BUNDLING UP

At last year's Supercomm, Verizon Communications Vice Chairman and President Lawrence Babbio told reporters that sales for Verizon's full-price DSL offering would “go up dramatically” once users got a taste of broadband speeds. Consequently, the introductory rate of $30 per month would remain just that: introductory.

It's easy to understand why Verizon wanted to hang onto the $49.95 price point for standard DSL service. Conventional marketing wisdom says that once a price threshold has been established, prices go up from there. And DSL providers always have believed consumers would have no problem shelling out $50 each month if presented with a compelling value proposition.

Unfortunately, Verizon learned that always-on connections and faster e-mail aren't enough to get consumers to leap across the chasm. As it turns out, content is the key to justifying a price point that is roughly $30 higher than dial-up service. The problem is that content is difficult and expensive to develop, and partnerships that could in time deliver the needed content are still gelling.

Now comes word that Verizon has slashed its DSL rates to as low as $29.95 per month when bought as part of a bundled package, and $34.95 when purchased as a stand-alone product. And the RBOC is throwing in free Wi-Fi services for New York City customers as an enticement. If successful, the program — which will result in the deployment of 1000 Wi-Fi hot spots in Manhattan by the end of the year — eventually may be rolled out to other major metro areas.

In announcing the new strategy, Babbio said it was time for Verizon to move its broadband offering from the “early adopters to the mass market.” Taken with the rate cut, this comment can be read as a clear admission that Verizon's previous broadband strategy failed.

So what? Business is a game of adaptation, and the only thing worse than a failed strategy is hanging onto it. The RBOCs are locked in a death match with the cable companies, which enjoy a 2-to-1 market-share advantage in broadband and will soon accelerate their telephony deployments. It is imperative that the Bells do something dramatic to increase their DSL penetration rates. Lowering rates is a good start, given that there is little churn in broadband.

But tying the more attractive rate to a bundle will be the key to winning market share. SBC Communications already figured that out and slashed its rate for standard DSL service to $29.95 when purchased as part of a package.

It will be interesting to see whether Verizon's Wi-Fi strategy pays off. SBC, for instance, believes Wi-Fi one day will be a serious revenue generator and the carrier has no plans to use it as a loss leader. But at the very least, Verizon's willingness to do so indicates it is capable of breaking from conventional thinking, which will serve it well in its battles against cable.