While Verizon Communications’ proposed acquisition of Intel Media’s assets has sparked speculation that it means the telco will soon be in position to launch a “virtual” MSO service that could be sold outside the FiOS TV footprint, people familiar with the deal's rationale say Verizon’s near-term strategic goals are far less explosive.
This buy-versus-build approach, sources said, will allow Verizon to gain control the next-gen IP video hardware and software platform that will power the next generation of its in-footprint FiOS Video service, enabling it to more rapidly bridge the gap created by Comcast.
Comcast has already deployed its cloud-based X1 platform to the bulk of its footprint, and is already starting to roll out a new version, internally dubbed X2, that is more personalized and has been crafted to run on set-tops, but PCs, tablets, smartphones and other IP-connected devices.
The folding in of the OnCue assets, sources said, will give Verizon a new hardware and software platform that it can apply toward its IP video transition while also giving the telco full command and control of the roadmap driving the service’s underlying hardware and software.
Once that’s established, Verizon will establish independence of the set-tops, gateways, video clients and software stack for FiOS TV, freeing itself from the product roadmaps largely controlled today by its current suppliers, which include Arris and Cisco Systems.
Once those pieces are in place, Verizon will then be in position to mold its IP video platform anyway it sees fit, open up the supplier ecosystem, and create a model enjoyed now by DirecTV and Dish Network, and one that Comcast is achieving with X1 and the Reference Design Kit, a pre-integrated software stack for IP-capable gateways and set-tops.
“Fundamentally it’s a box and software play. It’s about independence of the software and the CPE [consumer premises equipment],” explained a source who is familiar with Verizon’s rationale for the Intel Media acquisition. “They [Verizon] will now have the ability to go build a vertically-integrated in-house solution that they can control. “
And this model, which will reduce Verizon’s reliance on the current model while trimming down software licensing fees, could end up saving Verizon a lot of money. Some sources estimate that Verizon, which is expected to get an attractive chipset supply agreement from Intel as a result of the sale, stands to save $100 million to $200 million a year on CPE capex alone. That alone would justify the reported $150 million to $200 million that Verizon is said to be paying for the assets.
Verizon has been more cryptic about its specific intentions. Verizon CFO Fran Shammo on Tuesday (January 21) reiterated that the OnCue platform will help the company speed up its IPTV transition while also establishing a closer link to Verizon Wireless’s 4G/LTE network.
“As far as the OnCue acquisition…the focus here is really to accelerate the availability of the next generation IP video service, which will integrate into FiOS,” he said. In addition to offering an opportunity to reduce video service costs, the deal “really accelerates us…if we were [trying] to build IPTV versus buying the IPTV technology,” he added.
Verizon declined to elaborate on its plans for Intel Media and the OnCue assets.
More analysis of Verizon’s acquisition of Intel Media will be covered in the January 27 issue of Multichannel News.
