Verizon’s Ellis: Altice’s FTTH plans validate our Fios FTTH play, broader business services initiatives

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Verizon isn’t afraid of Altice’s ambitious FTTH plans. The service provider, which currently passes over 14 million premises with its Fios FTTH service, says the French conglomerate’s plans highlight the importance of fiber-based broadband.

Following its acquisition of Cablevision last year, Altice announced that it would deploy fiber to 1 million newly constructed homes in New York, New Jersey and Connecticut by the end of 2018.

Matt Ellis, CFO of Verizon, told investors during the UBS 45th Annual Global Media and Communications Conference that Altice’s presence in the Northeast does not change the telco’s broadband outlook.

RELATED: Verizon accelerates copper-to-fiber transition, sets new network resiliency practices

Verizon CFO Image: Verizon
Matt Ellis

“Altice’s plans for FTTH validates what we have been doing for over 10 years and the value it brings and the things you can do with fiber that you can’t do with other technologies,” Ellis said.

Fios growth may be leveling off as it penetrates more of its existing market, but it continues ramp. Third quarter Fios revenue grew 4.8% year over year, but Verizon added 66,000 new Fios internet subscribers while losing 18,000 Fios video customers.

The service provider continues to see uptick with its Gigabit Connection service, but did not break out how many customers subscribed to the 1 Gbps service.

Ellis added that despite the wide range of resources the French company has, Verizon continually sees Altice’s acquisition of Cablevision as just another competitor under new management.

“We’ve seen change of ownership in multiple markets over the past several years where we have Fios,” Ellis said. “We see a change in how the new owner wants to approach that market, but we continue to operate successfully across the full footprint.”

Enterprise fiber rising

Residential Fios is only one part of the service equation. Verizon plans to use its broader fiber network to battle cable and other competitors.

With XO Communications under its wing, the service provider now has an even broader set of on-net building and metro fiber assets it can use to attract customers to its managed network and emerging SDN-based services.

Like other traditional incumbent telcos, Verizon is challenged by two ongoing realities: declines in copper-based revenue and price compression.

Given the limitations of the copper-based network, particularly where Verizon faces cable competitors that can deliver higher speeds over coax, Verizon continues to struggle. Throughout 2017, the service provider continued to migrate more of its customers off copper to a fiber-based network.  

“The copper-based businesses are going to continue to see a level of secular decline,” Ellis said. “There’s functionality you can’t deliver with the old copper network and that decline will continue.”

However, Ellis said that fiber-driven services such as Ethernet and managed services are really where it is going make new revenue streams.

“Where we’re optimistic is what we’re doing on the fiber networks, especially when I think about managed services for enterprises,” Ellis said. “We see opportunities in enterprise to be significant to us.”  

However compelling Ellis’ thesis about enterprise is, the service provider continues to see enterprise revenue challenges, particularly as customers come off legacy TDM technologies. In the third quarter, enterprise and business market revenues declined 5% and 5.8% to $2.2 billion and $933 million, respectively.

SMB Fios opportunities

Besides the large enterprise market, Verizon also sees fiber as a key enabler to address small to medium businesses.

While Verizon has the brand name recognition in the SMB space, the telco has become vulnerable to cable operators like Comcast, which offers higher speeds over HFC, where it only has copper facilities today.

“If you’re competing with a coax product in 2017 with copper only, you’re not well positioned to compete,” Ellis said. “Where we have Fios we compete very effectively in that marketplace.”

It’s not hard to see how aggressive cable operators are attacking the SMB market with 1 Gbps speeds over coax. Comcast’s Business Internet 1 Gbps service is already available in much of the Northeastern, Mid-Atlantic and Central United States, and will be available to the entire national Comcast service area by the end of 2017, for example.

Interestingly, Comcast is offering its new SD-WAN service in conjunction with its 1 Gbps DOCSIS 3.1 broadband service for businesses.

Despite these challenges, Ellis also sees an opportunity to take the fiber network facilities it is using to support its wireless densification efforts to potentially serve more SMBs. Verizon, through its One Fiber initiative, is extending fiber throughout its wireless footprint to support small cells and other wireless infrastructure for current 4G and upcoming 5G wireless programs.

“As you think about densifying our wireless network and you have fiber going out to these places where you’re passing these SMBs, there’s opportunities to be effective in that marketplace,” Ellis said.