Verizon is Willfully Driving DSL Users Into the Arms of Cable

Back in April you'll recall that Verizon stopped selling standalone DSL, taking us back to the stone age of broadband when users were forced to bundle a costly landline they no longer want. That move was just one part of a broader tactical shift by Verizon aimed at completely re-configuring the American broadband landscape -- potentially for the worse. With FiOS expansion frozen and most of the company's focus on fixed and mobile LTE services with sky-high overages, Verizon has all-but declared that the 35-45% of their entire customer footprint that will be left on DSL is essentially expendable. Those users are consciously being driven to LTE and cable competitors as part of one of the largest shifts in power and technology this industry has even seen.

Verizon is consciously making DSL less attractive just as they've signed a new co-marketing arrangement with cable -- driving unwanted DSL users into the arms of cable operators, with the understanding they can sell these users more expensive LTE connections later.

There's numerous reasons for wanting their DSL services to die off, including the fact that newer LTE technology is cheaper to deploy in rural areas and easier to keep upgraded. But one of the larger driving forces is that Verizon is eager to eliminate unions from their equation, given that Verizon Wireless is non union. None of this is theory; in fact it has been made very clear by Verizon executives.

"Every place we have FiOS, we are going to kill the copper," Verizon CEO Lowell McAdam recently told attendees of an investor conference. "We are going to just take it out of service. Areas that are more rural and more sparsely populated, we have got LTE built that will handle all of those services and so we are going to cut the copper off there."

In other words, Verizon will cut off copper in FiOS markets first (which makes sense given the lower maintenance costs of fiber). They'll then leave users in DSL-only markets un-upgraded, forcing them to buy a costly landline so that remaining on Verizon DSL becomes less attractive. Those customers will flee to the same cable companies Verizon just signed a massive new partnership with, with Verizon planning to sell those users more expensive LTE connection later. Verizon will continue to "compete" in FiOS areas for now, if you call winking and nodding when it's time to raise prices competition. 

Rural areas could see the biggest impact from the shift, as Verizon pulls DSL and instead sells those users LTE services with at a high price point ($15 per gigabyte overages). Verizon then hopes to sell those users cap-gobbling video services via their upcoming Redbox streaming video joint venture. Expect there to be plenty of gaps where rural users suddenly lose landline and DSL connectivity but can't get LTE. With Verizon and AT&T having killed off regulatory oversight in most states -- you can expect nothing to be done about it, despite both companies having been given billions in subsidies over the years to get those users online.

The entire amazing transition becomes clearer still when looking at Verizon's quarterly earnings posted yesterday. The company added a whopping 3.2 million LTE users during the second quarter, a record for the telco. In contrast, thanks to a frozen FiOS expansion (with the exception of franchise obligations in urban markets) and their disdain for DSL, Verizon managed to add just a net 2,000 broadband users in the quarter, despite adding 134,000 FiOS users. Verizon CFO Fran Shammo gave several excuses during yesterday's conference call ranging from the economy to aardvarks -- but the reality is that DSL users are fleeing in droves, and Verizon wants them to.

It's all a very ingenious play by Verizon, though it will have a massive competitive and connectivity impact on the U.S. broadband market that will be studied for decades. What's most amazing is that nobody (analysts, regulators or the press) seems to have really noticed what Verizon's up to: turning a massive swath of the country from a marginally-competitive duopoly with union labor, into an even less competitive and more expensive cable and telco un-unionized cooperative monopoly. 

The FCC is rumored to be ready to approve the deal, suggesting they're either completely and painfully oblivious to what Verizon's actually up to, or just fine with Verizon's plan. Whether or not you like what Verizon's up to, you have to acknowledge that it's a massive power shift in the industry. Unfortunately for you, if you're a Verizon DSL user -- particularly a more rural one -- you're going to find you're an expendable part of the equation.