Tuesday, December 10, 2013

We Forget that Transition to Optical Fiber Once Was a Management Issue

Telecom and cable TV industry veterans with long memories will attest that the switch from copper to optical fiber in the outside plant was not pain free.

Cable TV technicians widely were troubled by the transition to hybrid fiber coax, in large part because of fear that the new technology would require new skills or new people.

So the threat of job loss, a diminution of the skills base or inability to adapt were key personnel issues.

That was true in the telecom industry as well. As Robert Mudge, Verizon president of  consumer and mass business markets, recalls the issue, “employees not involved in FiOS  were resisting the change.”

Confusion and apprehension were widespread, he notes.

“Some of them feared that as the company pivoted toward FiOS, it would neglect customers on its old network.

“People on the core side were saying, 'Tell me where I end up in three or four years. Where do I end up on the FiOS side?'"

Executives and managers at other firms making the transition to optical fiber in the outside plant likely can offer similar stories. The key point is that big changes will face resistance from within the organization trying to make the change.

There are other key changes in the outside plant realm as well.

As Lowell McAdam, Verizon Communications Chairman and Chief Executive Officer, recently noted, Verizon has over the last decade or so seen its operation of the industry’s latest network as a competitive advantage. FiOS unquestionably was viewed that way, initially.

But that doesn’t mean even Verizon believes fiber to the home is viable financially, everywhere, even when “our goal is to keep the network ahead of our competition.”

What Verizon is doing in Pennsylvania provides an example, where Verizon is supplying Internet access comparable to digital subscriber line using its mobile network, rather than rebuilding copper drops, even if Verizon thinks copper drops are “antiquated” and ideally would disappear.

It takes little insight to point out that the business case for FiOS-driven revenue growth, compared to the business case for revenue growth from mobile services, has changed since the 1990s.

In a nutshell, the risk-reward case for additional Verizon fiber to home deployments has gotten worse, instead of better. That doesn’t mean other contestants have similar risk-reward situations.

For independent ISPs such as Google Fiber, there are advantages beyond the direct revenue upside, primarily causing other ISPs to accelerate investments in faster broadband, and changing the prevailing pricing structure of high speed access.

For independent fixed network providers, moving as much as possible to fiber to the home is a survival issue, as the fixed network revenue model moves to high speed Internet access.

But Verizon has to weigh the use of capital in fixed compared to mobile assets. And Verizon believes the strategic and financial return from investments in mobile is higher than from further investments in FiOS.

For different reasons, the switch from legacy copper to fiber to the home continues to pose organizational challenges. These days, decisions have to be made about where to deploy "revenue growth" capital.

In many cases, the answer is "in the mobile network."

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