Verizon's McAdam says video key to LTE and smartphone adoption

Verizon CEO Lowell McAdam, speaking Dec. 7 at the UBS Media and Communications Conference, expanded on Verizon's $3.6 billion agreement with SpectrumCo (CP: Verizon gains LTE spectrum, helps Time Warner, Comcast, into carrier space), its better-than-expected LTE rollout, rising smartphone penetration, the importance of application development, new 3G opportunities and what has him excited.

Verizon plans to phase out its LTE partnership with DirectTV and will stop its FiOS TV and Internet buildout over the next few years, given the assets it acquired through the deal of SpectrumCo, a joint venture between Time Warner, Comcast and Bright House Networks. When asked whether Verizon will cross-sell cable products in the areas where it has FiOS, McAdam said the latter was a topic of "deep discussion" with Comcast and Time Warner.

"The theory is ... that all boats will rise, so FiOS will not be disadvantaged in any way. If I put my Verizon hat on, we think that the FiOS platform is the strongest platform and each partner can take the core product and do some innovation on top of that if they choose to," said McAdam, according to a UBS-supplied transcript.

"I think FiOS will have a bunch of very good products," he continued, "that [frankly will come out faster than] if we tried to do it on our own. So I think there will be continued advantages and there will be a very strong competition between the different players."

The SpectrumCo deal also gives Comcast the option, in four years, to act as an MVNO by reselling Verizon spectrum. Despite creating a potential Verizon competitor, McAdam said it was necessary to make the deal fair and attractive to both sides — for Comcast to not potentially find itself in a position where it's "blocked out of wireless" — and that should Comcast decide to go down the MVNO path, it will actually be profitable for Verizon.

Regarding its LTE network, Verizon set a goal of covering 185 million people by year's end, but will actually finish at more than 200 million.

"This is one of the few technologies that you go, 'Whoa, this is really a difference.' And that is part of, as I said, what spurred us to do this video play," said McAdam, adding later in the conversation that video is also driving smartphone adoption.

Verizon is currently at 40% smartphone penetration and "well on its way" to 50%, though other markets in the world are at 70% — a not unrealistic goal for Verizon.

"I like to think of things as stepping stones," said McAdam, "and if you look at LTE as one stepping stone, this video play that we have is the next stepping stone. Everything is driving a customer more to tablets and to better-quality smartphones. So I don't see any reason why 70% isn't in our future here."

When questioned more about the 70% figure, McAdam said it was "certainly" possible "three, four, five years out," and will driven by the "kind of applications that we bring and some of the devices." The more we "bring these video applications to bear, the more people are going to want to have the big screens," he added, saying Verizon's success will in part be due, then, to how well it can develop and deliver such devices.

Notably, Verizon will soon begin selling the Droid RAZR, an Android smartphone, based on the popular Motorola feature phone, with a 4.3-inch display, and new Droid Zyboard tablets, in 8.2- and 10.1-inch display options. Both will run on its LTE network.

Regarding Verizon's 3G network, McAdams said it's important that it doesn't "strand a lot investment there, and that is why moving people over to 4G is critical," but that it will hardly be collecting cobwebs.

"I think a lot of the new products that come along, like the machine-to-machine stuff, a lot of the healthcare, and the security, and that sort of thing can certainly ride 3G," said McAdam, "so we have got plans to fill up that network. But I don't want to overbuild, is the key."

The M2M capabilities, and smart interactions between tablets and smartphones he added, when prompted, are part of what he's excited about, beyond 4G and LTE.

"I am finally seeing machine-to-machine apps that you start going, 'Okay, this is cool; I could really use this.' ... We have met with a lot of medical professionals around the country [who have] some great ideas. There was a great article about the Human Genome Project and why you need strong networks and why you need tablet and smartphone devices that we are going to be offering," said McAdam.

"There are a number of those [kinds of things that] get me excited for the next couple of years."