In yesterday's post, we saw that the cable companies won the 2nd quarter 2008 battle for high-speed Internet subscribers, netting nearly four new subscribers for every one new subscriber added by the telcos. And this happened even though the cablecos are at a supposed disadvantage to Verizon's new fiber-to-the home service. Verizon can certainly offer faster Internet connections where FiOS is available, but it was clear in the second quarter that just offering the fastest connections wasn't enough to win more subscribers than the competition.
Of course, the FiOS footprint doesn't cover all of the U.S. yet, so that's certainly part of the explanation as to why Verizon isn't winning more business. As the FiOS footprint expands, Verizon will enjoy a stronger tailwind, helping it to turn the tables on the cable companies. However, the 2nd quarter results show a cause for concern for Verizon's fiber-to-the-home strategy.
The cable companies won the 2nd quarter based on aggressive marketing, relying heavily on promotions and price competition to drive subscriber retention and growth. And they succeeded, in spite of a growing perception that cable high-speed Internet products are slower than telco fiber-based Internet services. It's as if the cablecos fired a warning shot over the bow of the telcos, saying that speed alone will not necessarily win the day, and that the cablecos are ready to fight tooth and nail to win and retain customers with all of the other tricks in the marketing toolkit.
The truth is this: while the highest-speed Internet services grab headlines and generate attention, most people arent' going to buy the highest-speed packages as soon as they become available in their area, reasoning that the a 20 Mbps (or higher) service isn't justified by the higher cost. Verizon is viewed as the product leader for its FiOS service, and that perception counts, but product leadership by itself won't automatically create market-share gains for Verizon.
I think that's part of why cablecos such as Comcast are taking their time in developing their own fiber-to-the-home answer to Verizon's FiOS service, and instead are opting to buy time with a "faster, but not fastest" DOCSIS 3.0 service on their existing hybrid fiber coax plant. They know that it takes more than just a headline-grabbing speed offer to win this game.
Comments