt of the recent FiOS launches.

Earlier this month, Verizon began marketing FiOS in dozens of towns in Massachusetts, Florida, Pennsylvania, Virginia, where it will compete with Comcast, Cox, Adelphia Communications Corp and RCN. Verizon also launched FiOS in several towns on Long Island and in Westchester County, New York, where it will take on Cablevision.

September