Why Is Verizon Offering Prepaid Fios?
Verizon has launched a new effort to extend Fios service into more US households. The telco is introducing a prepaid option that includes access to standalone Internet service as well as bundled offerings of broadband, TV and voice service.
The move is a clear indication by Verizon Communications Inc. (NYSE: VZ) that it wants to get aggressive in improving its penetration rates where Fios is already deployed. As of the end of 2016, Verizon's Fios Internet penetration was 40.4%, but Fios video penetration was down to 34.3% compared to 35.3% the year prior. (See Verizon Feels Cord-Cutting Pinch.)
The prepaid option means Verizon can now court customers that don't have access to credit, and also subscribers who don't want to commit to a long-term contract. There's no credit check, deposit, annual contract, credit card or equipment required to sign up.
The big question is: Does a prepaid option make financial sense for Verizon?
For $60 per month, prepaid subscribers are promised symmetrical broadband speeds of 25 megabits per second with a free WiFi router included. It's worth noting that Verizon doesn't impose data caps with Fios, so that standalone service also comes with unlimited data usage.
For an additional $40 or $50 per month, subscribers can add on a customized TV package (with one free set-top), and for another $10 monthly fee, Verizon will add voice service to the bundle.
The services aren't cheap, but importantly, neither is customer acquisition for Verizon. In many cases, Verizon still has to pull fiber to a new home even when Fios is already available in a neighborhood. That's a worthwhile investment to gain a long-term subscriber, but if a customer only signs up for a month or two, can Verizon recoup its costs?
Verizon emphasizes that some households will be able to take advantage of a self-install option for prepaid Fios. However, that presumably refers to homes that are already wired with fiber. For new customers that need professional installation, the cost is a one-time fee of $90. Again, that's not cheap, but neither is the cost of a truck roll.
The aggressive push for new subscribers may be Verizon's way of laying the groundwork for its next-generation Fios IPTV service. The more customers the telco can hook now, the more may consider upgrading to the new platform when the next-gen service launches. (See This Is the New Fios TV From Verizon.)
Alternatively, Verizon may simply feel that it needs to market a prepaid service to stay competitive. With the cable industry siphoning away subscribers, and increased pressure from online video providers, the telco needs something new to stand out from the crowd. Until Verizon's IPTV offering goes live, a prepaid service may be the best option available.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading