Verizon recently launched its FiOS TV and fiber-based broadband service in New York City, The New York Times is taking stock of the service, which seems to be doing well. Verizon’s $23 billion investment into FiOS wasn’t viewed kindly, and Wall Street viewed AT&T’s cheaper U-Verse plan as more practical and affordable.

Despite such early shellacking on Wall Street, the company’s decision to go with the more expensive fiber is proving to be smarter, even though it is still not clear if (and when) Verizon is going to start making big money on its bet.

“If I were an auto dealer and I wanted to give people a Maserati for the price of a Volkswagen, I’d have some seriously happy customers,” said Craig Moffett, an analyst with Sanford C. Bernstein. “My problem would be whether I could earn a decent return doing it.”

Moffet estimates that the company is going to lose about $6 billion on FiOS all told. Others feel that 20 percent buy-in from potential customers makes it profitable. Wall Street seems to have warmed up to the Verizon story, impressed perhaps by its recent growth, especially when stacked up against AT&T.

My view is that all U.S. phone companies are in trouble because of major shifts that are going on in the industry. Verizon, with FiOS, at least has an offering that addresses the needs of the future broadband users. Whether they make money on it, who knows.

At the end of second quarter 2008, Verizon had more than 2 million FiOS Internet users and 1.4 million FiOS television users. In comparison, AT&T has 549,000 subscribers for its TV service. Verizon is offering better speeds than AT&T and is very competitive with its local cable rivals such as Time Warner Cable and Cablevision. In comparison, AT&T so far offers regular DSL packages whose speeds are spanked silly by cable offerings.

Anecdotally (and acknowledging the fact that technology blogs are skewed in favor of early adopters), it seems Verizon FiOS subscribers are happier with their Internet connections. I have no gauge of people’s reactions to FiOS TV. In comparison, AT&T U-Verse seems to elicit a response that can be summed up in one word: meh!

What do you guys think? Take our poll and share your thoughts.

Verizon will start selling FiOS TV in New York City on Monday. The announcement will be made at a glitzy ceremony at the Grand Central Station, and will be webcast as well. NYC had granted Verizon a television franchise in May, and the franchise was confirmed by the New York Public Service Commission on July 16. The company today announced that it was getting into offering web video on its set-top boxes.

On the FiOS NYC announcement, this move should turn the heat on Time Warner Cable which is finally going to see some aggressive competition in its home market. It would need to not only increase broadband speeds, it would need to give consumer a reason to stay with them for cable TV.

Verizon President and Chief Operating Officer Dennis Strigl made a big splash at NXTcomm 08 yesterday when he announced that the entire Verizon FiOS footprint could now get speeds of 50 megabits per second. Typically such bandwidth news wouldn’t cause that much of a furor, but there wasn’t much to write home about from the show, which was held in Las Vegas this week.

In his speech, Strigl pointed out that the U.S. has the highest number of broadband users when compared with other countries, in particular that broadband is available in every U.S. zip code. Good point — and one that I’ve made in the past myself — except that it’s no longer true. By that metric, China now leads. Yes, the FCC used to defined broadband as a service that offered, at a minimum, 200 kbps downloads, but it’s since changed that requirement to 768 kbps.

But where Strigl went too far was when he suggested that three-quarters of American households have two providers to choose from — aka a duopoly, which is not my idea of a competitive marketplace. If you factor in wireless and satellite, he said, there are actually six or seven competitors. Talk about twisting the facts to fit one version of the truth! This part of his speech, however, had me choking on my breakfast cereal.

“Massachusetts and New Jersey have similar population density to Korea and Japan and similar broadband penetration. Unlike other countries, what we have accomplished has come not through [government] policy but through private investment.

How telling. So subverting government policy via lobbyists and highly biased friends at the FCC to ensure a future monopoly is all part of good, capitalistic, private investment theory? Maybe Harvard can include that in its future MBA curriculum.

Regardless, I thought it would be fun to see how Massachusetts and New Jersey really square up against South Korea and Japan when it comes to the price of a broadband connection:

Average broadband speeds in South Korea and Japan are 49.5 megabits per second and 63.6 megabits per second, respectively. The average U.S. speed is about 4.9 megabits per second, making it the 14th-fastest country in the world. The average price in South Korea and Japan is about 83 cents per megabit. In the U.S, it’s about $2.83.

But since it would be unfair to use average U.S. stats, I went with Verizon’s prices, the ones it’s going to offer in Massachusetts and New Jersey. On Verizon’s FiOS network, a 50 Mbps connection costs $140 a month — or about $2.80 a megabit. In fact, if you went with Verizon’s 20 Mbps service, you would be paying $3.25 per megabit. (To be fair, Verizon’s price-per-megabit is still cheaper than the $5.25 Qwest charges for its 20 Mbps connection, which costs $105 a month.)

In other words, not until Verizon starts selling a 50 Mbps connection for $41.50 a month and 20 Mbps fiber connection for $16.60 a month can Strigl get away with comparing U.S. broadband with that of the rest of the world.

Verizon reported its first-quarter earnings this morning, with most things going as expected. Wireless is booming (1.5 million net additions, 13 percent revenue growth), FiOS TV’s demand seems to be picking up (263,000 new subscribers, putting the total at 1.2 million), and not surprisingly, the company saw accelerated decline in the number of wireline customers. During the quarter, the company lost 762,000 residential lines and about 186,000 lines.

In other words, there is a renewed urgency around FiOS offerings. The fiber broadband and TV offerings can help overcome some of the line losses. During the quarter, the company added 266,000 new broadband connections — 262,000 of which came from FiOS Internet service. The company had a total of 8.5 million connections: 6.7 million DSL-based Verizon High Speed Internet connections and 1.8 million FiOS Internet connections.

What that means is that Verizon’s DSL growth is all but over. At the end of 2007, the company had 8.2 million subscribers. Of the 300,000 new subscribers Verizon added in the first quarter of 2008, 262,000 are FiOS fiber subscribers. That leaves 38,000 DSL subscribers — or roughly 12,600 new additions per month. At present, FiOS Internet is available for sale to 7.9 million premises. Penetration for the service averaged 22.9 percent across all markets.

Verizon, like many other carriers, is in a race against time: It is critical for the phone companies to keep people talking on their lines if they want to sell them broadband and video services in the future.

Comcast, the largest cable company in the US announced today that it is going to start selling a 50 megabits per second (down) connection in Minnesota’s Twin Cities region. The connection with 5 megabits/second upstream capability is based on DOCSIS 3.0 technology and will cost $150 a month. Cablevision, Surewest and Verizon have been offering similar high-speed yet very expensive connections for a while now.

The so-called Wideband connection is getting a lot of attention today, though the service is unavailable in larger Comcast markets like San Francisco, where 16 Mbps is as fast as you can go. Comcast promises that it will make Wideband available in 20% of the market it serves by 2009 and rest of the country in 2010. Talk is cheap! Since we are still waiting for TiVo on Comcast and instead suffering through a painful DVR experience, I am not holding my breath about WideBand showing up on my doorstep anytime soon.

Just a random observation: these expensive Wideband connections are attractive for a demographic that Comcast may label “bandwidth hogs” who might see their connections throttled.

Slower subscriber growth, worries about competition from phone companies and a management crazy enough to make a bold move — all this has Wall Street worried about Comcast (CMCSA), the Philadelphia-based broadband and cable provider.

The Nervous Nellies of Manhattan’s nether regions have pushed the stock down almost 30 percent so far this year. Of course, these very same worrywarts were sweating about Verizon’s (VZ) bold bet on fiber to the home technologies.

The divergent fortunes of Verizon and Comcast are very clearly reflected in this chart.

Verizon has done a better job of winning the hearts and minds of Wall Street, and that is why Comcast stock is moving south, while Verizon stock keeps moving up. Never mind the fact that Comcast has a much bigger footprint compared to say, Verizon. That said, one can’t deny that Comcast has challenges, and Verizon FiOS is not to be taken lightly. Here are some of the issues facing Comcast.

• More HD channels to compete with satellite broadcasters.
• Show that it can offer even higher-speed broadband connections, not just talk about it.
• Make its web services strategy pay off.
• Overcome the “managed” traffic scandal.
• Better Customer Service. Again, Better Customer Service.

Even with those issues, Comcast can put its rivals on the defensive by making a few aggressive moves.

• Get more people signed up to its phone service, and if that means discounts. It is a move that hits at the heart of phone companies’ core money machine: voice.
• Get serious about wireless — both cellular and WiFi. Connections everywhere will help the company get sticky with its customers.
• Boost speeds to 20 megabits and lower prices.
• Offer $15 a month broadband plan for a basic, 3-megabits-per-second broadband connection. This will take pricing power away from their phone company rivals.
• Bring to market a very compelling online video offering.
• CEO Brian Roberts should make a public pledge for better customer service, and start with making TiVo-powered Comcast DVRs available everywhere, especially in downtown San Francisco. ;-)

Ignore Wall Street is the final thing I wanted to say — but it looks like management knows that all too well.

“Our job is to keep our heads down and continue to put good operating results on the board,” said Steve Burke, chief operating officer of Comcast, in an interview (with the Wall Street Journal). “If we continue to do that the stock will take care of itself.”