Recent discussion about cable companies beating telcos with new broadband additions has reignited the debate of FTTH and justifying its expense. One argument suggests that cable companies appear to be winning the current broadband battle because their network is superior to a telco’s copper and DSL based network. FTTH would level the playing field, the argument suggests. There is some evidence to support this theory. When you look at Verizon, they did see a big drop in DSL adds last quarter – but they also added new FiOS broadband customers at a much faster rate than DSL customers. But at what cost? In a recent New York Times article, Craig Moffett, an analyst with Sanford C. Bernstein is quoted as saying “… that Verizon would be $6 billion in the hole [as a result of FiOS] when all was said and done.” The New York Times article examines both Verizon’s and AT&T’s strategy for meeting the cable competitive challenge. It’s illustrative of an ongoing debate faced by telcos – should I “bite the bullet” and go with FTTH now, or should I try to extend the life of my copper plant investment for as long as possible. Both sides of the argument have merit.

The extending copper plant argument suggests that you should not strand too much investment in a new wireline network like FTTH, when the technology environment is changing so rapidly. Among other ongoing developments, there is no denying the momentous shift towards wireless for both voice and data. So there is some concern that plowing all this investment into FTTH may not pay off. The New York Times quotes AT&T CTO John Donovan as saying, “The last thing we want to do is overdeploy fixed capacity into the ground where there is no recovery for being wrong by putting in too much.” You certainly can’t disagree with the premise. Of course there is always a flip side to every argument. The competitive race is going on right now. The last thing any telco can do is stand still. FTTH proponents will argue, indecision will just allow cable competitors to pick you off, using a robust triple play bundle, powered by their “superior” network. So while you may not have “over invested” in a FTTH network, you also may not have a stable enough customer base to continue as a going concern over the long term.

What gets lost in this argument, especially when put into the context of Verizon and AT&T, is the impact of wireless. AT&T and Verizon can both afford to somewhat gamble with their wireline network of the future choice. The reality is, both of these companies are now really wireless companies, with wireline assets. Wireline derived revenue is increasingly becoming a minority of their revenue generation. If either of them mis-steps with their wireline strategy, they can afford to adjust accordingly. Other telcos who do not have that luxury are much more at risk with this decision. If you don’t have wireless, then your future obviously rides with broadband. Becoming the best at offering broadband in your given market should be the aim. Deciding on which route to take to achieve that objective will depend on a variety of factors. Factors like consumer preferences, competitor capabilities (present and future), technology innovation implications, and market demographics and firmographics, to name a few. Telcos need a comprehensive understanding of all of these factors before deciding which direction to take. Once these issues are understood, decisions about pulling the trigger on FTTH now, later, or never are much easier to make.

Verizon Wireless launched new usage controls which give customers “the ability to better manage and control how they use their wireless phones, as well as how their children or others on a ‘family share’ or multiple-line account use their phones.” Customers can monitor and control voice and data usage levels, and parents can manage the costs and services associated with their children’s wireless service. The new services can be managed through an online portal and will cost $4.99/month.

We keep seeing snippets of the future of entertainment. Verizon announced one, with their NFL Network Game Extra service, now being provided to Verizon video and wireline broadband subscribers. Viewers of the service are given a “virtual control booth” enabling them to watch live, online broadcasts of NFL Network preseason and Thursday Night Football games while selecting from multiple camera feeds. Subscribers will have access to alternate camera angles and live audio feeds and have the ability to view one of four camera angles on demand, or all four angles simultaneously. Other features include:

• live online chats with other NFL Network Game Extra viewers during the live games
• game statistics, highlights and drive-chart simulations during the games
• on-demand video highlights of the games
• special events, such as college bowl games and college all-star games including the Insight Bowl, Texas Bowl and Senior Bowl

Unfortunately, the service is limited to the pre-season and is only viewable on-line through their broadband connection. The optimist in me hopes it’s a start of what will eventually become standard television viewing. I remember first learning about IPTV back in the late 90’s, and the idea of viewers being able to control multiple camera angles of sporting events was always cited as a forthcoming feature that will offer competitive differentiation. While this Verizon illustration isn’t quite that vision yet, it appears to be heading that way. I recognize that this vision is not unique to IPTV. Verizon isn’t a true IPTV player to begin with, and DirecTV has been experimenting with similar features for some time. But it is illustrative of the potential of entertainment and broadband convergence features. Features that all video and multi-play service providers will need to understand and leverage to the best of their ability.

Verizon is targeting returning college students in their Potomac region with a broadband promotion. The promotion’s tagline is, “Headed to College Soon? Don't Forget to Pack the High Speed Internet.” The plan offers three tiers of broadband with download speeds of 768K, 3 Mbps, and 7 Mbps for $26.99, $31.99, and $42.99 respectively. The plans offer 9 month terms to coincide with the school year.

Verizon announced their latest FiOS promotion which offers free HD DVR or free Home Media DVR service for 12 months. Their Home Media DVR is a multi-room DVR service and allows the viewing of recorded programs on up to six televisions throughout the home. Multi-room features are increasingly becoming a competitive differentiator among telco and cable competitors. Verizon’s new promotion is coming on the heels of Cablevision winning a network DVR court case that conceivably will allow them to offer a network DVR product. Network DVR allows service providers to offer DVR services without the need for a DVR capable set top box in the home, resulting in a potentially lower cost DVR service. Time Warner is also eyeing a network DVR product as a result of the court win. Is Verizon’s move a pre-emptive strike against network DVR? Perhaps. There are certainly other considerations for the promo, but it sure doesn’t hurt to have it in your back pocket when/if your cable competitors roll out a network DVR product. The promotion runs through October 4th.

Verizon averted a strike today by reaching an agreement with the two unions representing 65,000 workers in the company's Verizon Telecom business group in 10 Northeastern and Mid-Atlantic states and Washington, D.C. Given these evolving competitive times, the last thing Verizon needed right now is a strike. Don’t buy the PR speak that says the strike wouldn’t have materially impacted operations. I lived through one as a former management employee of Bell Atlantic. They are quite disruptive. There is no way Verizon wanted to give its cable competitors a potential marketing opportunity, by way of exploiting disruptions in Verizon’s service because of a strike. Given cable’s recent success at the expense of telco’s, a Verizon strike would have been welcomed and leveraged by their cable competitors. You won’t here Verizon admit it, but they just dodged a bullet.

The past few days, I’ve written a post or two about how in 2Q08, big cable “cleaned big telco’s clock.” I use the term big in recognition of the hundreds of small telcos across the U.S. who may not be experiencing a similar “beat down.” More than likely, these advantages will see-saw from competitor to competitor over time. I’m sure we’ll see big telco take it to big cable in quarters to come. But one particular circumstance is worth noting. It’s Cablevision’s continuing success in meeting the competitive challenge of Verizon FiOS. Cablevision reported somewhat envious numbers for 2Q08 that demonstrate they are in no way ceding their business to Verizon. Some facts to take notice of:

• Basic video subscriber additions up by 7K from 1Q08 – adding basic cable subs in this competitive environment is almost unheard of from cable companies




• Broadband customers additions up 52,000 or 2.2% from March 2008 and 227,000 or 10.5% from June 2007




• Digital voice customers up 81,000 or 4.8% from March 2008 and 367,000 or 26.2% from June 2007 – Cablevision leads all cable companies in voice penetration of homes passed at 37.6%




• Achieved ARPU per Basic Video Customer of $132.29 in the second quarter – another industry leading metric




• Cablevision intends to begin their migration to DOCSIS 3.0 and will also be deploying a mesh Wi-Fi network across their footprint, both of which will build additional value into their product portfolio

Achieving these results alone is impressive. Achieving them in the face of competition from FiOS is borderline amazing. This is not a single quarter phenomenon – Cablevision has been achieving these results for some time. It takes a little thunder out of the FiOS buzz and also reveals that FTTH triple play deployments are not bullet proof. Telecom carriers who are looking to FTTH to address their competitive challenges, especially in the face of declining DSL adoption, should look at this example as a cautionary tale. A FTTH network alone may not be enough. When faced with a competitor who is more than willing to take FTTH head on, telcos could find themselves in a “dog fight.” Cablevision has proved that they cannot only compete against one (with billions in backing by the way), they can succeed against it. As FiOS moves into more Cablevision territory throughout New York City, this pitched battle will be worth watching.

The triple play has historically been defined as a bundle of voice, video, and broadband. And of late, the cable industry seems to be executing a triple play strategy quite well. For example, Comcast’s triple play strategy execution has helped vault them to the fourth largest phone company in the U.S. (by access line count) – all within three years. How many decades did it take Embarq/Sprint to be the fourth largest traditional phone company? If you look at recent quarterly reports, cable companies seem to be executing the triple play better than their telco competitors. Take a look at each industry’s core product. Comcast lost 132K of its core product (basic video subs) last quarter. AT&T and Verizon’s losses in core product (switched access lines) are now being measured in millions each quarter. Current indications suggest that a triple play bundle of voice, video, and broadband favors cable companies.

But what if the future of triple play really involves wireless? Whenever wireless is injected into a bundle discussion, it’s seems to be as a part of a “quad play” – voice, video, broadband, and wireless. But what if we redefined triple play as wireless, broadband, and video. If the future of wireline voice service lies with IP, then there really is no reason to delineate voice and broadband separately. The two should be combined into “broadband,” since voice will simply be one of many broadband applications (you could conceivably say the same for video, but that’s the subject of another post). In this regard, future triple play strategies may shift to wireless, broadband, and video. If so, than despite the short term troubles of telcos relative to their cable competitors, the long term looks quite bright for the telcos who are fortunate to have wireless assets. Consider that in 2Q08, AT&T’s ($12 billion) and Verizon’s ($12.1 billion) individual revenue from wireless alone dwarfs Comcast’s total revenue of $8.5 billion. So while telcos may be licking their wounds over switched access line losses in the short term, they may well be positioning themselves for long term triple play dominance, with wireless at the center of their strategy.

Comcast released their quarterly numbers today, and they potentially offer some bad news for telcos. It begs the question, is cable pulling away from telcos in the competitive race? Perhaps. But we also know this race is a marathon, not a sprint. First let’s look at some numbers for Comcast’s 2Q08:

• 278K new broadband subs in 2Q08, 14.4 million total, representing 29% penetration of homes passed
• 555K new digital voice customers, 5.64 million total, representing 12.5% penetration of homes passed
• Lost 138K basic video subs, but gained 320K digital subs

Pretty impressive when put into the context of their major telco competitors, who are "licking their DSL net adds and switched access line loss wounds." I guess we know one of the reasons why DSL growth slowed so much last quarter. From a 2Q08 perspective, Comcast kicked telco butt. Sanford C. Bernstein & Co. Inc. analyst Craig Moffett tells Light Reading’s Cable Digital News, “...that U.S. cable will own as much as 90 percent of the broadband net additions when the book on second quarter is closed.” What’s even more alarming for telcos is that Comcast CFO Michael Angelakis revealed that new, “premium Internet tier” additions were added at a four-to-one ratio when compared to their “economy” tier. That suggests that cheaper priced broadband is not as appealing as faster more robust packages. If that is indeed true, than DSL may be in even more trouble. DSL is considered the “value” option because, generally speaking, it costs less than cable modem. But if customers are opting for faster bandwidth over cheaper pricing, cable may have an inherent advantage. An advantage that will only be enhanced when DOCSIS 3.0 or wideband becomes more available. Are all the “value” conscious broadband subscribers gone?

Qwest officially launched their previously announced wireless resale business, utilizing the Verizon Wireless network. According to Qwest’s press release, “…Qwest customers can now purchase Verizon Wireless products and services, including handsets, smartphones and BlackBerry devices, as well as high-speed wireless broadband services for e-mail, Internet access and multimedia services, such as mobile music and video.” Qwest will be contacting existing Qwest Wireless customers to offer incentives to switch services from their previous resale partner, Sprint, to Verizon Wireless.