Verizon's (NYSE:VZ) decision to get rid of long-term contracts for its FiOS customers in Tampa, Fla. is a realization that no matter how compelling Fiber to the Home is in terms of speed and service capabilities, consumers want more freedom in how they are billed for their broadband bundle--regardless if it's delivered over fiber, HFC or good old copper.
Now, Tampa residents lucky enough to get FiOS can pay month-by-month. Consumers that were on the fence about switching to FiOS won't be charged an extra $20 to $30 penalty for the month-by-month payment option.
Another obvious element of their announcement indicated by my colleague Jim Barthold at our sister publication FierceCable is that Verizon needs another point of differentiation over cable. As "the novelty of Fiber to the Home (FTTH) wears off," Verizon is finding that it needs something more to sell people on purchasing the service besides the fact that it's carried over a fiber connection.
In fact, Verizon admitted that penalizing customers with higher prices for not signing up for a one- or two-year contract has been a turnoff to signing up for FiOS. "Tampa is a very competitive market, and we've been told by customers either directly or in focus groups that they know our service is better but a contract has been a barrier for purchasing FiOS," Verizon spokeswoman Heather Wilner said. Think about it. Fiber may have the advertised promise of greater speed and flexibility, but what consumers are looking at is 'what can I get out of the deal?'
Outside of the tech-savvy user, or those of us that cover the telecom industry for a living, most of the general public can't distinguish whether fiber or HFC is the better foundation for service. Take my own parents, who live in Bedford, Mass., one of Verizon's target FiOS towns. My stepfather told me did not sign up for FiOS because it goes over a fiber connection, but rather because they were able to get voice, video and data for about $99 a month.
Given that consumers have various options to get their residential telecom services, they also want the option of terminating their service with one provider without penalty if they have a poor experience.
Verizon's move will likely prompt Tampa's incumbent cable operator to eventually respond with their own offering. Verizon's deal is competitively priced at $99 a month--users get TV Prime HD, FiOS Internet 15/5 Mbps and FiOS Digital--while BrightHouse Networks offers a triple play package of voice, data and video for slightly more at about $110 month. Similar to its larger MSO counterparts, Bright House's triple play package is only good for 12 months and the price likely increases after this promotional period ends.
And while telcos and cable operators will continue to tout the idea that there are obvious benefits of combining multiple services on one bill, the downfall of the broadband bundle is service providers make you sign a long-term contract, and when that contract ends, the price goes up.
What consumers want is not only a simple bill they can understand, but to not be penalized if they don't want to sign a long-term contract because they want to see if the service fits their needs.
Broadband service providers realize that the general consumer don't necessarily pay for the pipe used to deliver their service, but rather the value the broadband bundle brings to them. --Sean
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