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Verizon FiOS Focuses on Cable’s Weakest Link — the Upstream

Verizon Communications pushed ahead last week with FiOS speed upgrades that will bring parity to the speeds it delivers in the downstream and upstream directions, a move that applies direct competitive pressure on the asymmetrical nature of the cable industry’s DOCSIS high-speed Internet platform.

Verizon will use the upgrades as a product differentiator that enters play as FiOS subscriber growth continues to slow down. Although Verizon’s upgrade plan has gotten the attention of cable’s technology circle over concerns the industry won’t be able to respond quickly using DOCSIS technology, at least one analyst said cable should not overreact because Verizon’s new speed tactic likely won’t cause broader defections to FiOS.

Verizon began to introduce the new speed packages last Monday (July 21) for both existing and new Verizon FiOS residential customers (see top chart).

DEMAND DOUBLING

While downstream traffic continues to dominate consumer usage patterns, thanks in large part to the popularity of video streaming and downloading, Verizon said it believes a wider upstream pipe will become a necessity as subscribers gravitate to apps that require a more symmetric data path, including video chatting and cloud-based file backup systems, as well as the anticipated surge of devices with IP connectivity — a trend commonly referred to as the “Internet of Things.” The telco cited projections that upload activity on its FiOS network will double by late 2016.

The upgrades will be used to expose the relative asymmetry of DOCSIS-based high-speed Internet services (see bottom chart). The latest line of DOCSIS 3.0 modems can bond up to 24 downstream channels — enough to produce bursts near 1 Gigabit per second — alongside the ability to bond up to 8 upstream channels. The next-generation DOCSIS 3.1 platform will be capable of delivering multi-gigabit speeds, targeting as much as 10 Gbps downstream and at least 1 Gbps upstream, but widespread deployment of DOCSIS 3.1 technology is still a couple of years away.

While Verizon’s decision to beef up its upstream path will give it a competitive differentiator to trumpet in FiOS marketing campaigns, at least one analyst doesn’t expect Verizon’s “more is better” message to result in a big subscriber growth surge.

“It’s more about retention than it is about acquisition,” Bruce Leichtman, president and principal analyst for Leichtman Research Group, said. “It’s not really something that resonates with the majority of consumers.”

On that point, he said, a recent LRG survey found that 72% of broadband subscribers don’t know the speed they’re getting. Early adopters that are entering an increasingly saturated broadband market “aren’t salivating about upstream speeds,” he said, noting that he doesn’t believe cable needs to “over-respond” to Verizon’s new speed tactic.

But it has gotten the attention of the industry’s DOCSIS engineers. “They’re a little panicky right now,” a cable engineering executive said. “But that’s the nature of the engineer.”

Despite the angst some are feeling due to Verizon’s new plan, the executive also believes cable’s business planners won’t overreact because MSOs are still seeing solid broadband subscriber growth, and it’s still questionable how much extra growth Verizon will get from its revised FiOS broadband tiers.

But Verizon will be seeking new ways to stoke growth for FiOS. Last week the company announced that it added 98,000 FiOS Internet subscribers in the second quarter, down from the 188,000 it added in the year-ago period.

CABLE’S RESPONSE

Still, Verizon’s new symmetric stance could cause cable to accelerate its DOCSIS 3.1 technology development and shine some light on cable’s somewhat limited deployment of fiber-to-the-premises (FTTP) technology for residential services.

Comcast, for example, is offering a fiber-only residential broadband service that currently tops out at 505 Mbps down and 100 Mbps up. That residential service, which taps the Metro Ethernet technology Comcast typically uses for its business-class offerings, is being sold in select markets, including systems in the Northeast, where it faces off with FiOS, as well as in Chicago; Atlanta; South Florida; Jacksonville, Fla.; and Nashville, Tenn.

Several cable operators are also using FTTP in new housing developments and other greenfield situations. For example, Bright House Networks is working on an all-fiber network for a 6,000-home development in the Tampa, Fla., area that will be capable of delivering speeds of 1 Gbps. Comcast, meanwhile, has proposed building a fiber network to a 530-home development in Sun Valley, Fla., according to The Wall Street Journal.