Bells' Fiber Plan Looking Frayed

Telecom fans have spent 2004 weaving a fabulous fiber tale, full of upgraded networks and lucrative opportunities. But with the Baby Bells still pinching pennies, the buildout story is starting to unravel.

Phone giants Verizon (VZ Quote), SBC (SBC Quote) and BellSouth (BLS Quote) have been promising investors a fiber-optic future, replete with premium-fetching advanced services such as high-definition video and ultra-fast Internet access.

Given the state of the Bells' crumbling local phone business -- a problem exacerbated by customers' flight to wireless and the looming presence of cable rivals -- a bold fiber strategy certainly gives the big telcos' fans something to ponder.

Yet while few observers dispute fiber's capacious potential, many have questioned the wisdom of the Bells moving right now to take on the huge expenses associated with rewiring homes. These people note that the cost of upgrading just a million homes to fiber can cost as much as $1.5 billion -- money the Bells may be loath to spend in these hypercompetitive times.

"They have to sell the hype," says analyst Sam Greenholtz with Telecom Pragmatics. "Everyone has to have that warm feeling that they will get fiber to the home."

The Thaw

Wall Street has certainly felt the warmth. Indeed, after four years of spending cuts, investors are eager to see some prospects of a new buying cycle triggered by so-called FTTP, or fiber to the premises.

The Bells are already years behind cable giants such as Comcast (CMCSA Quote) on fiber-optic upgrades. Now, the local phone giants must buy some time and show they aren't still slumbering as they play catch-up, say industry watchers.