Much has been made recently of the agency agreements signed between Verizon Wireless (News – Alert) and Comcast, Time Warner Cable, Cox Communications and Bright House Networks, allowing each of the partners to sell the other parties’ products.
So far, the practical result has been that Verizon Wireless is selling Comcast products in the San Francisco Bay Area, Portland, Ore. and Seattle, where Verizon has no fixed network assets.
The companies do not deny that, at some point, they might find themselves offering each others’ products in areas where both Verizon and each of the cable operators have fixed network assets.
Some believe that would not happen for five years or so, in part because the cable companies do not gain the right to rebrand the Verizon Wireless services for that period of time.
Many worry about the potential impact on competition between Verizon and each of the cable operators in areas where they do compete head to head. The fear is that Verizon will simply wind up reselling cable fixed broadband “in territory,” where Verizon competes directly with a cable operator.
That obviously would not provide incentives for Verizon to invest in its own fixed facilities, but only in areas where FiOS (News – Alert) does not already exist. As a practical matter, that means Boston, Baltimore and Alexandria, Va.
Whether the halt in FiOS deployment is permanent or not is hard to say. Slow FTTH construction in Europe has been intentional. There, instead of building out a full city all at once, FTTH projects have targeted only parts of a city, followed by intense and targeted marketing, to get penetration as high as possible.
In the United States, where Verizon does build a neighborhood and then a market, penetration rates rarely have topped 20 percent. That’s a tough way to earn a payback, since it means 80 percent of potential customers do not buy. And payback is a serious issue.
France Telecom (News
– Alert) will double its investment in fiber to home networks in 2012 to 300 million to 350 million Euros, Reuters reports. There’s both good and bad news in that announcement.
The good news is that the heavy spending is likely crucial for the survival of France Telecom’s fixed network business. The bad news is the huge risk.
France Telecom CEO Stephane Richard said fiber-to-the-home investments were key to the firm’s future competitiveness as a fixed line provider and France Telecom has pledged to spend two billion Euros by 2015 on rolling out a national fiber network.
Keep in mind that France Telecom expects a payback time of 30 years to 40 years, far exceeding the three-year to five-year payback expected of application investments.
That indicates the risk France Telecom and other providers are facing. Those time frames are so long they typically only can be considered by very capital intensive utility firms that operate in monopoly style markets, as fixed network providers used to assume was the case.
These days, the fixed network business faces competition from other facilities-based suppliers, mobile and satellite networks. That limits the potential base of customers, as no single supplier can hope to achieve penetration much greater than 20 to 30 percent.
And that’s the financial issue. If you assume 20 percent customer uptake, the payback can take 20 to 30 years.
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Gary Kim (News – Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.
Edited by Rich Steeves
