Why Verizon Cut DSL Rates
lightreading.com
A dramatic DSL price cut by Verizon Communications Inc. (NYSE: VZ - message board) has industry tongues wagging, and it's focused attention on the importance of so-called bundled services to the future of telecom.
Verizon won't officially confirm a rate change, but its Website clearly states a new offer of $34.95 per month for DSL as part of the RBOC's high-speed Internet access package with Microsoft Corp. (Nasdaq: MSFT - message board). That price is down from the previous price of $49.95 per month. What's more, further discounts are likely for customers opting to bundle long distance and local service with DSL.
Analysts say the cut is significant on two counts. First, it's an aggressive bid by Verizon to keep customers from the temptation of cable modem Internet service. Second, it highlights the role of bundled services in carrier strategies.
"It takes some fear to have a reduction like this," says Judy Reed Smith, founder and CEO of Atlantic-ACM, a telecom research and consulting firm. "Verizon saw the numbers coming from cable modems."
Research underscores this point. Over the past four years, the number of cable modem subscribers has outnumbered DSL ones by a significant margin, according to New Paradigm Resources Group Inc. (see Report: Cable Still Beats DSL ). What's more, by tacking cheap Internet access onto cable TV in bargain packages, MSOs are not just selling higher volumes, they are cultivating a sizeable installed base from which to build so-called "triple play" services that include voice, data, and video bundled together.
This has been a pain to Verizon and other incumbents, which haven't been happy with their returns on DSL and hate losing customers to an alternative technology. "This [DSL price cut] is really an attempt by Verizon to lower churn," says Rick Black, senior telecom analyst at investment bank Blaylock & Partners LP. Losing 2 percent of customers annually to other providers may not seem like much, but it can have a debilitating impact on relatively small DSL volumes, he says. |
