June 21, 2007 12:04 PM PDT
Verizon's fiber-optic payoff
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"We doubt too many of the 1.3 million customers who have said goodbye to the phone company and chosen Optimum Voice (Cablevision's telephony service) would put much credence in transparent phone-company talking points delivered as part of a publicity stunt," he said.
Vince Vittore, a senior analyst with the Yankee Group, said Verizon is likely to face stiffer completion in places like New York where strong cable operators, such as Cablevision, operate.
"Verizon has been very selective about where it's been deploying service," he said. "In the early days, it went after the low-hanging fruit like Keller, Texas. The challenge now will be rolling out service in places where cable operators have been upgrading their networks."
This fierce competition reinforces how important it is for Verizon to offer a near-flawless TV experience. Verizon's executives knew that getting that experience right would be key, and that getting it right meant making sure there was enough bandwidth on the network to deliver several streams of high-definition video at once. It also meant ensuring the service was reliable and met customers' expectations.
The result was a fiber infrastructure that gives Verizon almost limitless capacity. Once the fiber is in the ground, all Verizon needs to do to upgrade the capacity is add a different set of electrical components. In fact, the company is already upgrading its network to a technology called GPON, or Gigabit passive optical network, which will quadruple the capacity. Today, Verizon offers a 50-megabit-per-second high-speed Internet service, but with GPON it will be able to offer 100Mbps to the home.
Aiming for reliability
Fiber wasn't the only key technology decision Verizon made. The company also decided to combine elements of the traditional broadcast TV infrastructure with new Internet Protocol television technologies to deliver video. The result was an efficient overlay network for traditional broadcast TV and an IP infrastructure for video on demand and other interactive services.
"We knew that good quality video was going to be a significant differentiator for us," said Mark Wegleitner, Verizon's CTO. "But we also needed to get to market quickly with a product that was reliable and stable. IP certainly gives us flexibility, and we're using it for video on demand. But we didn't have time to wait for the IPTV technology to mature before we deployed."
While Wegleitner admits Verizon will eventually put all of its video over an IP infrastructure, the decision not to deploy on all-IPTV network from the start has helped the company quickly add new features and new customers.
By contrast, AT&T, which opted not to take fiber all the way to the doorstep, is constrained by how much capacity it can deliver and consequently has had to rely solely on new, unproven IP technology to deliver video.
Because IPTV has not been deployed massively yet, it is difficult to know if it will be able to support hundreds of thousands, or even millions, of simultaneous users. As a result, AT&T has been deploying slowly. Since launching the service last year, the company has signed up only about 40,000 subscribers, which includes a mix of Internet and IPTV customers.
AT&T's network is also capacity-constrained, which means it can deliver only one high-definition video stream into a home at once.
Cable's moving target
Verizon's hybrid approach has meant that the carrier has had to develop a lot of technology in-house, although in many ways that has worked to its advantage. Verizon has been able to introduce new services and features much faster than even its cable competitors. For example, Verizon has been offering multiroom DVR through Fios for almost a year. Time Warner Cable is offering that service in only a handful of markets.
Fios subscribers have had media sharing, which allows them to access on their TVs music and photos stored on their PCs, for nearly a year. Verizon has also developed other interactive elements, including Widgets, which allows people to customize weather and traffic information.
The company says more features are coming. Verizon is currently beta testing a new program guide that replaces one initially developed by Microsoft. This new software will eventually allow subscribers to access more content from their PCs including video from YouTube, podcasts, Internet radio and home videos. Eventually, users will be able to share this media with friends and family outside the home.
But while Verizon appears to be in a good competitive position, the company still has a long fight ahead of it. Cable operators have also been hard at work aggressively upgrading their networks to compete against Fios.
In May, Comcast CEO Brian Roberts demonstrated broadband download speeds of up to 100 megabits per second. New technologies such as Docsis 3.0, a high-speed data-transmission standard for cable, will help make this kind of capacity a reality. The transition from analog TV to digital broadcasting, which the government has mandated must be completed by February 17, 2009, will also help boost capacity for cable operators. Today about 60 percent of a cable operator's capacity is used to carry analog channels.
"Cable is going to unleash a tsunami of bandwidth in 2009 when analog is retired," Zachary Investment's Comack said. "Verizon will be able to compete because it has fiber. But the cable guys will crush AT&T, because they just won't be able to match them on bandwidth."
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