Facing criticism from residents in rural areas of the country for abandoning upgrades to aging copper network infrastructure, Verizon executives announced plans to replace copper broadband technology damaged by Hurricane Sandy with newer and faster fiber-based networks.
The company's DSL upgrade strategy of foregoing expensive copper network upgrades in lieu of offering customers the choice of signing up for its 4G wireless home broadband service branded as HomeFusion, is a deliberate plan to increase revenues from its broadband customers, while avoiding costly upgrades to an obsolete type of broadband technology. Verizon's long-planned launch of home broadband service powered by its constantly expanding LTE wireless network was basically a decision to trade in ground copper for more expensive wireless technology.
Although the strategy would seem like a winning one for both the company and consumers - there is a significant downside for Verizon's existing DSL customers. In order to trade slower wireline broadband service for faster and more widely available wireless service, customers must pay a costly premium.
Verizon’s HomeFusion Broadband utilizes the company's LTE network to offer download speeds of 5-12 Mbps and upload speeds of 2-5 Mbps. For most users, these speeds are significantly higher than existing DSL speeds, which offer download speeds of up to 6 Mbps if the node is close to Verizon's central office, but increasingly slower as distances increase. Although speeds are higher than DSL, and technically capable of reaching the same range as fiber based broadband, most advertised download speeds are less than 15 Mbps.
Verizon will install the hardware (or customer premise equipment "CPE")necessary to use HomeFusion, but the service comes with the same usage caps, pricing plans, and overage fees currently advertised for its mobile broadband customers. This is the reason wireless broadband service, and more specifically the usage caps and overage fees charged for the service, is not the panacea for unserved and underserved rural areas.
One complication of Verizon's move from copper to fiber is the existing legal requirements of Carrier of Last Resort (COLR) rules. COLR refers to a 1913 federal regulation requiring every American household to have access to a phone line. The legislation was enacted well before broadband technology and the innovative applications it spawned - including Voice over Internet Protocol "VoIP" service.
As part of the company's strategy to improve profitability of its FiOS service while DSL customers (particularly in rural areas) continue to defect to cable service, the company began migrating some customers to fiber service. Fran Shammo, Verizon's Chief Financial Officer, said the company will migrate any "chronic customer" currently subscribing to DSL service.
"We are really on a concerted effort to spend our capital and our dollars more efficiently from getting people off the copper network and onto the FiOS network," Shammo said. "You have probably seen us shift a little bit between going after our growth adds and mining our base."
Shammo said the company receives two primary benefits from utilizing its existing copper-based broadband network customer base. Verizon classifies a copper customer as a "chronic customer" if there are two "truck rolls" to service the copper line during a six month time period. Chronic customers are the subscribers the company is targeting for the migration to FiOS. By targeting these customers, on-site service calls are minimized, resulting in lower operating expenses for the company, as well as a stable customer base moving forward.
"When you think about this customer, that's four truck rolls a year, and I am losing money on that copper customer," Shammo said. "If I can take that chronic customer and move them to FiOS, I deplete the amount of operational expense to keep that customer on and they get the benefit of FiOS Digital Voice, which is clearer, and put their DSL service onto a FiOS Internet where they realize the FiOS speeds."
Whether Verizon's strategy will eventually lead to a significant migration from DSL to HomeFusion will depend on several factors. Faced with a choice between slower DSL service and faster wireless service, customers might settle for slower service to avoid significant increases in cost and caps on usage. In order for Verizon to completely abandon its copper DSL service, changes in carrier of last resort regulations must be enacted by the federal government. Although Verizon could technically stop offering DSL broadband service, this would cost the company much more to maintain its copper based telecommunications network the telephone service it would still be required to maintain.