Last week’s bit of nastiness for Verizon and BellSouth over their DSL “surcharges,” which are nothing more than relabeled USF fees, gets an airing at Business Week online. But given that BellSouth caved almost immediately in the face of FCC Chairman Kevin Martin’s anger, the piece focuses on Verizon, which, to date, hasn’t backed down on its surcharge.
To recap: the telcos formerly had to pay into a universal service fund (USF) to subsidize telecommunications in rural areas based on some portion of their voice and DSL revenues. The FCC eliminated the USF contribution for DSL, which the phone companies had passed on directly to consumers as a regulatory fee. But rather than cutting consumers’ bills, Verizon is continuing to charge all DSL customers an additional $2.70 or so per month, the amount of the former USF fee, in its newly reconstituted surcharge.
Here’s Verizon’s explanation about why it will continue to charge customers the additional amount — it’s a long explanation but read it carefully:
The company says it would have raised prices if it hadn’t gotten the regulatory relief, so the elimination of the USF fees lets it keep prices pretty much unchanged. Verizon prices DSL service competitively, hoping to recoup costs with other products, such as phone and TV services, says spokesman Eric Rabe. Verizon profits more from customers who subscribe to two or more of its services because each additional connection only adds marginally to the cost of supplying an original phone line.
SPREADING THE PAIN. The trouble is, many customers are opting for “naked” DSL, or standalone broadband. “The revenue from phone service helps pay for that DSL line,” says Rabe. “That revenue goes away when a DSL customer decides that they just want a cell phone (and disconnects their phone service). Now we have all of that cost for that line only offset by the DSL service.”
So Verizon opted to spread the added cost of the DSL-only subscribers over the entire Internet customer base by appending a monthly fee of up to $2.70 to all Internet customers’ bills, even those who also buy phone or television service through Verizon. “We didn’t want to make DSL service for those who don’t take phone lines prohibitively expensive,” Rabe explains. In other words, Verizon didn’t want to lose customers to cable services such as Time Warner’s RoadRunner (TWX ) by making it extra expensive to subscribe to only to its Internet service.
I read and re-read this explanation and it took me a while to figure out what’s wrong with it. Here’s why Verizon’s explanation is a bunch of ca-ca: By forcing all of its DSL customers to pay higher rates in order to keep the DSL-only customers on board, Verizon is making its best customers subsidize its worst customers.
In other words, Verizon is artificially keeping prices high for its triple-play customers and artificially keeping prices low for its DSL-only customers (by artificial I mean not these prices are not justified by the underlying cost structure). Under this scenario, Verizon may be keeping its DSL-only customers happier but it’s risking, to some degree, defection of its triple-play customers, or, at the minimum, isn’t offering its voice-video-data customers an additional reason to stick around.
So, Verizon contends that it must charge all DSL customers the USF equivalent fee so that it doesn’t lose some or all of its $25/month customers. (How many of those can there be, anyway?) Meanwhile, customers who buy bundles worth $125 or more per month are, well, screwed.
This makes no sense whatsoever — why would Verizon tilt pricing incentives toward its least lucrative service offering? My guess is that Verizon knows that its rationale is bunk.
The real reason Verizon is hanging onto the surcharge for everybody is because its DSL customers are already accustomed to paying it. At $2.70/month for 6.1 million high-speed subscribers (as of Q2 06), Verizon is gaining a windfall of $197.6 million per year.
The best part: the telco doesn’t have to do anything, nor does it risk anything, to get this money. Few, if any, customers will complain, particularly given that their bills won’t go up.
Posted by Cynthia Brumfield at 3:24 PM | Print | Comments (2)
Reuters’ Yinka Adegoke has this piece today that underscores how the web has usurped radio in making or breaking music bands. Chicago-based alt rock band OK Go has become a big hit because of its YouTube video “Here It Goes Again,” which features a widely imitated “dance” on treadmills.
The band’s videos were uploaded by fans from its web site and are now among the top-ranked videos on YouTube. The success of OK Go and other bands has prompted YouTube to launch a dedicated musicians channel for new bands and to aim for putting every music video ever made on its site.
YouTube is not the only source of band-making magic. UK-based band The Arctic Monkeys owes its chart-busting success to the Internet. The little-known Sheffield band produced the fastest selling album in UK history after fans uploaded the group’s demo CDs to the Internet.
In this sense, the Internet has supplanted radio as the main way for bands to break through. But now the cream has a better chance of rising to the top because both OK Go and The Arctic Monkeys owe their success not to gatekeeping record companies but to fans.
With the rise of direct-to-fan reach, and with YouTube hoping to become the premiere source of music videos, AOL picked either an inopportune or perfect time to launch its music store, AOL MusicNow. AOL MusicNow is open to any visitor (as opposed to only AOL paid members) and features 2.5 million songs.
But it carries a monthly subscription fee of $10 to $15 to access the music; AOL is just one of a dozen top contenders for online music sales.
Posted by Cynthia Brumfield at 9:17 AM | Print | Comments (0)
Jeff Pulver is taking this whole video-over-the-net thing very seriously and has devoted a good chunk of his time (or his team’s time) to cataloging and listing what’s out there on the net. Today he takes a crack at TV shows that only appear on the Internet — in other words, web original video programming.
He’s got a good round-up and he’s clearly aiming to create some kind of directory or guide to Internet video. But in this category of programming, i.e. video “shows” that appears only on the web, the entries are endless and coming up with any kind of comprehensive list or guide is a daunting challenge.
A while back I took a look at blip.tv, which is a platform that aims to help people create their own “TV shows” on the web. blip.tv stresses that its focus is different from YouTube or other one-off video sites because it’s helping to create ongoing series of video programming.
I raise blip.tv now because there are dozens of web-only TV shows on that site that don’t appear in Pulver’s list. My guess is that there are hundreds, if not thousands, of sites featuring video content that might fall into the category of “TV shows,” although, to be sure, the quality of most of these “shows” probably leaves a lot to be desired.
Posted by Cynthia Brumfield at 8:23 AM | Print | Comments (1)
Wired News is taking the Wiki phenomenon in an interesting direction. The site is inviting readers to edit a 1,059-word article by reporter Ryan Singel in a wiki set up at SocialText. The edited story will be released under a Creative Commons license and “if the whole thing doesn’t turn into a disaster,” will run on Wired News on September 7.
Readers will be able to do pretty much anything, except change quotes, including asking Singel to “get on the phone and investigate.” An intriguing experiment, but one that’s doomed for a simple reason: editing rights seem to be open to anyone, including jokesters, deranged individuals and teenage boys.
Even Wikipedia, the bastion of collective wisdom, says it’s “not a democracy,” and has pages and pages of complex policies and governance that even Wikipedia itself says is “inconsistent.” Still, hats off to Wired News for trying something different. Let’s hope the resulting product is 1. readable, and 2. not grounds for a lawsuit.
Posted by Cynthia Brumfield at 7:45 AM | Print | Comments (0)
The New York Times’ Saul Hansell has this follow-up piece today about eBay’s deal with Google. Although the deal was big news yesterday because it gives Google the right to sell ads on eBay’s sites outside the U.S. (Yahoo already landed the domestic rights), it’s also noteworthy for Google’s agreement to introduce a Skype-powered click-to-call feature in its ad program.
A lot of skeptics think that Skype’s click-to-call feature, which eBay hopes will generate some serious cash by giving sellers another way to reach buyers, is a novelty that won’t gain much traction and Hansell cites research to back up those doubters. But, whether Skype’s voice access feature does or doesn’t take off, you’ve got to give eBay credit for leveraging its enviable online auction reach to bootstrap its other ventures.
When eBay struck its domestic deal with Yahoo! in May, Yahoo! agreed to use eBay’s PayPal as its main payment system. Now, Google has to use Skype, even though it has a rival service, GoogleTalk.
Hansell quotes AuctionBytes newsletter editor Ina Steiner saying “It looks like eBay is milking its auction site as a cash cow to invest in PayPal and Skype.” Well, yes, but that’s a good thing. The more that eBay puts Skype out there, the better the chance that its $2.6+ billion purchase of the VoIP provider will pay off.
Posted by Cynthia Brumfield at 7:08 AM | Print | Comments (0)
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