As part of a comprehensive analysis of the recent slow-down in broadband growth, which I conducted earlier this month, I concluded that the recent drop in new high-speed subscriber additions would spark price reductions in cable modem and telco-based broadband offerings — in the most competitive markets, anyway. Sure enough, Verizon announced this morning that it is offering a new, broadband “price-for-life” package.
Under this option, consumers who sign up under a two-year commitment are guaranteed no further price increases for their DSL-based services for as long as they keep Internet service over a Verizon phone line. Verizon DSL customers that sign up online for the 768 Kbps/download service are guaranteed a lifetime price of $14.99/month, while customers that buy the 3 Mbps/download service online are guaranteed a lifetime price of $27.99. (Customers that opt to call in for these service options will be charged higher monthly rates, a move designed to discourage the costly call-in process.)
What isn’t covered in this price-for-life offering is Verizon’s super-fast FiOS service. That’s because FiOS is still going gangbusters. Moreover, the capital costs of the fiber-based service are still too high; Verizon can’t afford to lowball the price of this service just yet.
What’s interesting about this next round in the broadband pricing war is that unlike the first battle, sparked by the incumbent telcos in 2003, the price reductions are more complex. Back in 2003, Verizon and SBC simply lowered the monthly prices of their DSL options to jumpstart market share gains.
Now, however, as Verizon’s price-for-life move suggests, telcos and cable operators are going to play around with effective prices, not nominal or absolute prices. Although price-for-life doesn’t sound like a rate cut, it will play out the way in the future, or so Verizon seems to be suggesting.
Another major broadband service provider (and top Verizon rival), Cablevision Systems, plans a similar effective price reduction, although Cablevision’s high-speed price adjustment will be buried in a triple-play option that offers video, voice and data service for $99/month. The $99/month plan is nothing new — Cablevision has been offering this for a quite a while to totally new customers. What is new is that Cablevision plans to extend this option to its existing subscriber base.
This broadband price war redux, then, is more sophisticated, more complicated that the first head-to-head battle between telcos and cable operators. That’s to be expected. Phone companies are already pricing their DSL services as low as they go and cable operators don’t want to give up the fabulous margins their cable modem services deliver. Any further rate reductions have to deliver other benefits, such as lower churn (price-for-life) or expanded subscriptions ($99 triple-play bundles.)
Cynthia Brumfield at 1:32 PM|Comments(1)
Just a suggestion for people those have Verizon DSL service. Please do not switch to Verizon FIOS. Once you switch to FIOS you will be paying much higher price for the FIOS service (About $52.99) and Verizon won't let you switch back to DSL service.
Posted by: Ben at October 14, 2007 9:48 AM
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