FTTH Conference & Expo
Richard J. Lynch
Houston, TX
September 29, 2009
Video to Keynote: http://www.verizonwebcasts.com/vzb/09667/dick_lynch_ftth/vod/asx/archive.asx
As Prepared for Delivery
Introduction by Max Kipfer, Chairman – FTTH Council
Thank you, Max. It’s a privilege to speak to an organization dedicated to advancing fiber-to-the-home. And it’s inspiring to be among innovative leaders who are creating the new products that make this dream possible.
Verizon has always shared your vision for the fiber home of the future. We firmly believe that investing in state-of-the-art fiber networks will forever change the way Americans communicate.
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Speaking of innovation, I’d like to set the stage with a familiar quote. You may recognize this statement made in 1977 by Ken Olson, the founder of Digital Equipment Corporation, a once-leader in minicomputers. With complete self-interest, Mr. Olsen stated, “There is no reason anyone would want a computer in their home."
Dismissive quotes like this often appear in presentations and on motivational posters. They seem to always involve a business leader predicting the demise of a product that becomes wildly successful. Well-known, intelligent people have dismissed every life-enhancing invention of the past century, including the light bulb, the telephone, automobiles, airplanes, radio, television, the microchip… and the list goes on.
The appeal of these popular – and often dubious – quotes illustrates how innovators are easily criticized. That’s because it’s usually safer for a company to stay the course than invest in unproven ideas. Being an innovator means facing significant financial risks, and confronting all the skeptics, naysayers and other self-interested cynics who favor the status quo.
It requires a visionary leader to put his or her reputation on the line for something which will dramatically improve the lives of their customers. Leaders who possess that kind of passion and determination aren’t easy to find. But right now I see a room full of them, and I’m honored to be with you.
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It’s been five years since we first began deploying our FiOS network, right here in the great state of Texas. We believed then, as we do now, that fiber-to-the-home is the ideal solution for meeting our customers’ ever-increasing appetite for bandwidth and services. We firmly believed that fiber would create a growth platform for Verizon, provide new revenue streams, and enable life-changing applications. From where we sit today, that decision made perfect sense. But that was far from obvious five years ago.
So let me take you back to 2004, when Verizon began what the New York Times called “the most ambitious rewiring of America since the old Bell System strung copper lines from telephone poles early in the last century.”
The landscape was quite different when we introduced FiOS. There were only 30 million broadband households in the U.S, and coax cable had more than 60 percent of the market. Consumers could choose between DSL with speeds ranging from 1.5 to 3 megabits, or cable modems with speeds ranging from 1.5 to 8 megabits.
There was limited competition in pay TV services. Most homes had access to one cable provider, and satellite TV had only captured a small share of the market. Penetration for these services was nearly 80%, and many people believed there was no room for a new provider.
Meanwhile, a consumer revolution was quietly brewing. Customers were buying faster computers with increased storage to view online videos and download music. Sales of digital cameras, camcorders and wide-screen, high-definition TVs were taking off. And the beginnings of what we now call social networking were appearing – MySpace had launched in 2003, Facebook began spreading through campuses in 2004, and YouTube would go live in 2005.
Verizon saw that the world was moving toward vastly higher bandwidth applications. Consumers loved everything broadband had to offer, and eagerly devoured as much as they could get. And two-way, user-generated content was becoming more and more important. Copper and coaxial networks wouldn’t – in fact, couldn’t – satisfy these demands.
We knew that the fiber-to-the-home era was at hand.
For Verizon, deploying a fiber-to-the-home network made business sense for several reasons.
First of all, fiber addressed many of our competitive issues. Voice access lines were under significant competitive pressure, and we knew DSL couldn’t provide the bandwidth our customers would soon need. We considered fiber-to-the-node, but felt that, ultimately, the limitations of copper would be an insurmountable barrier to delivering what our customers would want.
Second, fiber gave us a future-proof technology to meet our customers’ bandwidth needs today and for years to come. Fiber would give Verizon a dynamic system that would keep pace with the rapid innovation in this market. And we knew that the upstream capacity of fiber would connect customers to a world of multi-media and interactive possibilities. What’s more, as demand grew, we could add more capacity by upgrading the end-point optics and electronics, without changing the fiber infrastructure.
Third, fiber was more cost effective and efficient. In greenfield situations, the cost of laying fiber had approached the present mode of copper operations. And fiber maintenance costs were lower since it was less influenced by severe weather.
Fourth, a fiber network would improve the customer experience. We knew that fiber would also provide consumers with a video experience that’s superior to anything they had. Customers told us that they wanted not only choice, but service that was better than cable. The tremendous capacity of fiber would offer more room for video channels, HD content, local programming, and on-demand titles.
Finally, fiber provided a growth platform for the future. A fiber network would create a new organic revenue source for Verizon, and it would give us the headroom we needed to ensure growth for the future.
Investing for growth is nothing new for Verizon. This year we’ll invest more than $17 billion to build out our fiber-to-the-home network, maintain our 3G wireless network, begin deploying our 4G wireless broadband network and expand our global IP network.
What we started five years ago in Keller, Texas has grown to be a quite a success story for Verizon – especially for those who faced the headwind and built one of the largest FTTP deployments on the planet. Thanks also to those of you, in this room and elsewhere, who helped us to do it.
Our network build is right on schedule. By the end of this year we’ll pass 15 million homes with FiOS, offering connections up to 50 megabits downstream and 20 megabits upstream.
Where FiOS is available, we’ve quickly captured market share. FiOS Internet sales penetration – measured as a percentage of potential customers – is currently more than 28 percent, while FiOS TV is almost 25 percent.
We’re adding new customers at a rapid pace. Last quarter we added 300,000 new customers in both FiOS Internet and FiOS TV. This brings the total number of customers to 3.1 million for FiOS Internet and 2.5 million for FiOS TV. We’ve grown to be the sixth largest “cable” TV network in the U.S. in just 4 years, and we’re closing in fast on number five.
We lead the industry in HD and video-on-demand programming. We currently have about 120 HD channels, with more on the way. We provide more than 15,000 VOD titles per month, of which 1,400 are in high-definition. And we include a broad collection of programming, with 500 all-digital channels.
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Now, when you’re the first-mover with an innovative service like FiOS, you learn a few lessons along the way. So let me share my top five:
Lesson #1: Any change, even a change for the better, will be met with resistance.
As I mentioned, it’s easy to criticize game-changing innovations. When you’re the first to market, some people go out of their way to tell you why you will fail.
So when we announced our fiber plan, the response was unenthusiastic, to say the least. There were enough dismissive quotes to cover my office with posters.
Some analysts didn’t believe we’d actually go through with it. They couldn’t imagine a conservative, dividend-paying blue chip company like Verizon funding such an ambitious project. Others questioned our intention to take fiber beyond the node. Meanwhile, over in the tech community, some predicted that alternative technologies would soon render a fiber network obsolete.
And the cable industry proclaimed that we wouldn’t be able to build a video network, acquire the necessary programming or entice any of their customers away. In public they wrote us off, saying that consumers don’t need a fourth provider.
But here’s the funny thing. With the exception of our competitors, everyone secretly hoped we would succeed. The industry experts would publicly say “Verizon is spending too much” or “consumers don’t need fiber.” But then they’d turn around and call us to find out how soon FiOS would be coming to their neighborhood.
The best answer to doubters is performance – and that’s what Verizon is delivering.
Lesson #2: When challenged by a technological innovation, competitors will claim they already have it.
In an attempt to maintain the status quo, our competitors did their best to create customer confusion around fiber-optic services. They claimed that their networks had been fiber for a decade, and they distributed misleading messages about the quality of FiOS. Their communications strategy was to create confusion and apathy, and some people fell for it. For example, a Washington Post article interviewed a potential customer who saw no need for FiOS because it’s more speed than he could ever use. He had a great dismissive quote: “there’s nothing on the Internet that requires that kind of bandwidth.”
There’s another one for my wall!
To defend and promote our service, we educated the market and defused much of the deceptive information through carefully designed marketing and public relations campaigns. And we were helped along the way by numerous third-party publications and ratings organizations that have confirmed the superiority of our all-fiber service. But most importantly, customers –real customers – promoted FIOS by word-of-mouth, and even in-home demonstrations.
Lesson #3: Herding cats is possible, but only if you think like a cat.
Verizon’s fiber network deployment was an extremely complex operation that touched every part of our business, and required total commitment from everyone involved. To control the vast number of elements in an organized manner, we needed to manage the process in a much broader way.
Everything had to be carefully aligned, including franchises, deliveries, employee training, advertising, media relations, and the list goes on. This meant we had to change our culture to be focused on the unique needs of each stakeholder to create a win-win situation for everyone involved.
Lesson #4: When faced with monumental challenges, innovative companies need innovative suppliers to rise to the occasion.
Our network plans were different than anything in the market, so we relied on the expertise of our supplier-partners to make our vision a reality. And you delivered.
- We designed a superior video transport system different from the legacy cable model, and came up with innovative ways to make our product better than the incumbent providers.
- We knew our video product had to have an IP-based interactive component, so we developed new specs and our supplier community responded.
- We needed an overlay wavelength for analog and digital broadcast channel delivery with maximum range, and once again our supplier community came through.
- We needed a broadband network in the home, since it doesn’t make sense to drop 100 megabits at the doorstep. Technology advances by our supplier community helped us deliver our massive bandwidth directly to customers’ devices.
To meet our goal of passing 3 million new homes each year, we had to find ways to improve the speed and cost of our fiber deployment and installation.
- Deploying terminals for fiber drops was time consuming, so we worked with our supplier partners to create a connectorized version for quick “plug and play” installation.
- We recognized that it often took more time than expected to install outdoor Optical Network Terminals – or ONTs. So we worked with the supplier community again and created the “just inside” model.
Finally, apartment buildings and condos make up a significant part of our homes passed. We needed customized solutions to address these Multiple Dwelling Units – or MDUs – in order to meet the requirements of property owners.
- Limited wall space in MDU basements made initial designs of the common ONTs difficult to use, so our suppliers created stackable “pizza box” ONTs that required much less space.
- Inside the living area, single customer ONTs were too large and unattractive, so together we developed Desktop ONTs the size of a home router that made the installation process cleaner and simpler for the customer.
- We needed more flexibility for MDU interior installations, so fiber manufacturers refined bendable fiber to handle the tight turns found in urban buildings – with no degradation or signal loss.
Lesson #5: When you rally your employees and suppliers around a noble cause, great things are possible.
As these examples illustrate, taking on a project as big and important as building a fiber network can really energize your organization. This was a total team effort that went far beyond traditional network construction, and required every work group to change the way that they we did business. It also placed significant demands on our suppliers to meet the designs and schedules of this massive undertaking.
Verizon’s employees and supplier-partners rose to the occasion and created a dynamic working environment dedicated to success.
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So where do we go from here?
To realize our fiber-to-the-home vision, we need to find new ways for customers to take advantage of all the power that FiOS makes possible. We plan to deliver additional value and improve the quality of our customers’ lives by providing many more features on this powerful platform. One area we will focus on is advanced home network management.
Some households may have as many as 30 digital devices in the home, most of which are networked or at least capable of sharing media in some way. Customers want access to their media anytime, anywhere, and on whatever screen they have at hand. And as we look to the future, we see a whole new generation of web-enabled applications, high-definition services, smart devices and smart homes that will embed Internet connectivity into everything we touch.
This makes the home network look more like a corporate local area network. But instead of moving business data back and forth, our residential customers want to move their digital pictures, videos, music and movies between all of the digital devices they own. Verizon can manage all of this complexity and provide diagnostics of their system from within our network, far away from the end user.
Our Broadband Home Router can automatically discover connected devices, whether they’re wired or wireless, and supervise the communications between them.
Our FiOS Media Manager lets customers use their TV to view pictures and videos on their TV that are stored on their computer. They can even access content on devices connected to their computer, such as a digital camera.
Our Multi-Room DVR lets customers use one set top box to record programming and then watch it on up to six other televisions in the home.
And with our interactive media guide, customers can find, control and manage a vast array of digital content including television programming, movies, Internet video, games, music and photos. The guide also offers a variety of Internet applications called widgets that run the TV screen. Widgets offer customers personalized one-touch access to things like local weather, traffic reports, headline news and community information. We also worked with social media innovators Facebook and Twitter to create an Internet-to-television experience that lets FiOS TV subscribers connect with others while watching TV.
To encourage the creation of more of these services, we’ll be publishing a Software Development Kit that will enable third-party developers to create Internet-based Widget applications. This will provide consumers with a variety of interactive services for the biggest, best and most under-utilized screen in the house – the HD wide-screen TV.
Our sophisticated network technology enables the home network to fix itself or allow our customers to initiate the troubleshooting process on their own. Self–diagnostic technology improves the customer experience and reduces the number of calls coming into our call center.
Going forward, the home network can be used as a platform to deliver and manage applications for home security, energy management, back-up storage, medical monitoring, emergency response services and a host of other practical services.
But the real opportunity of a fiber access network is created by the seamless interconnection with our wireless broadband and global IP networks. This dramatically enhances and expands the scope of what fiber can deliver to consumers.
At Verizon, we’ve already begun deploying the next-generation networks that will support the growth of the Internet well into the 21st century.
We’re investing billions in LTE, or Long Term Evolution, the next generation of wireless broadband. This new technology will be embedded into everything – from buildings to vehicles to consumer appliances to medical equipment – enabling them to be connected and communicating with one another constantly at speeds far greater than today’s 3G wireless networks.
We’re also investing in the Internet backbone itself, on which more and more of the world’s commerce takes place. Verizon operates the world’s leading global IP network, and we’re steadily adding to its capacity, scale, and scope, both in this country and overseas.
Along with FiOS, these networks are the most disruptive technologies the world has seen. All of this incredible technology will work together to make our country competitive in the global economy and deliver on the big social issues that America faces, and that I’m sure you all support – things like education, health care and energy conservation.
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But we can’t do it all alone – Verizon continues to need your help to make the fiber future a reality.
First, we need to continue to work for technical standards to make future innovations available more rapidly.
For example, there are nearly a dozen different standards for 3D video. We must work together to find a single workable standard acceptable to everyone.
Second, we must develop more energy efficient technology.
Like all socially responsible organizations, Verizon is dedicated to leaving the smallest carbon footprint possible, and we continue to deliver on our principal environmental objectives. We have established a series of energy efficiency tests and ratings to guide our suppliers in this effort. We need your help in developing network elements that are more efficient, consume less energy and generate less heat.
Third, we need to continue to develop the innovative hardware and software that make these systems possible.
IP Multimedia Subsystems - or IMS - will create the kind of cross-platform interplay that will best be supported by a superior feed into the customer’s home network. Our networks are moving to IMS, and we need your assistance in developing a robust set of complementary CPE.
We also need cost-effective solutions for network resource elements, such as real-time transcoding for our advanced services. And we need help to make all of this power easier for the customer to use, by developing services like speech recognition to improve navigation on our set top boxes.
Fourth, we must continue to roll out the services and applications that drive high-speed broadband deeper into the marketplace.
That includes extending the length of the loop we can serve, by working together to support PON loop lengths out to 40 kilometers and beyond without the need to add any extra active equipment in the field. This requires the use of better PON cards with improved optics as well as other innovations the supplier community is working on.
We also need to reduce the costs to deploy fiber more deeply into less populated areas by designing things like optimum splitting architectures.
And finally, we need policies that encourage innovation and drive development into the future.
We need to guard against turning technical and business decisions into political decisions. Dynamic industries like ours require flexible solutions that can evolve and adapt to a changing environment – not rigid regulatory solutions that are one step behind the marketplace.
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Verizon is proud to be part of your exciting and important mission to spread fiber across our nation. Our fiber-to-the-home network is driving growth and providing services that will become even more indispensible to customers in the years ahead
This morning I’ve mentioned several quotes that dismiss the technological advances that all of us have worked so hard to create. So I think it’s only fair that I leave you with a more gratifying passage from way back in 1962. It reminds me of how far we’ve all come since then, and it motivates me to keep innovating.
It’s Arthur C. Clarke’s visionary Third Law from Profiles of the Future:
“Any sufficiently advanced technology is indistinguishable from magic. “
After all my years in the communications business, I’m happy to say that – from where I sit – there’s plenty of magic still to come.
Thank you and have a great conference.
