Verizon’s merger with MCI is proceeding ahead of schedule in producing synergies, and that means 3500 jobs in the new Verizon Business unit will be shed in 2006, Verizon Vice Chairman and President Lawrence Babbio announced Tuesday afternoon.

In a prepared statement, Babbio said Verizon Business is doing so well it will beat the synergy targets announced at the time of the merger agreement. Within the first 60 days of merger completion, off-network voice and data traffic is being migrated onto Verizon’s local and long-distance networks, reducing the money spent leasing lines from other service providers.

Since launching Verizon Business Jan. 23 , the company has been busily announcing new services and initiatives, including an expanded VoIP offering , integration of metro Ethernet and IP WAN service, and, just today, a new server management option.

The company will cut a total of 7000 jobs from Verizon Business, Babbio confirmed.

He also restated Verizon’s view that its expensive fiber-to-the-premises initiative will pay off in the long run, in greatly reduced operating costs, and is becoming less costly on a per customer basis as the company ramps up.

“We have a very clear financial plan that, as we see this technology scale, we will rapidly and dramatically improve the financial impact that we see in the coming years,” Babbio said in the statement.

Verizon has faced mounting concern from financial and industry analysts about the costs of its FiOS buildout versus the revenue being generated.

Babbio said the FiOS buildout will cost Verizon $890 per home or business this year, down from $1,400 at the start of 2005, as the company ramps up from passing an average of 100,000 premises per month at the beginning of 2005 to 235,000 premises per month currently. Connecting individual homes cost $1200 in 2005 and are expected to cost $715 in 2006, he said. Verizon expects the fiber network will drive down operating costs by 40 percent.