Verizon doesn't make a very good case for deal with cablecos

A Verizon (NYSE: VZ) FiOS-festooned van recently parked just outside the 104-home enclave where I live. Presumably, some techs were messing with the telco's equipment hidden in a little wooded area there. They were not, I know, doing anything about connecting FiOS from the fiber running down the nearby county road and into my fiber-rich, FiOS infrastructure-prepared community.

I know because I've asked. Repeatedly. The closest we'll get to Verizon's vaunted FTTH play is spotting a truck with bright FiOS advertising in the woods along Buckshutem Road.

That leaves our little community with some choices, but not nearly as many as some better heeled communities in South Jersey. We can get DirecTV (Nasdaq: DTV), Dish Network (Nasdaq: DISH) or Comcast (Nasdaq: CMCSA) TV. Of course, sports fans who go satellite lose the Philadelphia sports franchises because Comcast won't share their broadcasts in the Philadelphia region. For broadband we have Comcast or Verizon DSL. That's right, DSL.

That's it, folks. That's the competitive status throughout a huge swath of Southern New Jersey.

I bring this up for two reasons. First, Verizon Wireless, not content to just buy wireless spectrum from a group of cablecos that include Comcast, also wants to be part of a joint marketing agreement with the cable operators wherein the cablecos sell Verizon Wireless and Verizon Wireless stores pitch cable. That's only a superficial look at what they want to accomplish, but it serves the purpose of this piece.

There are some (many?) who believe this is anti-competitive and will slow the snail's pace at which FiOS is rolling out these days. Federal regulators are among those who question whether this deal is in the best interests of the public. The involved parties claim the opposition is all a lot of fuss about nothing and that the public will be better served if the two work together rather than in opposition.

It's a threadbare argument stitched together by the ongoing whines of a wireless industry that claims it never has enough spectrum. Side note here: our community's Verizon Wireless coverage is excellent; we don't need no more stinkin' spectrum.

This is all old news. What refreshed the lede, as we few remaining ink-stained journalists like to say, is the fact that Verizon is not adding FiOS subs in the numbers it once did and is lowering its acquisition goals.

"We … actually did have slower growth in this quarter than we anticipated," Fran Shammo, Verizon's executive vice president and CFO said during a Q&A session with analysts after the earnings call. "But importantly I think that we have refocused more on our profit on the FiOS side … (and) you're going to see more price ups coming in the third quarter around the bundles and into the fourth quarter."

Shammo asked that the analysts--and by association anyone following FiOS' progress--readjust their subscriber acquisition expectations to a range "in the neighborhood" of 150,000 to 170,000 new subscribers every quarter as opposed to the 160,000 to 180,000 the telco formerly projected. These numbers, he said, indicate "we are on a steady growth pattern, and I believe that we are really focusing on better margins and acceleration of the top line."

In analyst-speak, Verizon's raising the price of FiOS for those subscribers who have it and lowering the expectations of those who want it.

Verizon is doing this at the same time it's telling the world—or at least consumers and the folks charged with regulating the companies that serve consumers--that any deal it makes with cable operators will be in the public good.

Those two arguments don't add up. Someone can disabuse me of the notion, but cutting back on the FiOS rollout, charging higher prices for the service and lowering the expectations of how many new folks will join the subscriber lists seems, well, dare I say it, like Verizon's throwing in the towel at a time when it's asking everyone to believe that it's going to continue to compete with its new BFFs the cable guys.

I've seen FiOS (others in my family have it) but I can't really say whether it's better than Comcast or DirecTV or Dish or not. That would take a deeper look which, it now appears, I'll never get the opportunity to take. -- Jim Barthold

For lots more:
 - see the Verizon earnings transcript