What's future proofing worth? Analyzing the Verizon FiOS bet

What's future proofing worth? Analyzing the Verizon FiOS bet

Summary: There's a lot of discussion today about whether Verizon's $23 billion investment in its FiOS network was worth it, but the argument really comes down to this: How much is future-proofing your business worth?The New York Times did an in-depth analysis about Verizon's FiOS rollout and quotes a prominent bear on the effort.

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There's a lot of discussion today about whether Verizon's $23 billion investment in its FiOS network was worth it, but the argument really comes down to this: How much is future-proofing your business worth?

The New York Times did an in-depth analysis about Verizon's FiOS rollout and quotes a prominent bear on the effort. Verizon bet a bundle and moved to offer a triple play--TV, Internet and phone--to better compete with cable.

Saul Hansell, who also detailed the bear case separately, pits Wall Street skeptics and Verizon against each other. Verizon claims FiOS is a hit while others--some of them given some play here--say that it's a losing battle.

The whole discussion raises interesting economic questions: Would Verizon have been better off handing $23 billion over to shareholders? Should Verizon have just let its phone and DSL business whither on the vine? Does Verizon have an obligation to compete in what used to be its dominant turf? Should Verizon just go wireless? And the biggest one: How do you weigh short-term costs (and Wall Street's 3-month myopic view) with the long run?

Economics and assumptions aside I argue that Verizon made the right call. Sometimes you have to go with your gut and make a few big bets. Here's what Verizon could have done:

  • It could have stood by and watch cable become the dominant monopoly;
  • It could have watched its access lines dwindle to nothing;
  • Or it could have used its growth engine--wireless--to diversify and future proof its business.

Door No. 3 will turn out to be the best move. If Verizon did nothing its business would look a lot like AOL or EarthLink, two companies trying to retool as a former cash cow dies. If Verizon did nothing the shareholder hackles would be even worse. They'd want Verizon Wireless spun off or some corporate shell game in the name of shareholder value.

Disclosure: I'm a Verizon FiOS TV and Internet subscriber and glad the company made the move. Since installing it a little more than a year ago (gallery right) I've had zero outages. Zip. Zilch. With Comcast I wouldn't make it two weeks without an outage. I left Comcast for reliability--Comcast was cheaper than Verizon--and when I get the cable giant's mailings I just chuck them. I must admit, however, that I did take a second glance when Comcast offered me a Wii for signing up for the triple play again.

But if you work from home at all you just can't have Comcast's flaky network under the hood.

In the grand scheme of things there will be two flavors of broadband and TV providers--cable and fiber to the premises (FTTP). And guess what will win the day? Perception and customer service. It won't happen overnight, but making customers--instead of short-term investors--usually pays off big. And I can tell you I'm feeling pretty good about Verizon, which wasn't the case back in my DSLHell days.

Simply put, Verizon has future proofed a few things. First, it has future proofed a customer base. Second, Verizon has future proofed its network. While Comcast upgrades, Verizon can flip a switch to get me more bandwidth. That edge will last for years. Is that worth $23 billion? In my book it is.

Topics: Mobility, Browser, Hardware, Networking, Telcos, Verizon

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8 comments
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  • Right on the money...

    Petroleum companies are being lambasted for not investing enough in exploration and R&D. Here is a company that does invest for the future and gets criticized by idiots in the investment community.

    Verizon has made a very smart play. Disclosure: I am a Verizon shareholder who approves of their long term strategy.
    robajoseph15
  • coax vs fiber

    No brainer, but if Verizon thinks this is a 10-year ROI or something, think again.

    Cable has enough bandwidth to satisfy any residential / home-office use for the forseeable future. Heck, phone companies can now cram 3 or 4 high-def video feeds onto ADSL; cable isn't even using any enhanced techniques to better utilize the bandwidth.

    Reliability is a different issue, but that's a political/investment concern and not a technological one. Cable can be made more reliable with existing technology.

    But I completely agree. 15 years from now, cable will be like a 14.4 modem, and fiber will look like 56k.
    croberts
  • "Cable has enough bandwidth..."

    "Cable has enough bandwidth to satisfy any residential / home-office use for the forseeable future."

    It's not just bandwidth. Yes, when it's working correctly, my Comcast is hella fast. It's just not consistent. EVERY DAY between 1:30pm and 2:30pm, we lose service (during the school year). Just about every day, we have extremely long resolution times. It should NOT take 15 seconds or more to load a webpage. I could excuse the issue if it were "certain sites", but even with that, I'm supposed to have 3 MBps "with bursts up to xxx". At 3M, just about any site I am interested in should load lightning fast. I should have to wait between clicks to check my Yahoo email. I shouldn't have to wait for YouTube to load -- not a VIDEO on YouTube, but the main webpage.... what's on there? Static graphics (rotated, but static), and some flash controls that rotate "most watched" screenshots.

    Streaming video should be just that. We're talking COMCAST! That's what they DO. Except in our case, where it's just another (slow) data feed.

    Comcast may have the bandwidth, but they don't have it at our house or on our block.

    I can't wait until FiOS comes to our neighborhood...

    Heck, I have a feeling that DSL would be faster.
    John Galt's Smarter Broth
    • I had the exact same experience

      In the afternoons every day it would die. if you work from home it's a killer. Sounds like we may be neighbors--or at least live on the same street. I could care less about overarching bandwidth arguments. I just care about MY bandwidth which was interrupted way too much.
      Larry Dignan
  • RE: What's future proofing worth? Analyzing the Verizon FiOS bet

    Larry, FiOS is not available in most neighborhoods where your readers live. Like AT&T 3G - it is patchy.

    Investors will always want companies to be stingy, but as consumers you and I were painted a fiber vision in 1993 and it sad most of us don't have it 15 years later. As for 3G the US has roughly 25% coverage compared to 75% in Japan and Korea...our lack of investment means we have gone from first in world in telecom in mid 90s to not even in top 20 by some estimates.

    I am all for private sector in telecom, but I also expect to get the best in the world in speed, cost, service...if the private sector cannot because of its investors or does not want to provide that we need to look at other options...
    vmirchan
  • RE: What's future proofing worth? Analyzing the Verizon FiOS bet

    There is no cost on future proofing. Verizon has laid out an optical highway and as technology improves, they will be able to add lanes (wavelengths) alot easier .
    As a former FIOS helpdesk rep I can say hands down the product itself is the best out there and in many areas of the country, cable is way out in back on reliablility and value.
    hrpuffnstuff
  • RE: What's future proofing worth? Analyzing the Verizon FiOS bet

    It is too easy to compare the coverage of such things as 3G and FIOS without consideration of the logistical challenges posed by the amount of distance covered. For example, South Korean 3G and FIOS need only cover 38462.49 square miles (99617.39 km2), while US companines must attempt to cover 3537441 square miles, nearly 92 times the amount of space! South Korea has a population density of 1,274/SQ MI (of roughly 49 million), whereas the United States population density is 80/SQ MI (of roughly 301 million). This basically means that the problem of coverage is further compounded by the fact that there are more people living in rural or remote areas compared with that of South Korea.
    mkpelletier
  • RE: What's future proofing worth? Analyzing the Verizon FiOS bet

    Verizon FIOS reliability and speed is superb! Its
    service is unmatched by any others! Everyone should
    get Verizon FIOS
    user85