• by David Goetzl  @dgoetzl, July 29, 2008

Some 300,000 homes in New York City have access to Verizon's telco TV service this morning--a clear challenge to cable. Verizon indicated Monday that it is moving forward with some success toward offering its FiOS service in other major cities. (So far, it has mostly been in the suburbs and exurbs).

 

Verizon said it had signed up "thousands" of New York City customers for the service Monday, launching in 108 neighborhoods. It expects to make the service available to some 500,000 customers by year's end, en route to more than 3 million.

Along the way, Verizon aims to pick off as many Cablevision and Time Warner Cable customers as possible through a variety of enticements, such as attractive pricing and claims that it offers more HD programming and superior DVR service.

(Verizon's version of triple play goes for $94.99 in New York. As a counter, Time Warner Cable was offering a basic triple-play for $89.95 in New York on Monday.)

Cable operators once dismissed telco TV as barely a threat, but FiOS taking Manhattan may be the most significant sign that those days are over. The upscale, media-savvy consumers of Manhattan spend liberally on their home entertainment offerings. And if they begin to deem FiOS enough of a parity or greater service to cable, TWC could suffer from an exodus of subscribers.

FiOS competes with Cablevision in most of the outer boroughs. Satellite has some traction in the outer boroughs, but less so in Manhattan, due to the difficulty of attaching a dish to a high-rise bundling.

Cable operators may soon face competition in other major cities from Verizon, including the Comcast strongholds of Philadelphia and Washington. Doreen Toben, Verizon CFO, told investors Monday that Verizon is "making progress in our discussions with some other large cities," although she did not cite any.

Despite the significant capital investment in making FiOS--which also has a sister Internet offering--available, cable companies have questioned its ultimate profitability. Verizon expressed bullishness to investors that the service would drive top-line growth as soon as the rest of this year.

Speaking on a call to discuss second-quarter results Monday, Toben said FiOS offers "substantial growth opportunity." The company has 1.4 million subscribers to the TV service nationwide, giving it more than the seventh-largest cable company.

Verizon said it expects to ramp up marketing over the next few months behind FiOS--particularly in New York, where it's running an ad starring Boston Celtic star Kevin Garnett. It added 176,000 new subscribers in the second quarter--perhaps lower than expected, but it attributed that to some pullback in marketing, including ending a sign-up-and-get-a-free-HDTV promotion.

Verizon moved into the TV business largely because cable operators entered the phone market, allowing them to offer the popular triple-play bundle of phone, TV and Internet service.

The company said it plans to offer 100 HD channels, and has a DVR service where one box can function for TVs in up to six other rooms. Cablevision said Monday that it has added 15 HD channels, and now offers 60.