Verizon's Shammo: LTE Multicast opens up new revenue streams
Verizon Wireless (NYSE:VZ) could potentially tap new business models thanks to LTE Multicast technology, though it will take a few years for customers to take advantage of it on a widespread basis, according to a top Verizon executive.
Speaking at the Deutsche Bank Media, Internet & Telecom Conference, Verizon Communications CFO Fran Shammo said the technology could open up new possibilities for Verizon that don't exist today. Those include the ability to sell content rights in terms of hour-long time slots, pay-per-view events or sporting events like the World Cup.
There exists "a lot of ability with Multicast to really generate additional revenue for the industry," he said, but added that "the ecosystem will have to develop here."
LTE Multicast, sometimes called LTE Broadcast, uses evolved Multimedia Broadcast Multicast Service (eMBMS). Essentially, the technology allows the same content to be sent to a large number of subscribers at the same time, resulting in a more efficient use of network resources than each user requesting the same content and then having the content unicast to each user.
Verizon demonstrated the technology ahead of Super Bowl XLVII in February. However, it will be some time before even Verizon's customers can take advantage of LTE Multicast, since it requires new chipsets in devices. Shammo said it will take "a year or two before the chipsets are in the handsets and that gets proliferated throughout the marketplace."
The Verizon CFO also touched on several other hot-button issues at the conference. Notably, he said that Verizon does not want to move away from the traditional U.S. model of offering device subsidies in exchange for customers signing two-year contracts. Verizon last year launched its Edge upgrade program for smartphones, allowing customers finance the cost of their phones.
Edge is "another option for our customers" that Verizon does not force, Shammo said. "We believe that the subsidy model is an extremely good one," he said. "It's done wonders for us in this industry. I think that to abandon it is a mistake."
T-Mobile US (NYSE:TMUS) kickstarted the shift to device financing last year, and others have followed. Shammo said with such programs carriers need to ensure that customers are very credit-worthy since they are taking on a lot of risk with device financing plans. Separately, customers could potentially be left with a large bill if they want to leave the carrier because of network quality or another issue, and carriers do not want to lose expensive handsets since customers are not signing service contracts to get them.
"There is a lot of risk with the installment sale," Shammo said. "We're going to take a very conservative approach here."
That stands in contrast to what AT&T (NYSE:T) CEO Randall Stephenson said last week at a separate investor conference. Stephenson said with financing the average customer now "has a lot more transparency" and can more clearly understand the value proposition of what carriers are offering. They can see the cost of devices more clearly and then can force carriers to compete more directly on network quality and pricing. Customers are opting to choose lower monthly pricing in exchange for paying for the device up front or in installments, Stephenson said. "The customers are overwhelmingly choosing that equation," he said.
However, Shammo said he still thinks Verizon has a lot of room to grow, with roughly 25 million customers still using feature phones and 25 million more using 3G CDMA smartphones who have not yet upgraded to LTE. He said he thinks Verizon's upgrades are going to increase in 2014. "There's still a lot of room to grow in this business," he added.
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