The Tangled Web of Verizon's Video Transformational Dreams

May 15, 2015
By: Doug Mohney

Verizon (News - Alert) is determined to make a name and fortune in video, possibly shedding all of its wireline services within the next decade or so. Video is a dream that repeats itself every decade or so in the company boardroom, each time offering a different surprise. The problem with Verizon's latest video dreams is that getting out of wireline may cost it in the long run.

The first round of video dreaming was back in the early 1990s. Back then, Verizon was called Bell Atlantic and had big plans for using DSL to deliver video on demand to compete with the cable world. Tele-TV, using a new technology called ADSL, was expected to generate riches through video on demand (VOD) services. The phone companies would be able to compete with cable companies’ consumer dollars, raking in billions.

Tele-TV died on the vine, with the 1996 Telecommunications Act opening up better opportunities for making money without having to invest in leading-edge technologies to deliver video to the home. DSL emerged as a way to deliver higher-speed Internet to the home over existing copper.

Round two of Verizon's video dream was enmeshed with the launch of fiber optic services in 2004.  FiOS (News - Alert)'s triple play of voice, video, and data would enable the company to reap wealth by competing against cable and reducing costs by phasing out copper. At the same time, Verizon started shedding territories where it had no intention of deploying fiber, selling off bits and pieces to Frontier Communications.

In 2010, Verizon stopped deploying FiOS. Cable was doing a better job keeping customers and Verizon was paying more to win over fewer customers.  Existing copper service weren't bringing in the cash, either.  AT&T (News - Alert), never having turned its back on copper, continued to plod along delivering a mix of video and Internet services.

Image via Shutterstock

Today, Verizon is in love with wireless and the prospects of making money through video on mobile platforms. Purchasing AOL adds to a portfolio of media assets for over the top (OTT) and mobile video, including Intel (News - Alert) media, EdgeCast, and upLynk. AOL's tech is supposed to provide digital advertising tech to drop ads to the right person and the right time, including video ads.

A number of analysts and pundits believe that Verizon ultimately plans to shed all of its wireline business down the road, including copper and fiber.  Executives have made it no secret that they plan to continue to spend less on wireline and more on wireless. The phrase "manage to cash" comes to mind, with Verizon planning to milk as much money as it can out of its wireline business without making investments.

It is a strategy that may prove to be ironic, given that alienated DSL customers have little alternative but to turn to the local cable company to pick up broadband. The cable company gets an opportunity to sell a bundle, leaving Verizon to compete for the household cell phone business along with AT&T, T-Mobile, and Sprint.

But I can't help thinking that Verizon's run-away-from-wireline infrastructure is contrary to what all the other major players are doing. Cable companies such as Comcast and Cox continue to invest in infrastructure, all the while offering next-day service with two hour service windows;  Verizon can't match that, even with its latest FiOS customers.  On the wireline side, AT&T, CenturyLink (News - Alert), and Frontier continue to invest in infrastructure, with looking to be the next big thing for copper.

Maybe Verizon's strategy is just wrong. 

Edited by Dominick Sorrentino