While I have been a FiOS triple play customer for more than five years, and like my FiOS service so much, I let them film an Internet commercial at my house, it pains me to see that Verizon (NYSE:VZ) has just announced a new 500 Mbps service, with a blog post implying that consumers will need this kind of speed in their home in the future. While I am all for faster speeds, there is only so much bandwidth any device / service can consume at any one time. There will NEVER be a time when the average household needs or can even use anything close to 500 Mbps and all Verizon is doing is setting false expectations in the market.
Of course, Verizon's argument is that according to some NPD data, by 2022, the average household with two teenage children will own roughly 50 Internet-connected devices. While that sounds like a big number and impressive, it's not about how many devices you have connected to the Internet, it's about how much bandwidth they use and how often they connect. Even if NPD's estimate of 50 devices comes true, most of those devices won't be consuming video, which is really the only application that consumes huge amounts of throughput. Thermostats, washers, lights etc. may all be connected, but they don't use a lot of bandwidth. I know as I have nearly all of them. My Nest's, lights, security cams, washer, etc. all combined don't even use 1% of my bandwidth, all running at the same time. Its video services like Netflix (NASDAQ:NFLX) and other video applications like gaming that consume the bits.
While some will argue that 10 years from now Netflix video will be delivered at a much higher rate, they would be right. But, it won't be anything close to where a family of four would need 500 Mbps, even if all four of them were watching Netflix at the same time. And I guess Netflix isn't keeping an eye on what's happening in the video world because content services like Netflix continue to deliver higher quality video, with less bandwidth. Netflix has improved its encoding process so that their videos take up less bandwidth, but delivers higher quality. Even if you look at video consumption moving to 4k quality, thanks to HEVC, most reports speculate that H.265 will allow 4K video to be delivered over the Internet at between 20-25 Mbps. So even a family of four, all watching Netflix at the same time, on four different devices, would only consume 80-100 Mbps. But Verizon wants you to think you'll need 5x that. It's a pipe dream.
Verizon's blog post and PR email that discusses this new service is filled with all kinds of incorrect ideas or assumptions, for instance:
- "HD files consume a lot of memory and bandwidth." Yes, but what does Verizon's FiOS service have to do with memory on one's device? Nothing. Faster bandwidth does not allow a device to encode video better, or provide any boost in memory. That would be like saying Verizon's faster service allows you to have more storage on your computer. One has nothing to do with the other.
- "Approximately one-third of small businesses recently indicated a need for broadband service requiring greater capacity networks than currently exist in many locations in the nation." Sounds plausible, but Verizon's FiOS service isn't available in a large portion of the U.S. market which means these business that need faster broadband can't get Verizon to begin with. It's a poor argument when you can't service the majority of the market that may want the product.
- "As more and more devices in your home become connected to the Internet your connection will get slower." That's not true. Just because a device is "connected" to the Internet does not mean it will slow the connection down for other devices. If I disconnect my Nest while using my iPad, it doesn't make my iPad any faster. And since most users in the home connect via WiFi, when there is a slowdown, it's almost always a WiFi related issue, not a lack of bandwidth.
- "When appliances are plugged into the same circuit, the strength gets weaker with each additional appliance." From an electrical standpoint this is true, but a bad argument on Verizon's part because this argument is the whole reason they tell people to get fiber to the home instead of cable services that only bring fiber to the block. Also, comparing how electricity gets split out between devices that have to have a certain voltage just to be able to turn on is not the same as devices that don't have to have a certain level of Internet speed just to be connected.
- "The average U.S. household currently owns 7 internet connected devices." That does not mean all 7 are on at the same time and consuming content. So again, it does not matter how many devices you have, only how many are connected and actually being used to pull down content.
Many consumers in the U.S. don't have the ability to shop around when it comes to Internet service as they only have one provider in their area. And a service like FiOS, which is fast, but very limited in its footprint, simply isn't available to a large portion of the population. Instead of all the time and effort Verizon and other cable / Internet companies put into silly marketing and PR stunts like this one, they should instead spend the time to find out what consumers REALLY want to make their service better. No one like myself who has 50 Mbps to the home ever says, I need more bandwidth. I get that as Americans we always seem to want more and order everything in the "supersize," but if you already have 50 Mbps, you're not interested in paying more to get even 100 Mbps, let alone 500 Mbps. The number one complaint by consumers is the cost of their bundled services, so why would they want to pay a hefty sum on top of what they are already paying for a service they can't truly take advantage of?
But the worst thing about all of this is the idea that Verizon wants you to pay for something you're not using. Pay for 500 Mbps every month, even if you have no way to actually use it all. Can anyone even think of a way to consume 500 Mbps, in the home, even with streaming video? If you streamed a movie at 10 Mbps, you'd have to have 50 devices doing it all at the same time, from the same home, to saturate the pipe, if you got a full 500 Mbps. The idea is crazy. No one likes paying for something they can't fully use, and that's exactly what Verizon is asking consumers to do.
Verizon's 500 Mbps service costs between $310 and $330 per month, depending on the double or triple play package your choose. Only businesses will be able to sign up for just the Internet portion, at a cost of $370 a month.
Disclosure: No positions