Lowell McAdam, CEO of Verizon, said Tuesday that he expects to reach a deal with Netflix to prioritize traffic and deliver better service. Such a deal would be similar to the one Netflix inked with Comcast.
Verizon recently won a court case that shot down the Federal Communications Commission's ability to enforce so-called net neutrality rules. The Netflix-Comcast pact came soon after. Under that deal, Netflix is paying Comcast for the bandwidth it consumes.
McAdam expects a similar arrangement for Verizon and Netflix. In a talk at the Morgan Stanley Media and Telecommunications conference, McAdam said network prioritization will be the norm.
People are realizing: if you have got an intelligent transportation system, or you have got an intelligent healthcare system, you are going to need to prioritize traffic. You want to make sure that if somebody is going to have a heart attack, that gets to the head of the line, ahead of a grade schooler that is coming home to do their homework in the afternoon or watch TV.
So I think that is coming to realization.
The big companies, we have a good understanding with Google; you saw the Netflix-Comcast deal this week which I think -- or a couple weeks ago -- which is smart because it positions them farther out into the network, so they are not congesting the core of the Internet. And there is some compensation going back and forth, so they recognize those that use a lot of bandwidth should contribute to that. I have spoken live and via email with Reed Hastings, and I believe that we will get some sort of an arrangement with them as well.
Ultimately, McAdam is well aware that carriers make their money transporting data. He also said that broadband connections are surpassing TV hookups and that ultimately content providers may ink broadband deals that span networks. McAdam was largely talking Verizon's game since the carrier would love to move content from its fiber-optic lines to its wireless coverage on an integrated platform.
"If you look at our results in the past, way back, we would sell roughly one broadband and one TV together; and then we began to see a little divergence; and now we are seeing some significant divergence," said McAdam. "People are buying much more broadband than they are the TV packages. You also see evidence of that in the growth of Netflix. So I think that over-the-top is coming."
Overall, McAdam is positioning Verizon, which will have full control over its wireless unit after a Vodafone buyout, as a platform company. "The thing that we see coming from the customer requirements is far more integration of services as we go forward. So video that moves seamlessly between landline and mobile; security assets that not only work in the enterprise but work in," said McAdam.
Among the key platforms:
Security platform: McAdam said that its Cybertrust unit "can't meet the demand out there at this point." He added that data breaches at Target and the banking system have led to a demand spike in Verizon's cybersecurity services.
Telematics: Verizon's purchase of Hughes Telematics has led to a launch in China with Mercedes and a platform to target verticals such as healthcare, energy management and traffic. "I think, three or four years from now for people to have 5 to 10 different devices in their lives between their cars and their home and their personal electronics," said McAdam.
M2M: Verizon's multiple machine to machine efforts. McAdam touted its NFL partnership and embedding sensors into stadiums, parking lots and the playing field. Healthcare is also a big play for Verizon.