It takes a lot of moxie to raise prices in a deep recession, particularly when you are the newcomer to a hotly competitive market.
Librado Romero/The New York Times A Verizon FiOS technician installs cables in Staten Island, N.Y.But that’s exactly what Verizon is doing with its FiOS service. In many markets, the company is raising the price of basic triple-play bundle (TV, Internet and Phone) to $109 from $99. The price of its step-up bundle, with faster Internet service and more channels, goes up by $10, to $119. The price of the most expensive bundle falls to $129 from $139, but now that includes Showtime instead of HBO and a bunch of other movie channels.
(In New York City and its close suburbs, the basic price goes to $99 from $94, and the step-up price goes to $109 from $99. The company is raising Internet speeds for all these packages rather significantly. Current customers keep their existing prices and Internet speeds until their contracts run out.)
However gutsy it may be, Verizon didn’t want to talk about its price increases. It called a video press conference Monday, to boast about the faster Internet speeds, as well as new promotions and new local TV news channels for Long Island and northern New Jersey. The price increases were not mentioned.
Specifications and features are interesting to talk about, but it’s worth remembering that the most important metric for any telecommunications company is average revenue per user. And a great deal of what executives do is try to come up with products and promotions to get customers to spend more each month.
Mike Ritter, the chief marketing officer for FiOS, made it clear that the company was feeling good enough about its brand position that it could charge a premium price even as it tried to steal customers from cable. Indeed, he said the company expected to sign up more new customers for the more expensive plans.
“You will not see us advertising prices any more. You will see more about what the experience can be,” he said.
Verizon is working on other features that will bring Internet services like social networks onto television sets and also take pay-per-view movies, purchased on the set-top boxes, onto computers and cellphones, he said.
Verizon is raising prices when all the operators are heavily marketing triple-play bundles. In the New York area, Time Warner Cable and Cablevision are both trying to attract customers with $90 plans for the first year. Comcast, which competes against FiOS in much of the Northeast, is promoting a $99 introductory bundle that includes HBO and $200 cash back.
Of course, these bundles are offered with one- or two-year introductory rates. The companies are much less clear about what customers’ rates will be when the initial deals expire. Essentially, they hope that customers don’t notice a big jump in their bills, but they are prepared to negotiate if needed to keep people’s business.
It makes economic sense for Verizon to try to compete more aggressively in the premium end of the video and Internet market. Cable companies, with larger video customer bases, have lower costs and thus can better compete on price. FiOS, while expensive for Verizon to build, has higher capacity. So it’s easier for it to add Internet speed and high-definition channels to its higher-end packages.
The easiest place to make that case is Internet speed. Verizon’s basic tier for FiOS will now offer 15 megabits per second for downloads and 5 Mbps for uploads. In industry shorthand, that’s referred to as 15/5 service. FiOS’s previous offering started with 10/2 service. Purchased outside the video bundle, the faster base offering, costs the same $45 a month.
The mid- and high-priced bundles now get 25/15 service, increased from 20/5, but the price for higher speed increases to $65 from $55. In New York City and Long Island, the midtier speed is now 35/20.
These speeds beat what rivals offer at similar price points. In markets with its latest technology, Comcast’s basic offer is 12/2, with an upgrades to 16/2 and 22/5. Cable vision offers 15/2 service with an upgrade to 30/5. Time Warner Cable is slower.
Moreover, Verizon hopes to emphasize upload speed as a point of differentiation because cable technology has less upstream capacity. To emphasize uploads, one of the company’s promotions offers new customers a high-definition Flip video camera, that generates some rather large files people may want to share. (The other promotion is a free Hewlett-Packard netbook, for people taking the midtier bundle.)
Mr. Ritter said Verizon wasn’t focused on offering 50-Mbps or 100-Mbps service as some cable companies were for $89 a month and up. That’s simply too much money for mainstream customers, particularly when people don’t know what to do with that much speed. Verizon, rather, is looking to create new services, such as high-definition teleconferencing, that it can package in with higher speed services.
“We don’t think that with the economy like it is now, increasing the customer’s bill by $100 a month makes sense,” Mr. Ritter said. In the future, “What we want to do is at the same time we increase the speeds to 50-plus or 100-plus, we introduce new applications at the same time that increase the value of those speeds, so we can monetize that.”
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