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.