How Google Fiber and Verizon Fios Face Similar Challenges

In some ways, Google Fiber’s experience with gigabit internet access resembles Verizon’s earlier experience with Fios. Both firms announced aggressive fiber-to-home builds, and both halted those builds before completion of the announced or intended  footprints.

As Google Fiber maintains its construction and marketing of existing gigabit networks, while pausing extension, so did Verizon halt its Fios build before all of its major metro areas were wired.

The business model seems to have been the issue for both firms. Google Fiber has been disappointed with take rates and revenue, while Verizon seems to have discovered the business model did not work as well as expected, either.

Likewise, both firms now believe fixed wireless could substantially improve the business model.

The dynamics of competitive access markets are among the key reasons both firms now think differently about fiber to the home deployment. In the monopoly era, the supplier of access services (voice, for telcos; video entertainment for cable TV companies) could safely assume that, once a network was built, adoption would range from 80 percent to 95 percent.

Broadband Internet
Subscribers
Net Adds





Cable Companies


Share
Comcast
24,316,000
329,000

Charter
22,202,000
387,000

Altice
4,122,000
17,000

Mediacom
1,145,000
17,000

WOW (WideOpenWest)*
728,400
2,700

Cable ONE
510,573
2,256

Other Major Private Company**
4,765,000
20,000

Total Top Cable
57,788,973
774,956
62.49%




Phone Companies



AT&T
15,618,000
-23,000

Verizon
7,038,000
24,000

CenturyLink
5,950,000
-40,000

Frontier^
4,404,000
-99,000

Windstream
1,063,000
-12,800

FairPoint
309,547
-1,893

Cincinnati Bell
299,800
3,100

Total Top Phone Companies
34,682,347
-149,593
37.51%




Total Broadband
92,471,320
625,563





That meant the “cost per customer” and “cost per location” were nearly identical. In simple terms, “build past a home or business, get that location as a customer” was a good rule of thumb.

All that changes in competitive markets. In internet access markets, one firm--typically the cable operator--can expect to get as much as 60 percent take rates, while the telco can expect to get 40 percent take rates.

Video, in fact, is the more competitive market, as there are at least three suppliers in every market, limiting cable operators to about 50 percent adoption, while satellite gets 20 percent share and most telcos get about 20 percent. The salient exception is AT&T, which owns both DirecTV satellite service and also has sold U-verse video services. In some instances (in its largest fixed network areas) AT&T could have as much as 25 percent total video account share.

The obvious implication is that network “cost per potential customer” (cost per passing) and “cost per customer” diverge quite a lot. Cost per passing represents significant stranded investment, when take rates range from less than 20 percent to 50 percent.

Simply, at 20-percent take rates, cost per customer is five times the cost per passing. Even at robust 50-percent take rates, “cost per customer” is double that of “cost per passing.”

Even Verizon, able to sell three anchor services, with 40 percent adoption of internet access and perhaps about the same voice adoption (as a percentage of homes passed), has found the business case for Fios a difficult proposition. That is why its new optical fiber deployments are based on enterprise and mobile backhaul requirements first, to create a relatively dense optical footprint, and then to extend from optical endpoints to potential consumer neighborhoods.

It is doubtful Google Fiber has managed to consistently get 20 percent adoption in most of its markets.

That is why both Verizon and Google Fiber have paused their original fiber-to-home footprints, and why both are seriously moving towards fixed wireless access to provide gigabit internet access.

Pay-TV Providers
Subscribers
Net Adds




Share
Cable Companies



Comcast
22,428,000
32,000

Charter
17,275,000
-37,000

Altice
3,598,000
-41,000

Mediacom
834,000
-8,000

Cable ONE
329,386
-9,588

Other major private company*
4,305,000
-25,000

Total Top Cable
48,769,386
-88,588
52.08%




Satellite TV Companies (DBS)



DirecTV
20,777,000
323,000
22.19%
DISH**
13,643,000
-116,000

Total DBS
34,420,000
207,000
36.75%




Phone Companies



Verizon FiOS
4,673,000
36,000

AT&T U-verse
4,544,000
-325,000
4.85%
Frontier^
1,245,000
-85,000

Total Top Phone
10,462,000
-374,000
11.17%




Total Top Pay-TV Providers
93,651,386
-255,588





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