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FiOS Is Ok, But LTE Is Verizon's Real Power Play
Sell off unwanted networks and union workers, then win users back with LTE
by Karl Bode 02:03PM Friday Jan 29 2010
Earlier this week we discussed how Verizon executives are completely reshaping their company, shifting the focus from DSL and copper phone service, to more profitable wireless and selective fiber deployments. While the plan is obvious from a business perspective, the shift has some serious downsides, including hanging up on huge numbers of rural Americans, who are still on taxpayer-subsidized copper networks. It also involves laying off a significant number of workers -- which conveniently for Verizon can be blamed on a sour economy.

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In addition, Verizon's use of Reverse Morris Trusts to offload these networks has resulted in buyers taking on too much debt, then falling into bankruptcy (see: Hawaii Telcom and Fairpoint Communications). The only real winner in these deals so far has been Verizon, who also gets huge tax breaks, big debt reductions, and eliminates networks (and the union workers) they want nothing to do with.

Unfortunately for consumers in these markets, they go from a company who didn't want to upgrade or expand broadband, to carriers who can't afford to upgrade or expand broadband.

But there's a wild card in this equation that might turn out to be good news for both consumers in these markets and Verizon: LTE (Long Term Evolution). Verizon will launch LTE in twenty five to thirty markets this year, with plans to have their entire wireless network upgraded by the end of 2014. An individual involved in Verizon's LTE deployment tells us that Verizon is eager to use LTE to not only take aim at slower DSL subscribers (hello, AT&T, Qwest) but also subscribers in the markets they just got done offloading.

"I am very much involved with Verizon’s LTE deployment, and they plan to have ubiquitous service in 48 states - if they can get sufficient backhaul," says the source. "Ethernet is required at every site, not too much of a problem in downtown Atlanta but a major nightmare in Wilkes-Barre, Pennsylvania," they say. "I think Verizon will be going after not only AT&T’s customers but the customer’s they are selling to Frontier and Fairpoint as well."

Though it raises an ocean of ethical questions, it's masterful from a business perspective. Verizon offloads old taxpayer-subsidized copper they didn't want to support, to companies willing to soak up Verizon debt. Then Verizon uses LTE to return to those areas at a later date and pluck up customers looking for something more than aging DSL service. In the process they get rid of the union workers and regulators complaining the company isn't spending enough on DSL and landline support. Verizon spent $9.36 billion on 700 MHz licenses for all 48 lower states, and they're several years ahead of AT&T in the LTE deployment race.

"700 MHz works very well, penetrates walls without difficulty and is not affected by trees, the enemy of most all wireless transmissions," says the source. "Verizon will compete with AT&T and the companies that bought their antiquated copper plant by offering a superior voice product (VOIP over LTE), excellent data speeds and they won’t have to bear the incredible expense of maintaining a copper plant."

Verizon has already stated that they're going to launch LTE at somewhere between 5 and 12 Mbps downstream. There's still no word on pricing and caps. Verizon keeps making hints that they're interested in a metered model for LTE, but potential DSL converts won't be lured by LTE if caps are too low, and monthly rate and overage pricing is too high. LTE theoretically is capable of speeds up to 80 Mbps. Assuming Verizon's able to get backhaul to these fringe markets, LTE is going to be Verizon's ace in the hole over the next ten years.

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