Drahi’s World

Shareholders have shaken Patrick Drahi’s dreams of being the next king of telecom in the United States by plunging Altice’s share price by more than a third in a single week, forcing Drahi to announce he won’t be making any additional acquisitions until the company’s staggering $59 billion debt is repaid.

Investors were also given a sacrificial lamb from the very sudden departure of Michel Combes, the ruthless cost-cutter that also served as titular operations leader of Altice’s European operations. Combes paid the ultimate price for the continued mediocre financial results at SFR-Numericable, which provides wireless and cable service in France and is Altice’s largest holding. That departure comes only two months after Michel Paulin, Drahi’s right-hand man at SFR, was also shown the door.

Drahi made it clear that he is formally taking back control of Altice, although observers have claimed he has always been in charge. European business analysts have uniformly described Altice as a company mired in crisis management, as European investors lose trust in Drahi’s business philosophy, which depends heavily on acquiring companies with other people’s money.

Drahi’s prominence in France came with his acquisition of SFR-Numericable just three years ago. SFR is France’s fourth largest wireless carrier and the company also has a prominent place in the wired telecom market, providing cable television, phone and internet service. Drahi has attracted investors with promises to wring every possible concession out of the companies he acquires. For financial markets, Drahi’s best trait is his ruthless cost-cutting and employee reductions. In France, employees have reported providing their own copy paper and toner cartridges for empty office printers, occasionally supply their own toiletries, and take turns mopping floors and vacuuming offices.

Employees of Altice-owned Suddenlink have been forced to take requests for replacement coffee machines for break rooms to skeptical company committees that review virtually every transaction. More recently, Cablevision technicians are complaining Altice eliminated their winter apparel budget, leaving workers without coats, bibs, overalls, or rain gear for the upcoming winter. Technicians will have to pay for their unsupplied winter gear out-of-pocket.

While shareholders and financial analysts bid up Altice stock on the premise that cost cutting would deliver better results, the fact France has a highly competitive telecom market brought unintended consequences for Altice and its shareholders: customers fled as cost cuts took their toll on service quality and support.

Competition Matters

Between the end of 2014 and mid-2017, SFR lost 514,000 subscribers in wired internet and 1.7 million mobile customers, delighting Altice’s competitors Orange, Free, and Bouygues Telecom. SFR’s internet problems are well-known across France. Altice’s attempt to offer a “one-box” solution for internet and television service has been of dubious value. Its equipment is notorious for failures, has compatibility problems with online games, and has high support costs. Altice is starting to bring similar equipment to the United States to supply its Cablevision customers, and technicians report many of the same problems are occurring in the U.S., adding they are skeptical Altice’s Le Box, known here as Altice One, will perform well for customers.

The biggest enemy of Altice in Europe is robust competition, which has allowed dissatisfied customers to switch providers in droves. SFR-Numericable, despite promises of fiber-fast speeds, has endured complaints about slow and uneven speeds and persistent service outages. Drahi’s original business plan was to upgrade broadband speeds and performance to win over France’s remaining DSL customers. That worked for a time, according to the French newspaper Libération, but not for long.

Paulin, who used to run the division responsible for Altice’s wired broadband, complained bitterly competitors have “polluted” his marketing campaign by advertising their 100% fiber optic networks, educating customers that Altice isn’t selling that. That ruined Drahi’s plans to slowly upgrade services with the belief customers are more captive to their broadband provider and wouldn’t switch providers if Altice took its time.

A competitor put it this way: “SFR’s remaining DSL customers have indeed migrated at the encouragement of SFR-Numericable… to Orange or Free’s 100% fiber optic network offerings.”

Accusations about service problems and slow upgrades were readily believed by customers because Altice drew headlines for its ruthless efforts to save money.

“First, the restructuring – cuts in spending and pressure on suppliers – has shaped its image as a bad payer,” notes the newspaper. “At the end of 2015, SFR was fined $400,000 for its late payments. Second, package price increases, imposed discreetly and justified by the addition of exclusive video content, annoyed customers when they found extra charges on their bills. Finally, recurring network problems have undermined user trust. The new satisfaction survey of UFC-Que declared SFR was in last place among operators.”

Altice’s one-box solution for TV and internet has proven troublesome for customers in Europe.

Altice blamed most of SFR’s problems on its previous owner, Vivendi, who it claimed underinvested in its network for years. But customers were in no mood to stick around waiting for upgrades. Throughout 2015 and 2016, customers fled, finally forcing Drahi to embark on costly upgrades of SFR’s wireless and broadband networks. Drahi’s investments in SFR amounted to only $2 billion in 2014 and $2.12 billion in 2015, but dramatically increased to $2.71 billion in 2016. By the beginning of 2017, the upgrades stemmed some of the customer losses as independent tests showed SFR’s 4G LTE service finally became competitive with France’s top two providers. SFR commissioned 5,221 new 4G cell sites over the last 12 months, beating 4,333 for Bouygues Telecom, 3,543 for Orange and a distant 2,010 for low-cost carrier Free.

The Suddenlink/Cablevision Cash Machine

Providers attempting to wire rural communities to offer broadband service or a competitive alternative to cable and phone companies face unfair tax and pole attachment fees that often give the advantage to existing companies and deter would-be competitors.

Those differences have a meaningful impact on rural broadband providers in states like New York, where wiring rural upstate communities is being made difficult by bureaucratic pole attachment fee policies and wide differences in property taxation that give an edge to existing cable giants like Charter Communications while hampering small start-ups with costly and confusing tax policies that slow down broadband rollouts. For businesses navigating these complex tax challenges, expattaxthailand.com offers expert advice to simplify the process and ensure compliance.

The Watertown Daily Times recently published an in-depth special report on the broadband challenges impacting northern New York, where fast internet access has evaded some communities for more than two decades. That lack of access is becoming a critical problem for a growing number of employers who are now considering exiting those communities because companies like Verizon, Frontier Communications and Charter/Spectrum are refusing to provide 21st century broadband service in rural upstate communities.

One example is Tupper Lake Hardware in Tupper Lake, N.Y., which wanted to expand, but considered exiting the area instead after being stuck using satellite internet access because no phone or cable company offered broadband service in the area.

“It came to the point where if you are going to make a $1 million investment, we actually talked about this, we said ‘do we put our money into this place or do we just pick up and move?’” general manager Chris Dewyea told the newspaper. “It is real. It sounds dramatic, but that is the way it goes. The connectivity speed that we had with satellite internet was not good enough, so that is when we started on our journey to get high-speed here.”

Calling Verizon, Frontier, or Spectrum was fruitless, so the company picked up the phone and called… the Empire State Forest Products Association, a group that has tangled with internet connectivity problems in upstate New York before. The group pointed the company to Slic Network Solutions, owned by the independent Nicholville Telephone Company, which has spent the last several years slowly expanding the reach of its fiber optic network in the north country. Slic currently provides service to about 10,000 homes in small communities like Belmont, Lake Placid, Schroon Lake, and Titus Mountain.

Like many fiber overbuilders operating in New York, Slic has to plan its network expansion carefully, as it lacks the financial resources and staff of a company like Verizon or Charter. Slic’s fiber service is in very high demand, because the alternatives are almost always satellite internet access or appallingly slow DSL service from Verizon or Frontier, neither of which have shown much interest in delivering the FCC’s 25Mbps definition of broadband. Charter’s Spectrum service is available only in larger concentrated communities that can meet the cable company’s return on investment property density test. Many rural upstate communities don’t.

“In most of the places, there really was the option of satellite. Some places had DSL but it was usually pretty marginal,” said Kevin Lynch, vice president of technical operations & chief operations officer of Slic Network Solutions. “There are a few areas, but very limited, that might have had Spectrum.”

Slic is one of several small fiber providers operating in New York, each trying to cover territories larger phone and cable companies have ignored for years. Cooperation in commonplace among some companies operating in similar regional areas to keep construction and operating costs down. Some providers share their networks to extend their reach. Most target commercial or institutional users but will lease out their networks for residential providers. Some of the state’s middle mile fiber networks were built with economic stimulus money or through other grant or government programs. Others are privately funded. Many are underutilized but lack the funds to expand.

Westelcom, based in Watertown, counts Slic as one of its partners. Westelcom currently limits its business to commercial accounts in its six county service area, which includes Watertown, Malone, Clayton, Elizabethtown, Ticonderoga and Plattsburgh. But it is willing to provide wholesale access to third-party companies that want to serve residential customers.

One of the biggest and most surprising impediments to serving “last-mile” residential customers isn’t the cost of construction or the return on investment. It’s New York’s tax laws. Current tax policy requires fiber providers to pay taxes on the value of the infrastructure being used, regardless of revenue. At present, that tax rate can cost between $25,000 and $30,000 per fiber route mile. If it takes five miles of fiber to reach only a half-dozen homes, the provider would owe New York over $100,000 in taxes alone, making it impossible to recoup costs and drain the provider’s finances.

The National Conference of State Legislatures, a bi-partisan group, published Property Taxation on Communications Providers: A Primer for State Legislatures in 2015, outlining a legacy of inconsistent and often outdated state and local taxation policies across the United States that treat communications providers differently on issues like property tax. The group points out New York’s tax authorities treat cable and phone companies very differently than upstart fiber providers. Mobile phone companies are taxed differently as well:

The taxation of communications property varies widely in New York. There are several types of property taxes that are applied in varying ways to the communications sector. While New York does not generally tax tangible personal property, the state considers lines, wires, poles, electrical conductors, fiber optic equipment, and related equipment to be real property. Landline companies and cable companies are subject to a real property tax on “Special Franchise” property which is centrally administered and assessed using the reproduction cost method by the Office of Real Property Tax Services (ORPTS). The Special Franchise property tax applies to equipment located on public property. In addition, Nassau County and New York City have a “split roll” which  requires higher taxes on the “utility” class which includes landline telephone companies. Wireless companies and cable companies are assessed locally for their real property (land and buildings,  e.g., towers)

In plainer English, Lynch points out Slic is taxed about $465 per mile per year in St. Lawrence County, which is “significantly higher” than what cable companies like Charter pay, because they are taxed differently.

In the college town of Potsdam, Slic pays more than double the school and property taxes paid by Charter Communications, even though it serves fewer customers and earns much less. That disparity forces providers to target their networks in more dense areas like inside towns and villages, which means more customers per fiber route mile, reducing the bite of the tax man.

“Broadband infrastructure is considered real property, so it is taxed just like a house when it is in the right of way. So when we attach to these poles which are in the public right-of-way, we pay taxes on it and it is based on construction costs,” Lynch added. “There are a certain number of customers we have just to break even on those two operational costs and that does not include any of the other overhead and the content, the electronics and all that.”

After paying New York, Slic then faces the bureaucratic challenge of pole attachment permitting and fees. Every pole on which Slic attaches its fiber wiring is owned by someone else, typically utility companies like National Grid, Verizon, or Frontier. Some poles are jointly owned and maintained by the phone and electric company in the area. Fees and procedures vary in different parts of the state. There is generally a very costly pole attachment application fee and ongoing pole rental fees, which in this part of New York can run $400 a mile, per year.

Lynch said the costs of pole attachment fees alone can account for up to 40 percent of Slic’s expansion budget, and those initial fees can run between $10,000-14,000 per mile. This is why fiber overbuilders frequently decide on coverage areas based on customer commitments to sign up for service if it becomes available. This allows companies like Slic to secure the financing required to provision the service. But money alone doesn’t buy instant access.

“We apply to National Grid or whoever the pole owner is and say, ‘We would like to attach to these 30 poles on this road,’ and do a pole application and pay a fee,” Mr. Lynch explained to the newspaper. “They come out, they look at each pole and they determine if there is space on the pole, do they need to rearrange the electrical wires so they are in compliance with the electrical code, do they need to move down the phone lines. A lot of times these poles are jointly owned. It will be National Grid and Verizon, so they have to coordinate and then there might be a section that has Spectrum on it, so you have three or four companies that have to coordinate this effort.”

The state adds its own layer of bureaucracy with different Department of Transportation regions, regional economic regions, and Department of Environmental Conservation regions, each with its own rules and procedures. It is common for fiber projects to cross from one region into another, requiring additional paperwork and likely delays. If a project has to cross into the Adirondack Park, the rules and permits required to manage that are byzantine.

The result of all this is usually a significant delay in getting started, but once the paperwork is complete and fees are paid, the work can go faster than many realize.

“In these areas where we are constructing right now, Schroon Lake and Belmont and Lyon Mountain, we are building three to five miles of fiber per week. Our next group of projects that has been funded by New York state is 300-plus miles of fiber,” Lynch said. “And when I say three to five miles per week, that is per area.”

Fiber providers would like to see tax fairness and a lot less bureaucracy. The rules in states like New York may eventually leave fiber to the home service at a distinct disadvantage, because wireless networks don’t face pole attachment complications and pay lower taxes because their real property is generally a cell tower and the fiber line that connects to it. As it stands, some internet providers may gravitate towards wireless internet solutions in rural areas instead of fiber just to avoid excessive taxes and the pole attachment bureaucracy. Most homes and businesses prefer fiber optic service when given a choice, but without some changes to tax laws and a more centralized, less bureaucratic approach to pole attachments, fiber optics may never make financial sense in rural upstate New York.

Down the rabbit hole

Google has quietly announced an indefinite suspension of further fiber expansion as it prepares to downsize fiber division employees and re-evaluate its fiber business model.

In a blog post tonight from Craig Barratt, senior vice president of Alphabet and CEO of Google’s Access division, it becomes clear Google is rethinking its entire fiber strategy and is likely moving towards fixed wireless technology going forward:

Now, just as any competitive business must, we have to continue not only to grow, but also stay ahead of the curve — pushing the boundaries of technology, business, and policy — to remain a leader in delivering superfast Internet. We have refined our plan going forward to achieve these objectives. It entails us making changes to focus our business and product strategy. Importantly, the plan enhances our focus on new technology and deployment methods to make superfast Internet more abundant than it is today.

Barratt outlines the immediate implications of Google’s dramatic shift:

• In the cities where we’ve launched or are under construction, our work will continue;
• For most of our “potential Fiber cities” — those where we’ve been in exploratory discussions — we’re going to pause our operations and offices while we refine our approaches. In this handful of cities that are still in an exploratory stage, and in certain related areas of our supporting operations, we’ll be reducing our employee base.

Barratt

Barratt himself is jumping ship (or was pushed). He announced in his blog entry he is “stepping away” from his CEO role, but will remain as an “adviser.”

Observing Google’s recent fiber efforts and acquisitions, it seems clear Google no longer thinks fiber-to-the-home service is an economically viable solution in light of competitors like AT&T rolling out increasing amounts of fiber and the cable industry is on the cusp of launching DOCSIS 3.1, which will dramatically boost internet speeds without a substantial capital investment.

Google’s investors have been lukewarm about the company’s economic commitments relating to its fiber broadband networks. Often built from the ground up, Google’s fiber construction complexities also include trying to navigate costly roadblocks established by their competitors (notably Comcast and AT&T), dealing with bureaucracies and red tape even in states where near-total-deregulation was supposed to make competition easy. Google Fiber has also not proved to be a runaway economic success, and now faces more challenges in light of upgrades from their competitors. Cable companies have slashed prices for customers threatening to cancel and have added free services or upgrades to persuade customers to stay, and Google’s proposition of selling consumers $70 gigabit access has proved tougher than expected.

It is highly likely the future of Google’s Access business will be deploying wireless broadband solutions powered by Webpass, a company Google acquired earlier this year. Webpass uses a high-speed point to point wireless transmission system the company claims can deliver gigabit broadband access to customers in multi-dwelling buildings and other urban areas. Webpass sells access for $60 a month (discounted to $550/yr if paid in advance) for 100Mbps-1,000Mbps speed depending on network density and capacity in the customer’s building. So far, Webpass has not been able to guarantee speed levels, and some customers report significant variability depending on their location and network demand.

Webpass’ wireless infrastructure costs a fraction of what Google has coped with building fiber to the home networks, and the installation of point-to-point wireless antennas on participating buildings has been less of a regulatory nightmare than digging up streets and yards to lay optical fiber.

But despite Webpass’ claim its performance is comparable to fiber, its inability to guarantee customers a certain speed level and its tremendous performance variability from 100 to 1,000Mbps exposes one of the weaknesses of fixed wireless networks. At a time when capacity is king, only fiber optic networks have shown a consistent ability to deliver synchronous broadband speeds that do not suffer the variability of shared networks, poor antenna placement/signal levels, or harmful interference.

There is room for wireless technology to grow and develop, as evidenced by the wireless industry’s excitement surrounding future 5G networks and their ability to offer a home broadband replacement. The emergence of 5G competition is almost certainly also a factor in Google’s decision. But even AT&T and Verizon acknowledge a robust 5G network will require a robust fiber backhaul network to support both speed and user demand. The more users sharing a network, the slower the speed for all users. No doubt Webpass has made the same assumption that cable operators did in the early days of DOCSIS 1 — current internet applications won’t tax a network enough to create a traffic logjam that would be noticed by most customers. The phone companies also learned a similar lesson trying to serve too many DSL customers from inadequate middle mile networks or traffic concentration points. (Some phone companies are still learning.)

Whether it was yesterday’s peer-to-peer file sharing or today’s online video, capacity matters. That is why fiber broadband remains the gold standard of broadband technology. Fiber is infinitely upgradable, reliable, and robust. Wireless is not, at least not yet. But technology arguments rarely matter at publicly-traded corporations that answer to Wall Street and investors, and it appears Google’s backers have had enough of Google Fiber.

Stop the Cap!’s View

At Stop the Cap!, we believe these developments further the argument broadband is an essential utility best administered for the public good and not solely as a profit-motivated venture. The path to fiber to the home service in rural, suburban, and urban communities has and will continue to come from a mix of private and public utilities, just as local public and private gas and electric companies have served this country for the last century. Where there is a business model for fiber to the home service that investors support, there is a for-profit fiber provider. Where there isn’t, now there is often no service at all. So far, the FCC in conjunction with Congress has seen fit to solve broadband availability problems by bribing private providers into offering service (usually low-speed DSL that does not even meet the FCC’s definition of broadband) with cash subsidies, tax write-offs, or occasional tax abatement schemes. Imagine if we followed that model with the nation’s public roads and highways. We would today be paying tolls or a subscription to travel down roads built and owned by a private company often financed by tax dollars.

Not every product or service needs to earn Wall Street-sized profits. Nobody needs to get rich selling water, gas, and electricity… or broadband. Public broadband networks can and should be established wherever they are needed, and they should be priced to recover their costs as well as expenses that come from support, billing, and ongoing upgrades. Naysayers like to claim municipal broadband is socialism run wild or an instant economic failure, yet the same model has provided Americans with reliable and affordable gas, electricity, and clean water for over 100 years.

Maine was made for municipal broadband.

In New York, publicly owned/municipal utilities often charge a fraction of the price charged by investor-owned utilities. In Rochester, where Stop the Cap! is headquartered, one need only ask a utility customer if they would prefer to pay the prices charged by for-profit Rochester Gas & Electric or live in a suburb where a municipal provider like Fairport Electric or Spencerport Electric offers service. RG&E has charged customers well over 10¢ a kilowatt-hour when demand peaks (along with a minimum connection charge of over $21/mo and a “bill issuance charge” of 72¢/mo). Spencerport Electric charges 2.9¢ a kilowatt-hour and a connection charge of $2.66 a month, and they issue their bills for free. There is a reason real estate listings entice potential buyers by promoting the availability of municipal utility service. The same has proven true with fiber-to-the-home broadband service.

The economic arguments predicting doom and gloom are far more wrong than right. Municipal utilities are often best positioned to offer broadband because they already have experience providing reliable service and billing and answer to the needs of their local communities. Incompetence is not an option when providing reliable clean water or electricity to millions of homes and customers have rated their public utilities far superior to private phone or cable companies.

Google’s wireless future may prove a success, but probably only in densely populated urban areas where a point-to-point wireless network can run efficiently and profitably. It offers no solution to suburban, exurban, or rural Americans still waiting for passable internet access. Clearly, Google is not the “free market” solution to America’s pervasive rural broadband problem. It’s time to redouble our efforts for public broadband solutions that don’t need a seal of approval from J.P. Morgan or Goldman Sachs.

Thirty cities in Bosnia, Herzegovina, and the Serb-majority entity known as Republika Srpska will now have access to fiber to the home service with broadband, television, and telephone service — all equipment included — for $27.50US a month.

Elta-Kabel’s under-$30 package includes more than 130 channels, unlimited phone, and unlimited 15/1Mbps broadband for less than what Time Warner Cable charges for its standalone Standard Internet service on a temporary promotion.

The cable operator is one of the biggest telecom companies in Bosnia and Herzegovina (part of former Yugoslavia) and is the first to offer up to 200/100Mbps broadband service over an all-fiber optic network.

Elta-Kabel fiber customers can choose from three types of connections: Super Net 60 (60/30Mbps), Super Net 100 (100/50Mbps) and Super Net 200 (200/100Mbps).

The company says fiber optic technology is “the reliable choice for the 21st Century.”

It wasn’t difficult to understand Verizon’s sudden reticence about continuing its fiber to the home expansion program begun under the leadership of its former chairman and CEO Ivan Seidenberg. Starting his career with Verizon predecessor New York Telephone as a cable splicer, he worked his way to the top. Seidenberg understood Verizon’s wireline future as a landline phone provider was limited at best. With his approval, Verizon began retiring decades-old copper wiring and replaced it with fiber optics, primarily in the company’s biggest service areas and most affluent suburbs along the east coast. The service was dubbed FiOS, and it has consistently won high marks from customers and consumer groups.

Seidenberg

Seidenberg hoped by offering customers television, phone, and internet access, they would have a reason to stay with the phone company. Verizon’s choice of installing fiber right up the side of customer homes proved highly controversial on Wall Street. Seidenberg argued that reduced maintenance expenses and the ability to outperform their cable competitors made fiber the right choice, but many Wall Street analysts complained Verizon was spending too much on upgrades with no evidence it would cause a rush of returning customers. By early 2010, Verizon’s overall weak financial performance coupled with Wall Street’s chorus of criticism that Verizon was overspending to acquire new customers, forced Seidenberg to put further FiOS expansion on hold. Verizon committed to complete its existing commitments to expand FiOS, but with the exception of a handful of special cases, stopped further expansion into new areas until this past spring, when the company suddenly announced it would expand FiOS into the city of Boston.

Seidenberg stepped down as CEO in July 2011 and was replaced by Lowell McAdam. McAdam spent five years as CEO and chief operating officer of Verizon Wireless and had been involved in the wireless industry for many years prior to that. It has not surprised anyone that McAdam’s focus has remained on Verizon’s wireless business.

McAdam has never been a booster of FiOS as a copper wireline replacement. Verizon’s investments under McAdam have primarily benefited its wireless operations, which enjoy high average revenue per customer and a healthy profit margin. Over the last six years of FiOS expansion stagnation, Verizon’s legacy copper wireline business has continued to experience massive customer losses. Revenue from FiOS has been much stronger, yet Verizon’s management remained reticent about spending billions to restart fiber expansion. In fact, Verizon’s wireline network (including FiOS) continues to shrink as Verizon sells off parts of its service area to independent phone companies, predominately Frontier Communications. Many analysts expect this trend to continue, and some suspect Verizon could eventually abandon the wireline business altogether and become a wireless-only company.

With little interest in maintaining or upgrading its wired networks, customers stuck in FiOS-less communities complain Verizon’s service has been deteriorating. As long as McAdam remains at the head of Verizon, it seemed likely customers stuck with one option – Verizon DSL – would be trapped with slow speed internet access indefinitely.

Verizon’s FiOS expansion rises from the dead?

But McAdam has finally shown some excitement for a high-speed internet service he does seem willing to back. Verizon’s ongoing trials of 5G wireless service, if successful, could spark a major expansion of Verizon Wireless into the fixed wireless broadband business. Unlike earlier wireless data technologies, 5G is likely to be an extremely short-range wireless standard that will depend on a massive deployment of “small cells” that can deliver gigabit plus broadband speeds across a range of around 1,500 feet in the most ideal conditions. That’s better than Wi-Fi but a lot less than the range of traditional cell towers offering 4G service.

What particularly interests McAdam is the fact the cost of deploying 5G networks could be dramatically less than digging up neighborhoods to install fiber. Verizon’s marketing mavens have already taken to calling 5G “wireless fiber.”

“I think of 5G initially as wireless technology that can provide an enhanced broadband experience that could only previously be delivered with physical fiber to the customer,” said McAdam during Verizon’s second-quarter earnings call. “With wireless fiber the so-called last mile can be a virtual connection, dramatically changing our cost structure.”

McAdam

Verizon’s engineers claim they can build 5G networking into existing 4G “small cells” that are already being deployed today as part of Verizon’s efforts to increase the density of its cellular network and share the increasing data demands being placed on its network. In fact, McAdam admitted Verizon’s near-future would not depend on acquiring a lot of new wireless spectrum. Instead, it will expand its network of cell towers and small cells to cut the number of customers trying to share the same wireless bandwidth.

McAdam’s 5G plan depends on using extremely high frequency millimeter wave spectrum, which can only travel line-of-sight. Buildings block the signal and thick foliage on trees can dramatically cut its effective range. That means a new housing development of 200 homes with few trees to get in the way could probably be served with small cells, if mounted high enough above the ground to avoid obstructions. But an older neighborhood with decades-old trees with a significant canopy could make reception much more difficult and require more small cells. Another potential downside: just like Wi-Fi in a busy mall or restaurant, 5G service will be shared among all subscribers within range of the signal. That could involve an entire neighborhood, potentially reducing speed and performance during peak usage times.

Verizon won’t know how well the service will perform in the real world until it can launch service trials, likely to come in 2017. But Verizon has also made it clear it wants to be a major, if not dominant player in the 5G marketplace, so plenty of money to construct 5G networks will likely be available if tests go well.

Ironically, to make 5G service possible, Verizon will need to replace a lot of its existing copper network it has consistently refused to upgrade with the same fiber optic cables that make FiOS possible. It needs the fiber infrastructure to connect the large number of small cells that would have to be installed throughout cities and suburbs. That may be the driving force behind Verizon’s sudden resumed interest in restarting FiOS expansion this year, beginning in Boston.

“We will create a single fiber optic network platform capable of supporting wireless and wireline technologies and multiple products,” McAdam told investors. “In particular, we believe the fiber deployment will create economic growth for Boston. And we are talking to other cities about similar partnerships. No longer are discussions solely about local franchise rights, but how to make forward-looking cities more productive and effective.”

If McAdam can convince investors fiber expansion is right for them, the company can also bring traditional FiOS to neighborhoods where demand warrants or wait until 5G becomes a commercially available product and offer that instead. Or both.

There are a lot of unanswered questions about how Verizon will ultimately market 5G. The company could adopt its wireless philosophy of not offering customers unlimited use service, and charge premium prices for fast speeds tied to a 5G data plan. Or it could market the service exactly the same as it sells essentially unlimited FiOS. Customer reaction will likely depend on usage caps, pricing, and performance. As a shared technology, if speeds lag on Verizon’s 5G network as a result of customer demand, it will prove a poor substitute to FiOS.