Verizon hasn't been bullish on new fiber for its Fios platform in several years. The telco stopped investing in Fios deployments four or five years ago, and after the expected spring closing of a divestiture of several Fios markets to Frontier, Verizon will have consolidated its residential fiber infrastructure to a swath of territory on the East Coast.
But that doesn't mean Verizon Communications Inc. (NYSE: VZ) is giving up on fiber for video delivery. It just means the company's strategy has shifted.
In keeping with Verizon's focus on its wireless business, the telco has changed gears in video to prioritize its new mobile-first Go90 service. Verizon has much to prove on the content front with Go90 -- specifically, whether or not young audiences want another online video portal. But, from a technology perspective, the company has laid a solid foundation for growth. (See Verizon's Go90 Is Live – Will Anyone Watch? and Verizon Builds Toward OTT Launch .)
The most recent evidence for that foundation is Verizon's acquisition of XO Communications. (See Verizon Bags XO for $1.8B.)
As Verizon EVP and CFO Fran Shammo explained it today at the Deutsche Bank 24th Annual Media, Internet & Telecom Conference, "XO has a lot of very good fiber around metropolitan areas," and those metro fiber rings are very good for video delivery.
"We actually pay a lot of third parties to carry a lot of our traffic to the last mile," Shammo continued. "This actually gives us the capability to move some of that traffic over to our own network when we close the deal so there's a synergy in that."
Ultimately, Verizon wants the video traffic it's carrying to bring in new revenue from advertising dollars. But regardless of whether or not Verizon can make that happen with Go90, it has to protect the quality of the video experience on its network in order to preserve its wireless broadband leadership.
"The user experience is going to be key," Shammo pointed out. "And there are some folks that say the network was more important in voice because you didn't like a dropped call; it's not as important in video. I would argue it's more important in video because the most frustrating thing for anyone is to get the spinning wheel, or for a download to take five minutes when it should take 30 seconds. So the network is going to be critical in a video world."
In theory, Verizon is following the same principle in its wireline business. Shammo acknowledged that while Fios TV continued to see subscriber growth throughout 2015, broadband has become the more important consumer service. Verizon hasn't been willing to invest in new fiber to support the residential broadband business in recent years, but it believes it still has a competitive advantage because of its fiber-to-the-home rollouts in years past. Those prior investments are supporting online video streaming for Fios subscribers, while new fiber acquisitions are falling into place to support streaming over wireless connections.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading