We’ve been covering Verizon’s decision to suspend FiOS deployment in many neighborhoods for much of the last month, discussing how cities like Alexandria, Virginia and Baltimore, Maryland are more than a little annoyed that they won’t be getting upgraded from last-generation DSL. The company is continuing builds in cities that have signed franchise agreements, but [...]
We’ve been covering Verizon’s decision to suspend FiOS deployment in many neighborhoods for much of the last month, discussing how cities like Alexandria, Virginia and Baltimore, Maryland are more than a little annoyed that they won’t be getting upgraded from last-generation DSL. The company is continuing builds in cities that have signed franchise agreements, but for all intent and purposes — the great FiOS experiment has ended — prematurely. This week we finally saw the press wake up to the news of FiOS’s grinding halt after the Associated Press noticed what was going on. Most of the coverage repeats some variation of Verizon’s position that they never promised you, the users, full coverage:
Verizon never committed to bringing FiOS to its entire local-phone service area. It has introduced FiOS in 16 states, but the deployment is concentrated on the East Coast, and Verizon is selling off most of its service areas in the Midwest and on the West Coast. Its stated goal was to make FiOS available to 18 million households by the end of 2010, and it’s on track to reach or exceed that.
While it’s true that Verizon never promised to deploy FiOS to their entire footprint, the AP doesn’t tell you the telco was previously planning to deploy FiOS to cities like Baltimore and Alexandria, and this freeze is a change of plans. Verizon originally hoped to pass about 85% of their available customers through several deployment waves. Right now, Verizon’s own data suggests that 48% of all Verizon-served homes are passed (this doesn’t always mean service is available) by FiOS.
That number will grow as Verizon works on building out service in cities like DC, NYC, Philadelphia and Pittsburgh. But while Verizon has promised to deploy service to everyone in these cities, the fine print in those contracts (usually hashed out in private between cities and Verizon) usually allows Verizon to stop deployment after hitting the most profitable neighborhoods — should they not see satisfactory TV uptake. Once Verizon picks the best parts of these cities, total FiOS penetration might be as high as 65%.
That still leaves a huge chunk of Verizon customers on last-generation infrastructure, many of them in rural markets or in second or third-tier cities. Meanwhile, there’s no indication that there’s going to be a “second wave” of FiOS deployment.
What changed? For one, Verizon wants to stop and market the service in already deployed markets to boost penetration. They also want to pause and contemplate whether they can grab some taxpayer money. Early Verizon lobbyist attempts to grab funds for doing nothing didn’t work out, and Verizon avoided the first round of funding because they didn’t like conditions tied to the money. Obviously network builds aren’t cheap, and Verizon’s move to spend $23 billion on FiOS was a gutsy choice. Unfortunately for more than 40% of Verizon customers, it was a gutsy choice championed largely by one man.
The primary reason for the Verizon FiOS halt is that FiOS’s biggest fan, Verizon CEO Ivan Seidenberg, is on his way out at the company. Seidenberg was big on solidifying Verizon’s future with FiOS, and was more than willing to pour money back into the network. Investors of course eager for immediate returns complained, going so far as to claim Verizon was “doomed.” But Seidenberg’s bet paid off, and Verizon created the largest fiber to the home network in the western world.
But Seidenberg’s replacements are more interested in satisfying short-term, often myopic investors, and are busily pushing their vision of the new, more investor-friendly Verizon. This includes slowing FiOS deployment, and using sophisticated financial tricks to offload unwanted networks (and debt) onto smaller companies (tax free). Verizon then hopes to fill in any FiOS gaps with LTE wireless broadband. Knowing these companies can’t really afford to upgrade, Verizon can win back many of these sold-off DSL customers with faster LTE service in a few years.
The plan isn’t particularly good news for the millions of Verizon DSL customers who were waiting for FiOS. It’s not good news for the tens of thousands of employees Verizon’s laying off. It’s not good news for Verizon’s hardware vendor partners like BigBand Networks. It’s not good news for the smaller telcos that are gobbling up Verizon copper-based networks (and going bankrupt under Verizon debt) without realizing the LTE counter punch Verizon has planned down the road.
But it is good news for investors who think real network upgrades aren’t necessary for the health of a company. It’s also good news for cable operators who do business in these unwanted markets and won’t have to worry about an expedited timeline to upgrade to next-generation infrastructure. Verizon was the only major U.S. carrier with the insight and courage to embrace fiber to the home, and it appears, with a few urban exceptions, that the party is over.