Observation Post

Verizon and rollout of the FiOS FTTP project

February 24, 2006


Q&A with Mark Wegleitner, SVP - Technology and CTO, with contributions from Mark Marchand, Director of Media Relations.

A video presentation by Mark Wegleitner on Verizon's FTTP strategy is available on the Moonlight Channel.


Verizon Communications is a provider of voice, data, video and wireless services in the U.S. with international operations primarily in the Americas and Europe. The U.S. footprint covers 28 states across the country. Verizon delivers a range of communications services to residential, business, corporate and federal customers.

In May 2004, Verizon commenced wide-scale deployment of fibre-to-the-premise (FTTP) infrastructure under the FiOS project. The initiative involves installing fibre connections to residential and small and medium-sized business customers throughout the company's market footprint to enable provision of advanced broadband services. Verizon is currently deploying fibre to customers in selected communities in 16 states across its service area.

Could you begin by giving an overview of the FiOS project?

MW: The FiOS project is Verizon's prime initiative currently, and perhaps one of the largest projects that the company has ever undertaken. FTTP is a core element of Verizon's future strategy and entails the modernisation of the local loop infrastructure to bring the network into the 21st century. The revamped network will support the delivery of a range of multimedia services to the residential and small business customer.

The installed copper local loop has served Verizon - and carriers in general - well to date and provided the U.S. with one of the best telecommunications services in the world. The network has supported the rollout of services ranging from basic voice telephony to broadband DSL - which introduced broadband to many home users. However, Verizon believes that the time has come to replace copper in the 'last mile' with a future-proof technology capable of delivering much higher bandwidth - optical fibre.

Verizon chose to deploy fibre-to-the-premise - to either a residential or business property - after considering options including fixed wireless technology, such as WiMAX or pre-WiMAX, and as opposed to installing fibre to the node or fibre to the curb. An FTTP network offers the greatest flexibility and potential as a result of the higher bandwidth that is possible with this technology.

Verizon views the FiOS project as a complete platform overhaul, involving modernising the local network to residential and small and medium-sized business customers. The technology will enable delivery of fractional DS-3 links to businesses, as well as high bandwidth connections to the home.

Extending fibre into the local loop has been touted for many years, but telcos have generally not done so to date due to the economics of deploying the infrastructure. How does Verizon believe it can now make the technology viable commercially?

MW: The carriers have been saying constantly for the past ten to fifteen years that fibre to the home is just around the corner, a couple of years away. However, over the past two years there has been a confluence of factors that have finally made the concept feasible.

First, the technology has now matured to the point where there are at least potential economies of scale, provided the systems are manufactured in sufficient quantities. This is one factor behind Verizon's choice of an ITU-T G.983 or BPON (Broadband Passive Optical Network) platform - the technology is operational and ready for commercial deployment.

Second, the residential broadband market has taken off both in terms of penetration and bandwidth offered, with services evolving from 100s of kilobits to multi-megabits over the past few years. There is now a demonstrable demand for high bandwidth services. In addition, Verizon believes that in the future as yet unimagined services, utilising massive bandwidth, will be developed that can only be supported via a fibre connection to the customer.

The third factor is regulatory. Verizon was seeking a reform of the regulations as applied to the local loop network to bolster the business case for FTTP - at a minimum a clarification of the existing position, at best new rules relating to local loop unbundling. This concern has been addressed over the past couple of years.

Does Verizon have set rules regarding which areas are fibred when, or is this dependent upon take-up at existing deployments?

MW: There are no hard and fast rules with respect to when any specific area has fibre installed. There are a number of factors that influence where and when fibre is installed. One, for example, being whether the local loop in a particular area requires significant maintenance or modernisation. Verizon would soon like to avoid deploying copper into the access network in this circumstance.

Verizon has been accused of 'cherry picking' locations for fibre rollout, selecting high income, high-density communities for the initial FiOS rollout. Is this a matter of policy?

MW: No! Certainly population density is a factor, simply as regards the economics of installing the equipment. However, I do not believe that the term cherry picking can be accurately applied to Verizon's FiOS rollout strategy.

MM: This accusation generally originates from the cable companies serving areas where Verizon is applying for video franchises, i.e. Verizon's competitors, and so cannot be viewed as an objective criticism.

With reference to the under-developed residential broadband market in the U.S., does Verizon feel under pressure from the U.S. government to implement FTTP?

MW: Personally, I consider this to be very much a secondary factor. Verizon sought guidance from the regulatory bodies as to its obligations if it were to invest in deploying FTTP, but any desire to assist in the overall development of broadband in the U.S. for statistical reasons was a side issue.

The bottom line is that Verizon sees the rollout of fibre as an opportunity to evolve its business and generate new revenue streams by answering the pent up demand for better broadband service. By default, this strategy will enhance the international standing of the country as regards broadband technology.

From a competitive standpoint, Verizon considers FiOS to be a response to the cable operators, addressing those companies' moves to begin offering telephony service in addition to video and data.

Do you consider that there has been a seismic shift in consumer demand for broadband service over the past twelve months, and if so what?

MW: I believe that the broadband market is still in the emerging stages, although the technology and service offerings have progressed dramatically over the past few years. The market is now at the stage where applications are being developed that are only practical via multi-megabit bandwidth service.

From the consumer perspective, web surfing is much faster with a broadband connection - which people appreciate, but is only really a 'nice to have' feature and not necessarily a reason to adopt the technology. At the other end of the scale, applications such as photo sharing and interactive gaming - where players link to each other and to central servers - are only practical using a broadband connection.

Do you believe that residential users are prepared to pay for broadband service simply, for example, so that they can send photos to friends and relatives?

MW: For that specific application, probably not, but for gaming and other multimedia services, yes!

With its DSL offering, Verizon has taken the approach of offering capabilities such as photo sharing in a basic package; support for applications such as interactive gaming are provided as an add-on option.

As a traditional telco, how does Verizon differentiate its broadband offering from that of the cable companies with respect to the consumer, ignoring the technological aspects?

MW: Both the telcos and cable operators are now heading toward the delivery of a triple play of services - voice, data and video. Verizon has a key advantage over the cable companies in this respect in that it can potentially offer a quadruple play of services by adding wireless service to the mix.

Verizon is an established provider of quality voice service, with the FiOS platform it currently offers up to 30 Mbit/s data service, and its video package matches or exceeds the cable operators offerings in terms of quality and variety of programming - including niche and international channels, around 20 high-definition channels and interactive, on-demand content.

In addition to these attributes, the delivery mechanism is superior to that of either cable or satellite companies and, we believe, provides a better quality picture.

The final element in the equation is wireless - Verizon operates the second largest mobile network in the U.S. and we can use this resource to offer a quadruple play package.

Together these features make up a compelling package for the consumer, who can either select the whole bundle or individual elements from it.

Do you see the FiOS project being dependent upon provision of video and TV service?

MW: To address this question from a different angle, when a service provider has invested in rolling out a network the prime aim is to load as many revenue-generating services onto that network as possible in order to recoup the investment. In the U.S. at least, delivery of video service is attractive because of the high ARPU (Average Revenue Per User) that such an offering generates.

With regards to video, does Verizon envisage expanding its activities to that of content provider?

MW: This is an issue that Verizon has been pondering for at least the past decade - since before it made a foray into video service delivery in the mid-1990s. To date, the company has not identified a need to become a content provider as all required video content has been either available for purchase on the commercial market or obtained via other arrangements. In the future this situation could change, particularly with the shift to the on-demand and time-shifted programming model.

Regarding the U.S. television market in general, do you believe there is an insatiable demand, i.e. the more programming that is available, via a wider choice of channels - cable, satellite and now the telcos - the more people will watch?

MW: Not as such, no. However, the quality of programming, in terms of content and presentation, plays a part in feeding demand. The growth in demand in the U.S. for high-definition television content - a key focus for Verizon - illustrates this.

MM: In Keller, Texas, where FiOS TV was initially launched in September 2005, Verizon had taken 20% of the market by year-end. An important factor in the markets where Verizon has launched FiOS TV has proved to be straightforward consumer choice - feedback from consumers indicates that having a choice of where to go for TV service after many years with only one provider is significant in itself.

Have there been any surprises, either commercially or technologically, with the rollout of FiOS?

MW: It would be fair to say that Verizon has learned a great deal with the installation of the FTTP platform!

Addressing this question in more detail, there have been components, both active and passive, in the platform, that have required reworking. Issues have included problems such as water leakage over time, leading to instances where a passive component has had to be changed for a different model. Typically, these components are tested prior to massive deployment and this has not proved a major difficulty. All issues with equipment have been addressed in collaboration with the suppliers.

Among the lessons that have been learned are relatively minor things such as adding pigtails onto units prior to field installation to speed deployment.

As the rollout has progressed, minor problems have occasionally arisen relating to installed infrastructure, usually when the plant configuration is not exactly as expected. These issues are generally resolved by entering the appropriate changes into the OSS solution.

However, as yet there have not been any major problems!

From the subscriber angle, have there been any surprises regarding take up rate or reasons for subscribing to FiOS?

MW: Mark cited earlier the biggest surprise so far - the 20% take-up rate achieved in Keller after a little over three months of offering the FiOS TV service.

Hypothetically, do you believe that Verizon could have survived without implementing FiOS?

MW: I would say that without this project, Verizon would in the future have played a less impressive role in the communications market in the U.S.

Based on the ongoing FiOS initiative, among other things, the company intends to be a leader in the communications industry.