He who has the best technology wins

When Verizon decided to invest in FiOS and all the core technologies needed to support FiOS, Wall Street pilloried the company.  Today, the company continues to make money in one of the worst economic climates since World War II and has no plans to slow down its investments in best-of-class technologies, aggressively moving forward with LTE at a time where everyone else is pulling the covers over their heads.

Meanwhile, AT&T's practice of "good enough" frugality is going to end up biting it in the long run unless it gets the religion really fast that he who has the best broadband infrastructure, wins, period, end of story.

This is a story of two choices, one wireline and one wireless, one past and one present, and they all thread together into some serious brass knuckle competition down the road.

In 2004, AT&T and Verizon had to make choices on the mechanism necessary to deliver broadband services - including video - to the last mile.  AT&T's U-verse solution was Fiber-to-the-Node, delivering fiber into a neighborhood, then using the existing copper for the last mile to deliver broadband and TV services.  It was cheaper than bringing fiber all the way into the house because it avoided digging and trenching, contractors, and rights-of-way. Customers would get be able to get one or two HD channels into the home and that was supposed to be "good enough" for most mere mortals. New builds would get fiber straight through.

Today, neighborhoods around the country are annoyed that AT&T needs to put in ugly, above-ground cabinets to distribute high-speed services. Put them underground? Too expensive, says AT&T. So neighborhoods from coast to coast - San Francisco to South Carolina - are turning them back because there's no room and they just look ugly.

AT&T might not get the uptake it needs from U-Verse when you consider the push-back on ugly cabinets with its bottlenecked service offering to the home, which will have a tough time keeping up with DOCSIS 3.0 and digital cable offerings. Comcast is already making noises that it will go beyond 50 Mbps into 100 Mbps territory - broadband speeds that you aren't going to find on U.S. last-mile copper even if the ugly cabinets do get installed in the streets and backyards.

Verizon, on the other hand, has a product offering that is able to keep up with and potentially exceed existing and near-term future cable offerings. Running a network that can effectively support 100 Mbps to the home and that does not have bandwidth caps, PLUS all the HDTV channels you can eat is going to keep the pressure on the cable companies to upgrade plant just to keep up.

Ignore all that for a moment, and look at Verizon's core network. The dirty little secret to the FiOS build-out is that it has the core capacity to easily support backhaul from Verizon Wireless broadband offerings, be they this year's EVDO or next year's LTE. This saves Verizon money, especially as they go into LTE and move to a simplified broadband wireless infrastructure.

Meanwhile, AT&T is getting dissed by Om Malik because its 3G service doesn't have the juice to support the iPhone. Right now, AT&T is in a comfy place with an "exclusive" for the iPhone, but how long will that last once Verizon's LTE network is in full swing? Apple iPhone junkies will want the 4G fix - or some of them will end up migrating out to other phones for the speed.  Given some common sense on both sides, Apple and Verizon could come to an arrangement.

Oh, and if you want another game changer to think about, an LTE phone is likely to deliver data speeds in the ballpark of AT&T's U-Verse Internet offering. It is premature to predict LTE's field performance right now, but U-Verse's max speed is 18 Mbps these days.  Under perfect conditions, LTE rev 1 does around 60 Mbps, but nobody's perfect. However, if LTE users were to average around 15 Mbps in daily conditions, life gets a whole lot more interesting for Verizon - and a bit lively for AT&T.

- Doug

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