They don’t talk about it much these days, but Verizon is a veritable fiber powerhouse and, as telecom consultant Sean McDevitt put it, the OG fiber-to-the-home player. Because it was among the first to move on fiber and has deployed significant density across its footprint, Verizon has built something of a natural immunity to risk-averse overbuilders. But McDevitt, who is a partner at the firm Arthur D. Little, said there are four key things the operator could do to get the more out of what is currently an underutilized asset.
Verizon first deployed Fios in 2005, originally aiming to reach 18 million passings across a service territory which then included more than 30 million serviceable locations. While its deployment target has remained the same, though, McDevitt noted its wireline territory shrank over the years to around 25 million homes due to divestitures. That means rather than targeting around 55% of homes with fiber, it is now looking at a figure above 70%.
But while Verizon initially moved quickly on its Fios rollout – reaching 12.8 million passings by the end of 2010 – it later pressed pause to focus on its wireless ambitions. Expansion efforts only picked up again in the last few years and now Verizon is pushing to deploy Fios at a pace of around 500,000 new passings per year in 2023 and beyond.
As of the end of Q4 2022, Verizon had 17.1 million Fios passings, meaning it should reach its goal of 18 million by 2025 if it maintains its stated deployment pace. And yet...consumer Fios revenue was roughly flat in Q4 at $2.9 billion.
According to McDevitt, its sprawling footprint is exactly why Verizon hasn’t poured quite as much into fiber in recent years as competitors like AT&T and others have – it simply hasn’t needed to because the fiber was already there. And while Verizon may not have thought about its Fios expansion as a preemptive move “in retrospect they built this buffer with incumbency with fiber that is a natural deterrent to overbuilders,” he explained. That’s because the top two criteria for fiber builders when choosing new markets are usually home density and whether another fiber player is already there.
The problem with living in a walled garden, though, is it can breed complacency. McDevitt said Verizon was historically a first mover on fiber and there’s no reason it shouldn’t remain at the top of the pack. Specifically, he said there are four things it could do to reap more benefits – and revenue – from its Fios network.
First, he argued it could raise its fiber build target to include another 3 million to 4 million homes, or otherwise get as close to full coverage of its 25 million home footprint as economically feasible. By upgrading more copper lines to fiber, McDevitt said, Verizon would not only see a “huge revenue uplift” but also expand its defensive perimeter.
Verizon doesn’t break out Fios and non-Fios broadband revenue. But AT&T reported a roughly $10 gap between fiber and non-fiber (aka DSL) broadband revenue in Q4 2022.
With its NG-PON2 technology, McDevitt said Verizon could also widely introduce more service tiers to allow Fios customers to start stepping up the speed stack. Verizon debuted a 2-gig service tier in February 2022, but as of February 2023 it was still only available to customers in its New York City market.
“Their fiber offering by and large is mostly a gig everywhere which is what cable can do,” he stated, noting it’s also lagging multi-gig offers from fiber competitors. “The second they offer me a 2-gig plan, I’m taking it. The second they offer me 5-gig, I’m taking it, whether I need it or not.”
Verizon’s 1-gig plan currently runs about $90 per month without any bundling promotions and its 2-gig offer in NYC costs $120 per month, meaning broadening the offer could boost ARPU significantly. It could also add higher service tiers as AT&T, Google Fiber and Lumen have done. AT&T is charging $180 for a 5-gig offering, while Google Fiber has priced 5 gig at $125 per month and 8 gigs at $150.
McDevitt argued Verizon could also do more with its mobile bundling offers and, fourth, said it could also focus on providing a whole-home experience – similar to what Comcast is doing. Verizon already offers cloud storage, but McDevitt said it could expand that offering and perhaps incorporate more Wi-Fi features and cybersecurity. It could even work with auto companies to provide connectivity for electric vehicle chargers, which would get its foot in the door of a growing market.
“If you can make ‘home’ a cornerstone for the offering, I think it can increase stickiness,” he concluded.