Verizon is Unbundling TV in FiOS Packages to Capture Broadband Demand
Verizon (NYSE:VZ) recently announced new FiOS package bundles that allow customers greater flexibility and cost savings while choosing a plan by adding flexibility to its national triple play packages. [1] The goal to give customers greater flexibility – for instance those who want Internet and voice services but don’t need cable TV. So what does this indicate for Verizon and competitors like AT&T (NYSE:T), Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC)? Below we take a quick look.
Our price estimate for Verizon stands at $34.48, which is slightly below the current market price.
Focus on Tapping Existing Coverage Areas
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Verizon and AT&T could initially justify the high up front costs for building out its fiber-optic networks by offering more expensive bundled packages in order to generate higher average revenues per user. However, Verizon recently announced its plans to shift its focus on bundling voice and Internet services while giving subscribers the option to leave TV out of the package.
This move indicates that the company’s focus has shifted to connecting a higher proportion of homes in existing coverage areas – or “number of homes passed” in industry jargon – to its FiOS network. For Verizon, these homes can be easily and inexpensively connected to its FiOS network because the infrastructure is already established.
Verizon is taking a more flexible strategy that allows users to choose what services they want and in particular noted that increased demand among younger users for higher broadband speeds but no TV option was part of the decision to roll this out. [1] This also makes sense because the company earns a much higher margin on broadband services than it does on cable TV services. Consequently, we believe that the company will push these plans to sustain its broadband subscriber growth shown above.
The rationale of increasing the breadth of suitability is further complemented by the fact that TV viewing habits of consumers are changing. This implies that there has to be a trade-off between the time spent viewing video on the Internet verses TV. This further implies that having the flexibility to chose from multiple broadband and TV tiers and forming a more personalized bundle may appeal more to consumers and help them decide this trade-off.
See our complete analysis for Verizon
Notes:
- Verizon’s Bundle Builder shows the power of broadband, June 6 2011, GigaOm [↩] [↩]