Why Verizon is killing DSL & cheap broadband

The slow death of DSL will cause the rapid rise of expensive broadband for underserved areas if Verizon’s Fusion home broadband service is any indication. Verizon(s vz) on Tuesday launched its long-planned home broadband service powered by its LTE wireless network — trading slow in-ground copper for expensive airwaves on its end. And the consumer? They trade unlimited slow broadband from a wire for faster service that’s going to cost a pretty penny.

So what is this wireless panacea?

Verizon’s HomeFusion Broadband uses Verizon’s LTE network to offer homes broadband speeds of 5-12 Mbps for downloading and 2-5 MBps for uploading. For most users, this will be better than the older DSL speeds, which are about 6 Mbps close to the node but slow as you travel further away from the telco’s central office. Verizon will pop a small a cylinder packed with antennas on the side of your house in order to deliver the service, which comes with the same caps and pricing plans Verizon currently offers its cellular customers. And that’s really the rub.
All of the plans are usage-based, which changes the broadband paradigm from one of limited bits to limited bytes. Verizon’s plans begin at $59.99 of monthly access for 10 GB of data, and there is a $200 installation charge. If you consider that an hour of watching Netflix(s nflx) consumes about 1 gigabyte, you’re looking at about 8-10 hours of TV a month.
To be fair, Verizon says it is marketing this as an alternative for consumers in broadband-limited markets, where DSL or satellite might be the only options. In the case of satellite broadband, consumers also have caps and limited plans that cost a lot, so this compares somewhat favorably to those. But so far, HomeFusion Broadband will be available beginning later this month in Birmingham, Ala., Dallas and Nashville, Tenn., which are not exactly satellite country. Additional markets will follow.

So what’s this about the death of DSL?

Verizon may have started out as a collection of wireline telephone companies, but it has been rapidly abandoning its legacy copper by selling off its DSL businesses to Frontier Communications, Fairpoint and even the Carlyle Group. The plan, as we said back then, was to get rid of high-cost copper lines and come in later with wireless broadband that delivered better speeds. From an economics perspective, Verizon spent between $19 billion and $22 billion laying fiber to 16.5 million homes in the last few years. But it has invested a total of $22.3 billion billion in the last three years building its wireless network, which covers more than 285 million customers (all of that is not LTE spending and coverage). And those customers are likely to pay more per month and get less in terms of the data they transmit over the network.
AT&T(s t) seems to be learning from Verizon’s tactics. It recently hinted that it would sell its unimproved DSL lines (“unimproved” means they aren’t part of the fiber-to-the-node U-Verse deployment), according to Dave Burstein, editor of DSLPrime, an industry newsletter. This is, of course, after AT&T CEO Randall Stephenson admitted that DSL was an “obsolete” technology (although AT&T later tried to clarify its way out of that situation). And it makes sense. Why would AT&T want to keep DSL and its maintenance headaches around when it can offer a higher-dollar triple-play service on U-Verse and wireless access to those who can’t get anything else?

Faster, Pricier and Not Better

The problem with this transition from DSL in rural areas over to wireless, and the general loss of broadband players, can be summed up in one word: caps.
With HomeFusion, customers that may have had DSL are paying more for speed, but they are also giving up on all-you-can-eat broadband. That will put more people under the sway of caps since AT&T, Comcast(cmsca), Charter and smaller players all have caps on broadband service.
This is commonly thought to protect their pay TV businesses, because you can’t watch hours of HD television on a capped connection without somehow busting through your cap. But there’s a lot more to it. As Verizon notes in its press release for HomeFusion, the router can connect up to four wired and at least 20 wireless devices inside the home, using Wi-Fi. We’re moving to a society where everything is consumed via broadband, from our entertainment to our work, from our home automation to our security.
And once we’re there, the idea of letting that flow of traffic pass by without taking some cut from it is painful for operators that grew up charging people by the minute. In their eyes the byte is the new minute, and by golly, consumers will pay for it. As DSL and older connection technologies die, telcos want the unlimited plans that helped broadband succeed to die with it.
Image of manhole cover courtesy of Flickr user Eddie~S