Is Verizon’s fiber strategy a sure-fire path to growth? Analysts have doubts

0
20
  • Verizon is plotting to reach 35-40 million fiber passings in the long-term with the help of Frontier’s existing base
  • But the rate at which Verizon plans to build fiber seems way too slow, says New Street Research
  • It’ll be difficult for Verizon to overbuild fiber in more dense markets, according to analyst Craig Moffett

In case you had any doubts about Verizon’s fiber ambitions, the company this week revealed just how far it thinks it can go by acquiring Frontier’s footprint.

Once (and if) the acquisition closes, Verizon expects to reach more than 30 million fiber passings by 2028. In the longer-term, it’s targeting 35-40 million locations passed, a goal easier said than done, analysts noted.

According to New Street Research, Verizon’s fiber target is “exactly what we thought they could do between the existing Verizon markets and what they acquire with Frontier.” The firm estimates Verizon can reach around 38 million locations.

But to do that, Verizon needs to crank up its deployment pace. The company said it expects the combined build with Frontier to generate “1 million or more passings annually.”

At that speed, “it would take them 10 years to get to our target of [38 million],” said New Street’s Jonathan Chaplin in a note to investors.

“That strikes us as way too slow,” he said.

As Verizon expands its fiber footprint, it also plans to grow its fixed wireless access (FWA) base to a total of 90 million households by 2028.

On the company’s Q3 earnings call, CEO Hans Vestberg was asked how fast Verizon plans to pursue both its fiber and FWA goals. He stated, “nobody else is building on the pace that we are doing in the combination of it.”

“Remember, we build the network once. And then at the edge of network, we decide what type of connections we have,” said Vestberg, whether that’s Fios, 4G, 5G or FWA. “Then we get the best return on investment on the invested capital because we do it once.”

Convergence is king

Unsurprisingly, Verizon mentioned how great the Frontier deal is for its convergence strategy. Sowmyanarayn Sampath, Verizon’s Consumer Group CEO, said the operator will be able to “cross-sell” its mobile products to not only the Frontier base but also to customers who have access to fiber but aren’t already subscribed to it.

Sampath also noted Verizon’s wireless market share in some of its larger fiber markets is “5% better than if we don’t have fiber.”

“Either fiber brings strong strategic benefits to mobile, or it doesn’t,” Chaplin added. “If it’s NPV positive, and synergistic, they should be going as quickly as they can.”

Meanwhile, analysts at Evercore ISI said they remain “encouraged’ by Verizon’s “improving wireless momentum and the ambitious broadband strategy” and how the two interplay as the company works on its convergence efforts.

Getting to 35-40 million fiber passings will involve reaching “further into low density markets,” MoffettNathanson’s Craig Moffett told Fierce. Denser areas “are getting picked over very quickly.”

“I suspect it will be very difficult to find markets that are dense enough to make overbuilding worthwhile within another couple of years,” he said.

Moffett thinks Verizon will prioritize fiber “where they have it” but the company’s expansion strategy seems to rely on deploying FWA “everywhere else.”

“’Everywhere else” will still be the vast majority of the country even if they do reach 35 to 40 million passings,” said Moffett.

What about BEAD?

As for the BEAD front, Verizon expects BEAD-funded deployments will make up “a very small percent” of its 35-40 million passings target, said Joe Russo, Verizon’s EVP of global networks and technology.

“We’ve built a very good process for managing subsidies. And we’ve been already receiving and winning subsidies in our Fios footprint,” he said. “So as BEAD starts to get deployed, we’ll deploy those same kinds of standards and processes to participate.”

LEAVE A REPLY

Please enter your comment!
Please enter your name here