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Verizon: Forget About FiOS, We’re Moving to a Broadband Wireless World

Who needs FiOS when you can get 5G wireless service with a data plan?

Who needs FiOS when you can get 5G wireless service with a data plan?

Fran Shammo has a message for Verizon customers and investors: fiber optic broadband is so… yesterday. Your millennial kids aren’t interested in gigabit speed, unlimited use Internet in the home. They want to watch most of their content on a smartphone and spend more on usage-capped wireless plans.

Shammo is Verizon’s money man – the chief financial officer and prognosticator of the great Internet future.

Like his boss, CEO Lowell McAdam, Frammo has his feet firmly planted in the direction of Verizon Wireless, the phone company’s top moneymaker. If one ever wondered why Verizon Communications has let FiOS expansion wither on the vine, Mr. McAdam and Mr. Shammo would be the two to speak with.

This week, Shammo doubled down on his pro-wireless rhetoric while attending the Bank of America Merrill Lynch 2016 Media, Communications & Entertainment Conference — one of many regular gathering spots for Wall Street analysts and investors. He left little doubt about the direction Verizon was headed in.

Shammo

Shammo

“As we look at the world if you will, and we look at our ecosystem, […] the world is moving to a broadband wireless world,” Shammo told the audience. “Now, I am really – when I say world, I am really talking the U.S., right. So, but I do think the world is moving to a wireless world.”

In Shammo’s view, the vast majority of people want to consume content, including entertainment, over a 4G LTE (or future 5G) wireless network on a portable device tied to a data plan. Shammo predicted wireless usage will surpass DSL, cable broadband, and even FiOS consumption in 3-5 years. If he’s right, that means a mountain of money for Verizon and its investors, as consumers will easily have to spend over $100 a month just on a data plan sufficient to cope with Shammo’s predicted usage curve. In fact, your future Verizon Wireless bill will likely rival what you pay for cable television, broadband, and phone service together.

Millennials don’t want fiber, they want wireless data plans

Shammo argued millennials are driving the transition to wireless, claiming they already watch most of their entertainment over smartphones and tablets, not home broadband or linear TV. His view is the rest of us are soon to follow. Shammo claims those under 30 are turning down cable television and disconnecting their home broadband service because they prefer wireless. Others wonder if it is more a matter of being able to afford both. A 2013 survey by Pew data found 84% of households making more than $54,000 have broadband. That number drops to 54% when annual household incomes are lower than $30,000 per year. But those income-challenged millennials don’t always forego Internet access — some rely on their wireless smartphone to access online content instead.

A microcell

A microcell

Verizon Wireless may be banking on the same kind of “hard choice” many made about their landline service. Pay for a landline and a mobile phone, or just keep mobile and disconnect the home phone to save money. Usage growth curves may soon force a choice about increasing your data plan or keeping broadband service at home. Shammo is betting most need Verizon Wireless more.

Verizon FiOS is really about network densification of our 4G LTE network

Shammo continued to frame its FiOS network as “east coast-centric” and almost a piece of nostalgia. The recent decision to expand FiOS in Boston is not based on a renewed belief in the future of fiber, Shammo admitted, it is being done primarily to lay the infrastructure needed to densify Verizon’s existing LTE wireless network in metro Boston to better manage increased wireless usage. Shammo’s spending priorities couldn’t be clearer.

“Obviously, we said, we would build up Boston now, because it makes sense from a LTE perspective,” Shammo said. “We can spend $300 million over the next three years to make that more palatable to expand FIOS. So we will continue to expand that broadband connection via fiber where it makes financial sense for us.”

verizon 5gIn other words, it is much easier to justify capital expenses of $300 million on network expansion to Wall Street if you explain it’s primarily for the high-profit wireless side of the business, not to give customers an alternative to Time Warner Cable or Comcast. FiOS powers cell sites as well as much smaller microcells and short-distance antennas designed to manage usage in high traffic neighborhoods.

Shammo also believes Verizon must not just be a ‘dumb wireless’ connection. Controlling and distributing content is also critically important, and Shammo is still a big believer in Verizon’s ho-hum GO90 platform, which compared to Hulu and Netflix couldn’t draw flies.

Even Verizon CEO McAdam admitted a few weeks ago at another Wall Street conference GO90 was “a little bit overhyped.” Most of GO90’s content library is mostly short video clips targeted at millennials with short attention spans. The downside of making that your target audience is the rumor many who sampled the service early on have already forgotten about it and moved on.

Forget about congested home and on-the-go Wi-Fi and expensive fiber optics. Verizon will sell you 5G wireless (with a data plan) for everywhere.

Shammo believes the future isn’t good for Wi-Fi in the home and on-the-go. As data demands increase, he believes Wi-Fi will become slow and overcongested.

“There is a quality of service with our network that you can’t get with others,” Shammo said. “I mean, most people in this room would realize that when Wi-Fi gets clogged, quality of service goes significantly down. It’s an unmanaged network. You can’t manage that.”

Instead, Verizon will eventually deploy 5G wireless instead of FiOS in many areas without fiber optic service today. Frammo said 5G would cost Verizon a lot less than fiber, “because there is no labor to dig up your front lawn, lay in fiber, or be able to fix something.”

Shammo doesn’t believe 5G wireless will replace 4G LTE wireless, however.

“LTE will be here for a very long time and be the predominant voice, text, data platform for mobile,” Shammo said.

So instead of unlimited fiber optic broadband, Verizon plans to sell home broadband customers something closer to Wi-Fi, except with a data allowance. It’s a return to fixed wireless service.

Verizon Wireless' existing fixed wireless service is heavily usage capped and no cheap.

Verizon Wireless’ existing fixed wireless service is heavily usage capped and not cheap.

Just a few short years ago, Verizon was looking to fixed wireless as a replacement for rural DSL and landline service. Now Shammo sees the economics as favorable to push a similar service on all of its customers, except those already fitted for FiOS. That changes the dynamics on usage as well, because Verizon Wireless ditched unlimited service several years ago except for a dwindling number of customer grandfathered in on its old unlimited plan.

Current 4G LTE fixed wireless customers can expect 5-12Mbps speeds with data plan options of $60 for 10GB, $90 for 20GB, or $120 for 30GB. The 5G service would be substantially faster than Verizon’s current fixed LTE wireless service, but the company’s philosophy favoring data caps for wireless services makes it likely customers will pay much higher prices for service, higher than Verizon charges for FiOS itself.

Currently there are 6 comments on this Article:

  1. Damian Kumor says:

    With the rates that salaries are decreasing and Verizon charges for data there’s no way anyone can afford this vision that he’s talking about.

  2. Derpson says:

    No one is dumb enough to pay more for a wireless LTE hot spot in their home. The Verizon guy is partially right, I consume a lot of media on my mobile device… but I do it over WIFI.. because
    1. Data caps are dumb,
    2. My home internet is faster than LTE, = HD content.
    3. I have crappy, unreliable 4G service where I live.

    The only people this is good for are the people in rural areas where the only other options are dial up and satellite. That isnt a large market compared to the landline market for home internet.

    Also worth noting, there are already 4G lte home internet providers in my area and they offer 25megabit with no cap for $90/mo or 5megabit for $40/mo. (Redzone broadband in Maine). With Verizon’s pricing they probably wont see much business.

  3. dgfchfgh says:

    The only way wireless can even be considered for home broadband is if it has no Data Cap and no Throttling. Im currently in a spot where I can only get Verizon 4GLTE service and if I couldnt get a UDP I would be F**ked since my Usage is easily in the Multi Terabytes (Being a Content creator a single upload can easily take 40-50GBs). Hoping to move soon to escape verizon hell.

    • Len G says:

      Thank you! You saved me from typing that same statement. I cannot disagree with the entirety of this article any more than I do. It actually makes me angry. I’ve been in IT for many, many years now, but I have kept myself from using or even buying a smartphone. I know the younger guys may giggle at that, but I never take my work home, not anymore. Smartphones are fantastic for those who like them, I just don’t happen to be one of them. The computer work I do requires processing power far beyond any smartphone, and I don’t have the patience to wait for screens to load when I can go to a terminal and get it in seconds. I would NEVER pay for a capped internet connection, home or mobile. And frankly, I’d never use Verizon either. I have a friend paying $60 for a 3 Mbit connection. This is just corporate greed at work anyway. Think of the cost savings for them when they don’t have to do home installs anymore and cap the already slow data rates. WiFi is cheaper for them, more expensive for us. And I’m sorry, but I can’t see watching Netflix on a tiny screen, not to mention file sharing over a proprietary connection that would likely block torrent traffic anyway. They’re just trying to put bars up in front of us. Also, they think if they take our home internet connection away that we’ll have to give up Netflix and PAY for THEIR TV service (which will NEVER happen). I find the entire article idiotic. Just what I expect from these guys.

  4. Joe V says:

    This well-researched article sums up perfectly what is going on.

    http://www.huffingtonpost.com/bruce-kushnick/att-and-verizons-wireline_b_10315554.html

    http://www.huffingtonpost.com/bruce-kushnick/the-wireline—wireless-b_b_10253268.html

    “Verizon claimed in its 2015 annual report that it is a “digital-first mobile future” company while AT&T’s 2015 annual report proclaims that it is “mobilizing your world”. But both companies also have control over the wireline, state-based utility networks and this has helped them become the largest wireless companies – and to cross-subsidize their wireless business, as well as all of the other affiliate lines of business, including the ‘Broadband Data Services’ that businesses as well as competitors rely on.

    The wires, fiber or copper, are part of the state-based utilities, such as Verizon NY and Massachusetts, and there are simultaneous issues.

    NOTE: “Cellco Partnership”, which does business as “Verizon Wireless”, is a separate legal entity from Verizon New York or Massachusetts, which are the state-based incumbent wireline utilities that control the telecommunications networks.
    Verizon has been able to let the wireless company use the wireline utility construction budgets for wireless instead of upgrading and maintaining the wired networks.
    Verizon has manipulated the accounting to make ‘Broadband Data Services’ highly profitable so any competitor or business pays exorbitant rates.
    At the same time, the affiliate companies, like Verizon Wireless, do not pay market prices for using the networks, so the wireless services also have obscene profits.
    Verizon NY’s local phone customers had rate increases based on ‘massive deployment of fiber optics’ and ‘losses’ which are directly related to the ‘affiliate’ transactions, including Verizon Wireless and Verizon’s Broadband Data Services.
    These are some of the main reasons why they can claim that the local service networks are ‘unprofitable’ and can get rate increases or can ‘shut off the copper’. The expenses are being placed in the state utility’s Local Service financial accounting, while the fees paid by the affiliate companies are marginal—this raises the expenses and lowers the revenue to the incumbent utility.

    And the cable companies? Verizon even has a deal with the cable companies, which was created when Verizon bought their wireless ‘spectrum’. Verizon is now bundling their wireless service with the cable package in areas that are not upgraded. And since there is no direct competition, the cablecos can just inflate rates as well (another story).

    So, data caps are created by the incumbent wireline and cable companies because they can. They can continually raise rates—for 20+ years because they can. And since they control critical infrastructure of wireline and wireless, including broadband and internet, there is no level competitive playing field. They can not upgrade areas, or ‘shut off the copper’ or cross-subsidize their businesses—because they can.

    And, as discussed, Boston is a model of the end game. It is Verizon’s test city to see if they can get customers to buy off on having a wireless service replace the wire to the home with lots of antennas that require fiber optics—known as FTTA, Fiber-to-the-Antenna.”

  5. Paul Houle says:

    At the $10 a GB that Verizon charges for 4G, nobody can afford to watch video.

    For instance, if one movie is 1 GB, that is $10 of data charges to watch one movie. That’s almost as expensive as seeing the movie in a movie theatre. A Netflix subscription is $10 a month for as many movies as you want to watch! The people who made the movie get NOTHING from that $10.

    The scary thing is that there really are people who will get $1000 phone bills and pay them like it isn’t any thing. If you look at games like “Candy Crush”, most of the money is made from 2% or so of users who spend hundreds or thousands on the game. Thanks to inequality of wealth, you can make a real business out of a few whales.

    Note that if Verizon made a kickback of 5% to the movie studio they would get 50 cents per movie, which is what you spend on Netflix if you watch 20 movies a month.

    If there is anything real about the prices for data, zero rating is a non-starter, because no web site, except for the scams like “free ringtones”, makes enough money to pay for the wireless data consumed by users.

    Conversely, Verizon makes more in data charges from online advertising than the websites, ad networks, and everybody involved in advertising. If Verizon paid a small kick back to mobile web sites, that would be a better monetization scheme than anything yet.







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