VERIZON BUCKS TREND BY BUNDLING UP

Verizon Communications' aggressive move into the one-stop shopping game last week dredged up memories of failed packaged service offerings from other big brands such as AT&T. While carriers have viewed such services as a way to create customer loyalty, reduce expenses and increase revenues, providers have struggled over the last six years to find the right mix of services.

Verizon and other RBOCs believe they have found that combination, partly because of their ability to offer long distance in some states. Verizon for the first time will offer local voice, long distance, regional toll, DSL and wireless on one bill to customers in New York and Massachusetts.

“We've gained some momentum. We know we have the scale to build these systems,” Verizon CEO Ivan Seidenberg said in a press conference last week.

Even with long-distance entry, perhaps the biggest hurdles for RBOCs offering bundled service are technical, such as consolidating billing systems. Likewise, while interexchange carriers have strong long-distance footprints and brand names — and in some cases national wireless networks — they have been missing the local access portion of bundles.

For example, AT&T's acquisition of cable operators TCI and MediaOne were expected to solve the last-mile issue. However, company executives later said that customers weren't attracted to bundled services, and AT&T later divested its cable and wireless businesses.

BellSouth has been bundling a limited number of services since 1999 and last month introduced bundles similar to Verizon's in Georgia and Louisiana. The carrier plans to charge ahead with comprehensive one-stop shopping in every market it receives long-distance relief. SBC Communications, meanwhile, is using an a la carte approach in Arkansas, Kansas, Missouri, Oklahoma and Texas.

Verizon believes it can rake in $500 million to $1 billion in revenues during the next five to six years from bundled services as well as reduce administrative costs and create extremely loyal customers.

While Verizon and other RBOCs claim their customers want bundled offerings, analysts believe consumers are more ambivalent. “The question still remains: Do users really care?” said Phil Redman, research director with GartnerGroup. “Bundling has always been pushed by the operator side, not the user.”

The Yankee Group's 2002 Mobile User Survey indicates that 27% of wireless users are interested in bundles. But only 7% said a bundle would keep them from switching wireless providers.

“We're not seeing a resounding clamor from mobile users for this,” said Roger Entner, program director with The Yankee Group. “[Verizon] will contact all landline customers and try to sell wireless. There they might have a more resounding response.”

Verizon Wireless, which led the industry in subscriber additions during the second quarter, said nearly two-thirds of its new subscriber additions are coming from other carriers. During that period, the carrier's marketing message was centered around quality and coverage.

In fact, consumer studies have shown that customers fear bundled offerings because of the sticker shock associated with receiving one large bill, said Ken Hyers, senior analyst with In-Stat/MDR.

“Any service provider needs to make the argument that there is a cost savings and show the customers what they are saving by choosing this,” said Hyers.

Verizon's bundled package, which is being supported by an aggressive ad campaign in the two states, is about 30% less than what the RBOC charges for those services separately. The discount is lower if customers opt for fewer services bundled together.

BellSouth, which is marketing the bundled concept aggressively, claims its focus groups have shown that sticker shock is a fallacy. “For the first time now, we are sending the one-price message in our advertising to the customer because now it seems they are more ready to see that one price,” said Chet Lilly, competitive assessment and response manager with BellSouth. “Customers are attracted to the convenience and are overcoming the sticker shock issues.”

Indeed, the convenience factor of receiving one bill eventually may outweigh sticker shock and make bundling strategies successful.

“Any company who has those assets should consider putting them together,” said David Chamberlain, research director with Probe Research. “You're looking at a long-term strategy and very likely the way any telecommunications company may be dealing with the public. Five years down the road, I won't be surprised if bundled services are offered to almost every consumer in the country.”

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