Verizon Expands Symmetrical FiOS to all FiOS Service Areas and Increases FiOS Ultimate Upstream Speeds

| Nov 21, 2007 | Digital Home - U.S. | Competitive Update

| Analyst: Larry Hettick

Current Perspective: Positive
Vendor Importance: Very High
Market Impact: High

Event Summary

On November 20th Verizon announced that is offering its high-speed symmetrical FiOS Premium Tier Internet services to all 16 states the company serves. The new service provides downstream and upstream connections up to 15 Mbps or 20 Mbps for a $15 to $20 monthly price premium over asymmetrical services, depending on the state where the service is sold. Verizon also increased the upload speed of its FiOS Ultimate Tier service, offering downstream/upstream connections of either up to 50 Mbps/20 Mbps or up to 30 Mbps/15 Mbps—keeping most Ultimate Tier prices constant or even lowering the price in some states.

Analytical Summary

• Current Perspective: Positive on Verizon’s following up its late October announcement of symmetrical Verizon FiOS services in New York, New Jersey and Connecticut so quickly with a territory-wide offer of symmetrical FiOS services because tech savvy users, Web 2.0 consumers, media artists, online gamers and teleworkers inside any part of the 16 state FiOS footprint can now buy a symmetrical FiOS Internet connection.

• Vendor Importance: High for Verizon because FiOS Internet download speeds are already faster than anything the cable companies can offer on a hybrid fiber coax (HFC) connection and the territory-wide offer of a symmetrical FiOS service ups the ante for all FiOS competitors beyond those originally targeted in New York, New Jersey and Connecticut. The cable companies are upgrading HFC networks by adding switched digital video and DOCSIS 3.0 to match FiOS download speeds, but the DOCSIS 3.0 upgrades are at least one year from reaching critical mass within most cable company networks - giving Verizon the speed advantage across its whole FiOS service areas with both Premium and Ultimate Tiers.

• Market Impact: High on the broadband market, because Internet users who have chosen a cable modem connection over DSL have likely done so because of the speed advantages cable modems offer and with FiOS, consumers can now get upstream and downstream speeds cable companies can’t offer for at least another year in most areas. Verizon FiOS passed about 8.5 million homes and businesses in 16 states as of September 2007, and the company plans to add 3 million premises annually with the FiOS network through 2010, when the network will serve more than half the homes in Verizon’s footprint.

Recommended Competitor Actions

• Cable companies in Verizon’s entire 16-state footprint should point out to customers who ask for higher upstream speeds that it is a rare subscriber who actually needs a 20 Mbps upstream connection, citing real examples of the amount of time a user’s files can be transferred using existing rates. When all else fails, cable providers should be ready with a stop-loss program that offers temporary price discounts for customer loyalty if customers threaten to churn - similar to the programs many competitors implemented when asymmetrical FiOS was initially deployed.

• Cable providers in Connecticut, New Hampshire, Oregon and Washington should point out that FiOS TV isn’t available yet in these states and that the best deal for a triple or double play that includes digital TV and high speed Internet services is found with cable company offers.

• Where network capacity is available and despite the inherent disadvantage of a HFC network, cable companies should increase their upstream rates to the highest speeds possible today and move with all possible speed to deploy DOCSIS 3.0 in neighborhoods FIOS serves. In the long term, cable providers should embrace a higher-speed uplink to accommodate the increasingly popular user-generated content from services like YouTube, MySpace and Flickr.

• Cable companies should look to see what other broadband services they can offer like additional security management or increased network-based storage to counter the upstream speed advantage Verizon now holds and to match the network storage feature included with FiOS Premium.

• Comcast should stop rate-limiting downstream capacity for its high-demand customers because the Verizon service is specifically targeting the high-demand user. By irritating the online gamers, teleworkers and those who generate video content, Comcast is opening the door for this niche customer base to look elsewhere and Verizon (which doesn’t rate limit) is standing by to capture these high bandwidth consumers with both its Premium and Ultimate Tier services.

CLIENTS ONLY

Competitive Positives and Concerns

Recommended Vendor Actions

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