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Verizon FTTP: Plenty of Exits

Light Reading
News Analysis
Light Reading
8/31/2004

You already know the bullish scenario for Verizon Communications Inc.'s (NYSE: VZ) FTTP fiesta: fiber everywhere, video-over-IP, and VOIP to the broom closet.

But there's a vocal minority pointing to the potential dark side, saying that Verizon is waffling on FTTP more than is publicly perceived. What if, the critics ask, Verizon's FTTP gig turns out to be just another Project Pronto -- SBC Communications Inc.'s (NYSE: SBC) scaled-down fiber project of the mid-90s.

Verizon president Lawrence Babbio last week told the crowd at the Progress & Freedom Foundation’s Aspen Summit that FTTP deployments could gain momentum if the government would be unambiguous in its regulatory treatment of fiber (see FTTP Bulls Talk Billions ). "I'd like to accelerate even beyond the additional 2 million homes next year, possibly going as high as 3 or 4 million homes," Babbio said, according to a report by Bloomberg.

But others point out that Verizon is also laying the groundwork for an elegant "out" on FTTP if things don't work out as planned. In the Federal Communications Commission (FCC), it's got a nice scapegoat.

Indeed, Babbio's remarks also called for the FCC to more explicitly define its hands-off approach to fiber. As the rules read now, the FCC doesn't require incumbent carriers to lease new fiber optic access lines to its competitors at wholesale prices.

Still, Verizon has pressed the FCC to provide additional rulings and more detail about its decision. Analysts say RBOCs still fear that the FCC might someday force them to share fiber access networks with competitors in areas where the copper-based plant has been retired.

"We're wanting greater regulatory clarity before we invest the types of dollars in some states that we already are investing in -- places like California, Texas, and Florida," says Verizon spokesman Bill Kula.

Analysts point out that Verizon appears to be talking one game and playing another when it comes to FCC politics.

"The regulatory climate is very much determinate in everything the RBOCs do," says Kermit Ross, principal of Millennium Marketing. "If there ever was lack of clarity, then why did Verizon make such grand pronouncements about FTTP and start spending money?"

The answer may lie in Verizon's diverse network. Right now, its FTTP service (Fios) is only available in the areas formerly served by GTE, which completed its merger with Bell Atlantic to form Verizon in 2000.

History lesson: GTE was a long-distance operator and data provider, not an RBOC. GTE retained local phone operations in 18 states and today Verizon operates local service in 29 states plus the District of Columbia.

So the rules governing its network are different than those for the rest of Verizon's territory. Verizon confirms that it wants to offer Fios in other states, but won't do so until regulators make it clear that they won't force Verizon to lease its fiber assets to competitors.

Ross says Babbio's comments are interesting because of the "striking similarities" between Verizon's FTTP initiative and Project Pronto. Project Pronto, too, was a multibillion-dollar broadband buildout, but it was eventually scrapped due to "regulatory uncertainty."

Ross says Verizon may be picking nits and that the FCC has "immunized" packet-based services and fiber access from unbundling rules. "What you really have here is Verizon getting more cloudy while the FCC remains clear," Ross says. "The RBOCs have gotten as much clarity as they're ever going to get from the FCC."

Why would Verizon need an escape hatch in its FTTP plans? Some would point to Keller, Texas -- Verizon's FTTP showcase, where Fios officially went on sale yesterday. In that city, Verizon has installed more than 700,000 feet of fiber optic cable since January (see Verizon's FTTP Texas Feeler). The cost to wire Keller -- which will eventually require some 1.2 million feet of fiber, plus loads of active electronics and components -- is around $15 million.

While Verizon's 100 or so test customers are ecstatic about their service so far, the company is looking at several years before it starts making back the money spent on its new network.

Despite the nay-saying, Verizon says it is staying the course. "Verizon remains very bullish on fiber," says spokesman Kula. "We believe there is a tremendous demand for the services that we'll be offering.

"We're interested in doing more -- not less -- fiber. This is our future network that we're building." — Phil Harvey, News Editor, Light Reading

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Yabba
Yabba
12/5/2012 | 1:19:11 AM
re: Verizon FTTP: Plenty of Exits
Not sure I understand the following:

"History lesson: GTE was a long-distance operator and data provider, not an RBOC."

GTE and the RBOCs (along with Sprint, ALLTEL, Century, Frontier, etc) were all ILECs.
psmith
psmith
12/5/2012 | 1:19:09 AM
re: Verizon FTTP: Plenty of Exits

GTE was = IXC + LEC.

but I remember when GTE served as a LEC
in Florida, the Tampa area. SO it was a
Regional operator.

It long distance unit is BBN the inventor
of Internet (along with DARPA its VC).
wscline
wscline
12/5/2012 | 1:19:08 AM
re: Verizon FTTP: Plenty of Exits
While GTE was primarily an ILEC, they did acquire BBN, putting them into the data space. (GTE spun off the BBN business into Genuity, which was later acquired by Level 3. VZ and LVLT still have ties that originated with BBN, like LVLT providing network services for some VZ DSL customers.)

The statement about LD is a bit odd, though -- while GTE did sell in-region LD toward the end of their existence, it was via switchless resale of the former WorldCom and other established IXCs. I hardly consider that side business enough to classify GTE as a "long-distance operator".
Bitman
Bitman
12/5/2012 | 1:19:08 AM
re: Verizon FTTP: Plenty of Exits
Just to clarify,

BBN = Genuity = Level 3

Road Trip
Road Trip
12/5/2012 | 1:19:07 AM
re: Verizon FTTP: Plenty of Exits
And, of course,

e = mc^2
Consultant
Consultant
12/5/2012 | 1:19:07 AM
re: Verizon FTTP: Plenty of Exits
You guys haven't done your homework. The RBOCs are subject to the 1984 Modified Judgement that broke up Ma Bell into AT&T and the RBOCs.

Under the Modified Judgement, the RBOCs were not permitted to provide long distance service.

The Modified Judgement did not cover the non-RBOC ILECs that own about 16% of the switched access lines in the US. This included GTE, SNET, CentureTel, Frontier, etc.

firstmile
firstmile
12/5/2012 | 1:18:59 AM
re: Verizon FTTP: Plenty of Exits
Agree with the author and Kermit. Sure sounds like VZ is laying some blanks down in case they have to back out of the party. Also in line with a VZ exec that I spoke with a few days ago on a related topic. I was surprised when he mentioned, "It will take us 15 years for us (VZ) to get any significant PON buildout underway."

Also, when you follow the "ecstatic" link, that gear sure looks pricey for residential stuff.

...first
mrzappa
mrzappa
12/5/2012 | 1:18:44 AM
re: Verizon FTTP: Plenty of Exits
yup....+ or - 3 dB !
mrzappa
mrzappa
12/5/2012 | 1:18:43 AM
re: Verizon FTTP: Plenty of Exits
I don't see this as anything far from the VCR or the DVD, top advisors and "people in the know" said some very bad things about where this would go...
The need for broadband is gonna be addresed,and Verizon will be there to add to history,win or lose.
I can tell you as a Tech. on the front lines of this advance for broadband, Everyone will be happy with the results of our efforts.
firstmile
firstmile
12/5/2012 | 1:18:38 AM
re: Verizon FTTP: Plenty of Exits
No doubt. Except for the folks trying to get customer service from Verizon. Have you called in for support on a wirless phone lately? Verizon makes the Department of Motor Vehicles seem, smooth, friendly and efficient.
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