Reuters dropped a veritable bombshell yesterday when it reported that Verizon has plans to launch a streaming service in 2012 to compete with Netflix. It wasn’t a bombshell because Verizon’s never talked about this before. After all, we got an inkling of the operator’s plans at CES last January. It was a bombshell because the report follows last week’s announcement of a major spectrum deal between the telco and its cable competitors. The combination of news has many speculating about what Verizon plans to do with its FiOS TV service, and all that fiber it’s got in the ground.
First off, here are some of the facts. Reuters says Verizon is currently in talks with prospective programming partners about a new standalone video service. The service would not be tied to FiOS TV, and it would be made available outside of existing FiOS markets. Sources for Reuters say content for the service would be limited, possibly focused on movie packages and/or children’s programming.
Assuming Reuters’ information is accurate, what we don’t know yet is how a new streaming service would fit into Verizon’s overall video and broadband strategy. Some are suggesting that Verizon is giving up on its wireline infrastructure in order to focus on wireless. After all, why not ride someone else’s pipes for video, and dedicate valuable internal resources on developing the company’s newly acquired spectrum? The problem with that theory is that Verizon’s wireline infrastructure – aka its fiber-to-the-home network – is a huge competitive advantage. Not only has it allowed the telco to sign up 5 million FiOS TV subscribers, it’s also given Verizon a huge leg up on cable with Internet delivery.
Going forward, I believe Verizon will use its proposed on-demand streaming service as a way to gain incremental revenue and fill the gaps where it can’t reach subscribers with its FiOS TV offering. It seems likely that the operator will market the new service with its wireless packages, possibly offering discounts for a different kind of bundle when consumers are willing to sign up for both cell phone coverage and streaming content. I believe the new service will buy Verizon new customers and a new revenue stream, but that it won’t negate the value of the company’s wireline assets. Instead, it will give Verizon time to sort out when it should invest in further fiber deployments, ultimately extending the footprint for its full FiOS TV and Internet service.
When it comes down to it, Verizon’s fiber network is the ace up its sleeve. All that bandwidth means better control over video quality, and it means more capacity for consumers who want to download and upload lots and lots of stuff on the Internet. Wireless networks are great, but they have their limitations. Verizon can focus on 4G rollouts now, but that doesn’t mean it should or will abandon any fiber plans for the future. There are too many advantages that come with Verizon’s network in the ground.