May 24, 2012

The Convergence Conundrum


Verizon's FIOS TV service announced a rate hike this week, which coincides with their announcement at The Cable Show that they were going to be rolling out a mobile video app called Viewdini, which searches through content from Netflix, Comcast, Time Warner and others (but not FIOS, interestingly enough. At least not yet.) The app allows you to look for a particular show or movie, find it and then stream it to your mobile device. This comes on the heels of the telco's recently confirmation that they are done with FIOS build-out for now, and are concentrating instead on fill-in: gaining additional customers in areas where they already have a presence.

All of which leads industry insiders to wonder: is Verizon looking to sell FIOS?

While the service is widely regarded as the Neiman Marcus of cable service, with new fiber optic cable and truly “blazing fast” internet, it’s been very, very expensive for Verizon to build: it can take the better part of a day to wire a single house and the company has literally spent billions on building out their infrastructure.

So who would buy it?

Two distinct possibilities are Apple and Google, each of whom would relish the opportunity to own the network and its 2.2 million upscale subscribers. (FIOS is concentrated in Charles Murray’s Belmonts: the affluent residential neighborhoods of the Northeast.)

For Apple it would be an easy way to introduce the mythical Apple TV on a well-regarded network that’s already built out to over 2 million subscribers.s On the other hand, 2 million isn’t a very big number for Apple, who may or may not want to get into the network operator game. (Check out “An Apple TV Will Be Just Like The iPhone" for some theories on that.) Plus the Steve Jobs’ run Apple never really liked anything it didn’t build itself and there’s no reason to think that trend won’t continue. Add on the fact that, as currently configured, FIOS is very Apple-unfriendly (Its FlexView streaming VOD service still doesn’t work on a Mac or iOS device and the iOS apps are clearly an afterthought) and it's unlikely Apple will go anywhere near it.

Google may be a more likely option than Apple, as they have committed to the network operator race and are already building out their own network in Kansas City, with an eye to setting up their own pay-TV system. Google can also push the Android platform via FIOS, which, as I mentioned previously, is anything but Mac friendly. But Google's Kansas City project is also an indication that they've got their own idea on what the TV delivery system of the future should look like, and billions of  Benjamins to back that up. So chances are good they'll take a pass as well.

That leaves on more option, the one I think is most likely. That is that Verizon will keep FIOS as a boutique brand, one whose well-to-do users are more than willing to pay a premium for high-cap or unlimited bandwidth and premium content.

As The Convergence presses onwards and TV delivery becomes exclusively web-based, bandwidth caps will become both an economic necessity and the norm. In that scenario, affluent, price-resistant FIOS users are exactly the kind of customers Verizon would want. Not necessarily early adopter, but in no way ready to cut the cord.

At least not for economic reasons.

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