Verizon Communications (VZ: 28.76 -0.20 -0.69%) will offer free one month FiOS Internet and television subscription to its customers. The company will not charge any fees if customers terminate their services after a month. Verizon expects the new offer to be attractive for customers, given the uncertainty surrounding the economy.
Verizon spends around $1,350 to install FiOS Internet and television services. Thus, if customers terminate their services after a month, Verizon has to bear a loss. Alternatively, Verizon’s competitive position will increase if customers continue their services. The new offer will create pressure on cable rivals -Comcast Corp. (CMCSA: 17.77 -0.05 -0.28%) and Cablevision Systems Corp.(CVC: 24.06 -0.15 -0.62%) and satellite rivals – DirecTV (DTV: 36.11 +0.10 +0.28%) and DISH Network Corp. (DISH: 20.09 -0.17 -0.84%).
At the end of the first quarter 2010, Verizon added 168,000 and 185,000 new customers for its FiOS TV and FiOS Internet services, and ended the quarter with 3 million (up 36.6%) and 3.6 million (up 30.2%), respectively. The penetration rate of FiOS Internet and FiOS TV averaged 28.8% and 25.2% across all markets, respectively.
Verizon offers FiOS TV services by leveraging its high-speed fiber-to-the-premises (FTTP) network. The company launched multiple enhancements for the service in 2009, including new widgets and applications such as Facebook, Twitter, ESPN and Internet video services, through its new store “The Widget Bazaar”.
Verizon remains committed to expanding program content on FiOS TV as it added Viacom promoted movie channel EPIX in October 2009 to offer multi-channel entertainment services. Moreover, the carrier launched HBO’s new website “HBO GO” in February 2010. Efforts are underway to add other major networks like CBS Corp. (CBS: 13.80 +0.03 +0.22%), FOX News, MTV and Hallmark Channel. FiOS TV currently offers 140 HD channels and 2,800 HD movie titles.
Verizon remains significantly challenged by the intense competition from cable operators, who are aggressively promoting triple-play (voice, Internet and video) services. Moreover, FiOS TV competes head-to-head with AT&T’s (T: 24.8575 -0.1925 -0.77%) U-verse TV service. As such, Verizon is aiming at countering competition from cable, satellite TV and other competing services by augmenting its FiOS TV offering to include premium content and differentiated features.
Expansion of FiOS services remain an integral part of Verizon’s long-term growth strategy. Increased market penetration of the FiOS footprint and the roll-out of the 4G Long-Term Evolution (LTE) service (planned in fourth quarter 2010) are expected to strengthen Verizon’s market position against its major rivals.