Verizon’s Fiber Spending Spree Is Less about Bringing Fiber to Home And More About Offering Fiber to Business

In this joint report, BIAfn and Telecom Pragmatics address why Verizon is committed to spend billions on FiOS and the ramifications this decision will have on the industry. Since the FCC rules governing fiber are vastly different from those for cable, this report explains why Verizon’s bold decision is less about bringing fiber to the home and more about offering fiber to the business.

After several years in limbo, fiber-to-the-premise – or FTTP – took a major turn in 2005 as U.S. carriers committed billions to developing a new fiber infrastructure, spurred in part by the FCC’s 2003 decision to lift unbundling requirements on fiber loops.

Verizon has just begun to install several billion dollars worth of FTTP infrastructure in its network, and it is doing so at unprecedented speed. Few capital projects are being spared as the incumbent diverts funds towards this unusually fast-moving implementation.

Verizon’s atypical behavior results from a grand plan that has its entire future success riding on the outcome. This plan may prove to be one of the most brilliant strategies in the history of the telecommunications market—potentially helping the entire industry emerge from its quasi-depressed state. The big question is whether the regulatory community will make the smart decision to clear the way for Verizon and for other RBOCs.

This activity is also sweeping many, like DSL chipset vendors to passive optical network (PON) manufacturers, up in its momentum. With billions committed to FiOS, the question is no longer how much will be spent, but who will benefit. It’s now or never for many hardware vendors, many of whom have spent years waiting for a large telco to commit to fiber access.

The report finds tremendous risk associated with large-scale FTT"X" construction – particularly for rehabilitation purposes – because of the high cost and low probability of a decent short-term return on invested capital. However, as happens in the telecommunications industry about once a decade, a set of conditions has come together that has jolted the normally slow-moving telcos into a flurry of new construction projects. With the FCC finally allowing the RBOCs to deploy fiber optics in the access network without unbundling, Verizon is taking advantage of its unique geographical topology to connect – not just pass – up to 800,000 residents in 2006.

"Most of Verizon's major cities on the East Coast are relatively close to each other. Consequently, the incumbent local exchange carrier (ILEC) can provide video services by using just two headends along the corridor from Boston to Richmond. As a result, Verizon’s cost structure should be substantially lower than that of any major cable television (CATV) company forced to use multiple headends throughout its network. Therefore, there could be a significant salvage value to the video business even if FTTP proves to be a financial disaster."
Sam Greenholtz, co-founder of Telecom Pragmatics

This report is based on in-depth interviews with numerous experts at service providers, including Verizon, SBC, BellSouth and others. Its lead author is Sam Greenholtz, who spent 28 years at Verizon and its predecessor companies working in vendor technical evaluation and infrastructure deployment. Contributors include John Spencer, who worked at BellSouth for nearly 30 years in engineering and network planning, and veteran industry analysts Mark Lutkowitz and David Gross.

In the report, BIAfn and Telecom Pragmatics specifically address the following questions:

• Why is Alcatel struggling to win business at verizon?
• Why will the RBOCs have a lower cost structure than the Cable TV providers?
• What's being said internally about FTTP, but not hitting the press wire?
• Is there any hope for your utility lines when the FiOS crew comes to your neighborhood?
• What will Verizon do if their credit ratings keep dropping?
• Why is Verizon targeting a customer segment that doesn’t want a video service?

This report also explains how the large carrier’s planned deployment of optical services could have a major impact on the broader telecom sector. The report looks at the business opportunities and internal challenges of deploying fiber, and provides an outlook on manufacturers such as:

• Alcatel,
• Hitachi,
• Marconi/Ericsson,
• Motorola,
• Optical Solutions,
• Tellabs,
• Wave7 Optics,
• As well as other system vendors such as Fujitsu, Lucent, NEC, Nortel, SeaChange.

"The regulatory community's reaction is the one wild card that could undermine Verizon’s feverish pace of FTTP network expansion; However, in spite of significant regulatory concerns, Verizon should be far enough in its FTTP deployment to spur the telecom market forward before the FCC causes any damage. The carrier is making an unusually large commitment to a project with unproven financial returns. Therefore, we believe that the ILEC has reason to feel confident about challenging any new court restrictions."
David Gross, financial analyst BIAfn

Who Can Use this Report?

Chip & Component Manufacturers
Find out if your customers are gaining on their competitors.

Equipment Vendors
Learn what your rivals won’t say in their press releases.

Engineering firms
Determine how much more installation business FTTP will provide.

Buy-side Analysts
Identify new investments and assess the prospects for your current holdings.

Attorneys
See how regulatory developments are impacting internal construction plans.

Financial Institutions
Understand the true picture of Verizon's plan and where they expect their ROI.

About the Publishers
BIA Financial Network and Telecom Pragmatics have teamed together to offer the telecommunications industry comprehensive research on a range of subject matters critical to keeping up to date and competitive in the global market.

Our combined historical perspective and deep industry knowledge delivers the research and consulting experience you need for competitive analysis, solution development, risk assessment, and product and business evaluations. We also offer customized, in-depth strategic consulting and custom reports for our customers targeted to their specific needs.

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