The strategic power of fiber

When Verizon took the right decision to deploy fiber to the home, analysts flayed the company. "Too expensive," they whined. "Not worth the money."  As recently as this summer, one analyst argued that it was better to do nothing, letting cable plunder and pillage voice service while land lines went away.  Be like Qwest and do nothing.

You silly, silly fools.

This week, Verizon credits FiOS with driving a 2.1 increase in consumer revenues in legacy telecom markets year over year in a tough economy. And we're only seeing the tip of the iceberg in my estimation.

Having a 100 Mbps pipe (OK, so Verizon is throttling it to 50 Mbps, but let's not haggle here) provides a number of strategic advantages and future-proofing as the broadband wars get uglier. And they are going to get uglier. FiOS looks to be the key to make cable sweat and act as a spoiler in wireless competition.

Cable is a no-brainer. As FiOS lights up in a market-by-market fashion, incumbent cable companies have had to jack up broadband speeds and make triple play bundles. TV revenues used to be a ringer for cable, but now system operators can't be so smug. On top of that, cable companies have to make their own expensive upgrades to support faster broadband speeds under DOCSIS 3.0 and/or get everyone onto digital plant because they need their spectrum re-jiggered for offering more HD channels and speeds to compete with FiOS.

Typical DSL offerings are being outgunned by faster cable speeds and that triple play bundle, but they're also going to find themselves under attack in certain markets by WiMAX. Users will be able to get low-tier DSL speeds with mobility/portability, so what's not to like? Oh yah, not having to buy/deal with a cable modem - WiMAX will come "baked in" to laptops to there's one less box to futz with around the house.

Let's add the rascally part - femtocells. (Yes, this is wireless talk, but bear with me). Both AT&T and Verizon are moving forward with femtocells. The carriers can use their respective broadband networks to off-load cell towers of high speed data traffic (Thank you iPhone and future GPhone users) and expand in-house cellular coverage for voice traffic. Maybe net-net less urgency to upgrade/overbuild backhaul connectivity to existing cell towers. Pretty tricky, hm?

But that's not all. Provide a femtocell bundle with a cell phone and suddenly there's leverage point for a broadband/wireless bundle. The Millenials can have a cash incentive to pick a broadband connection to match their phone service.

Imagine running a couple of broadband wireless phones in the house, plus HD TV service, plus maybe a serious HDTV on-demand service going on in the background. Can you imagine it happening over a DSL connection? Sure you can - in Japan, with shorter copper runs and fiber in the basement of the apartment building! In the U.S., all the neighborhoods with picket fences, not so much.

Is this a powerful business model? Consider that wireless service is such a lucrative attraction that the cable companies are building out or making teaming arrangements for their own networks, and you may wonder if Verizon may offer femtocells at cost or free to FiOS customers.

- Doug

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