Excerpt from Business Week Online article

Two years ago, Verizon CEO Ivan Seidenberg’s aggressive push into the pay TV market was widely dismissed as an expensive corporate boondoggle. Many investors and analysts fretted that even if Verizon could overcome the thorny technological and regulatory challenges of providing TV over fiber-optic cables, the costs were simply way too steep for the potential profit.

Seidenberg, in perhaps the most ambitious effort by any phone company in the world, wanted to spend tens of billions of dollars to go head to head with cable companies in their core business. The credit-rating agency Moody’s cited the project’s “highly uncertain returns” when it downgraded Verizon in 2005.

Now, Seidenberg’s big bet is starting to pay off. Revenues from the effort are surging, and Verizon’s TV service is helping to stem the loss of telephone customers to cable rivals. Verizon is adding nearly 2,000 television customers a day, seven days a week. Even Comcast, Verizon’s largest cable competitor, is publicly acknowledging that it’s feeling the heat.

“The telecom companies have had their fits and starts, but Verizon is real. Verizon is taking video customers from us,” said Stephen Burke, Comcast’s chief operating officer, at the Goldman Sachs communications conference in New York.

Seidenberg may be just getting warmed up. At the end of the second quarter, Verizon had laid enough fiber cable to offer TV service to 3.9 million homes. However, by the end of 2010, the company expects to have fiber in at least 18 million households in its traditional East Coast territory, more than four times the potential customers it has today.

If cable rivals such as Comcast and Cablevision Systems are under pressure now, it’s only going to get worse. “We have a really great platform that is seeing tremendous acceptance in the marketplace,” says Seidenberg. “Every one of our metrics is improving quarter over quarter.”

Seidenberg’s strategy is to dominate the new technology that was supposed to put the phone companies at risk. By investing in fiber, he has the ability to offer essentially unlimited bandwidth. The company has the capacity to offer consumers Internet connections of 100 megabits (Mb) or more should they demand it.

The fiber network, called “FiOS,” allows Verizon to provide superclear TV signals without resorting to compression. Rivals from AT&T to the cable companies typically compress some of their channels because they have less bandwidth.

Verizon’s chief isn’t in the clear. The TV business hasn’t turned profitable yet, and real vindication won’t come until it does. Verizon expects that to happen next year on the basis of EBITDA, or earnings before interest, taxes, depreciation and amortization. It expects to turn an operating profit in 2009.

However, once-skeptical investors are now putting their money behind Seidenberg. Verizon’s stock is up about 18 percent over the past six months, to more than US$44. That’s more than double the return of the Standard & Poor’s 500-stock index and telecom rival AT&T.

On Sept. 28, David Barden, telecom analyst at Banc of America Securities, raised his 12-month price target on Verizon to $50, forecasting an increase of another 12 percent. “We believe the stock can gain as the market develops an appreciation for FiOS to transform into a positive growth contributor,” says Barden.

The TV strategy has been a very personal one for Seidenberg. He championed the pricey approach of stringing fiber lines into millions of homes and stuck to his guns even as investors battered his company’s stock. Meanwhile, under former chief Ed Whitacre, AT&T, took a more conservative route, using a lower-cost combination of fiber and copper wire to deliver television service.

Now, Verizon has more than 500,000 paying TV customers, while AT&T has 100,000. “AT&T has been slower off the bat,” says Comcast’s Burke. “They have a tougher row to hoe, because they have not spent as much money on fiber, but they are a big company, serious about what they are doing, and spending a lot of money.”

Verizon has one of the biggest capital spending programs in the world. The company plans to spend $23 billion between 2004 and 2010 to run high-speed fiber-optic lines directly into customers’ homes to deliver television and speedy Internet service. Verizon says it will recoup about $5 billion of the costs in operating savings, because its fiber system is less expensive to maintain than traditional copper lines.

Also read “Verizon to Add Interactive Games to FiOS TV Service” here

Verizon FiOS web site here

FiOS FAQ.com here

From FinanceWeek…..

The decision to keep the Microsoft XP operating system available till mid-2008 has fuelled suggestions that its expensively developed, but critically challenged, Vista replacement is facing a serious acceptance problem. The company says it’s just responding to a trend in which more businesses wait for a hardware change before upgrading software, and that 60m licence sales to date is still respectable. But extending XP is also an insurance against an end-of-life defection from closed Vista to open source. 

Microsoft has said it will continue to supply its XP operating system to computer makers and retailers until 30 June 2008, abandoning a previous target of withdrawing it from January. This appears to be a reaction to unexpectedly slow take-up of the replacement system Vista, with businesses waiting until they buy replacement PCs – on which Vista is likely to be installed as standard – rather than upgrading their existing desktop and laptop fleets.

Business users’ reluctance to switch to Vista appears motivated by a combination of can’t upgrade/ won’t upgrade. Some have examined the system requirements for Vista and realised that it won’t sit easily on most of their machines, so that the hardware will have to be replaced before the new software can run. Others, on the basis of their own or reported experience, fear that Vista will cause work disruption and extra training needs because of its substantial design differences; or that it will be unstable and prone to crashes until the first corrective Service Pack is made available.

Press comment on Vista has tended to be more critical than for previous Microsoft launches, with frequent questioning of whether the new system’s added features justify its extra size and cost. Even its enhanced ability to run several memory-intensive programs simultaneously is dismissed by some business users, who see it as an attempt to make PCs more marketable to the online visual artists currently attracted to Macs, not delivering much advantage for most office applications.

From Macworld……

Don’t say you weren’t warned. After cautioning customers earlier this week that unlocked iPhones may be disabled when installing future Apple software updates, the company on Thursday made good on its warning.

Two iPhones in the Macworld offices that had the SIM hacks applied to them were disabled after installing iPhone Update 1.1.1. The update process went through without a hitch, however, when the phone restarted an activation message appeared that said, “Insert an unlocked and valid SIM to activate iPhone.”

A similar message appeared in iTunes. A note saying the SIM card was not valid and to insert a valid SIM card greeted the user.

SIM (Subscriber Identity Module) cards contain account information and are used to authenticate devices on certain types of mobile networks. Unlocked iPhones can use SIM cards from non-AT&T networks.

Security researcher Tom Ferris said the new software disabled a phone that had been unlocked using the open-source anySIM software in order to work on T-Mobile USA’s wireless network. “It kept saying ‘unsupported SIM card,’ even with the AT&T SIM card in it,” he said. “You can turn the phone off or on, but we just can’t figure out how to get past this ‘SIM card not supported,’” he said.

Users also could not navigate through the iPhone’s menus. The “Slide for Emergency” slider is the only thing available after installing the update. This allows customers to make emergency calls only.

The update also appears to disable the Jailbreak hack which allows users to install unsupported software on the iPhone, Ferris said. After the 1.1.1 patch was installed it wiped out all of the third-party applications he had installed on a second iPhone, he said.

Apple warned customers on Monday that unlocked iPhones may become inoperable. “Apple has discovered that many of the unauthorized iPhone unlocking programs available on the Internet cause irreparable damage to the iPhone’s software, which will likely result in the modified iPhone becoming permanently inoperable when a future Apple-supplied iPhone software update is installed,” the company said in a statement.