Why Verizon Should Give Away FIOS Connections and Get People Addicted to Speed.

I just got a postcard from Verizon telling me FIOS will soon be available in my neighborhood. While I’m probably one of the last residential CLEC subscribers in the United States, I’m a firm believer in the idea that fiber is better and have been waiting for FIOS to become available so I can look at switching.

Then I saw the prices. Yuck. Verizon prices its FIOS as “competitive” with cable and other providers in my region — for a premium service. But it takes more than competitive to get me to go through the hassle of switching, especially when I am reasonably comfortable with my service right now. Switching doesn’t just mean spending several days going through hook up Hell and having Verizon install some super duper power pack on my premises. It also means changing a whole bunch of things tied to my (or my wife’s) current email address. That’s no small deal.

Meanwhile, as everyone knows, the cable operators did better at gaining new broadband customers in Q2, although uptake for broadband was generally anemic. Not surprisingly, Verizon defends its performance on its policy blog. Besides the usual (when you do poorly) inveighing against looking at a single quarter. Verizon points to a number of indicators that its FIOS system is the top dog system in the U.S., with possible top speeds of up to 50 MBPS and usually providing its advertised speed (I love that as a selling point!). Still, analysts argue that Verizon is pricing itself out of the market, and should go back to DSL.

I have a different take. I think VZ needs to get people addicted to speed.

More below . . . .

Right now, no one develops applications for the U.S. that require 50 MBPS downloads. Why? Because almost no one even has access to this speed, let alone subscribes to it. Generally, people develop next generation content and applications that push the envelope on existing available speed. Which is why back in 1999, when I and others pushed to open up the cable broadband system for mandatory interconnection and wholesale (called “open access”), everyone looked at us funny and said “who cares about speeds of 1.5 mbps? No one needs that.” But as more and more people got (theoretical) speeds above 1 mbps, more people began designing content and applications for that speed. This left dial up customers unable to get access to certain content and applications, so they bit the bullet and upgraded. Continue cycle.

VZ speaks truth when it says it has the best network (where available), because they have invested in making that happen. But most of the advantage of that is still theoretical. Even where VZ sells FIOS, the affordable speeds are down where they are “competitive” with cable. So no one in the U.S. is developing applications that would require a 50 mbps connection because the number of people with such a connection is really tiny. Yes, heavy users and early adopters are following the usual cycle , but not fast enough to change the nature of online applications or content — especially in the face of stagnant growth and economic uncertainty.

But suppose VZ started giving away high speed connections cheap? Suppose they made a deliberate effort to get us all addicted to speed? Say, 1 yr of 50 mbps at $10 a month or something outrageous like that. You could bring in a lot of new customers pretty quickly. But the effect would be longer lasting. It would create a base of demand for applications that won’t work effectively at cable speeds.

And that is where Verizon has a huge advantage. If Verizon changed the nature of online content by making enough high speed connections available and affordable, we would see a quantum leap in the nature of applications and content — at a time when cable operators and even AT&T are taking a step backwards by muttering about metered pricing — it would give itself a huge edge over its cable rivals. Especially when combined with Verizon’s wireless assets, a serious influx of high bandwidth content and applications brought about by widespread high speed adoption could lock in customers that become addicted to the combo of speed and mobility.

None of this will happen, however, as long as Verizon insists on pricing its high speed offerings “competitively.” Verizon apparently gambled on demand for broadband remaining firm, and thus acquiring enough customers by persuading those moving to broadband from dial up (or even getting online for the first time) to start with a premium line. To the extent this logic ever made sense, it is completely inapplicable in hard economic times. If Verizon wants to addict us to high speed, it needs to play the pusher with a will. That means dropping the price of their highest speed connections below “competitive” to downright insane.

I’ll add that if they would like to experiment with this strategy by giving me a free 50 mbps connection for a year, I am open to negotiation.

Stay tuned . . . .

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4 Comments

  1. JohnMc says:

    Harold though I agree with your concept of a market pitch there is a fly in the ointment. The fly of course is no turning back. Not because of the speed. But because Verizon is loathe to disclose to you that once you go FIOS they will no longer return you to copper if you put a gun to their head.

    Rationale is it is cheaper for Verizon as glass is impervious to water/moisture unlike copper. So if they can get you and a good portion of the neighborhood off then their last mile support costs drop.

    I would also agree with your pricing observations. Part of VZ’s layout is to be too much like the cable companies in offerings. What VZ ought to be doing with the BFP is moving to a direct channel offering with all the major studios. TVoIP on steroids. Also go full ala-carte on the channel line up as well.

  2. Harold says:

    Yes, this is why the FCC needs to resolve the pending Petition on rules for copper loop retirement. But I do not imagine that will get resolved until the next FCC.

  3. JohnMc says:

    So how is copper retirement going to work? If I am the last hold out in a subdivision am I as a subscriber to be cut off or forced over to fiber with VZ or AT&T? And at the fiber rate or at the old copper rate? Especially since the FCC still seems hidebound to not see carrier of last resort rules disappear. And whats that say to AT&T whose dug their heels and still uses copper for thier version of FTTP?

    Devils in the details and there is sure to be a considerable gnashing of teeth. Fact it sounds like it might fit the too tough bucket for the FCC.

  4. You’re not the last CLEC voice customer; we have what’s now Matrix, formerly Trinsic, formerly Sprint. (Whee.)

    I’m loath to switch to FiOS for voice service, though; I still have a tendency to believe that the POTS loop has been engineered and refined for long enough that I can expect it to Just Work Damn Near Always.

    (This is less of an issue since we now have multiple cell phones in the house.)

    It doesn’t matter right now, since apparently Cambridge (MA) is too low-tech for VZ to deign to offer FiOS to its residents and businesses. Or something.

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