Verizon Vibes Turn Negative

Investors have been a lot more comfortable with AT&T's cheaper plan.

"Verizon has underperformed AT&T ... because of their foolish decision to throw money at a small and shrinking part of their overall business," says the Washington telecom expert. He says that since the end of 2004, AT&T stock is up nearly 40%, while Verizon stock is down -- though a Verizon spokesman says that comparison fails to account for the recent spinoff of Idearc (IAR Quote). He says Verizon shares are up 24% giving effect to that deal.

Verizon defended its FiOS strategy in September with an exhaustive presentation to analysts. The company says it budgeted $22.9 billion toward fiber investments and promised to cut its per-home installation cost to $1,350 by 2010 from $1,816 now.

Verizon also revealed its subscriber numbers. As of the end of September, the company had 100,000 TV customers and 500,000 FiOS Internet users. The company vowed to have 175,000 TV subscribers by year-end and to make FiOS available to 18 million homes by 2010.

Regardless of whether Verizon ends up hitting those targets, one disappointment for investors has been the failure of FiOS to vanquish cable rivals like Comcast (CMCSA Quote), whose shares have soared this year, driven by hefty user gains.

"People were OK with FiOS until they saw that the cable companies were actually doing better, not worse," says one money manager with no Verizon positions. "Winning phone customers is always a lot easier for cable companies than winning TV customers is for phone companies."