Verizon Shows The Limits of Fiber

With the announcement earlier today (May 13) that Verizon is spinning off 4.8 million rural access lines in 14 states to Frontier, the debate should end about fiber being a ubiquitous, robust competitor in the market. The nonsense about “platform competition,” with fiber as the poster child, is over.

As part of its strategy to concentrate on wireless, and, for the lucky ones, fiber-based FIOS, Verizon is prepared to leave 10 million customers it currently serves out in the non-fiber cold. By the end of 2010, when the company’s fiber build-out will largely be complete, about 17 million homes will have FIOS, Verizon Exec. Vice President John Killian said on an analyst call Wednesday. With the fire sale to Frontier, Verizon will be left with about 27 million lines, give or take. That’s not the end of the story. Verizon is cutting loose another 750,000 customers who Killian said would have been eligible to receive FIOS, but are now part of the Frontier transaction.

Frontier corporate officials pledged to step up their investment in broadband, and that’s good. The company offers an up-to10 mbps service starting at $44.99 per month, and a 768K “High-Speed Internet Lite” service for $39.99 monthly, but only reaches about 90 percent of its subscribers. (That’s still higher than the 60 percent of customers with broadband reach in the Verizon areas Frontier will purchase.)

Frontier has about a 26 percent take rate on the two million lines it currently serves, according to material the company distributed, which is higher than the 20 percent in the Verizion areas it will acquire.

There is “FIOS capability” in four of the states it purchased, Frontier Chairman Maggie Wilderotter said. Frontier will inherit 110,000 FIOS Internet customers and 69,000 FIOS TV customers. The company said it will continue to offer FIOS to those customers (operated by Verizon for a year) and will honor build-out requirements for franchises Verizon received. The company doesn’t have its own video offering; it resells Echostar’s Dish satellite service.

Whenever the talk of a competitive high-speed Internet market comes up, defenders of the Bells are quick to point to fiber deployment as the great savior. Now it’s clear that fiber deployments will be much more limited than previously thought. AT&T doesn’t have a fiber-based product. It’s U-verse is still stuck in the copper era. Some smaller telephone companies, municipalities and others are deploying fiber, but those are in the rural areas that big companies like Verizon disdain, and they can only do it because they don’t need the rate of return a large company does.

If nothing else, this deal opens the way for more acceptance of alternative fiber providers to step up, particularly in the soon-to-be former Verizon territories now being cut loose. The argument against municipalities and others getting into the business as competitors to the phone company creeps quietly away as the phone company abdicates. The idea of a fibered-up America takes on less the cast of a noble cause, a la rural electrification, than it does as an offering for the relatively select few in privileged urban and particularly suburban areas. (Even with that slimming down, residents of New York City complain they don’t have high-speed Internet, while customers in the farther reaches of the state have better service. Verizon has said it will take nine years to deploy fiber in Washington, D.C.)

When basketball player Michael Jordan was at his peak, the joke went around: Who was the only person to hold Jordan under 20 points a game? The answer: Dean Smith, Jordan’s college coach, who kept Jordan from shooting.

In this context, the question is: Which company can best show the limitations of fiber? Answer: Verizon.