Just a few weeks after building a case for why cable companies will dominate the broadband market, Moffett Research today noted some exceptions to that prediction. Cable companies that compete with Verizon’s FiOS offering will face “competition for market share” that will be “perennially more intense” than in other markets, wrote Moffett researchers in a research note issued today.
Moffett has long questioned the value of the investment that Verizon made in FiOS. But in the new research based in part on data from the licensing bureau of the U.S. Copyright Office, Moffett is a bit more positive than in the past about FiOS’s prospects.
Moffett’s latest analysis suggests that “FiOS will sustain subscriber growth longer than either we or Verizon had projected, and that FiOS will ultimately achieve higher penetration rates than either we or Verizon had originally targeted,” researchers wrote.
Even in some of its oldest markets, where Verizon has been marketing FiOS for seven years, FiOS still saw growth rates of 6.4% on 2012, wrote Moffett.
Because FiOS uses fiber-to-the-home it is better positioned to compete against the cable companies than offerings based on legacy copper or fiber-to-the-node, Moffett researchers argue.
“Verizon’s FiOS is overwhelmingly the largest and most important FTTH network in the U.S.,” the researchers wrote. “For comparison, Verizon’s FiOS covers 14% of American homes; Google’s fledgling fiber network, at least based on the three markets that have been disclosed up to now . . . will cover less than ½% to 1% when it is eventually completed.”
FiOS strengths won’t make much difference to cable companies like Charter and Cox that do not operate in many FiOS markets, Moffett predicts. Charter overlaps with FiOS in just 4% of its territory, and for Cox the overlap is 9%.
FiOS may be more of a concern for the nation’s two largest cable companies – Time Warner Cable and Comcast – which have overlap with FiOS of 14% and 19%, respectively. But the company with the most at stake, according to Moffett, is Cablevision, which overlaps with FiOS in 64% of its serving area.
Despite FiOS’s newly identified strengths, however, Moffett hasn’t changed its rather negative view toward Verizon.
“Perversely FiOS is far more important to the companies with which Verizon competes than it is to Verizon itself,” researchers wrote. They make this argument because “ultimately it will be wireless rather than wireline that is determinative of outcomes for Verizon investors” and “while Verizon’s is the best performing wireless business in the U.S. by far, it is also the most overvalued.”
7 thoughts on “Moffett: FiOS Will be an Ongoing Cable Threat”
Satisfying Internet customers into the future means supplying voluminous, non-usage-capped capacity to the subscriber. Operators who own settlement-free IP backbone networks are well positioned to offer non-capped capacity to their eyeball subscribers. Last-mile operators who must purchase IP transit services will be at a disadvantage.
Verizon's ownership of the former MCI/UUnet IP backbone should position it to deliver on the promise of FiOS FTTH. Verizon recently announced a test-deployment of 200Gbps per wavelength WDM equipment on its backbone. This could raise long haul per-fiber-strand data capacity from 6Terabits per second (the currently deployed commercial standard) to over 12Tbps per strand. Operators who own their own IP transit networks and WAN fiber infrastructure are well positioned to supply unlimited capacity to their last-mile eyeball customers.
AT&T theoretically could be a powerful FTTH competitor too, but they seem to be more focused on their wireless business than U-verse. Perhaps one day another high capacity IP transit operator (eg Level-3) will decide to enter the game and will purchase Google's last-mile Google-Fiber business. A new nationwide FTTH operator, that is NOT distracted by the allure of Mobile Phone revenues, would be a great benefit to the US consumer and national competitiveness.
To deliver real service to the consumer, the hurdle (leap of consciousness) that management at VZ and other last-mile operators must make is that consumers want them to be FAT PIPES, not content brokers. Last-mile operators MUST bury the hatchet and address peering/private-interconnect capacity issues, and must stop fighting net neutrality. Entry of non-incumbents into the Last-Mile internet service market (companies who won't be cannibalizing existing pay-TV revenue streams) seems to be essential to tilt the playing field in favor of the consumer.
I agree with how Moffet research comes to their conclusion of FiOS threat & Mark’s premise of how FiOS or VzT stays in the game. Both anaylysis show how divergent VzW and VzT are and how the strengths need to be implemented. The other option is a CableCo buys out VzW and VzT operates more like a CAP supporting DATA centric networks worldwide.
Now that would be interesting….a cableco buying VZW and leaving Verizon with just it's wireline assets. Maybe Vodafone would want to sell, but Verizon?