x
Optical/IP

Why Verizon Cut DSL Rates

A dramatic DSL price cut by Verizon Communications Inc. (NYSE: VZ) has industry tongues wagging, and it's focused attention on the importance of so-called bundled services to the future of telecom.

Verizon won't officially confirm a rate change, but its Website clearly states a new offer of $34.95 per month for DSL as part of the RBOC's high-speed Internet access package with Microsoft Corp. (Nasdaq: MSFT). That price is down from the previous price of $49.95 per month. What's more, further discounts are likely for customers opting to bundle long distance and local service with DSL.

Analysts say the cut is significant on two counts. First, it's an aggressive bid by Verizon to keep customers from the temptation of cable modem Internet service. Second, it highlights the role of bundled services in carrier strategies.

"It takes some fear to have a reduction like this," says Judy Reed Smith, founder and CEO of Atlantic-ACM, a telecom research and consulting firm. "Verizon saw the numbers coming from cable modems."

Research underscores this point. Over the past four years, the number of cable modem subscribers has outnumbered DSL ones by a significant margin, according to New Paradigm Resources Group Inc. (see Report: Cable Still Beats DSL). What's more, by tacking cheap Internet access onto cable TV in bargain packages, MSOs are not just selling higher volumes, they are cultivating a sizeable installed base from which to build so-called "triple play" services that include voice, data, and video bundled together.

This has been a pain to Verizon and other incumbents, which haven't been happy with their returns on DSL and hate losing customers to an alternative technology. "This [DSL price cut] is really an attempt by Verizon to lower churn," says Rick Black, senior telecom analyst at investment bank Blaylock & Partners LP. Losing 2 percent of customers annually to other providers may not seem like much, but it can have a debilitating impact on relatively small DSL volumes, he says.

Table 1: RBOC DSL Progress Report
DSL subscribers added in latest fiscal quarter Total DSL subscribers to date
BellSouth 101,000 1,122,000
Qwest N/A 535,000
SBC 270,000 2,500,000
Verizon 160,000 1,830,000
Source: Company Websites, earnings reports


Others agree. "Verizon sees lower margins on certain services like DSL. If it can lower churn rates... it will make money if it continues to grow its business," says Tavis McCourt of Morgan Keegan & Company Inc.

Verizon hopes to combat customer losses through bundled offers of its own. Indeed, carriers of all stripes -- RBOC, IXC, and MSO -- are building their futures on bundles of different services offered with "more the merrier" discounts. There's evidence of this in recent earnings announcements (see US Incumbents Go the Distance, Verizon Earnings Don't Disappoint, SBC's Quarter: Growth in Key Areas, and US Incumbents Go the Distance).

Verizon will get takers for its cheaper DSL, according to analysts. But what will be the longer-term, bigger-picture impact of this move? Will it drive down prices for other telecom services?

Not really, says Judy Reed Smith. Voice services already have been pounded by price wars, she says. Business and wholesales services also have been battered and are just stabilizing now. Much depends on what happens when carriers such as MCI (Nasdaq: MCIT) (formerly WorldCom) and Global Crossing Holdings Ltd. get back in the race. If they engage in price cuts, things could be sticky for other carriers, even though demand may go up.

Blaylock's Black says other price reductions in telecom will be selective by region and market. Verizon and SBC Communications Inc. (NYSE: SBC), for instance, are likely to cut rates on services in highly competitive regions such as California or the former Ameritech states of Illinois, Indiana, Michigan, Ohio, and Wisconsin.

Bottom line? The growth of bundles and increased competition, albeit isolated to specific locales, could have a positive impact on the market. But given the wild cards of carriers emerging from bankruptcy, ongoing regulatory battles in the U.S., and the huge uncertainties of telecom economics, analysts aren't going out on a limb to predict it.

— Mary Jander, Senior Editor, Light Reading

Page 1 / 2   >   >>
Dr.Q 12/5/2012 | 12:06:48 AM
re: Why Verizon Cut DSL Rates Verizon's price drop is a step in the right direction. Now they need to expand the geography in which they can actually _provide_ DSL. My office is ~1000 feet too far from the node for Verizon to provide DSL.

A very good article in today's NYTimes.com on the status of the Korean broadband service. It includes a chart showing the portion of homes with internet connection that are connected by DSL:
Korea 57.4%
Canada 49.9%
Japan 25.6%
US 22.8%

http://www.nytimes.com/2003/05...

-Dr.Q
sgan201 12/5/2012 | 12:06:44 AM
re: Why Verizon Cut DSL Rates Hi,
With ADSL2+, your locaction will be reachable without running fiber..
BobbyMax 12/5/2012 | 12:06:40 AM
re: Why Verizon Cut DSL Rates Verizon is running a debt over $64 billion. The funny part of this debt is that noone understands how was the debt of $64 billion accumulated. The compamy does not want to answer its shareholders about its debt.

Verizon still maintains a large managemnt staff with nothing to do. The company does not outline as to how the company will clear the debt. Currently it has no plans.

Verizon has not presented any business case regarding the reduction of the DSL subscription rates.
gea 12/5/2012 | 12:06:38 AM
re: Why Verizon Cut DSL Rates BobbyMax:

All your base are belong to us.
Jet 12/5/2012 | 12:06:21 AM
re: Why Verizon Cut DSL Rates For example the approach Amperion is currently testing in 2 locations looks promising, aside from the other 1000 things happening with Wi Fi

DLS's major problem is location and Cable's major problem is load, both largely intractable.

Wi Fi will soon threaten both
DanJones 12/5/2012 | 12:06:19 AM
re: Why Verizon Cut DSL Rates Hmmm, I agree that wireless LAN could be a threat to cable/DSL -- but backhaul, capacity and interference are problems at the moment.

Backhaul is the hidden cost of WLAN. These access points have to terminate somewhere to get internet access, i.e back to DSL, T1, T3. So I notice that Ameperion is using powerline networking, be interested to know how that works ([email protected]).

Capacity is the second big problem. In theory, you could have 40 to 60 users sharing an 802.11b wireless LAN connection. In practice, about 10 simultaneous users is the most you can have on a network and still have a satisfactory surfing experience. Some of the Qos updates to the 802.11 standards should allow Wireless ISPs (WISPs) to enable customers who pay more to get better service, but its months (maybe a year) before these will be incorporated in the standard.

Once you do have a network up and running interference becomes the next big problem. Once you start to put too many access points (WLAN radios) in one place, you can get interference because the channels overlap (unless your adminstrator is prepared to go round and adjust each access point so it runs on a separate channel). There is kit coming that can help manage this, but it is mostly aimed at enetrprise users.

802.11b is also on the 2.4GHz band, a public band that is subject to interference from cordless phones, microwaves, Bluetooth devices and those stupid wireless video cameras they advertise in the pop-up ads on the internet (see what you've been missing!).

So yeah, I think WLAN is interesting and potentially very useful technology, but I think its more of a complement to cable/DSL than a replacement.Its in the hype phase at the moment, people want to see it as a pancea for all ills rather than taking a straight look and at the problems and benefits.

Dan Unstrung

http://www.unstrung.com
rjmcmahon 12/5/2012 | 12:06:06 AM
re: Why Verizon Cut DSL Rates Hmmm, I agree that wireless LAN could be a threat to cable/DSL -- but backhaul, capacity and interference are problems at the moment.

These are the problems that laggards are banking on the keep them in business. They'll do everything in their power to keep the problems around.

Wi-Fi seems destined to the fate of CB radio on the content side and to the fate of portable phones on the network side. Neither outcome is very interesting in my opinion.

There is truth to the suggestion that our future depends on getting rid of legacy wires. Though, the best replacement for those wires is fiber. When that happens, we can say our final goodbyes to the problems you stated above.

PS. Did anybody happen to see the cable execs testify in front of the Senate Commerce Comittee yesterday? The execs from the weaker cable cos seem to be going to Congress hoping they can raise consumer monthly rates as well as shift power out of the hands from the popular sports networks. I have to admit this time the testimony did put me to sleep.

Spending Senate and CEO resources fighting over whether ESPN should be in expanded basic or a premium tiered service was a sad statement about the state of our communications infrastructure. Makes one wonder sometimes about our country's vision. The next generation will have to fix that as these old men seem unable to do the job, even with modern lasik surgery.
Jet 12/5/2012 | 12:06:02 AM
re: Why Verizon Cut DSL Rates you state

"Wi-Fi seems destined to the fate of CB radio on the content side and to the fate of portable phones on the network side. Neither outcome is very interesting in my opinion.

There is truth to the suggestion that our future depends on getting rid of legacy wires. Though, the best replacement for those wires is fiber. When that happens, we can say our final goodbyes to the problems you stated above."

Prop planes are still flying 60 yrs after invention of the world's first operational jet fighter. Legacy systems will be here for a long time. I cannot see how FIBER could ever resolve the "last mile" issue -given its incredibly high connection costs.

As for comparing Wi Fi to CB, it reminds me of another famous quote:

"There is no reason for any individual to have a computer in their home."
Ken Olsen, president of Digital Equipment Corp., 1977




rjmcmahon 12/5/2012 | 12:06:01 AM
re: Why Verizon Cut DSL Rates Prop planes are still flying 60 yrs after invention of the world's first operational jet fighter. Legacy systems will be here for a long time.

Agreed, sorta. Legacy interurbans and intraurbans are gone for all practical purposes. The auto industry ripped them out when they put in our paved roads. Prop planes is a hobbyist market and very few are being built today.

I cannot see how FIBER could ever resolve the "last mile" issue -given its incredibly high connection costs.

One needs to look at the entire cost side of the proposition. The sunk labor costs to lay the fiber contribute one portion to those costs. Opex costs and opportunity costs also need to be factored in. (And in the case of today's network, the politicians and lobbyists add a huge tax burden to the system.)

As for comparing Wi Fi to CB, it reminds me of another famous quote:

"There is no reason for any individual to have a computer in their home." Ken Olsen, president of Digital Equipment Corp., 1977

I don't understand your comparison. CB radio enabled peer/peer as goes the rationale for Wi-Fi. Peer/peer doesn't enable high value content businesses. Any new high speed IO infrastructure that doesn't enable content producers to make a living will fail (after all the loot is stolen).

What were you trying to suggest?
Jet 12/5/2012 | 12:05:55 AM
re: Why Verizon Cut DSL Rates Even "Fiber to the Curb" appears to be going nowhere fast as the ultimate "last mile" solution for the bulk of the 90 million plus american households.

Ken Olsten's statement was of course absurd, and its demonstrates how even otherwise brilliant people can lose their objectivity when they have innate biases, which in Ken Olsten's case was his need to keep his DEC mini-computers as the top dog.
Page 1 / 2   >   >>
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE