A new “Veriation” on an old theme

I spent a good part of August--the month Verizon’s new consumer-oriented package of DSL, wireless, local and long distance entitled Veriations was launched--fielding calls from reporters around the Northeast. They all asked me variations of the same question--what’s so special about bundling? It’s been done so many times before that I understand why tech reporters have become blasé. But I think this time around bundling will work. Why? The answer is simple. This time customer benefits are real, not imagined. How do I know? I switched and set to save myself about $750, or more than 35%, a year on my communications expenditures.

Everyone, from consumer advocates to senators to industry execs, has lambasted the Telecommunications Act of 1996 as a failure, but it’s now clear that competition has brought benefits right to the consumer’s door--just not in the form that everyone might have expected.

Wireless displacement, the bane of the long-distance carriers and a thorn in the side of the local phone companies, and cable’s domination of the broadband market (resulting in millions of customers ditching their secondary phone lines and dial-up connections in favor of fast cable modem access) have sparked Verizon and others to radically alter the way they price and package service.

The Telecommunications Act of 1996 demanded “lower prices and higher-quality services for American telecommunications consumers.” Today, the results are visible. Verizon’s move toward truly integrated billing, aggressive discounts for “total communications” packages and a widely available offer--also being implemented by its peers SBC and BellSouth, which expects to have regionwide 271 approval by Christmas--lives up to goals of the Act. 

Competition comes in many forms in the residential market. And although regulators may have failed to recognize it in its subtler forms--i.e., instant messaging, wireless substitution and VoIP--the Baby Bells and Wall Street are well aware of the trends toward new forms of communication enabled by the Act. Verizon’s introduction of Veriations shows that high CLEC penetration in the residential market need not be the only metric for gauging the success of the Act.

Recent regulatory wins for cable companies and massive CLEC market share increases in the business sector have put the future of the phone companies in serious jeopardy. Even mainstream publications like Forbes are now predicting the downfall of the Baby Bells at the hands of the cable companies and other competitors. However, the reaction of Verizon, if followed by its peers, portends a reversal in the trends that have been eating away at the Bells’ businesses. 

As we all know, Verizon is smarting from a decline in access lines resulting from a combination of wireless displacement and cable domination of the broadband market. But there’s little the company could have done to rectify the situation if it had not spent countless millions on opening up its networks to competitive local exchange carriers. By gaining 271 approval in most of its ILEC states and adding LD to the mix, the telecommunications giant added the final ingredient that would make a bundled offer a reality rather than concept.

Unlike AT&T and others that tried this approach before, Verizon can bring the heat. Veriations differs from earlier attempts to offer everything to everybody due to:

• Substantial discounts
• A true single bill
• A large customer base that can take advantage of the complete offer.

Unlike non-facilities-based service providers, Verizon “owns” the customer. When a customer opts out of LD or local, Verizon knows and can scale down or eliminate the discounts. In the long run, this is beneficial to consumers because it promotes an environment of rational pricing and reliable revenue for the carrier. Verizon satisfies Wall Street by cutting down on customer attrition, and customers benefit from special pricing and promotions that can only be offered by a company committed to succeeding in the consumer space. 

Veriations may be a calculated tactic to staunch the flow of revenue to purveyors of alternative forms of communications, but there’s no denying that it’s also a stunning victory for consumer interests. Residential subscribers can now spend less time working around the phone company and just use the best tool to get the job done, whether its MSN Messenger, a cellular device of the old phone sitting on the table in the kitchen. Ultimately, the benefits of competition can only come through deregulation. The enabling environment of the Telecommunications Act of 1996 has helped us realize a portion of the dream—the next step is to put phone companies on a level playing field with cable cos. when it comes to broadband. A lot of folks have ideas on how to do that, including Sens. McCain and Lieberman. Hopefully they can work it out in time to make sure the telecom industry doesn’t go down the tubes like Forbes has predicted.

Robert A. Saunders is a senior analyst with The Eastern Management Group Inc., a management consulting firm focused exclusively on the communications industry. He can be reached at rsaunders@easternmanagement.com.