Fixed Broadband Wireless Offering Should Help Verizon Earn Universal Service Funding

The fixed wireless broadband offering based on LTE that Verizon Wireless launched this week should go a long way toward getting broadband to the estimated seven million U.S. households that can’t get broadband service today. That will occur, in part, because the service should help Verizon qualify for broader funding through the Connect America Fund, the revamped Universal Service Fund that now focuses on broadband rather than voice.

Verizon’s new fixed wireless broadband offering, dubbed HomeFusion, is expected to support data rates of 5 to 12 Mbps downstream and 2 to 5 Mbps upstream and will cost $59.99 a month for 10 GB of data. There is also a $199 equipment fee, although Installation of the service, which includes a specially designed antenna, will be free.

For now, Verizon has only launched the service in parts of Dallas, Nashville and Birmingham, Ala. that have what Verizon called “limited broadband options.” But the carrier pledged to offer the service more broadly later this year. And previously, the company talked about a nationwide launch.

Verizon initially began testing the fixed broadband wireless offering back in late 2010 when it first rolled out LTE. Initially, the carrier partnered with DirecTV on the offering, with DirecTV handling installation —a move that made sense since DirecTV has installers nationwide. Back in October, a Verizon exec said during an earnings call that a launch of the fixed wireless service would occur before the end of 2011.

But in December, when Verizon announced its co-marketing arrangement with several of the nation’s largest cable operators, the plans to work with DirecTV were scrapped, and that is most likely what delayed the HomeFusion launch. Verizon said yesterday that it now plans to use a company called Asurion for installation, at least in the initial markets.

Connect America Funding

Having installers in remote places will be important because Verizon undoubtedly will aim to use HomeFusion to bring broadband to parts of its local landline service territory where people cannot get broadband today, thereby qualifying the company to recover some of the deployment costs through the new Connect America Fund. The FCC estimates that two-thirds or more of the seven million households that cannot get broadband today are in areas where the incumbent is one of the larger price cap carriers such as AT&T or Verizon.

Those areas do not have broadband now largely because the carriers cannot make a business case for deploying the service. The Connect America Fund aims to help bring broadband to those areas by paying for part of network operators’ construction costs.

The plan now is for the feds to create a cost model to estimate the amount of funding each carrier should need. Large carriers, such as Verizon, will have a right of refusal to bring broadband to unserved areas in their territories at that level of support.

The service must provide speeds of at least 4 Mbps downstream and 1 Mbps upstream, and until the advent of 4G, a carrier would have had to deploy a landline service to meet that requirement. But with HomeFusion, Verizon should be able to meet the requirement using a wireless solution.

Carriers’ right of refusal is on a state-by-state basis. If an incumbent carrier refuses to deploy service at the specified funding level, a reverse auction will be held and funding will go to the bidder that offers to deliver service with the lowest subsidy. HomeFusion also should position Verizon well toward winning some of those bids, assuming some incumbents do indeed opt out.

What about AT&T?

Following this line of reasoning, I suspect it won’t be long before AT&T comes out with a HomeFusion-like offering of its own. It, too, has extensive areas within its incumbent landline territory that lack broadband and will be eligible for Connect America Funding. And it, too, has an LTE network that could be leveraged to support a similar offering.

Interestingly, Verizon chose to launch HomeFusion in markets where AT&T is the incumbent. And although Verizon is only focusing on areas that don’t have broadband for now, it shouldn’t be difficult for the company to expand availability in the future should it choose to do so. And that could be an even more powerful motivator for AT&T to devise an equivalent offering.