Qwest: Fiber to the cell is hot, FTTH is not

A month after announcing the launch of wholesale fiber-based wireless backhaul services, Qwest Communications (NYSE:Q) is bullish on fiber to the cell at the same time it says industry trends indicate clearer than ever that the company has no need to deploy fiber to the home (FTTH).

As Qwest exits the retail wireless business this week, it is talking to all of the industry’s mobile operators about using its fiber-to-the-node network, which now passes more than 3 million homes, to bring fiber to mobile base stations. Though the company said it was too soon to estimate the potential revenue from its fiber backhaul initiative, executives on the company’s third-quarter earnings call today said the new initiative could help raise margins in its wholesale business.

“We expect it has the potential to offset a substantial amount of pressure to our wholesale top line,” said Teresa Taylor, Qwest’s chief operating officer. “Wireless carriers have indicated they need the bandwidth quickly…We do business with all these companies today.”

Qwest is in the process of transferring its own wireless customers to other carriers (including to Verizon Wireless, whose service Qwest resold) before it discontinues service this Saturday. At the end of last month, the company had 89,000 wireless customers.

Revenue from the company’s wholesale business was down 14% from a year earlier in the third quarter, to $700 million, and income was unchanged from the previous quarter or the same quarter the prior year.

Despite the company’s enthusiasm for fiber to the cell site, Qwest’s CEO Ed Mueller stuck to his longstanding position that fiber to the home and terrestrial video offerings are not necessary for Qwest in the foreseeable future.

“Everything’s working in our favor not to go all the way to the home,” Mueller said. “Storage is getting cheaper every day. We can store [content] on the edge, access at the edge…We’re up to 40 meg[abit per second speeds]. We’ve got 20-meg upload speeds. With compression technology and the way video is being ingested in the network and how it’s being formatted, I don’t think we need any more than that, particularly if it’s on an as-needed basis.”

As for video, Qwest said trends also suggest the company should stick with its satellite partnership for video rather than launch its own terrestrial offering. (In fact, during the third quarter, Qwest disconnected 6,000 subscribers from a terrestrial VDSL-based video service that the company has been phasing out since late last year, attempting to migrate them to the VDSL2 and satellite bundle.)

“You’re seeing breakthroughs every day in video over the Net,” Mueller said. “Some of the studios now are really pursuing that. You’ve got the Roku box, Amazon, Netflix. It’s too early to know yet how the video will be monetized, but I like our position. I think it will be mix of ad-based and subscriber-based. But it’s coming. I think it’s coming quicker than people would have expected.”