Deal marks first major price competish in the sector
It seems that two can play the triple play game.
Baby Bell Verizon and DBS operator DirecTV on Thursday announced their launch of a comprehensive bundle of digital TV, local phone and high-speed Internet at a price significantly less than the equivalent offered by many cable companies.
Companies claim customers that buy Verizon’s best package, which includes unlimited long distance and local calls, DSL and DirecTV, can save more than $240 per year relative to the local cable alternative offered by Cox Communications.
Under the bundle offer, customers get DirecTV’s $43 TotalChoice Plus (which includes local broadcast channels) for around $34 a month, or a 20% discount. The phone service component costs $55, with high-speed DSL going for $30.
However, analyst Rich Greenfield of Fulcrum Global Partners said the discount claims are somewhat misleading as Cox actually discounts its triple-play bundle by $10 in Rhode Island, meaning the annual cost savings is only $120 per year for the sat option.
Rhode Island first
Package will roll out in Rhode Island on Tuesday, then in the rest of New England and the mid-Atlantic states in the coming months, with additional markets to follow, the companies said. By mid-2004, the companies will be able to offer integrated billing of all three services plus wireless on a single bill. Verizon’s target launch zones put the offer in direct price combat with Cablevision, Adelphia and Comcast.
Cablers have claimed the so-called triple play as their own for years, arguing that the two-way capabilities of their cable pipe makes it easy to offer all three in one tidy offer. Until recently, the voice component was limited, though operators like Time Warner have recently stepped up their efforts to deliver a low-cost phone service using Voice over Internet Protocol (VoIP).
In the last year, both DirecTV and rival EchoStar have started teaming up with telcos, themselves eager to protect their declining market share for local services, to compete with cable’s one-stop shop.
The tie-up with Verizon, already inked before Rupert Murdoch’s News Corp. bought control of the Hughes satellite platform, enables DirecTV to replicate the kind of triple play of voice, video and data that cablers insist is their major competitive advantage over satellite.
And while the bundle doesn’t precisely replicate that of cable — video-on-demand is still a non-starter for satellite given its current two-way technical limitations — it’s a sign that the telcos and satellite providers intend to mount a video price fight against cable.
News Corp.’s marketing and customer service SWAT team already is busy reshuffling the satcaster’s back office and service operations to trim subscriber acquisition costs and reduce churn. Company is also looking to move away from selling satellite in retail outlets where it’s compelled to pay hefty royalties in favor of more direct sales efforts.
First price competish
Deal marks the first major price competition in the sector, noted CSFB analyst Lara Warner. In a research note Thursday, Warner said the addition of the telcos as a discount distribution channel for satellite TV service, combined with an expected increase in the level of competition from DirecTV under News Corp. ownership, potentially gives the cable industry less pricing power.
“We believe Verizon’s action to discount video pricing further escalates the competitive battle between the cable industry and the RBOCs,” Warner wrote.
Verizon has already been aggressive in challenging cable, reducing its high-speed offer in some cases to $30 per month and moving ahead with plans to deploy residential VoIP services similar to cable’s own voice efforts.
EchoStar, SBC plan offer
EchoStar plans to launch its own bundled offer in conjunction with telco SBC.
“We want to make it easy for customers to get everything they want from one trusted provider — Verizon,” said Bob Ingalls, president of Verizon’s retail markets group. “Our offer of local, long distance, wireless, Internet and now video service with one call and, soon, on one bill is unmatched in breadth, simplicity, quality and value.”
Steve Cox, executive vice president, sales distribution and marketing for DirecTV, said the company will “leverage the strength of both brands along with the compelling array of telephone, data and video service bundles to provide a superior alternative to cable.”