Qwest makes good on fiber network deployment; steers clear of IPTV

Qwest rolled out two high-speed, fiber-based Internet services, but plans for IPTV to go with them aren't on the roadmap yet.

Qwest on Thursday followed up on its announced fiber to the node (FTTN) strategy with two high-speed broadband services for residential and small business customers that can offer up to 20 Mbps download speeds.

 The million dollar question is, why do they need a high-speed fiber network if they're not going to offer video?
Bruce McGregor
Senior Analyst-Digital Home ServicesCurrent Analysis

But in a market focused on rolling out IPTV and video services over high-speed fiber, observers waiting for Qwest to do the same may have been disappointed.

Qwest plans to get a return on its $300 million fiber investment this year through monthly service fees, whereas other major telecom providers are looking to offer content to offset declining wireline revenues.

Qwest's new services will be available to 2 million customers in 23 major markets in its Western territory by the end of 2008, according to Travis Leo, director of product management for high speed Internet services at Qwest. "As we deploy faster speeds, we are generating additional  ARPU from customers, and we think we'll see customers in bigger numbers signing up," Leo said.

For customers bundling high-speed access with a voice line, the 20 Mbps Qwest Connect Quantum service sells for $99.99 a month, and the 12 Mbps Qwest Connect Titanium service for $46.99. If customers don't bundle in Qwest voice service, monthly prices are $109.99 and $56.99 respectively. Either way, ROI could take a while.

"It is unclear if Qwest can make its fiber to the neighborhood (FTTN) pay off with just faster downstream speeds," said Current Analysis Senior Analyst of Digital Home Services Bruce McGregor. "The million dollar question is, why do they need a high-speed fiber network if they're not going to offer video?"

But from the CEO on down, Qwest maintains it is happy with its DirecTV partnership, repeating that when DirecTV rolls out a video-on-demand service, its network will be there to handle the load. Verizon's FiOS offers video content over its fiber-to-the-home buildout, while AT&T uses an FTTN strategy for  U-Verse (its fiber to the curb plus DSL) for its IPTV offering.

Yet replacing wireline telephone revenue with video services is no slam-dunk. Qwest may be waiting for the technology to mature before it jumps into video, or maybe it really has made peace with offering commoditized broadband services.

"You have to look at what they're getting for the $300 million Qwest has committed to spending," said Yankee Group Program Manager-Enabling Technologies Vince Vittore. "They're passing 1.5 million living units, which are likely to be higher than average ARPU homes and opening up the possibility of a future triple play offering."

As for a fiber-to-the-home strategy, Qwest is reserving that for new builds where it can futureproof the network in states including Arizona, Utah, Washington State and Colorado, Leo said.

If DirecTV rolls out video on demand over a broadband connection, Qwest is ready with a bundle of services that it can roll in. Still, Qwest is in partnership mode again when it comes to wireless, where it has a Sprint-Nextel deal in place, unlike Verizon and AT&T, which have their own wireless networks.

Qwest "takes speed off the table"

Qwest maintains that speed is the main attraction, and that its new services can beat almost any offering in its territory. After building out FTTN, Qwest reaches the customer premises using ADSL 2 Plus, which allows the jump to 12 or 20 Mgps downloads. Upload speeds for both services is 896 kbps.

Yankee's Vittore believes Qwest's FTTN expense makes sense from both a defensive and offensive strategic position. "Clearly, the company had to move beyond 1.5 Mbps as the standard broadband offering if they were to compete head on with Comcast, Cox, and other cable companies. DOCSIS 3.0 will start rolling out to the mass market consumer by early next year, and that point, 1.5 Mbps will pale by comparison," Vittore said

Beyond ADSL 2 Plus, Qwest is looking at other technologies like pair bonding to gain the ability to connect homes to the fiber nodes at over 40 Mgps. AT&T has also expressed interest in pair bonding for U-Verse. "We're actively exploring additional technologies to improve upload speeds, but we feel it is sufficient for now," Leo said. "We want to drive faster download and upload speeds over time. That provide more head room from a technology standpoint, he added.

"The downside to Qwest Connect Quantum is the high price point and low upstream speed of just 896 kbps," Current Analysis's McGregor said. "For example in the Phoenix market, Cox Communications already offers super-fast speeds at cheaper rates compared to the new Quantum 20Mbps service. Cox High Speed Internet Premier with 15Mbps downstream and 1Mpbs upstream standard rate costs $59.95 month, while Qwest's Quantum 20Mbps unbundled rate costs a whopping $109.99 a month with the voice bundle package only saving $10 a month."

Rather than pinning its hopes on video, like AT&T and Verizon, Qwest is pinning its hopes on speed. "We're taking a very disciplined approach to deliver fiber optics and faster speeds to customers," Leo said. "We think this is a game-changing move for us. It takes speed off the table."

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