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21 October 2009

Verizon joins AT&T in pushing Quad play out to hurt cablecos

Two years ago when Faultline produced its first report on Quad play, we were told, in no uncertain terms that Quad play was old hat and that no-one wanted to hear about it. Of course that’s nonsense. There has been lots of talk, and almost no concrete action regarding Quad play, but at the time we predicted it would take about two years for AT&T and Verizon to get their Quad play act together.

Quad play SOUNDS old hat, but at the time we did that report there was only PCCW in Hong Kong and Rogers Wireless in Canada that offered 4 services in the same bundle, whether that was on the same bill or on multiple bills. At the time of our report Virgin in the UK created a Quad play and one or two French operators were beginning to put similar packages in play. The problem is one of systems integration, and in particular the integration of customer data, and that can often takes years to overcome for a major operator and it involves resolving two or three different billing systems so that it is clear that the same individuals who are using key mobiles, are also the householders in the Pay TV household.

The data needs to be well enough integrated so that if a home owner announces a change of address or a second home or corrects a spelling mistake on his address, it is reflected in all the other records. More importantly if a discount is offered for taking other services, the help desk has to be able to see that they are being delivered. At Rogers the company only managed it by creating a new integrated billing record and shifting all the household mobile accounts to it when a quad play discount deal was agreed.

This week Verizon is catching up with rival AT&T (which launched a quad play through an earlier initiative) by taking its first tentative steps towards a quad play. Verizon announced that its customers in the Northeast and Mid-Atlantic markets can buy a single package which combines wireless, TV, Internet and home phone services and the TV element can be made up either of the FiOS IPTV package OR a DirecTV satellite delivered service.

So it’s by no means four services offered over a single piece of infrastructure and for the non-FiOS customers it means that high speed internet will be delivered over copper, as will the fixed voice, while the TV will come out of the sky and the wireless has its own base station infrastructure ‘ but quad play is not about saving money putting multiple services over a single infrastructure (as perhaps triple play was) but more about churn reduction. Imagine for every customer that stays with Verizon for all four services, it saves four marketing costs and associated equipment costs to get them started (set tops and handsets). The savings can be more than considerable, and easily pay for all the expensive preparatory work with data integration.

We had predicted that at this time the US cable operators would begin (as they are) to offer mobile services, and back when Faultline wrote that first Quad play report, it was obvious that the triple play bundles from the cable operators were killing the big US RBOCs. They were each losing around 500,000 fixed line phones each quarter to cable’s well organized triple play offerings, and far more fixed lines were going to cellular only and independent VoIP replacement.

Today a glance at the Verizon web site shows that it has learned its triple play lesson and is holding the cable operators at bay (as best it can) with an $80 triple play marketed right off its home page. There are two other triple plays, at $120 and $130 for FiOS based triple plays, most of them based around the Essentials packs for phone and TV.

TV Essentials from Verizon consists of 250 channels including ESPN, Discovery, TNT, USA, MTV and CNN plus local channels, and a VoD library of 16,000 titles, as well as 47 music channels. The other more expensive bundles add to that Essentials package.

“Consumers want the best communication and entertainment,” said Mike Ritter, Verizon chief marketing officer for consumer wireline and business services. “These (quad play) plans let consumers get it all by offering the ultimate voice, entertainment and online experiences at home and on the go, combining all of our powerful services with maximum convenience and measurable savings.”

Verizon has managed to get four services on one bill, and the discounts from buying the individual services separately varying from $59 right up to $179 a month (the statement said per year, but we are sure this is a mistake). Verizon says it will also offer similar packages without traditional home phone service, so a triple play with wireless.

“We recognize that some customers prefer to use Verizon Wireless as their primary voice service while others appreciate the reliable convenience and the peace of mind that comes with a wired home phone as well,” said Ritter. “We’re offering the freedom and flexibility for customers to choose the Verizon voice service or combination of services that meets their individual or family needs, together with our complete line of industry-leading home-entertainment options.”

Verizon’s quad-play bundles will be initially available in the Northeast and Mid-Atlantic markets where Verizon offers landline and wireless services. The new bundles will be introduced in other Verizon markets in the future but with no dates or guarantees given of the timeframe.

Verizon is offering a $150 Visa Prepaid card for all customers that sign up by January 16 as a special promotion and for some packages is offering three months internet for free as well as free access to 14,000 Wi-Fi hot spots. Existing Verizon customers can add services to make up a bundle and still get the same discounts and extras.

The basic Verizon quad-play FiOS bundle consists of the national Verizon Wireless calling plan of 450 minutes, Freedom Essentials voice service, FiOS Internet service with downstream/upstream connection speeds of up to 15/5 Mbps and FiOS TV Essentials service all for $135 a month and only the need to sign up for a one-year agreement.

Where customers are on the copper network they get much the same except just 3 Mbps internet connection and have to sign up with DirecTV for two years, but then again it only costs $125 a month.

Right now none of the rival cable operations offer a quad play, but they are right on Verizon’s tail. Cox is building out its own cellular network, while Cablevision is building an ambitious wi-fi ingredient with a contiguous cloud wi-fi over much of its prime New York area, and the other major cable operators each have resale agreements for Clearwire (not for mobile voice yet but it’s coming).

The past five years at Verizon and AT&T have been about acquisitions and growing their cellular base while losing as few fixed lines as they can, while trying to get themselves in this position. They can now begin to attack cable on a superior footing in these new target areas.

In August AT&T offered a ‘buy 2 get one free’ approach to cellular, fixed broadband and home TV services to its U-Verse customers in a bundle, which gave at least a $30 discount a month to people taking TV and a total of three of the four services. AT&T made the same claims that Cable would not be able to match such services.

Once cable operators such as Comcast, Time Warner Cable and Cablevision get to grips with bundling Clearwire’s Clear WiMAX service with their existing voice, broadband, TV triple play bundles, there will be little to choose between the two types of operators, and price will become one of the key ways to differentiate, but we suspect that support and customers are will be the secret weapon in this war.

In the past, cable operators have proved themselves more flexible in being able to go up against telcos with clever bundles, and have been growing ARPU among existing subscribers, based on the addition of services ‘ VoD, HD, online gaming, multi-room DVRs, as well as the core offerings, rather than by raw customer acquisition. They may well begin to have to fight considerably harder to retain customers going forwards.