Verizon ups wireline ante with 150Mbps broadband

OvumIt’s an exciting time for Verizon’s wireless broadband plans. Verizon launched LTE services nationwide on December 5 and has reported initial success with its MiFi devices. It is readying itself to sell Apple iPads, and supposedly iPhones, in its retail store early this year, ending AT&T’s exclusivity in the US.
But Verizon is not letting the spotlight on its wireless business steal attention away from FiOS and the wireline business. On November 22, Verizon announced that it was launching a 150Mbps downstream/35Mbps upstream FiOS broadband tier by the end of 2010. With that, Verizon has once again shot past its cable competitors, Cablevision and Comcast, to offer the highest residential broadband speeds in the US.
Coupled with Verizon’s other recent announcements, Ovum believes it is more of a marketing war, aimed at its customers, competitors (both MSOs and AT&T), but also the FCC, than an indication of Verizon stepping up wireline spending in the short term.
In line with previous announcements and as expected, Verizon’s wireline spending, including FiOS, for year-to-date 2010 was $5.1bn, which is down $1.5bn or 23% from last year. In comparison, wireless spending, driven by capacity upgrades and LTE rollouts, was $6.2bn for year to date, an increase of $1.1bn and 21% compared to last year.
Having passed 15.4 million households, Verizon was expected to fulfill its target of passing 18 million households by the end of 2010. But Verizon has now extended that timeline through the year 2012.
As the initial rollout has wound down, GPON OLT port shipments dropped in 2010, compared to the earlier years. In an encouraging sign for Verizon, however, FiOS revenues are growing, with Verizon reporting 29% growth YoY, as customer penetration grows.
During 2009, despite initial denial, Verizon suffered from the economic downturn as the acquisition rate for FiOS customers dipped. However, subscriber growth and ONT/ONU shipments accelerated in 2010 as the number of homes passed and locations where services are available grew.
In 3Q10, Verizon added more than 200,000 new customers for both FiOS TV and FiOS Internet, the highest net add totals since 2Q09. Verizon’s subscriber net additions have now increased for three quarters in a row. Nevertheless, they have not gone much beyond the 200,000 level per quarter.
According to Verizon, the 150/35Mbps service will be available to the majority of the 12.5 million residential homes that it has already passed and to which it has made FiOS service available. But it is primarily targeted at small businesses for $195 per month when bundled with a one-year contract and phone service.
With MSOs gaining business customers at a steady clip and starting to deploy small trial amounts of EPON, GPON, and even 10G-EPON (ZTE, Hitachi, and Arris appear to be the primary suppliers to this segment), Verizon’s targeting of this segment is deliberate. Other telcos may follow with similar announcements aimed at this market segment, often more lucrative than residential customers. In any event, small business appears to be getting more broadband access choices as a result of the tug-of-war between MSOs and telcos for their business.
During 2010, Verizon also made multiple announcements of asymmetric and symmetric 10G-GPON trials (with Motorola, Huawei, and Alcatel-Lucent equipment) and announced its ability to provide 1Gbps per home if needed. We believe this is to highlight the contrast between what a comprehensive FTTH build is capable of versus the incremental FTTN+VDSL2 upgrade approach taken by AT&T.
They may not be direct rivals for customers since their coverage areas do not overlap much, but nevertheless the marketing war and debate between the two approaches continue. However, given the current customer take-rates for FiOS, we don’t believe Verizon will embark on massive 10G-GPON spending in 2011–2012.
But for its current GPON and potential 10G-GPON vendors – Alcatel-Lucent and Motorola – any such publicity can only be good. For the FCC, the message perhaps is that competition, not regulation, continues to drive speeds upward.