Verizon takes advantage of Superstorm Sandy to accelerate copper-to-fiber migration

Sees bundle upsell opportunities and lower operations costs
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Lowell McAdam, CEO of Verizon Communications (NYSE: VZ), on Tuesday revealed that the telco will replace the decades-old copper wires that were severely damaged by Hurricane Sandy with fiber.

Verizon 140 West St. NYC

Verizon's 140 West St. CO was one of the locations flooded during Superstorm Sandy. (Source: Verizon)

McAdam told attendees at the UBS Financial conference that while the company could not offer an estimate on the actual damage to its network, he sees an opportunity to "take advantage of this disruption" and proceed with the fiber replacement strategy.  

Specifically, the service provider will replace damaged copper in both New York City's Broad Street area and areas of New Jersey such as the Barrier Islands.

"In Broad Street, that is literally the entire feeder cable [that] will be converted over to fiber," he said. "And I think that will help us in a number of ways. We have got that platform then that we can build on, but the businesses will be able to add services, higher-speed services, change their services much more easily than we could in a copper environment."

Similarly, in the Barrier Islands' area of New Jersey, the telco said in many cases it has copper and fiber cable running parallel down the same street.

"The edict from Bobby Mudge, our President of CMB, and our Chief Technical Officer, Tony Melone, is you will not replace copper unless God gives you a pass and God is busy right now," McAdam said. "So there aren't any passes."

By equipping these once copper-fed customers with fiber, Verizon has the immediate opportunity to upsell customers a dual and even triple play set of data, voice and video services that many could not get before.

"More often than not when we move a customer off of voice onto FiOS, they take either a double play or a triple play right after that because I think they have seen the resiliency of those networks," McAdam said. "FiOS, the minute power came back, FiOS was back up in the majority of the cases."

McAdam added that besides being able deliver multiple services and potentially drive up residential service ARPU, the migration "will reduce our maintenance costs dramatically." One of the major issues with the aging copper network is that every time a customer calls the telco about a problem they have with their DSL line, it often means it has to roll a truck to have a technician come out and diagnose and repair the line.

The CEO's statements reemphasize what Fran Shammo, Verizon's CFO, said about the copper network in September during the Bank of America/Merrill Lynch 2012 Media, Communications and Entertainment conference.

Shammo said the "chronic customer"--who has two truck rolls to service the copper line during a six month period--will have those on-site service calls minimized by moving to FiOS.

Verizon's plans have gotten the attention of Jefferies, a global securities and investment banking group. Jefferies wrote in a competitive analysis report that Verizon may make an even broader copper-to-fiber conversion in its network footprint next year.

"In our analysis we had noted that the timing of acceleration is not known," Jefferies wrote. "However given the comments today, we believe 2013 could be the year when Verizon begins the copper shutdown in real earnest. According to our analysis the cost savings could be significant, and will likely lead to multi-year earnings lift."

Jefferies agrees with Verizon that "there is scope for material up-selling."

And while it's clear that Verizon is winding down capital spending to pass more homes with FiOS by choosing to expand coverage where it has built out the infrastructure to serve customers, Jefferies said "these capex dollars could be re-purposed for fiber conversions."

For more:
- see the call transcript (.pdf)
- here's the Jefferies report (.pdf)

Special report: Wireline telecom earnings in the third quarter

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