Verizon's Crazy Broadband Strigl Theory

27 Comments

Verizon President and Chief Operating Officer Dennis Strigl made a big splash at NXTcomm 08 yesterday when he announced that the entire Verizon FiOS footprint could now get speeds of 50 megabits per second. Typically such bandwidth news wouldn’t cause that much of a furor, but there wasn’t much to write home about from the show, which was held in Las Vegas this week.

In his speech, Strigl pointed out that the U.S. has the highest number of broadband users when compared with other countries, in particular that broadband is available in every U.S. zip code. Good point — and one that I’ve made in the past myself — except that it’s no longer true. By that metric, China now leads. Yes, the FCC used to defined broadband as a service that offered, at a minimum, 200 kbps downloads, but it’s since changed that requirement to 768 kbps.

But where Strigl went too far was when he suggested that three-quarters of American households have two providers to choose from — aka a duopoly, which is not my idea of a competitive marketplace. If you factor in wireless and satellite, he said, there are actually six or seven competitors. Talk about twisting the facts to fit one version of the truth! This part of his speech, however, had me choking on my breakfast cereal.

“Massachusetts and New Jersey have similar population density to Korea and Japan and similar broadband penetration. Unlike other countries, what we have accomplished has come not through [government] policy but through private investment.

How telling. So subverting government policy via lobbyists and highly biased friends at the FCC to ensure a future monopoly is all part of good, capitalistic, private investment theory? Maybe Harvard can include that in its future MBA curriculum.

Regardless, I thought it would be fun to see how Massachusetts and New Jersey really square up against South Korea and Japan when it comes to the price of a broadband connection:

Average broadband speeds in South Korea and Japan are 49.5 megabits per second and 63.6 megabits per second, respectively. The average U.S. speed is about 4.9 megabits per second, making it the 14th-fastest country in the world. The average price in South Korea and Japan is about 83 cents per megabit. In the U.S, it’s about $2.83.

But since it would be unfair to use average U.S. stats, I went with Verizon’s prices, the ones it’s going to offer in Massachusetts and New Jersey. On Verizon’s FiOS network, a 50 Mbps connection costs $140 a month — or about $2.80 a megabit. In fact, if you went with Verizon’s 20 Mbps service, you would be paying $3.25 per megabit. (To be fair, Verizon’s price-per-megabit is still cheaper than the $5.25 Qwest charges for its 20 Mbps connection, which costs $105 a month.)

In other words, not until Verizon starts selling a 50 Mbps connection for $41.50 a month and 20 Mbps fiber connection for $16.60 a month can Strigl get away with comparing U.S. broadband with that of the rest of the world.

27 Comments

vinnie mirchandani

Pete, understand your perspective as an investor, but from a customer perspective since when did an oligopoly become goodness? What did we break up Ma Bell only to have a supposedly conservative, Republican admin dramatically takes us back?

When you take the country residential and business customers, and layer in various telco services from land line to mobile to WAN to sensory traffic, there is enough market for at least 10 Verizons and AT&T’s. As I have written before, the future is so bright for telcos they ought to be scrambling not protecting traditional turf…and the FCC has no reason to keep encouraging consolidation

http://dealarchitect.typepad.com/deal_architect/2006/06/the_futures_so_.html

Pete Dailey

The government has a role to play in telecom, and oligopoly is the appropriate market mechanism to deliver the most efficient return on capital. FiOS is the best network we’ve got in this country, and my choice as a customer would be Verizon. But as an investor, I’d choose AT&T. There is a point of diminishing marginal returns for consumer access bandwidth, and Verizon has gone way past that point, spending shareholder money like a drunk sailor. $25 billion for FiOS, while AT&T gets the same ARPU for $6.5 billion with U-Verse.

I used to run a cable company in Korea, and I didn’t much like dealing with the Ministry of Information and Communication, but I appreciated the fact that broadband penetration at that time was 90% of Internet households, and that was due to progressive government policy.

Om Malik

@ Lemon, I am guessing you are in France.

@ Dave thanks for clarifying. Whether he is getting his feet wet or not, he (aka Verizon) were making a speech at NXTcomm, a trade show, and the claims were open to scrutiny.

@ John Thacker – well read previous comment by Dave, which makes all oranges and apples seem like genetically challenged. I think those stats are the best we have right and I am trying to find even better numbers, hopefully by Monday. Thanks for the comment. Appreciate that you are crossing the Ts for me.

Dave Burstein

Om

Article on target and to the point. A few additions.

Denny’s comment “Massachusetts and New Jersey have similar population density to Korea and Japan and similar broadband penetration,” is probably a mistake. It may have been picked up by his speechwriter from speeches by Kevin Martin or Rob McDowell at the FCC. When I checked their comments against their original sources, I discovered that they were comparing Jersey numbers including wireless with Korean numbers that did not include wireless. Adding wireless to the Korean numbers pulled them way ahead. It was an ordinary mistakes, and Kevin and Rob took the comments out of future remarks. I haven’t checked this with Verizon directly yet – Eric, if you see this please do doublecheck.

Don’t blame Denny. He’s a wireless guy just getting his feet wet in wireline. People close to DSL/cable know the extraordinary numbers in Korea and Scandinavia and would have known to doublecheck.

Another odd bit in Denny’s speech was comparing U.S. broadband to “Europe”. Yes, we are far ahead of Bulgaria. Poland, Greece and the Czechs. We’re also behind a dozen others, including most of the countries at our own income level.

That said, I’d like to point out that small differences shouldn’t be exaggerated, I like to group nations. The U.S. is clearly in the second rank, while we were at the top earlier. (draft)

Denny’s Verizon can rightly claim that 20M of their customers are getting one of the best networks in the world, FIOS. It is that good, and far ahead of most Europeans. The biggest problem in the U.S. is that only about 25% of homes will get a choice like that, mostly FIOS. 70-80% of the U.S. – AT&T, Qwest, and just about all the regionals – is getting a clearly second rate network that is 90-98% slower than FIOS, with very limited upgrade possibilities.

Within each group, differences are less than two year’s normal growth.

Over 30 subscribers per hundred population
Denmark
Netherlands
Iceland
Norway
Switzerland
Finland
Korea
Sweden

25-30
Canada
United Kingdom
Belgium

20-25
France
Germany
United States
Australia
Japan

15-20

Austria
New Zealand
Ireland
Spain
Italy

10-15
Czech Republic
Portugal
Hungary

< 10

Greece
Poland
Slovak Republic
Turkey
Mexico

db

John Thacker

“There are, literally, dozens of ways to measure broadband penetration but the media have a propensity to grab the lowest one and use it to support a thesis that US is woefully behind and needs more regulation.”

And worse, people have a tendency to compare apples and oranges. For example, Om here is doing it:

“Average broadband speeds in South Korea and Japan are 49.5 megabits per second and 63.6 megabits per second, respectively. The average U.S. speed is about 4.9 megabits per second, making it the 14th-fastest country in the world”

Nope. The OECD study that gives South Korea and Japan those speed levels is measuring fastest advertised speed. That same study gives the US an average speed of 8.86 megabits per second, as this link shows. (Which does put the US in 14th, though the difference between countries after the top 3 is much smaller.)

In fact, by that study, this move of Verizon’s alone would bump up the US considerably by replacing a bunch of 30 Mbit/s maxes with 50, even if no one signs up for it. The US could go up even further if Verizon offered a 100 Mbit/s plan, even if priced completely ridiculously, because it would be a max advertised speed.

It’s true that the average actual US speed (as opposed to fastest advertised in an area when not everyone signs up for that) is closer to 4.9 megabits per second. But if you’re going to use that number, Om, you should use the similar numbers for Japan and South Korea.

John Thacker

Average broadband speeds in South Korea and Japan are 49.5 megabits per second and 63.6 megabits per second, respectively.

I have too many friends in Japan with much slower speeds to buy this without a link to the actual study. I assume it’s the OECD study that’s been quoted, e.g. here, which means that it’s “average fastest broadband speed advertised in an area.” You do realize that that suffers from the same problem as the zip code measure, right? I have friends in Japan who have that speed advertised in their area, but that doesn’t mean that they can get it. They’re on cable modem, and that definitely doesn’t 60 megabit per second.

This metric is slightly different from the average broadband speed that a person has. By this metric, everywhere Verizon has FiOS has an “average broadband speed” of 50 megabits per second now.

Even worse, I know that the Communications Workers of America was throwing around studies that compared “actual speed as determined by speed tests” in the USA with “fastest advertised broadband speed in an area” for other countries.

I went with Verizon’s prices, the ones it’s going to offer in Massachusetts and New Jersey.

Although not the ones it’s going to offer in New York and Virginia. It’s $84.95/month for 50/20 there.
http://newscenter.verizon.com/press-releases/verizon/2008/verizon-extends.html

Lemon, I don’t know your country. I know that I pay $55/month for 30/5 from Verizon in Virginia.

JAMES CARLINI

Broadband should be defined as 1 Gbps and above. The definition from the FCC is still absurdly slow.

In the 25 years since the beginning of the Divestiture (1983 – the transition year for the operating companies going into 1984) as a country we have gone from being the country with the more sophisticated network (the BEST in the world) to today where we wallow in the catch-up mode to other countries like Korea which was looked at as a third world country. All of this lagging behind can be attributed to the great “strategic direction” and executive management of the Bell companies.

Lemon

Guess a country.

ADSL2+ prices

10/1 mbit $62.58
10/2 mbit $75.14
20/1 mbit $73.05
20/2 mbit $85.61

I have the 20/2 service, and yes, have maxed it out, downloading about half a TB in a month, and the provider doesn’t flinch. (Unlimited IS unlimited).

Sidharth

In India 256kbps is defined as broadband. But some ISP’s are not even providing that . They provide 64 – 128 and try to pass it off as broadband. However it must be mentioned that some big ISP’s like BSNL , Bharti etc are providing 2Mbps service but the limits of 2.5 to 5GB per month is deplorable. For 2Mbps unlimited we need to pay around $155 which is quite high by any standards.

cyberbian

I have Verizon, I used to have Comcast but I could just never get get real traffic to flow like the speed tests, it was as if they were blocking or throttling any real traffic, go figure!

Verizon, well the internet seems OK. You can’t get a free movie with their on demand. Comcast had a couple hundred stinkers to choose from.

So basically they all jack you up and steal your tires. Korea has the most fantastic services on the planet. I,. . . Well I don’t get that with my plan, that’s for sure.

What the market will bare is an expression used in free markets.
When the bandits raid your village, it’s how much can be squeezed out of the villagers.

Social Marketing Journal

As a Massachusetts resident with Verizon – although we appreciate their service, we can’t say we see it being comparable to Japan and Korea’s internet service either.

MukMan

If the U.S. government wanted to provide subsidies to companies like Verizon, Comcast, AT&T, et. al., to build a national fiber network to every home it could. However, given the state of our fractured political system – the rest of the world laughed at us in 2000, it would be extremely difficult to get the Congress and White House to agree to a multi-billion $ upgrade over other priorities like crumbling infrastructure, a health care system that’s out of control, etc.

So, to Verizon I say – you may not be the best but you’re leading the way. It doesn’t get any better than fiber to the home. Yeah, they may say that Google and others should pay extra for network resources, but I don’t care and want all the whining net neutrality people to get a grip – you’re not going to be blocked from accessing anything because Verizon charges Google extra for a certain level of performance.

Anon

Meaux Ji:

It’s pretty obvious you’re the one that doesn’t understand how networks work. If you traveled to a foreign country and then tried to access US based servers you’d obviously get huge latencies. You really think people would have +50Mbps fiber connections and still have high latency? Besides even if you have 10 times latency on a 50Mbps you’ll still download files >10x faster than on a 5Mbps with low latency. If all you need the internet for is web browsing and email you don’t need more about 1Mbps.

“Also, it is the charter of an corporation to make money; what the monopoly wants the monopoly gets.”
I fixed it for you.

But what I find truly funny is that comcast and time warner who just recently upgraded their plans for higher speed now want to implement usage caps because people are starting to use ‘too much’ of their bandwidth, and now that Verizon is offering 50Mbps they no longer have any room to complain. While it is still much more expensive here than in some other countries at least it’s a step in the right direction.

Kevin Walsh

Truth in blogging

Just so we don’t go too far off in the weeds (on both sides of this debate), let’s get a few things straight:

1. All the speeds Om refers to in this article are peak advertised downstream bit rates. Since all networks are oversubscribed, no one actually sees those speeds for more than a few milliseconds at a time. Averages are significantly lower than peak.

2. Mr. Strigl’s frustration with the manner in which broadband penetration is measured is understandable. There are, literally, dozens of ways to measure broadband penetration but the media have a propensity to grab the lowest one and use it to support a thesis that US is woefully behind and needs more regulation. The percentage of households in the US with a broadband connection is 57 (www.broadbandtrends.com). Given the geographic size, large number of operators, and diversity in housing density in the US, I doubt regulators could do a better job.

3. Very few consumers on the planet actually have more than 2 or 3 real competitive alternatives with regard to broadband. Real competitors have built broadband facilities (DSL, fiber, cable, wireless) that physically connect to consumer households. It is important to distinguish these real competitors from make-believe competitors. Make-believe competitors are those that use physically facilities built by real competitors in order to deliver services. Why would real competitors sell facilities to make-believe competitors? Typically because government regulators put a gun to their heads.

The lesson of the 1997 telecom reform debacle was that make-believe competition is just that. If you really want to compete for consumer broadband spending, buy a backhoe and start digging trenches. Or buy spectrum and start building access points and backhaul networks.

I would very much like to see higher broadband penetration, faster broadband speeds, and more competitive alternatives. But let’s not fool ourselves into thinking that this can be done with regulatory or legislative sleight of hand. It takes real capital investment and hard work.

David

Om, you jumped on your high horse to analyze Strigl’s statements and then threw out your own misleading numbers. So, the cost of broadband is more expensive in the US. Are the average incomes in the countries you compared to the US the same as the US. If their broadband service is 2 cents a month, and the average citizen can not afford it, does it matter that it is cheaper than the US service?
And yes, schools should be teaching future capitalists how to use the system they will become a part of.

Kam

I would call myself and average verizon customer. As far as the browsing and internet connection speeds they’re doing a really good job on that side from me in nyc. The only issue with verizon is horrible customer service and random chargers they like to slip into bills. I consider myself lucky since i know someone on the inside who helps me out if there is a problem.

Judi Sohn

I live in New Jersey. I have news for Verizon…the southern border of the state is not East Brunswick.

avfnx

I live in brooklyn and i pay about 60 for the 30mbits from cablevision…with it comes free hosting,able run a web server so i think i getting a deal.

Anon

@Meaux Ji
Are you comparing the latencies to servers within each country or are you comparing the latency in the US with US based servers with latency in other countries to those same US servers? There is a slight problem in your comparison if you are doing the latter.

Meaux Ji

Om, not to sounds like a fan boy, but lay off Verizon until you understand networking better. Also, it is the charter of an corporation to make money; what the market will bear will determine the price.

I think you missed the whole point of Strigl’s message. So we pay more per MB for broadband; the real comparison is latency. Having traveled to many places I’ve got to say, the latency in the US is far superior to anywhere else in the world. Thus a 5M pipe with low latency will provide a better user experience than a 50M pipe with high latency.

It does not matter is you got a 50M pipe in Japan if your 5M pipe in the US allows you to browse and get your email faster.

Om Malik

@ Vinnie,

I agree with you and think that this ZIP code is a scam and the definition of broadband as 200 kbps is deplorable. Funny thing is about four years ago I talked to regulators in India and spent time with them talking about why they need to think beyond the normal definitions of broadband. I told them then, FCC was just plain old stupid in holding on to that metric. Unfortunately they went with 200 kbps. It made it clear to me that regulators are basically taking the route of lowest common denominator and playing it safe and political – not trying to upset the phone companies because most of them want to go work for those guys. I think it is across the board in my opinion.

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