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rradina

join:2000-08-08
Chesterfield, MO

Key Phrase

"On the revenue side of the house, we really concentrated this year on getting our price points equivalent to where the rest of the market was,"
Once installed, I thought FIOS was supposed to be cheaper than alternatives. If the maintenance is lower, shouldn't FIOS prices be lower than cable? Is the quality difference sufficient to justify higher prices? Does the average consumer notice the difference? Do they even know what the difference is? If not, why would they pay the same or more vs. a competitor?

Whatever happened to the business with better quality and lower costs gaining market share and forcing competitors to respond or go under? Given the limited footprint and massive capital investment, why wouldn't Verizon want to own as many subscribers in their FIOS areas as possible? Why would they be content settling for their current ROI based on "...price points equivalent to the rest of the market..."? Perhaps the leader is too young to understand paper route economics where delivery expenses are nearly fixed regardless of how many houses get a paper.

Metatron2008
Premium
join:2008-09-02
united state

Re: Key Phrase

Well it cost them billions to run fiber to people's homes, so while maintenance will be cheaper, the original install costs way more then what more companies will pay for years..
rradina

join:2000-08-08
Chesterfield, MO

Re: Key Phrase

What are the economics of a one time expense versus competitors HFC and incremental FTTN->FTTC->FTTH approach? As cheap as money is, are interest rates killing them vs. competitor future costs (which are subject to material and wage inflation)? The future cost of the terminating equipment is probably cheaper but my guess is the physical install is where the billions went. Will that be cheaper in the future thereby giving cable a future cost advantage when they finally pay to push fiber deep enough for bandwidth parity?

Metatron2008
Premium
join:2008-09-02
united state

Re: Key Phrase

At some point you have to hire people to lay wires. Also, the cost of constantly maintaining old copper would cost a lot in truck rolls. Verizon isn't at&t, they have a plan for the future and don't sit around looking stupid all day.
Crookshanks

join:2008-02-04
Binghamton, NY

Re: Key Phrase

said by Metatron2008:

Verizon isn't at&t, they have a plan for the future and don't sit around looking stupid all day.

Yeah, the plan is to slowly exit the mature wireline market, while focusing on the growth market that is wireless. This might change after wireless turns into a mature market, which will happen before the decade is out, assuming they haven't found a buyer for the remaining wireline markets by then.

Personally, for as much as people bash Frontier, I'm happier to be in one of their markets. They understand the wireline business and focus on it exclusively. They'd be moving faster if they had the resources VZ has, but they are making progress in the areas they serve, and many of us are happy to have them around.
rradina

join:2000-08-08
Chesterfield, MO
See my response to majortom1029. I'm trying to understand if anyone knows the economics of big bang vs. incremental build-out and which is cheaper or if they are about the same.
majortom1029

join:2006-10-19
Lindenhurst, NY
kudos:1
Also keep in mind coax has a lot of bandwidth left. I saw an article where they beleive they can get 10 gig down/ 10 gig up out of coax.

Telephone wire has less total speed you can get out of it before you have to start bonding together wires.

Coax problem is the docsis spec and the split into channels. If you made the coax one big pipe and did everything over it speeds would be much higher.
rradina

join:2000-08-08
Chesterfield, MO

Re: Key Phrase

I agree with those statements and coax's bandwidth has been an enabler that allows an incremental fiber push toward the consumer. However that's getting away from my question of economics. I interpreted Metatron's reference to Verizon's high initial costs (i.e. having to run fiber the whole way) as one reason why Verizon might have cost pressure on their rates (i.e. big interest payments on billions in build-out debt). My question is whether a big bang or evolutionary approach to pushing fiber to the consumer is cheaper. If Big Bang is cheaper because of the future material and wage costs that an incremental approach incurs, then Verizon should not have undue cost pressures causing higher rates. If they do, then perhaps that's why they are only competitive with cable in terms of rates.

You might also say I'm looking for a reason other than collusion/oligopoly for why Verizon would price it's package the same as competitors.
elefante72

join:2010-12-03
East Amherst, NY

Re: Key Phrase

It's also a matter of architecture. If VZ went w/ active ethernet, they could have scaled out as necessary versus PON topologies which require higher distribution costs. Also ethernet would allow better diagnosis. GPON requires a truck roll to ferret things out if things go south. I see VZ trucks in my neighborhood almost as often as TWC, and nobody if getting hooked up. That ship is sailed. They are performing costly opex maintenance.

My FIOS outages have been headend bonehead failures and subtle items like poor handling of CC and new DRM restrictions. Every now and then there is some network issue is NY/VA that causes burps but to the house no problems. I live in UNY, and w cable every 3-4 years they needed to run a new cable because the contractors who come out did such a poor job of terminating and trenching the coax. Snow and water doesn't help either...I for one am glad VZ woke up. The problem is that if they want to jack my bill 30% in 1 year--I'm not in love...

Now the glory of FTTH is supposed to be much lower opex (which makes up for higher capex) and the fact the fibre should last 100 years in the ground. Frankly speaking the trenching cost is about the same for fibre and copper, and wire costs aren't that much different. In fact you cable company runs fibre just the same... They overstrand, so they can always bond a new pair if necessary. Already though they have gotten themselves into trouble with BPON and new routers already only after a few years. If they went EPON or straight ethernet that would be a different story.

If you want economics compare Uverse (incremental VDSL) to FIOS (FTTH). Obviously the smarter LONG TERM move was FTTH because AT&T has decrepit lines in much of their plant and they need those damn refrigerators all over the place. But for capex reduction, they have VZ beat, however overall FTTH should prove out better.

If AT&T is smart (they are), they use their infrastructure and use white space wireless from the refrigerator to the local houses when that comes. Problem solved. Cantennas for everyone.

As for pricing in most markets there is only 1 competitor, so it's pretty easy to price signal according to the other guy. Wireless for all it's charm doesn't have the economics to compete yet in the home.
majortom1029

join:2006-10-19
Lindenhurst, NY
kudos:1
Also keep in mind coax has a lot of bandwidth left. I saw an article where they beleive they can get 10 gig down/ 10 gig up out of coax.

Telephone wire has less total speed you can get out of it before you have to start bonding together wires.

Coax problem is the docsis spec and the split into channels. If you made the coax one big pipe and did everything over it speeds would be much higher.
Skippy25

join:2000-09-13
Hazelwood, MO
Agreed, it did cost them billions but the problem is they want to reap the profits this month not next year so they dont view it long term.

I would be willing to bet they get to write off more in depreciation on this equipment than it cost them to currently maintain it.

Look at AT&T, they paid what 0% in taxes all of last year because they got to depreciate so much in equipment? And lets not forget that they were not able to account for several hundreds of millions of dollars in equipment a few years ago. I would be willing to bet, all of them still have this minor issue.
openbox9
Premium
join:2004-01-26
Germany
kudos:2
said by rradina:

If the maintenance is lower, shouldn't FIOS prices be lower than cable?

No, but VZ's margins might be better.
said by rradina:

Is the quality difference sufficient to justify higher prices? Does the average consumer notice the difference? Do they even know what the difference is? If not, why would they pay the same or more vs. a competitor?

Similar questions are asked each time debates surrounding ever increasing bandwidth tiers are presented. Most consumers probably won't notice a tangible difference worth the premium price points.
said by rradina:

Whatever happened to the business with better quality and lower costs gaining market share and forcing competitors to respond or go under?

When everyone can make more money, what's the motivation to reduce rates? Drive a comfortable competitor into a price war?
said by rradina:

Why would they be content settling for their current ROI based on "...price points equivalent to the rest of the market..."?

You don't think VZ is well on its way toward price points higher than the rest of the market? VZ has done a nice job of branding FiOS (and its wireless business) as a premium service, worth a premium price.
rradina

join:2000-08-08
Chesterfield, MO

Re: Key Phrase

said by openbox9:

When everyone can make more money, what's the motivation to reduce rates? Drive a comfortable competitor into a price war?

So do we need regulations? Seems like collusion.

said by obenbox9 :

Most consumers probably won't notice a tangible difference worth the premium price points... ...VZ has done a nice job of branding FiOS (and its wireless business) as a premium service, worth a premium price...

How can both statements be true?
openbox9
Premium
join:2004-01-26
Germany
kudos:2

Re: Key Phrase

said by rradina:

So do we need regulations? Seems like collusion.

I think collusion is too strong. As for regulation, I'm not sold on that being the answer. It can get dangerous. I'd suggest that what we need is to enable easier entry into the market by new competitors. Not risk free, but maybe subsidize some of the risk.
said by rradina:

How can both statements be true?

Simple. Even though most consumers probably won't notice a difference, VZ has done a great job at branding and marketing FiOS as a premium service worth the money...and many consumers buy into that. It's not that far fetched. A lot of consumers easily succumb to good marketing efforts for strong brands. Apple is the expert in this arena. VZ is doing pretty well itself, IMO.
rradina

join:2000-08-08
Chesterfield, MO

Re: Key Phrase

Again you say "most" won't notice. Then you say "many consumers" buy into their marketing.

Both cannot be true, can they? Either there is a noticeable difference that many notice (because the marketing educated folks on how to notice the tangible difference), there isn't a tangible difference but marketing convinced folks that there is or many don't notice and only the few are willing to pay the premium.
Skippy25

join:2000-09-13
Hazelwood, MO

Re: Key Phrase

You are missing his point and Yes both can be true.

Marketing and noticeable quality are 2 totally different things.

People will perceive for themselves that something is better if it is marketed and priced that way. I gave 2 examples above: Bose and Monster Cable. Neither are any better than the average in their industries but they charge a premium and people pay it because they "perceive" better quality because they want to, not because it is really there.
rradina

join:2000-08-08
Chesterfield, MO

Re: Key Phrase

Perhaps I'm arguing over nothing but the OP claimed most won't perceive a value in a premium service and then went on to say Verizon has done a great job of marketing it as a premium service and most buy into the marketing.

I guess it depends on what buying into the marketing means. If it means marketing has most believing it is a premium service and it is worth extra, then we have two mosts and both cannot be true.
openbox9
Premium
join:2004-01-26
Germany
kudos:2

Re: Key Phrase

said by rradina:

Perhaps I'm arguing over nothing but the OP claimed most won't perceive a value in a premium service and then went on to say Verizon has done a great job of marketing it as a premium service and most buy into the marketing.

I said nothing of perceived value. I said most consumers won't notice a difference in services (e.g., FiOS vs Cable vs DSL) that warrants a premium price, but that VZ has done a good job marketing FiOS such that consumers believe the service is worth a premium.
openbox9
Premium
join:2004-01-26
Germany
kudos:2
Stop picking nits. I think you understand my point just fine.
rradina

join:2000-08-08
Chesterfield, MO

Re: Key Phrase

Skippy25 said I missed the point and I think I still do. If most see "nothing of perceived value", VZ marketing has failed. I don't live in a Verizon FIOS area so I can only go on what you say.
openbox9
Premium
join:2004-01-26
Germany
kudos:2

Re: Key Phrase

You honestly don't understand that if a product is marketed well, to the point that people "just have to have it", that they'll buy it even though they'll probably notice little or no difference in performance or quality of service? VZ has marketed FiOS a lot as superior due to it being all digital, all fiber, blah, blah, blah. Take Joe Blow who now salivates at the mere mention of FiOS because he believes it's a Godsend. Joe decides to leave his current ISP providing him with 20/2 Mbps service for the 30/30 Mbps FiOS. He pays more, but he believes he's better off because he's got FiOS. Does Joe notice any actual difference in his service while watching Netflix, playing his Xbox online, and downloading iTunes...besides paying more $/mth? I doubt it. It's a placebo effect.
rradina

join:2000-08-08
Chesterfield, MO

Re: Key Phrase

If they have to have it and they spend more to get it, then they perceive value, right? (Refer to your statement that "most see nothing of perceived value".)

The value may be nothing more than a fashion statement but in their mind it's value. Similar, IMO, to the folks lining up outside stores this past Monday to get an iPhone 5 this coming Friday. They could buy an Android and get what the iPhone 5 offers without holding their piss all day to keep their place in line.
openbox9
Premium
join:2004-01-26
Germany
kudos:2

Re: Key Phrase

Even though I said nothing about perceived value, one can argue that consumers perceive value in just about anything they purchase. My point is that due to the psychological benefit of marketing FiOS as superior, Verizon likely snags several customers that won't notice a difference between FiOS and a competitor's service, even if the tangible difference in quality services is negligible. Marketing is a powerful weapon.
rradina

join:2000-08-08
Chesterfield, MO

Re: Key Phrase

My mistake. I misinterpreted an earlier statement "I said nothing of perceived value." You were clarifying that you did not say this and I thought otherwise.
travelguy

join:1999-09-03
Santa Fe, NM

1 recommendation

said by rradina:

Once installed, I thought FIOS was supposed to be cheaper than alternatives. If the maintenance is lower, shouldn't FIOS prices be lower than cable?

Pricing is not based on what it costs to serve, it's based on what buyers are willing to pay.
Skippy25

join:2000-09-13
Hazelwood, MO

Re: Key Phrase

And in non-competitive markets that price is always higher.