Verizon Communications
Re: Verizon's Universal Appeal

Format for Printing

Format for printing

Request Reprints


By Littlechap
April 22, 2005

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

[This post is in response to this article by Fool contributor Steven Mallas]

I think it is accurate to say that GE (through its NBC division) gets something back from a relationship with Verizon, as Steven observes. But that is true of a relationship between any broadcaster and any carrier of video content -- which includes streaming video over Internet channels, the way ESPN offers sporting events even now. In other words, GE only "needs" Verizon in the sense that it does not want to overlook any opportunity to gain market share, i.e. viewers. But signing up with Verizon right now is not going to make or break the company, I don't think. There are probably other reasons why this arrangement was made this early in the game.

The deal is probably more beneficial to Verizon, to have some big names on its roster well before most of the public even knows that FIOS TV exists. It helps build momentum for the service and credibility among other potential partners. Every such partner who signs on with a start-up (which is what Verizon is in this situation) will incur administrative expenses, while also adding some degree of technical complexity to its operations, and potential legal ramifications regarding its contractual relationships with competing carriers. Thus I assume that the machinery to carry out this deal will actually be a cost center for GE at first, rather than any kind of profit center.

That's why Verizon needs to make FIOS seem like a truly unique opportunity to programming sources, to help get them onboard. The goal should be to reach a critical mass -- a point at which so many players have signed on, that anybody else wants to join in rather than risk losing market share to the others.

The question is: what can Verizon do to distinguish FIOS from everything else?

The cable companies and the satellite companies have already presented a "limited spectrum" business model to the marketplace -- a model in which the carrier says it can't provide space for all the programming that a company might want to put in front of viewers. Digital Cable TV customers across the country probably wonder why three digits worth of potential channel numbers are somehow not enough to bring them more than 50 or 60 channels of basic service, half of which seem to be devoted to shopping or infomercials at any given moment.

So I believe the most notable thing about Ivan Seidenberg's keynote speech to the National Association of broadcasters this week was that he offered access to the FIOS TV system -- and its viewers -- for program content that cable companies have spurned. It is actually the "blue-sky" model that the cable TV industry has been dangling in front of American consumers, like a carrot on a stick, for decades.

Cable TV was supposed to do away with "spectrum scarcity" a very, very long time ago. The cable industry never took full technical advantage of its original coaxial cable systems, and even now shortchanges its customers on the amount of choice offered, despite using digital signals that compress channels tremendously.

And the massive potential bandwidth of fiber optic cables has been known about for well over 30 years. But Verizon is the first -- and only -- company to actually follow through and install them not just in major trunks, but also right up to the customer's door.

That's why I spoke of a competitive moat. Any company that has the fattest media pipeline in the country, with a wide range of programming options plus internet telephony, long-distance and every other imaginable service, ought to be able to attract some customers, seems to me. A LOT of customers. It may not be next week or next month, but isn't it in the nature of investing to be looking ahead?

So I wonder about writers who call attention to the short-term performance of individual services. Like, it turns out that wireless is highly competitive and that Verizon might not have beaten the pants off its peers in the past quarter. What a SHOCK (not). Some of these same writers observe that VOIP and wireless are cutting into traditional landline business -- AS IF Verizon and everybody else did not expect this to happen! These commentators seem to think that Verizon has no antidote to the decline of income from its landline business, and no answer to aggressive marketing campaigns by cellular providers, that boost revenue for a while and increase customer retention.

I say: we'll see...

Become a Complete Fool
Join the best community on the web! Becoming a full member of the Fool Community is easy, takes just a minute, and is very inexpensive.