Summary
Verizon has been vacillating over the last few years as to whether to put its property in Pittsburgh up for sale. The RBOC is now adamant that it will keep the city. Its lines will not be included in the western areas of New York, Pennsylvania, Maryland, and Virginia, which are currently on the block.
Analysis
Pittsburgh is not strategically located along the I-95 highway corridor. However, Verizon has apparently determined that the metro is worth keeping. The ability to cater to about a dozen Fortune 1000 customers was too good to give up. It also makes the RBOC’s original strategy of concentrating from Boston to Richmond to get to large enterprises less obvious. In fact, there will come a time when residential lines will finally prove in on FiOS on their own. Many industry analysts who have been in denial about the true nature of FiOS all this time will undoubtedly state that Verizon had the courage to wait until a combination of cost reductions and critical mass was in place to justify FTTH. Of course, these were the same people that were more willing to believe that the service provider was crazy at first to take on the extremely high costs of FTTH rather than the rational explanation of not having to unbundle fiber to high-margin business customers. Moreover, they will still not be convinced in, let’s say five years, when Verizon likely decides to sell off its CATV business. One would think the operation would not be sold to its archenemies, the MSOs. Rather the independent telcos will be more than glad to take control of this business. Verizon will likely continue to keep the fiber and lease it to the IOCs. Still, a lot of observers will never believe the fact that the carrier has had only two priorities – large enterprises and wireless. Verizon’s CEO does say that he does not mind losing access lines. Yet, he is still holding back on his fundamental dislike for anything on residential wireline.
Of course, one should never say, “Never.” If an unlikely extraordinary offer for Pittsburgh were made, Verizon would certainly be interested.
Previous rejection several months ago by an analyst of Verizon’s actual game plan needs to be refuted. First of all, this strategy has been in place since the 1980s at the carrier. All that was required were the right conditions. In this case, it was taking advantage of the FCC decision not to have to share fiber in delivering it to the home – to concentrate on hitting Fortune 2000 customers. Another notion in that previous article that “residences near business parks tend to be more dense housing and MDUs” flies in the face of reality. Apartments and condos have not been a priority for Verizon. In addition, the assertion that “Verizon has not won significant business accounts...to report to Wall St. to justify FiOS is wrong on two counts. There has been a tremendous amount of “FiOS” fiber delivered to large office buildings resulting in the winning of substantial enterprise business. Secondly, the response is somewhat ironic in that the last thing Verizon would do is report to anyone that FiOS was based on serving large businesses. It would have only resulted in the regulators and the consumer advocates pushing for unbundling of the fiber. The next points that “Verizon's $200 advertising cost per FiOS subscriber reported by Advertising Age implies that Verizon has to create demand” as well as “the synergy of business parks and residences is illusive” are both non-sequiturs in the context of this discussion.
Samuel Greenholtz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
