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Verizon dangles cheap VoIP for US land grab

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Analysis Verizon, the largest local telecommunications provider in the US, has torn up the US telephone rule-book and is offering a US-wide Voice over IP (VoIP) service for $39.95 a month, with discounts available if customers use other Verizon services.

The service is called VoiceWing and the move is seen as the beginning of a colossal US-wide land grab for customers between the big four local telcos, Verizon, SBC, Bellsouth and Qwest and is also targeted at fighting off the triple play threat from the big US cable firms.

It will also find itself going up against AT&T’s CallVantage VoIP scheme which is almost identical.

A few weeks ago Cablevision caused consternation and share price upsets when it announced a $90 package for cable TV, high speed internet and VoIP telephony. But this deal only targets the four million customers which are passed by cable owned by Cablevision.

This Verizon deal is a chance to build business from anyone in the country that owns a broadband line, something close to 28 million and rising, with only 2.3 million of those already customers of Verizon.

But this deal, and those likely to be offered in return by the other three local telcos, is a very different one from the Cablevision offering, and represents a genuine change of heart in Verizon’s approach to its future.

Land grab

Cablevision has 2.9 million basic cable customers and gets around $55 from each one of them for cable services (basic cable average revenue per user or ARPU). It also gets a further $29.95 from most of its one million high speed data customers and so far has only managed to attract 25,000 VoIP customers at roughly $34.95 a month each. Although analysts widely cite the Cablevision overall ARPU as $80, adding up these three numbers at current prices (what they would pay if they signed up today) it comes out closer to $48 a head across the four million homes inside its cable range.

So for Cablevision the pricing can only lead to an upward swing in its ARPU.

For Verizon this is a dramatic re-pricing (potentially downwards) of its services, that overnight makes its business dramatically more competitive, and the ultimate effect will be to eliminate traditional phone lines and replace them with broadband lines everywhere, in short order.

Verizon currently sells a bundle of unlimited US dialing called its Freedom service for $59.95. That makes the new list price for VoIP $20 a month cheaper. However Verizon is offering a six month discount of $5 and a further $5 discount if customers use a DSL line from Verizon. That brings the pricing to $29.95 for unlimited calling across the US, plus special discounted international calling rates, which, coincidentally is the same price at that part of the Cablevision bundle.

In effect Verizon has found a way to match the Cablevision price within a month of the Cablevision deal being announced. The difference is that Verizon is almost halving its old pricing.

But the US phone giant has not been content to leave the deal there and now has a chance to open up a landgrab in other markets outside its own covered regions.

This immediately drags every other cable company and US telco into the fight whether they like it or not.

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