How much profit do you think Verizon actually makes from your $70/month connection?
FiOS revenues make up 70% of Verizon wireline's revenue, and the average monthly bill is like $110. But the division's profit margin is 2-5% most years. Let's say generously they're making $7 a month on you (10%). A Verizon tech makes $35/hour+ not including benefits. So a one-hour field call wipes out 5 months of profit.
They make nothing off it because I cancelled service.
Google searches show that they have had a special $29.99 reactivation rate for years. Several months ago they made it $39.99 in the second year. A couple years prior, they had also added a $1.99 municipal construction fee. That works out to be $37 a month. I assume that the amortized cost of keeping the fiber lit is below that because I doubt that they would make such an offer at a loss.
Charging a long time customer higher pricing would provide them with money that they can spend on things like Fios network expansion and network upgrades, which are expensive.
Your analysis is wrong. When Verizon spends a bunch of money to wire up a neighborhood, that doesn't come out of profits. Instead, it books a capital asset that is depreciated over time. Verizon wireline's EBITDA margin these days--five or six years after the end of significant network expansion--is about 22%. That's what's left after paying for ongoing maintenance, support, and bandwidth, but before accounting for recouping the cost of the original build. After accounting for depreciation, interest, and taxes, it's under 5%. That means the up-front cost of your connection is being recouped at $10-20 per month at most.
Verizon spent about $20 billion on FiOS, and has about 7-8 million customers. So the average customer cost about $2,500 to wire-up. That means it'll take 10-15 years to recoup the initial cost of the build-out.
The special-offer pricing is not meaningful. Most of the cost of building and maintaining fiber is getting to the neighborhood. FIOS penetration is only about 1/3 in the places where service is offered. Which means that Verizon has a lot of incentive to make offers to those 2/3 at a rate below what it could sustain charging everyone.
Again, even though the average FIOS subscriber pays $100+ per month (triple play, etc), the division's net profit margin is under 5%. It would be losing enormous amounts of money if people were paying $30-40/month.
Your analysis is wrong because the subscriber count excludes Fios subscribers in areas that they sold to Frontier while the $20 billion includes them. The costs also vary depending on subscriber density. Furthermore, the actual installation cost is $750 in my state according to Verizon:
I recall that number was ~$1000 9 years ago. I find it hard to believe that Verizon did not recoup that over 9 years. That is less than $10 a month over that time frame. My household paid $10 to $20 a month more for higher speed tiers over that 9 years. Those cost Verizon almost nothing so it is reasonable to conclude that they recouped the initial installation cost in this instance.
Also, Verizon has two tiers of special rates. One for new sign ups at locations that have already been wired and one for new sign ups at locations that have not. Mine is one that has been wired. Entering into an arrangement where the income from providing service is less than the day to day expenses of providing it before including one time installation costs even with a contract period makes no sense, so I do not think that Verizon is doing that. Since the one time installation costs are paid, they would have been making money even at the lower rate in my case under that assumption. Obviously, it would not be as much, but I am okay with that.
I realize that individuals' calculations often underestimate ISP expenses. However, my case is one where such calculations should apply. I also realize that wireline margins are low in general. I did not mean to state that the profitability of my particular Fios connection was the norm. I only meant to say that there are instances of old lines where the margins far exceed the average. That is why I said the connection was setup "nearly 10 years prior". The profitability of the connection would have been a very different matter otherwise.
I took another look at this. The $750 per house figure was actually for wiring the neighborhood without going into any homes, which costs an additional $600:
>In New York, Verizon said it costs about $750 per house to bring FiOS service to a neighborhood, plus an additional $600 to run the fiber into the home of a consumer who wants to purchase FiOS service.
Assuming 40% penetration (also in the article) and $600 on top, the cost is $2250, which is close to your $2500 calculation. I still think Verizon made that up over the course of 9 years. I just need to include the set top box rentals in the calculation. Assuming that my household paid $15 on average over 9 years more than the base tier price on average for the internet connection and each of the 3x $5 a month set top boxes that we had for 8 years cost Verizon $250 each, I get $2310. This is before considering that those should still be worth something and the principle that Verizon would not offer lower rates than their operating costs. That would be a great way to obtain negative margins.
FiOS revenues make up 70% of Verizon wireline's revenue, and the average monthly bill is like $110. But the division's profit margin is 2-5% most years. Let's say generously they're making $7 a month on you (10%). A Verizon tech makes $35/hour+ not including benefits. So a one-hour field call wipes out 5 months of profit.