Some service providers may not like the idea, but greater price transparency seems to be coming to the consumer part of the fixed network business.
For decades, U.S. cable TV and telco service providers have relied on service bundles (dual play, triple play, sometimes quadruple play) to create value, partly by offering discounts for such packages. The other angle was that bundling allowed service providers to sell more units of products consumers did not actually want.
Many consumers buy triple-play packages containing landline voice only because the overall price is less than buying internet access and video entertainment.
That strategy now is loosening, if not fully unraveling, in large part because two of the constituent services--voice and linear video--have diminishing demand.
So Verizon has moved to what it calls Mix and Match on its Fios fixed network service, allowing customers to buy Internet and TV plans without use of a traditional bundle. The upside for consumers is that it is no longer necessary to buy a bundle to get the best prices.
Price transparency is a big advantage. In a traditional triple-play bundle, it is not possible for customers to determine what each constituent service costs. Under Verizon’s Mix and Match format, all prices are transparent: consumers know exactly what each component costs.
Under Verizon’s new plans, it is clear that residential home phone service (probably before taxes and fees) is rated at $20 a month, internet access costs $40 to $80 a month, depending on speed tier, while video can cost $50 to $90.
The building block, in most cases, will likely be internet access, the one service all fixed network service providers will use to anchor their business models.
Customers then can buy linear service in a new way, choosing five channels from the palette of 200 networks, using YouTube TV or buying a linear package of 300 or 425 channels.
Once upon a time, cable TV gross profit margins were in the 40-percent range. Today, most are probably lucky to get 10 percent net margins. Small telcos and cable operators never were able to earn much--if anything--offering video services. And there is some evidence that streaming service margins are lower than linear.
Also, profit trends have flipped. A decade or two ago, video profit margins outstripped those of internet access. Up to this point, it has mostly been small telcos and cable companies in rural areas that have pondered abandoning video services. Now Verizon is signaling that it does not see the upside, either.
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