September 22, 2005 1:13 PM PDT

Verizon switches on TV service

Verizon Communications officially launched its paid television service on Thursday, opening its push to take on cable companies in the video market.

Keller, Texas, will be the first town in the United States to get Verizon's television service, which runs over its Fios fiber network. The company held a press conference Thursday to outline details of the new service, including pricing and channel availability.

Keller residents will pay $12.95 for the basic service, which includes 15 to 35 channels, and $39.95 for 180 channels. Sports and movie packages can be added for $5.95 and $11.95, respectively.

The pricing is aggressive, analysts said. A comparable package from cable provider Charter Communications, which also serves Keller, costs about $47.99 for 97 channels, according to a report published by Sanford Bernstein analyst Craig Moffett. Comcast, the largest cable provider in the country, charges about $68 for a package that includes 115 channels.

The Fios video service seems to be in line with satellite providers. EchoStar charges $37.99 for 120, and DirecTV costs $45.99 for 155 channels, for example.

Verizon plans to offer more than 300 channels of programming from a slew of content providers, including Walt Disney, Showtime Networks, A&E Television Networks, NBC Universal Cable, Starz Entertainment Group, Discovery Networks and Movielink. The company is continuing to negotiate contracts with other content providers, Bob Ingalls, president of the retail market group at Verizon, said during the press conference.

Verizon expects to add five more markets to its television service by the end of this year, including the Texas towns of Wylie, Sachse and Westlake. It then plans to expand to markets in Florida, Virginia and California, where it has already obtained video franchises.

"We passed 1 million homes at end of 2004," Ingalls said. "And we will have 3 million at the end of 2005. We expect to offer video service to these customers in 2006."

Dealing with franchises
Verizon scored a huge win earlier this summer, when Texas passed a law that granted new TV service providers a statewide franchise. Without this, Verizon would have had to go to every city and town in the state to get permission to offer its service.

Obtaining local franchise agreements is one the biggest hurdles Verizon faces in rolling out its service in other states, since the process significantly slows the introduction of service.

But Verizon faces other obstacles. Even after its Fios fiber network is completed at a location and it gets a city's permission to offer its video service, it must still convince customers to sign up.

Verizon predicts that 20 percent of Keller residents will subscribe to the video service, Ingalls said. The company said 30 percent of households there have signed up for its broadband service, which was launched a year ago.

But convincing customers to sign up might not be as easy as it sounds, especially considering the history of the satellite video providers, which also compete with the cable companies.

"It has taken DirecTV 12 years to reach 12.5 percent market penetration" in the United States, Moffett said. "For much of that time, they were the only game in town in rural America. And they entered the market at the time with unquestionably the best video product on market."

The market situation was also much different when satellite providers started their push. Back in the early 1990s, roughly 60 percent of Americans subscribed to a paid television service, Moffett said. Today, about 80 percent of Americans have either satellite or cable television service.

The deck is stacked against Verizon in yet more ways. Verizon is already paying 15 percent to 20 percent more for the same content the cable operators offer, Moffett said. And its labor costs are twice as high as those of cable companies, because it uses labor union workers and must pay related pension benefits, he added.

"The phone companies are in the awkward position of initiating a service in an already mature market with a disadvantaged cost structure," Moffett said. "And on top of that, they have to offer the service at a discounted price just to compete. It's a hard strategy to sustain long-term."

2 comments

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TV, Phone, and Internet competition at last
Now cable companies can't balk when consumers threaten to switch.

As for the comparison to satellite TV, yes, FIOS will be a young technology trying to convince consumers of it's reliability, but fiber vs airwaves isn't a comparison, especially up here in the Northeast. Satellite had a hard sell due to the climate, but with fiber, that is not the case.

The pricing will be the key. If nothing more, it should help bring cable prices down. Of course, if you are as unlucky as I am -- I live in a municipality that is contracted with Adelphia -- you're stuck with a service provider who does not really care about gaining or retaining subscribers. I actually called Adelphia when Verizon marked my sidewalk to lay FIOS, and tried to pursuade their sales people to lower my internet service bill to at least meet Verizon's undiscounted price for equal internet access speeds. They were completely unaware that Verizon was moving in -- DSL had been unavailable in the area. I also enlightened them that not only would they be losing my internet service, but soon, also my television service. "I'm sorry to hear that" was the response!! Two words, TOTALLY INEPT....and deserving of their inevitable buyout by Comcast.
Posted by jamie.p.walsh (288 comments )
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Love the V
We switched from Comcast DSL to Verizon Fios internet in April 2006; the installer was very nice, patient and professional. We opted not to do the dish and put up with Comcast's poor cable service and high rates until Verizon provided the FIOS TV. Verizon has already installed the FIOS. They can't get the TV service fast enough to the people of Ft Wayne, IN ....there are oodles of people in Ft Wayne, who, like myself, are sick of Comcast. Verizon - forget TX, FL and CA - come to the heartland.
Posted by sagivens (1 comment )
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