Verizon Discusses Small Cells, AOL / by Neil Savage

Couldn’t snag tickets to the JPMorgan Global Technology, Media, and Telecom Conference this week? You know, the TMT conference hosting more CEOs than any other TMT investor conference in existence today? Yeah, we were too busy to get there, so good thing they’re posting the transcripts of some of the Q&A sessions, like this one with Fran Shammo,  EVP and CFO of Verizon Communications. The edited transcript in its entirety can be found here, but we highlighted some important dialogue regarding small cells and AOL:

[On Small Cells]

Phil Cusick, JP Morgan Analyst: You've talked about small cells a few times. How do you think about building those? Do you want to build and manage your own small-cell networks? Do you want to own the fiber in that territory? Or you're just as happy to have somebody else do it?

Fran Shammo: Yes, we lease a lot of fiber today. There are a lot of—there is a lot of competition actually in the fiber world. So we actually don't own a lot of the fiber that we have; we lease it. We own the electronics on both ends of it. But these are long-term leases, and we've done this for years, so this is nothing new to us. We don't need to own all of the small cells. We just entered into an agreement up in Boston for a 400-site densified antenna system that someone else built out, got all the zoning, has all the fiber. So we are leasing that from them. So there's a lot of alternatives out there today to create capacity, and it doesn't mean that I have to own and build and control everything. I can do that through third parties. I mean, it's similar to towers. I don't own my towers, but I still run my network off those towers. As long as I get the protections in the agreements that I need for the  longevity, then it's a perfect solution for us.

[On AOL]

Phil Cusick: Since you bring up AOL, you want to start with the driver for buying that, and what that means about your future video strategy?

Fran Shammo: Yes. If you think about how I've been talking about our launch of our video platform over-the-top that we are planning to launch this summer, we talked about a bunch of things; so let me just refresh what we've talked about. What we said is we were going to launch this, this summer, and it was really taking on three flavors. The first flavor being more of on-demand, when you want it, what you want to watch when you want it. And that's more or less the world we live in today. If you want to queue up something, you queue it up, you watch it; but it goes against your data bundle. That will still happen. Then you put in the multicast technology, and multicast allows us to deliver a live event to millions of customers extremely efficiently through our network. Now, keep in mind that the chipset of the multicast technology started in the fourth quarter of last year, so it's going to take about two years before you get a large quantity of customers who will have the technology embedded in their phones to enjoy that. That's going to be more of pay-per-view type thing. So if there is a World Cup game or a Super Bowl or a live concert, those types of events. Then the third thing we've talked about is where we would monetize video via an advertising model. What we think is this -- and you've seen some of the announcements we made with CBS and ESPN college sports and Awesomeness TV. We're going to bring a product to market where people can enjoy that product and they won't necessarily pay for it through their data bundle. Some people have called it the sponsored data model, but it's really going to be monetized through the advertising model. Hence we get to: why did we buy AOL? When you look at the asset set that we have, we developed the Verizon Digital Media Services; we attached upLynk and EdgeCast to that. That gave us the platform to efficiently deliver video and content, digitalize it, format it, and get it out to the end customer. Then we bought OnCue, which is the interface, the front of what the customer is going to see. So we had all the assets put together. The piece that we were missing was the ability to have an ad tech platform to insert the advertising. When we looked across the footprint for such a platform, we determined that AOL had probably one of the state-of-the-art, best-in-class platforms. That's what drove us to the AOL acquisition. So it was really around the ad tech platform and ad insertion tool that we needed to be successful with the launch. Now, there are some added benefits to bringing AOL in. First of all, they have some unique content around Huffington Post and TechCrunch; and that goes along with some of the other content that we have that can be put into this model. Then of course you have the subscription business, which obviously is not why we bought them; but it also generates all the cash flow of AOL. Then the fourth thing is we acquired a lot of talent. If you take the talent of our existing EdgeCast, upLynk, OnCue, VDMS people and put them in with AOL people, you now have a class set of human assets, if you will, who really understand this ecosystem. Having Tim Armstrong come on board to run this unit is really something that we look forward to, because he's obviously well known in the ecosystem. He's proven himself in this ecosystem, so we are really excited that he is going to come on board and run this unit. So we are extremely excited about this acquisition, and we think that this is something that we've been talking about, we said we were going after this big, and we're going after it big