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Summary:

Verizon’s blockbuster deal with the major cable operators has made casualties of its future residential broadband expansion plans and its partnership with DirecTV. Verizon is wasting little time in embracing its rivals Comcast and Time Warner and overturning the competitive dynamics of the residential broadband industry.

cordcutting

Verizon’s blockbuster deal to buy spectrum from and partner with major cable operators has made casualties of its future residential broadband expansion plans and its partnership with DirecTV. While none of this comes as surprise, given all the moves Verizon has taken to minimize its wireline business and focus on wireless, Verizon appears to be wasting little time in embracing its former rivals, Comcast and Time Warner, and overturning the competitive dynamics of the residential broadband industry.

Verizon Communications CEO Lowell McAdam confirmed at an analyst conference on Tuesday Wednesday that the company has no plans to resume its FiOS expansion after it reaches its target of 18 million homes, pursuing instead joint offerings with Comcast and Time Warner. There also isn’t any room for partner DirecTV in the new Verizon-cable love fest. DirecTV and Verizon began trialing a residential LTE service last year, that combined TV and programming through a satellite dish equipped with an LTE transmitter. But McAdam confirmed that partnership is now dead.

“One of our hallmarks is focus, and we’re focused on getting Comcast up and running, and I can’t do both, so we made our choice,” Verizon CEO Lowell McAdam said in a quote from newsletter Communications Daily reported by Light Reading.

At the UBS analyst conference, McAdam said Verizon still planned to compete fiercely with the cable operators in markets where it already has FiOS services. But in all other cases, it would look to cross-sell its wireless service with Comcast and Time Warner’s cable services. Here’s an excerpt from the transcript:

“…if I look back 18 to 24 months ago we saw what the promise of LTE was and we looked at our FiOS asset. We said, wow, finally you are going to be able to do these quad-plays and have video move seamlessly between the desktop and the TV set and your tablet and your smartphone. The technology base will really support that.

“So we were well down the road in developing that for FiOS and then the opportunity came up to partner with Comcast — that is where the discussions really began — that gave us the nationwide play. Because while we could do it and do it very well within the FiOS footprint, wireless is a national asset and I needed to look for an opportunity to expand that scale. So that is when we started talking about a joint venture where we could develop these integrated, truly integrated, products and bring them around nationwide.”

So where does that leave the rest of wireline industry? Verizon has a sanctioned monopoly in its territories, and the only competition it faced on wireline came from the cable operators. Except in the markets where Verizon has built up its fiber service, that competitive balance disappears. When Verizon first announced its deal with the cable operators last week, Stacey wrote that the partnership essentially spelled the end of wireline competition:

“As Verizon has rolled out its fiber-to-the-home (FTTH) offerings, it has sold off many elements of its older DSL businesses, and is now positioning its LTE wireless service as a competitor to DSL. This is bad news for Frontier, CenturyLink and AT&T’s markets that don’t have U-verse, but it won’t bother cable providers, which have or are in the midst of upgrading their networks to faster DOCSIS 3.0 systems that can deliver 100 Mbps service.

“Cable companies are already taking over at the nation’s primary broadband providers as people dump DSL lines in droves. The problem is that for many consumers a choice between DSL, LTE or cable isn’t really much of a choice at all. Cable networks upgraded to DOCSIS 3 can be much faster than DSL or LTE, and it’s hard to imagine a consumer seeing the options as equal. The best hope for a better competitor to cable is FTTH (not even AT&T’s fiber-to-the-node technology that U-verse offers), and it’s possible that Verizon no longer has much reason to roll out fiber further so it doesn’t upset its new partners. This is why both AT&T and consumers are on the losing end of this agreement.”

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