Verizon dangles cheap VoIP for US land grab

Verizon already sells an unlimited phone package with DirecTV bundled into it for $98, and with the savings through offering the phone calls via VoIP it can add DSL and drive this price, to something under $100 a month.

While that might not be quite the pricing of Cablevision, the deal can be offered to any domestic customer who has any of the 140 million telephone access lines that are offered by Verizon, not just the four million lines where Cablevision operates.

But how successful will DirecTV be against Cablevision or Comcast? Well SBC has just published its quarterly figures this week, where it showed that it installed 100,000 out of its existing total 121,000 Dish Network customers that compete with DirecTV, in the last quarter alone.

A similar success, pro-rata for Verizon as its own DirecTV deal picks up speed, might see it add something over half a million triple play customers each year. As many cable people have pointed out to us this doesn’t give much money to the telco out of the TV bundle, but it does have the effect of nullifying the triple play of the cable companies, and allows companies like Verizon to keep their existing customers.

This week, SBC impressed the US stock market with the fact that it had grown its business for the first time in a quarter for about three years. Previously a two-four per cent shrinkage was seen as inevitable by SBC, Verizon and Bellsouth in their wireline businesses, as they struggled under low interconnection rate rules and price increase caps that have been imposed by the FCC, as well as erosion from the cable TV firms.

Question of timing

But by focusing on rolling out fiber optic cable, high speed internet line additions, long distance growth and those DirecTV sales, SBC managed two per cent growth. Verizon has managed to just grow in each of the last four quarters, but has rested heavily on its Verizon Wireless revenues. It reports next week and we’ll likely see a similar pattern to SBC.

Verizon’s timing for launching the new service may well be a spoiler for results that may not be that impressive, but also its timing is critical in terms of the FCC and its potential for response.

Any controls that the FCC tried to impose now on VoIP services could be held at bay by legal action until a new administration is in office in the US. The presidential elections give it an initial six months to operate in this sector, while lobbying for VoIP services to remain unregulated for at least three years. Even if an unsympathetic administration came to power, the FCC doesn’t necessarily change, and it would likely take a further 12 months to agree and push through any FCC intervention on VoIP.

This means that Verizon is bound to have an 18 month run at this, during which time it can perfect its Satellite TV triple play, extend its reach into non-Verizon territories and negate the effect of the Cablevision price advantage.

As if to underline this shift to a new pricing paradigm, and coincidentally announced on the same day as the VoIP VoiceWing service, Verizon also said it wants to push through a phone rate increase of 75% in the Washington area with the Washington Utilities and Transportation Commission from $13 to $22.80 for residential customers and from $29.70 to $39.50 for business customers.

In April, Verizon filed its first general rate proceeding in 22 years while reporting a shortfall in covering phone costs of $239.5 million a year. Effectively it is saying that it needs to raise telephone prices or it has to lose money. This decision will affect 850,000 of its lines, less than one per cent of phone business. But if Verizon pushes this across the board in other areas, it could be signifying that the age of the PSTN is ended, and that the dawning of a new IP era is about to begin.

Copyright © 2004, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of events that have happened each week in the world of digital media. Faultline is where media meets technology. Subscription details here.

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