Verizon Isn't Crazy; the Future of Verizon Fios and 5G

When I heard Verizon was slowing or stopping their Fios rollout back in 2010, I thought they had lost their collective minds. It wasn't until recently that I realized they probably saw the writing on the wall vis-a-vis fixed internet service to individual homes.

Fios is the Future ...

I've mentioned probably at a time or two on this site and posts on other sites, when I found out what it was that Verizon workers were burying in my backyard - the initial conduit and fiber to my neighborhood - I was ready to offer them drinks, food, electricity, water or whatever else they needed to keep working (through the night if necessary). Fios had been in Texas for a year or two, and I lusted after it. I had decently fast DSL, but that paled in comparison to fiber speeds.

Once the fiber was in the ground, I checked Verizon's website daily to see if I could get Fios until I finally could. I was one of the very first installations in my town. Later on, when we considered moving, my first stipulation was that any home we moved into had to have Fios service available. It was that significant. Almost every person I knew that could get Fios did get it. (It probably helped that our [only] cable internet provider had abysmal service both in speed and quality.)

... Until it Wasn't

When Verizon started to slow (or stop) their expansion of Fios in the spring of 2010, I thought they were just plain nuts. Nobody was happy to hear the news - especially those municipalities that were promised Fios but hadn't gotten it yet. (See these articles PC Mag, USA Today, Seattle Times, Syracuse.com, and Press of Atlantic City for as long as the links last.) In my mind, Fios was the internet version of crack. Install it, and they will come. Once someone had Fios internet (TV came later), there was no going back. One of the reasons that Verizon cited for stopping the expansion was that they were getting a lot of pushback from investors. I read that and was thinking, "Screw those short-sighted, money-grubbing bastards! Go for the long game, Verizon."

It wasn't until later that I learned what Verizon claimed the costs were for deploying fiber to the home (FTTH). Those were about $750 just to run it past a house and another $600 to actually connect a home. Okay, $1350 per connected house is more than I would have guessed. And $750 per house when the house didn't even sign up for the service is pretty stiff. (Those numbers might be exaggerated somewhat in that Google Fiber - fiber installed by a company that probably doesn't get that same supplier discounts as Verizon - is estimated to be in the $500-700 range total.) In my small microcosm of Fios coverage, pretty much every house has the service and has for over a decade, so they have made back the investment our collective cases anyway. However, according to this DSL Reports post, the penetration overall never broke 40%. Ouch.

Instead, Maybe They Are Geniuses

In June and July of 2017, Verizon announced they are once again putting fiber into the ground. Lots of it; 37 million miles. But not for Fios. At least, not specifically. It's for their wireless business. However, I can see where their wireless business may become both their mobile and fixed internet service. Reading the 5G LTE specification, wireless internet should eventually reach a "user experienced data rate" of 100 Mbps downlink and 50 Mbps uplink. That's more than the downlink speed I get with Fios internet coming hardwired into my home.

Assuming service providers can pull that off - and to be sure, it will take a while to reach those speeds just like 4G LTE adoption did - what's the point of spending all that money running fiber to each residence? All they would need to do is run fiber to a cell tower that's nearby and then let 5G LTE cover the last mile. In that regard, spending money on running fiber to each home/apartment/condo/townhouse/camper/tent/etc. would eventually be a waste. It's likely Verizon realized this, and except for those cities where even wireless internet penetration is a problem, they may just be lying in wait.

The issue with wireless is that it's a shared medium and one or two "data hogs" getting service from the same cellular base station can make everyone's experience bad in that localized area. There are ways they could throttle this (and are). Also, they could use more cell towers, but make them smaller, shorter, and lower power. These would each cover a smaller area, but with a good fiber backbone threaded into most city blocks, the effect would be a faster wireless network overall. In addition, cell phones would not need to transmit at as high of power as they might otherwise, thus saving battery power. Metrocell, Femtocell, and Picocells are just such small-scale cellular base stations, and they've been around for a while. I can't say that's how they will do it, but they must need all that fiber for something. It's how I would do it.

Additional Thoughts (10/29/2017)

After I created the original blog entry above, I had another thought. One complaint I've heard in a number of densely-populated areas (NYC comes to mind) is that Verizon seemed to be very hit-and-miss in rolling out Fios coverage. One street got coverage, but the next street didn't. One building was wired for Fios, but the next wasn't. To support fixed-wireless internet delivered over 5G (for the last mile), they just have to be close to every dwelling. They don't have to actually have Fios fiber in each one. I'd love to see their coverage map (which I cannot locate on any real fine-grained scale) and see if they've got enough coverage for that future.

A question I have in my mind is when (and if) they start offering wireless internet to the home, will they monetize it they way they do wired Internet today or more like they do with wireless data? That is, will we pay a flat rate per month or will Verizon offer plans with some number gigabytes per month as we have with cellular telephone data? I'm sure that Verizon very much wants the later. 

That plays into my next thought. Verizon might really wish to set up plans with an increasing cost for increased data caps (and raking in lots of cash for overages), but when they roll out 5G to the home, they won't be alone. AT&T, T-Mobile, and just about any cellular provider could compete for "fixed" internet users in any area they want just by making use of their existing towers (and adding additional ones as needed) and rolling out their own 5G to the home. Verizon recently had to offer "unlimited" wireless cellular data to stem the flow of customers to competitors (mostly T-Mobile). The same would likely happen with the fixed wireless internet business. It may be the first time the real competition takes place in that area.

Update from Verizon's Q2 2017 Earnings Call

The following questions and answers between Philip Cusick of JP Morgan and Matt Ellis, Verizon Communication CFO, and EVP, were exchanged during their July 27, 2017 (12:30 PM) Q2 2017 earnings call reinforce my hypothesis above. So much so, I'd say it's not any sort of a secret. It's more of just a matter of when. I've copied the questions and answers here.

Philip Cusick - JP Morgan Chase & Co, Research Division - MD and Senior Analyst - First, can we talk about your small cell rollout? Where are we in the path of that? I know it's a multiyear effort, but how far are we into the small cell rollout and densification? And second, can you talk about the competitive environment in video and broadband? As you add up the OTT trends and traditional video losses, do you see an acceleration in cord-cutting? Or does it just seem like customers are spreading out among more video service providers?

Matt Ellis - Verizon Communications Inc. - CFO and EVP - Yes. Thanks, Phil. So on the small cell rollout, we're exactly where we planned to be. I mean, our capital plan for the year, we're right on where we plan to be at the start of the year. And we are now -- I would say, we have small cell builds in all of the top metro markets at this point. And that's one of the reasons we have the network performance that we've had. We saw confirmation of that as recently as yesterday with another one of the third-party surveys that proves that during the first quarter of '17. Even once we are on unlimited, our network performs better than anybody else's, and that's in large part due to what we've been doing for the past number of years on small cell densification. I know you hear a lot of other people talk a lot about small cell densification now. Remember that we've been doing that for a longer time period than anyone else. And that's why we're in all of the top metro markets, and we will continue to do that. That will be a continued part of our network capacity plan. As we talked about in the prepared remarks, we have the long-term network plan that's based off continuing to deploy the spectrum that we own against the LTE network, densification and the LTE tools that are available. So densification continues to be a very important part of our network plan. From a competitive environment in the broadband and TV space, I think what you saw is we had a continued strong performance on the broadband side, but we also see the ongoing secular trend around video. So we continued to add high-quality broadband customers. And we'll continue to compete on the video side. But certainly, we do that in the face of the secular trends that are ongoing.

Philip Cusick - JP Morgan Chase & Co, Research Division - MD and Senior Analyst - Is there a point, Matt, at which the small cell densification efforts sort of starts to slow down in a few years? Or is this a constant effort for the next 3, 5 years?

Matt Ellis - Verizon Communications Inc. - CFO and EVP - I think it continues. And it's not just around 4G. If you -- as we've talked in the past, as we see 5G being deployed on millimeter wave spectrum, that's going to require small cell deployment. And so as we put the densification in place of 4G, we're doing it in mind knowing that we've got the 5G that will be put to use in the same dark fiber and other assets. So the densification activity will continue here for a good number of years. [Note: The emphasis is mine.]

Now, I have to admit, I was thinking of more densely-packed cell towers just so they could reduce the transmission power needed and cover more people with more cells. The whole "5G being deployed on [the] millimeter wave spectrum" didn't cross my mind. However, it makes sense. Higher frequencies naturally can carry more data. On the other hand, higher frequencies are more susceptible to signal loss over distance and don't carry as well through buildings. They would have to have more tower density just to support using those frequencies. Even later, I read that they don't need the traditional cell tower either. Just small antennas on things like light posts and tall(er) buildings would be enough.