Strikes against telcos aren’t anything new, but Verizon’s current strike may be of special significance because it’s coming at a time when the company is wrestling with a question no one ever believed would be asked; is there any future in telephony? While Verizon has been profitable, the profits aren’t extravagant by any measure of OTT giants, and the profits that do exist are almost entirely on the mobile side. In wireline, Verizon faces the dilemma of all network operators; how to leverage the loop.
Just short of a third of households don’t even have a wireline phone any more, and that trend is accelerating because nearly all new households (created by recent graduates) have only cellular phones. On the other hand, TV and broadband are still normally delivered by wires (or fibers), and this means cable MSOs have an advantage over telcos. CATV can deliver video and broadband and voice at high capacity (1 Gbps) while copper loop is limited to somewhere between about 25 and 60 Mbps depending on the loop length and condition. The limitations of the local loop are critical because operators have to ask whether to try to leverage it (as AT&T’s U-verse does), replace it with fiber (as Verizon FiOS does), or just toss it and exit wireline.
The broadband policy debates worldwide make the issue more complicated, because there’s tremendous government pressure to deliver higher-speed broadband despite the fact that virtually all users choose cheaper over faster where the options exist. Policies like net neutrality also close off the easy paths to monetization; sell your own stuff at better QoS. Almost half of the major operators have had discussions on whether there was a long-term future in wireline. Almost a quarter think there isn’t, even in the fiber side.
The implications are significant to equipment vendors because almost 75% of infrastructure that’s deployed supports wireline services, which given the fact that wireline isn’t anything close to 75% of revenue, illustrates the dilemma nicely. For some operators like Verizon, subscriber economic density is high enough to justify a successor plan for the local loop, but for many operators there’s simply no way fiber can return on investment. Without fiber, it’s going to be an increasing challenge to deliver video and broadband together, and without that there’s nothing to keep mobile-infatuated users from dropping the only wireline service that’s still profitable.
Look at the labor dispute with this background and you see it’s a risky play for everyone because any negative trend in wireline costs, including and perhaps especially in the labor component, tends to push operators in the direction of dropping wireline completely and staying in wireless. The question “What would people do who wanted their old phone service?” is just as irrelevant as “What would people do for home broadband?” What do people who want a BMW for a hundred bucks do? Cope. Operators don’t want to make this critical decision right now; labor doesn’t want them to make it at all. We’ve seen plenty of destructive face-offs in our world recently; this could be another.
The mobile broadband explosion is also troubling to some strategists on the operator and equipment side. The question is whether users are becoming tuned to what might be called the “tablet experience model”. You don’t watch an hour TV show, you watch a bunch of three-minute snippets. You really don’t consume that much bandwidth from the perspective of wireline; the average wireline user with 5 Mbps service would likely hit those caps in as little as a week. I’ve said for years that mobile broadband and behavior were creating a kind of hysteresis; changes in one are changing the other, which in turn change the first again. It may well be that behavioral apps are going to be the real revenue stream of the future, that cloud hosting of features that will enhance our decisions and lives will be the real “content”.
