Introduction:

Famous and then discredited DOTCOM analyst Henry Blodget interviewed Verizon Communications CEO Lowell McAdam on December 24th for Business Insider.  

McAdam explains the company’s three-tiered strategy, including how a potential purchase of Yahoo would fit into those plans. He also discusses Verizon’s Go90 mobile video service, the future of FiOS and the company’s upcoming 5G network.  Excerpts of the interview follow:

Pic of Verizon CEO Lowell McAdam.

Will Verizon buy Yahoo’s Internet Assets?

McAdam: Our view is their board hasn’t decided what they’re going to do. As far as we know, it’s not for sale. And I’m pretty sure if it turned out that parts of it or all of it were for sale, we’d look at it just like we look at anything in the digital-media area at this point because it’s so hot.

Why did Verizon buy AOL and what would Yahoo do?

McAdam: If we look at our strategy, it is three tiers. Have the best connectivity you can have out there. Own certain platforms that drive a lot of traffic to your network. So our Go90 platform, and AOL’s ad platform, fits into that perfectly. And then the third tier is a few areas where you want to get to content, or solution, or application, so that you can show that broad area of the ecosystem.

Healthcare Internet of Things (IoT) is one of those because we think that will drive a lot of traffic to the network. So AOL fit in perfectly with that strategy. And if there were pieces of Yahoo that augmented AOL, perhaps, but again that’s way premature. Their board hasn’t made any decisions and there’ve been no discussions and we’re not getting ahead of our headlights here. We’ve got plenty to do.

Blodget: You just launched it, Go90. What is it? Where is it going?

McAdam: It’s not just a video platform — it’s a social-networking platform based on video. We have the NFL deal. We just cut a deal with the NBA, so we’ll have … many more games than you’ve seen before. But the interesting thing is we can get many things like Comedy Central that are distributed in certain places, but we’ve also got some premium content now — AwesomenessTV, which is owned by DreamWorks.

Driving at a very low cost, driving a huge number of views. Some of the episodes will come out at 6 o’clock on Saturday night. By 10 o’clock, they have more views than some of the cable-news stations do in an entire month. The 300-channel bundle is going to continue to break down. And as we do, we’ll be able to provide some long form but more geared toward millennials, more short-form content like “Guidance” and other series like that as we go forward.

On FiOS (Verizon’s Triple Play Fiber to the Home distribution system:

McAdam: Our biggest challenge with FiOS is building it out. And you know we look for opportunities to learn, and I think Google has done us a favor by showing that the standard licensing agreement with the cities is probably not sustainable because, again, people do not want 300-channel bundles and the economics won’t work for that.

I’ll give you a factoid on our Custom TV, which is averaging 40 to 60 channels. It became 40% of our volume the minute we launched it. And it doesn’t have all the heavy weight of these sports channels that you have to pay for, whether you watch or not, and some of the 13 channels that come along with those. So we’ve seen that grow.

So skinnying down the bundle helps the profitability, driving more broadband helps the profitability, and, frankly, I think a big breakthrough is going to be when we start doing 5G because that allows you to cover many more homes without having to actually go into the home to provide the services.

What is 5G to Verizon?  

5G is much more designed for video. We call it more use-case defined.

When you think of the thousands of devices in the Internet of Things, when you think that today 70% of our traffic is video and year-over-year our volume has grown 75%, no one sees that slowing down. So bigger capacity, faster response times. Latency is very important when you think about autonomous cars and things like that — 5G will really change the game, and I think will be another spike of growth in the wireless industry.

 When Will Verizon Wireless Customers Get It?

McAdam: I showed my board the service in November, and you don’t ever go to a board with something that’s not real. We’ll be piloting it more broadly. San Francisco, we’ll be there. We’ll have it in New York. We’ll have it in Boston.

I expect to have our Basking Ridge campus up in January, and then rolling it out more commercially later in the year, and then commercially more in 2017 and beyond.

Comment:  Amazing that McAdam says he showed his board a “5G service” in November, when it hasn’t even been defined yet by ITU-R or consortiums working on 5G (see previous 5G related blog posts on this site)

Competition from MSOs/CableCos for Verizon?

Blodget:  Brian Roberts of Comcast points out that only a relatively small percentage — maybe 10% — of mobile data is actually consumed outside of home and work. And Brian talked about cable maybe moving into offering mobile phones and connectivity. Do you see much more head-to-head competition over time?

McAdam: I guess it depends on the model. I think the key is the technology will be there to offer an integrated, seamless product. So far, the bundle has been a bottom of the bill discount. I believe mobile-first video will take off inside and outside the home. The question is how long does it take for this to sort of come down? Is the 300-channel bundle going to be around for a decade? I tend to think not. I think it’s more three to five years.

Blodget: And how much going forward will owning content matter to that?

McAdam: It’s a little bit. It’s the same philosophy we would have whether it’s distribution or networks or stores. You need to own enough of that to understand what drives the usage, but the key for us is the best network carrying traffic. Platforms that enable those applications to seamlessly go on the network and have just a few of those applications and content is all we’re really interested in.

References:

Interview Transcript: http://www.businessinsider.com/verizons-lowell-mcadam-on-5g-and-more-2015-12

Video: Verizon CEO Lowell McAdam explains why he bought AOL