The Battle for Your TV Dollar
Verizon challenges Comcast’s longtime supremacy.
In case there was any doubt, a recent Time survey reaffirmed the enormous role television plays in the life of the average American. According to the report, watching television continues to be our favorite leisure activity. On average, Time says, men in the U.S. watch three hours and 28 minutes per day; women, two hours, 41 minutes.
Little wonder: $3-a-gallon gasoline, $9 movie tickets and $5 popcorn have helped to turn many Americans into happy homebodies, cocooned-up in their private multiplexes with huge high-definition television sets offering hundreds of channels, pay-per-view options and more.
Not surprisingly, this lucrative market has spawned intense competition for the right to feed a TV signal into our homes. The supplier making the most noise currently is Verizon, with its high-speed fiber optic (FiOS) network connected directly into homes. FiOS (an Irish word for “knowledge” as well as an abbreviation of Fiber Optic Service) has been introduced in Delaware, Maryland, Virginia, Massachusetts, Rhode Island, California, Texas, Indiana, Oregon, and large parts of Pennsylvania. The competition is particularly intense in this area, where cable giant Comcast has held sway for years.
More than 100 municipalities in Bucks, Chester, Delaware and Montgomery counties have awarded franchises to Verizon, covering more than 515,800 households in the four-county area. Verizon has agreed to pay the municipalities 5 percent of total programming revenues. The fiber optic network is being built parallel to the existing Verizon copper network, so the fiber will be placed underground and in the air, depending on what exists in the communities where the new network is installed.
John Wimsatt, senior vice president of marketing for Verizon, makes some strong claims about his company’s product: “The Verizon networks and services are second to none in sophistication and dependability, and our new one-of-a-kind fiber network straight into the home is unequalled by any other provider.”
Verizon’s FiOS TV Premier package offers 200 digital channels for $42.99 a month. The package includes more than 20 high-definition channels in the Philadelphia market and access to about 4,000 on-demand titles, 60 percent of which are free. Sports fans subscribing to FiOS TV Premier in the Philadelphia market also receive Comcast SportsNet at no charge.
Verizon offers three set-top boxes: standard definition for $4.99 a month; high definition, which includes HD channels, for $9.99 a month; and a dual-tuner, HD-capable digital video recorder for $12.99 a month. The response to the new Verizon product “has been extraordinary,” claims Bill Petersen, president of Verizon Pennsylvania. “[Sign-up] rates are higher than any product we’ve ever introduced. There’s a pent-up hunger for this product, and we’re seeing people sign up quickly. In fact, the biggest challenge is getting the product to the people who have indicated they want it. We have a long waiting list. It’s a nice problem to have.”
Reiterating Verizon press releases, Petersen asserts that the company’s network is the key to attracting new customers. “With this product, we are the only company in the United States that’s connecting our customers directly to fiber. Nobody else is doing that. Through this product, there is a tremendous amount of capacity for more programming—and more high-definition programming.”
Last year, Petersen points out, people bought more high-definition TVs than regular televisions for the first time. “Most cable networks can only add a few high-definition channels right now, and then they’re out of room,” he says. “We don’t have that problem. We can add 250 digital channels on top of the standard digital program everyone else is offering.”
IN RESPONSE TO THIS threat to its supremacy, Comcast seems unconcerned—at least publicly. “Competition is nothing new for us,” says company spokesman Jeff Alexander. “We compete vigorously every day on every level of our business. In the cable television market place, Verizon is often the fourth or fifth entrant [in our markets], and we love our competitive position. Our business is growing at an all-time record pace.”
First quarter 2007 figures bear out Alexander’s claim. Comcast reported a net income of $837 million, a gain of 80 percent from a year ago. Cable revenue rose 12 percent to $7 billion. The number of basic-cable subscribers rose by 75,000, and digital-cable subscriptions increased by a record 644,000 in the quarter. Comcast credits much of its success to its “Triple Play” bundle: cable, high-speed Internet, and phone service at an introductory rate of $99 a month for one year (for new customers). Additional offers are available after the first 12 months. “We have a lot of compelling offers in the marketplace,” says Alexander. Then, in a bit of a gratuitous jab, he adds: “We’ll have 10 million phone customers before Verizon has 1 million cable television customers.”
More to the point, Alexander disputes Verizon’s claim that its direct-to-the-home fiber optic cable offers advantages to the subscriber. “We see no discernible difference between fiber to the neighborhood [provided by Comcast] and fiber to the home,” he says. “Verizon is essentially re-creating the same network we built years ago. We see no difference.”
While maintaining that FiOS presents little or no threat, Comcast is stepping up its customer service, which has been something of a sore spot with subscribers. The company says it will hire 1,700 additional employees in the Philadelphia region over the next year. It also announced the opening a new customer service center in Newark, Del.—one of several serving the greater Philadelphia area.
The new hires, according to Alexander, will be predominantly “customer-facing positions”—technicians who make home installations and the customer service representatives who answer phones. “These hires are largely in response to the demand for our product in the marketplace,” he says. “In fact, we just recorded the largest seven-day growth of digital cable customers ever in our division. Eighty percent of our customers will be digital cable customers in the next 12-18 months.”
He points out that Comcast has improved its customer service by offering two-hour appointment windows and more early morning and evening appointment hours while increasing staffing on weekends.
But while Alexander may pooh-pooh the competition from Verizon, the interloper is stealing some customers from the local cable king. Among them is Carl Scherer of Wayne. Scherer had been a Comcast TV and Internet subscriber for a decade. On April 20, he switched to Verizon’s Triple Freedom package. He was on a dial-up Internet connection with Comcast, so the convenience and speed of the fiber optic connection was an incentive, along with the lower price (about $4 less a month than Comcast).
“The FiOS was not a huge factor” in his decision, says Scherer. “But its ability to grow because of the band width is an advantage. It should be good for 10 years or more.”
As for the TV picture? “It’s everything it’s cracked up to be,” he says, noting an improvement in clarity. Verizon is gambling that millions of the competitions’ customers will follow in Scherer’s footsteps. Petersen points out that FiOS is particularly valuable to Internet customers. “We can bring you much faster Internet speeds,” he says. “This product is a dedicated connection right to your house. When you get a cable modem, you share that bandwidth with everybody on your block, which is why right after school and right after dinner, your Internet speeds slow down. With Verizon, you don’t share that connection, which means it’s a faster, more reliable product.”
Nationwide, the cost of Verizon’s FiOS initiative is estimated at $22.9 billion. That includes rewiring more than half of Verizon’s copper telephone network so it can sell cable TV and Internet connections. The company hopes to offset that amount with $4.9 billion in savings from now until 2010, due to the reduced maintenance requirements of a fiber network. The project is not expected to generate positive operating income until 2009.
Competition, of course, bodes well for the consumer. According to the Federal Communications Commission, independent telecommunications analysts and consumer advocates, pay-TV rates drop when competitors enter the market.
So it seems a long and fascinating battle is inevitable, replete with rate cuts and creative package options. That means customers should have some measure of control—for a change—as they strive to keep the quality and delivery of services in line with their wallets.