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Why Verizon is killing DSL & cheap broadband

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The slow death of DSL will cause the rapid rise of expensive broadband for underserved areas if Verizon’s Fusion home broadband service is any indication. Verizon(s vz) on Tuesday launched its long-planned home broadband service powered by its LTE wireless network — trading slow in-ground copper for expensive airwaves on its end. And the consumer? They trade unlimited slow broadband from a wire for faster service that’s going to cost a pretty penny.

So what is this wireless panacea?

Verizon’s HomeFusion Broadband uses Verizon’s LTE network to offer homes broadband speeds of 5-12 Mbps for downloading and 2-5 MBps for uploading. For most users, this will be better than the older DSL speeds, which are about 6 Mbps close to the node but slow as you travel further away from the telco’s central office. Verizon will pop a small a cylinder packed with antennas on the side of your house in order to deliver the service, which comes with the same caps and pricing plans Verizon currently offers its cellular customers. And that’s really the rub.

All of the plans are usage-based, which changes the broadband paradigm from one of limited bits to limited bytes. Verizon’s plans begin at $59.99 of monthly access for 10 GB of data, and there is a $200 installation charge. If you consider that an hour of watching Netflix(s nflx) consumes about 1 gigabyte, you’re looking at about 8-10 hours of TV a month.

To be fair, Verizon says it is marketing this as an alternative for consumers in broadband-limited markets, where DSL or satellite might be the only options. In the case of satellite broadband, consumers also have caps and limited plans that cost a lot, so this compares somewhat favorably to those. But so far, HomeFusion Broadband will be available beginning later this month in Birmingham, Ala., Dallas and Nashville, Tenn., which are not exactly satellite country. Additional markets will follow.

So what’s this about the death of DSL?

Verizon may have started out as a collection of wireline telephone companies, but it has been rapidly abandoning its legacy copper by selling off its DSL businesses to Frontier Communications, Fairpoint and even the Carlyle Group. The plan, as we said back then, was to get rid of high-cost copper lines and come in later with wireless broadband that delivered better speeds. From an economics perspective, Verizon spent between $19 billion and $22 billion laying fiber to 16.5 million homes in the last few years. But it has invested a total of $22.3 billion billion in the last three years building its wireless network, which covers more than 285 million customers (all of that is not LTE spending and coverage). And those customers are likely to pay more per month and get less in terms of the data they transmit over the network.

AT&T(s t) seems to be learning from Verizon’s tactics. It recently hinted that it would sell its unimproved DSL lines (“unimproved” means they aren’t part of the fiber-to-the-node U-Verse deployment), according to Dave Burstein, editor of DSLPrime, an industry newsletter. This is, of course, after AT&T CEO Randall Stephenson admitted that DSL was an “obsolete” technology (although AT&T later tried to clarify its way out of that situation). And it makes sense. Why would AT&T want to keep DSL and its maintenance headaches around when it can offer a higher-dollar triple-play service on U-Verse and wireless access to those who can’t get anything else?

Faster, Pricier and Not Better

The problem with this transition from DSL in rural areas over to wireless, and the general loss of broadband players, can be summed up in one word: caps.

With HomeFusion, customers that may have had DSL are paying more for speed, but they are also giving up on all-you-can-eat broadband. That will put more people under the sway of caps since AT&T, Comcast(cmsca), Charter and smaller players all have caps on broadband service.

This is commonly thought to protect their pay TV businesses, because you can’t watch hours of HD television on a capped connection without somehow busting through your cap. But there’s a lot more to it. As Verizon notes in its press release for HomeFusion, the router can connect up to four wired and at least 20 wireless devices inside the home, using Wi-Fi. We’re moving to a society where everything is consumed via broadband, from our entertainment to our work, from our home automation to our security.

And once we’re there, the idea of letting that flow of traffic pass by without taking some cut from it is painful for operators that grew up charging people by the minute. In their eyes the byte is the new minute, and by golly, consumers will pay for it. As DSL and older connection technologies die, telcos want the unlimited plans that helped broadband succeed to die with it.

Image of manhole cover courtesy of Flickr user Eddie~S

26 Responses to “Why Verizon is killing DSL & cheap broadband”

  1. Adam Butler

    I live in an urban Philadelphia area with no Verizon fios coverage. I am a stand-alone Verizon DSL customer (no voice) and received a letter a few weeks ago that Verizon was discontinuing stand-alone DSL for all customers. So the end is clearly close.

    (I would switch to fios if I could!)

  2. I am a communications customer service tech for the past 33years.I have heard all of your reasoning time and time again.Let me tell you there are different strokes for different folks.Some of these people have been a customer for decades.Its all about service and customer satisfaction.No matter if it is 1.5 or 18 mbps .You go giving broken promises and see ya!.Lets face it this is for screwing the Union labor force with good paying Jobs of America in all of our communities to poorer and unemployed.While some CEO’s greasing his pocket with a new G whiz his board chairs.Its about money and greed.Not consumer care.

  3. BarbaraJ.

    Rural residents have been hammered both by the digital switchover in television AND the lack of good internet services. Don’t mention Verizon in my remote New England town. After years of complaining to the state about lousy phone service and NO DSL, we finally got DSL in half the town–the easy-to-wire half. The rest of us were on our own, so we hired an independent contractor to come up with a wireless system that works, but is vulnerable to the weather. Regulators have allowed Verizon to “cherry pick” the higher-end customers while leaving everyone else to fend for themselves. One issue: internet access is not regulated as a public utility. It should be.

  4. Kreedy33

    In the end as long as they make their money, they will say what it takes for us to buy. Live in the city shouldn’t need to buy the new Verizon package.

  5. Mike Donatello

    Nice summary. One point not addressed: What will success in selling this new LTE-based service do to mobile LTE users? It’s not like there’s unlimited bandwith over the air.

  6. Roland

    So what happens to the copper? What Verizon is giving up is monopoly advantage. They will have to compete with Frontier or whoever buys the copper, unless the sale includes a non-compete clause. I can’t see that, because the copper is a regulated monopoly in or over the public right-of-way. Competition is overdue in this area. And R&D is making copper faster. It isn’t dead yet.

    • Roland, if Frontier or CenturyLink really make investments in their copper I’d be thrilled. Although from a returns perspective those investments may end up being minimal if the company is to profit selling plain old broadband to those consumers.

  7. I live in a heavy AT&T area and the company has for years been wanting to convince me to move from DSL (which I get from them) over to their UVERSE service. Initially I did even think about it, but in the end decided not to go because of everything else they wanted to “add” to my internet service. They want UVERSE users to pay for home phone and TV as well, stuff that I don’t need. I’m also lucky to be maybe a block away from my DSL node and have never gone below 6mbps or have service outages.

    More recently, I have considered cutting the cord with DSL and moving to 4G from Clear. They do offer 4G home service at just $50/month without any data caps or overage charges, and I admit it’s the best deal you can get on 4G today. My only issue with Clear is their inconsistency in delivering 4G speeds and the lack of coverage in some built up areas. My home happens to be on the fringe of a large hole on their coverage map – tossing my bullet-proof DSL line would be risky.

    • George

      I’m a light data user, but I switched from ATT DSL to ATT U-Verse because I wanted to cut the cord on my home phone. ATT claimed I could not remove my POTS service and let me keep my DSL connection because that would be a new DSL order and they wouldn’t sign me up for a that because I was in a U-Verse area.

      I signed up for a 3Mbps internet-only service at the promotional rate of $20 a month for a year, and ported my little used home phone number over to a prepaid GSM card. Instead of giving ATT $68 a month for voice and 1.5Mbps, I give them $20 for 6Mbps, and my home phone costs me $100 a year. I save almost $40 a month.

      You don’t need to buy ATT’s TV and phone service, and I would highly recommend not doing so.

  8. Armin Wolff

    So if I were on the new wireless network At 10 GB, I would have used up almost half my monthly allowance just to download the new OSX10.7 and its updates. We have a relatively slow DSL connection here. When I want to download such massive files, blazing speed is not nearly as important as getting the file without paying extra through the nose for it. I tell the computer to start downloading before going to bed, and so it is all done by morning ready for installation. They better raise their caps if they want a lot of people to go the expensive wireless route.

    • Well...Hello

      What they’ll do is raise DSL prices. They just did on new adopters – Verizon is now forcing people that 1. Upgrade 2. are new to the service or 3. move locations, to pay for “voice services” aka an outdated telephone line. This is why (verbatim):
      “At Verizon, we are committed to bring you the best suite of products and the most current capabilities, while providing the value and quality of service that you expect. From time to time, we must make changes to our product offering to meet these goals. Beginning May 6, 2012, we will no longer offer High Speed Internet without local voice service on the same account.”

      See – it’s just because they want to bring us the “best suite of products” possible! Thanks Verizon!

    • Scott Hollander

      in the end all will be forced into more expensive services. It will not be “cost effective” for the companies to maintain the slower services, they’ll rasie prices to make it worth their while, and ultimately for only a few dollars more, you’ll move up, and have a smaller bank account in the process

      • Well...Hello

        They did just that. If you want to get Verizon internet you now MUST pay for a telephone whether you need it or not. This is to force customers into more expensive FIOS etc… plans. I just got an email that said, basically, that I’m “safe” until I move, or upgrade, then I have to pay for a phone that I would NEVER use (why would I use it when I have unlimited cell access?!). Thanks Verizon douches!

  9. Mark W

    I live in a very rural area in SW Virginia. The only option I have is HughesNet at $70/mo for 475mbytes/mo. I am lucky if I get 2.5 mbps. HughesNet also has a ‘limit’ they call ‘fair access policy’. If you exceed it you have limited internet access for 24 hrs (kicked off) unless you purchase a ‘token’ for $7.50 to get back on up to 3 per mo. HughesNet charges for everything including support which can take up to 2 weeks to have any repairs done. They are very difficult to work with. Every time there is a problem, I consider which less painful, calling them or putting my arm in the blender. I absolutely hate this company and do not wish them on my worst enemy. I would gladly pay $60/mo for 10gig. Also I really get dismayed at the authors of these articles. They obviously have access to unlimited high speed internet and just seem to ignore the reality of rural America that is still fighting to just get into the 21st century.

    • Phil M

      I live in SW VA too. Hughesnet has been so bad lately I can barely get my email at times. Verizon Homefusion is coming to me tomorrow & it will be MOST welcome. I wish I could be choosy about ISPs/caps/prices but I can’t. County Govt politics & attitudes don’t help either.
      – Phil M

  10. Jeff Martens

    LTE is wonderful and while using my Verizon hotspot at home the other day, I considered getting rid of my pricey fiber. But no way I am going to switch to 10gb for $60! That is insane!

  11. We had to drop Verizon for internet/phone use etc, just too many bad tactics from the company and problems with the actual use. DSL was never going to be the go-to answer for high speed reliability due to needing that proximity to the node. Line of sight microwave radios work great, the speed is only limited by connection hardware, no distance issues, etc. The federal government is now opening up the white space channels that have been saved all these years…what will 2014 bring?!

  12. AnthonyP

    And yet Verizon claims that its LTE network will be “saturated” in some markets by next year and therefore they must be allowed to buy all available spectrum over all objections. If their network really is close to overloaded, and they don’t get the additional spectrum, then I have a hard time seeing how this offering will kill anything. On the other hand, this offering may come back to bite them in the T-Mobile lawsuite: if the network is so close to overloaded, how can they justify introducing this service? Is it truth or just typical sleazy exaggeration on the part of a sevice provider?

  13. My office is maybe 4000 feet from Verizon’s CO, in a downtown grid of densely populated streets. The fastest connection they offer me is 7 mbps of DSL, although I take only 5, because if I want to get 7 mbps, I would have to give up the 5 static addresses I have. I know the technology to get far more than 5 mbps over 4000 feet of copper has been around a while, more than a decade, but VZ doesn’t care. They don’t have to.

    Verizon thinks everyone should move to LTE, but then they want to limit the traffic that flows over LTE. They are in favor of laws that restrict the rights of communities rights to build their own fiber networks. They want to force their customers to use a second-rate infrastructure, because the believe that will optimize their profit, but I don’t believe that is true. They absolutely do not care if their customers are happy.

    Kevin F., don’t you think my skepticism is warranted?