New Verizon App Won’t Be the Death of FiOS

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.

13 thoughts on “New Verizon App Won’t Be the Death of FiOS”

  1. “Some are suggesting that Verizon is giving up on its wireline infrastructure in order to focus on wireless.”

    Well, they gave up on wireline over a year ago. That’s where they aborted the FTTH build-out at a pretty early stage of development.

    “There are too many advantages that come with Verizon’s network in the ground.”

    Which is tiny. Seriously, what percentage of the nation’s households have the option of getting FiOS?

    I don’t the fibre line running into my home is going to go dark. But let’s call FiOS what it really is: a niche product available to few.

    (Don’t get me wrong. I’m happy that Verizon laid the fibre inside the pale. I’m a happy customer.)

  2. Yeah, f- Verizon.

    Fios… the service nobody can get.

    I guess it’s technology helped drive cable operators to start innovating and push for DOCSIS 3, bandwidth reclamation / expansion and HD channel additions…

    But hardly anyone I know can get it. I think it’s lost its luster anyway. I’m pretty sure the Comcast systems in these parts have more HD channels and yes you can order 105mbps internet if you want.

  3. I assume they chose to scale back deployment based on cost versus revenue… taking on the entrenched cablecos is no trivial task. But I hope this is merely a pause/blip. And, even if it’s not, in some ways they (along with AT&T U-Verse) have forced the cablecos to step up their game.

  4. “I think it’s lost its luster anyway.”

    Sour grapes. If you lived inside the pale, you’d indeed prefer it to the other options. It’s the sweet wire.

    “I assume they chose to scale back deployment based on cost versus revenue”

    I bet if you graphed the FiOS deployment over a graph of areas with the highest iPad ownership, there would be a lot of correlation. I assume they took the low-hanging fruit.

    “But I hope this is merely a pause/blip”

    If we’re in the ‘lost decade’ for the economy that it seems we’re in, it won’t be merely a pause/blip. All the money is under mattresses, not being used to build infrastructure.

    During a ZIRP liquidity trap, no one can spend but the government. So unless the Feds want to build or subsidize FTTH, it won’t happen until the liquidity trap ends. And that should be somewhere into the 2020’s…

  5. I’m skeptical that the wireless spectrum deal and the video streaming service are related. Does this new spectrum have enough capacity (regional or nationwide) to support the bandwidth requirements of a streaming service? It seems more likely that Verizon has multiple initiatives under way, like most other large companies.

  6. Yup, Verizon isn’t investing any money in FiOS for the moment. And their market coverage is TINY. In July 2010 estimates were 3.8 Million FiOS internet customers and 3.2 Million FiOS TV customers with availability to 15 Million homes (so a take rate of about 20% which doesn’t sound amazing). And that’s before Verizon sold FiOS operations in 13 states to Frontier, which is now in the midst of abandoning them.

    Seriously, I would LOVE to see FiOS compete with the embedded MSOs across the country, but with about 116 Million US TV households, FiOS TV is under 3% availability. So about at the same market penetration as the Mac was for many years.

    Mari, I think you’re dismissing the possibility that Verizon’s deals with Comcast et al may mean the death knell for Verizon’s fiber investments in the future too quickly…

  7. “availability to 15 Million homes”

    That’s actually quite a bit higher than I thought. Well over 10% national coverage.

    So the FiOS footprint is “small”, as opposed to “tiny”…

  8. FIOS seems to have gone after higher income areas first with great success. Like Uverse, they are an IPTV system rather than cable, with all the advantages that gives them.

    But as I’m sure Chuckie & Dave can attest, it does take them close to a full day to wire a house, so deployment has been slow.

    THe speed at which Verizon has been able to roll out FIOS gives us a pretty good idea of what Google faces if they try and create their own network.

    As for the VOD plan, it’s a fairly logical next step for them. All of the pay TV providers are looking at how they can expand their footprint via the web: they all have sites that allow viewers to watch a pretty broad range of shows, Uverse and Comcast are open to non-subscribers. It’s only a matter of time before what gets shown on the web is live or accessed for a small fee. And if it’s online, it’s also going to be on the tablet and smartphone apps.

    As consumers look shrink down their cable bills– or at the very least the number of stations they have access to– online only packages are going to become very attractive.

    Again, it’s all about convenience: it’s not all that difficult to pick individual network subscriptions and create your own package. But that’s more effort than most people want to put into it, so they’ll be content with stripped down internet-only packages which will wind up being cheaper in the long run too.

  9. One baffling thing about the FIOS plan though – the seriously lame iPad app. It’s one of those things that hurts far more than it helps. (You can’t actually buy the movie via the app: you have to navigate the user-UNfriendly FIOS site to find the place you can actually pay for it, then come back to the app and buy it… whoever was designing it was thinking backwards – that the app would be a place for users who had rented VOD movies via their STBs to finish watching them on the iPad, not the other way around.)

  10. 15 million footprint is small? what are other mso’s? give me a break. i had fios in arlington va, alexandria va and now tampa. though it took them 5 months to give it to me in tampa as they were convinced my address wasnt capable, which it was. now, did i move to places simply b/c they had fios, i’m not answering that.

    i do wonder how they make $ though. i pay $90/month for 35mbps internet and hd tv. get free hbo/cinemax for 3 months then switch to free hbo only for 3 months, then free showtime for 3 months, etc, then free hddvr for 3 months, etc

  11. Comcast is the largest cable provider in the US with 22.4 million video customers at the end of their most recent quarter. With FiOS TV at 3.2 million, Comcast is seven times as large as Verizon. I’d say there are only a few such ‘large’ MSOs–Comcast, Time Warner, Cablevision? Even AT&T U-Verse at 3.6 million customers (and growing rapidly in contrast to Verizon) is larger than Verizon and more of a threat to the traditional MSOs. Realistically, the only things keeping most of the MSOs at all honest are the satellite providers, meaning Dish (13.9 million) and DirecTV (19.8 million). DirecTV will probably surpass Comcast as the largest TV provider in the US in reasonably short order I would expect.

    All of us like Verizon’s fiber to the curb approach since it gives us lots of bandwidth, they have little reason to consider internet caps or clamp down on traffic they don’t like, their bit rates for HD channels are higher than the comparable cable or satellite channels, since their live programming uses 256 QAM just like cable they are cable card & Tivo compatible, etc etc.

    HOWEVER, Verizon spent a LOT of money acquiring those customers compared to anybody else and it eventually caught up with them. They appear to have pulled their horns in substantially and I assume are no longer investing in that anymore. The recent deal with Comcast et al should be looked at in that light.

    In contrast to Verizon, AT&T spent much less per customer and has an approach we all despise–DSL? Really? Crappy bandwidth, highly compressed signals, can’t watch TV on too many homes at the same time. Etc etc. Horrifying crap. Yet AT&T continues growing while Verizon does not.

    That’s life. Sucks sometimes.

  12. I understand it’s not practical for Verizon to invest further in fiber right now, and that they have a lot to gain with 4G. However, I do believe that the investment they’ve already made is valuable. As bandwidth demand continues to go up, that fiber is gold. And forget TV for a moment, if everyone turned around tomorrow and signed up for Comcast’s 100 Mbps tier, the network would come to a standstill. That wouldn’t happen with Verizon, and we may very well get to a tipping point where that level of throughput has to be available.

    As far as TV goes, I am also skeptical about the OTT service Verizon is planning. (Read what Will Richmond says about bringing a knife to a gun fight: It doesn’t sound like it’s designed to replace FiOS TV at all. As dwgsp says above, “It seems more likely that Verizon has multiple initiatives under way, like most other large companies.” And if it’s not designed to replace FiOS TV, I presume Verizon will pick up investment again in FiOS at some point. They’ve already done the hard part of getting the service off the ground.

    I’ll back-pedal enough to say that anything’s possible. And Verizon probably won’t lay more fiber in the near future. But do I think FiOS is over? Nope.

  13. Verizon keeps calling me to purchase their other services. When I ask whether they actually have anything like FiOS to offer me — other than wireless, which I already have — the salesperson comes back and offers…well, pretty much nothing. Apologies? I don’t need those either. FiOS is not available in my area.

    I would love to get FiOS — wonderful bandwidth, great priced packages and no Tuning adapter!!! — but despite the high pressure of their salesforce, they have NO product to offer me. They call regularly; I have started telling them to come back when they actually have a real product to sell; otherwise, leave me alone!

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