Verizon (NYSE: VZ) plans to implement price increases for its FiOS service to offset content costs and increase profitability, a senior executive said this week.
Speaking at the 40th Annual J.P. Morgan Global Technology, Media and Telecom Conference, Verizon CFO and EVP Fran Shammo said he believes that FiOS is now a premium service and customers should pay more for it. He pointed to a Consumer Reports article and American Consumer Satisfaction Index (ACSI) rankings that gave the telco high marks for customer service.
"Look, we believe that it is a superior product in the marketplace," Shammo said. "We were happy to see that Consumer Reports claimed us the best overall against all cable and satellite providers in the newest release for the third year in a row. We just won again the Consumer Satisfaction Index-American Consumer Satisfaction Index for the third year in a row."
It's likely that Shammo's comments on FiOS were meant as a way to assure Wall Street that it's going to get a good return on its Fiber to the Premises (FTTP) investment. Through the end of 2010, the service provider spent $23 billion on building out its FiOS network.
While the service provider publicly announced that it has no plans to expand the FiOS build out beyond the areas it already has built, Shammo said it would consider options if the service proves to be profitable.
"If we can penetrate the market and really turn the wireline profitability, could we potentially build out to other areas?" Shammo said. "Yes, but that is a decision that will be made in years out, not right now. So from a capital perspective, we are being very disciplined with where we are going to put that capital."
In some of the market where it offers FiOS, it has gained 50 percent penetration. Despite the fierce cable competition it faces in those markets, Shammo does not think they have to lower their prices to attract new subscribers.
"I think you're seeing a little bit of pullback on those promotional-type items and the aggressiveness that we have in the marketplace. And look, I mean given the Consumer Reports article and the Consumer Index article, I think we can be less aggressive. Word-of-mouth is the best advertising we can get."
One of the key reasons Verizon wants to up the rates is to get a better handle on content costs. Among the new charges that consumers will see in their monthly bill are higher set top box and digital converter box rental fees.
"We have to do a better job in discipline of price increases and I think that you'll see us do some price increases here over the next two quarters to offset the content increase and that will also contribute more profitability to the bottom line," Shammo said.
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