I’m lucky enough to live in an area where broadband competition is rapidly intensifying–Fairfax County in Northern Virginia (McLean, VA to be exact). In recent years, the incumbent cable operator Cox Communications has beefed-up its network to offer phone service and high-speed broadband in addition to its growing video programming lineup (which how includes plenty of HDTV and VOD offerings). I’ve been a Cox cable subscriber for many years now and have been very happy with them. In fact, after 7 years with DirecTV prior to that, I’ve never thought about going back to satellite after switching to cable. (Of course, the superior high-speed broadband option that Cox offers had something to do with that.)
Meanwhile, regional telephone giant Verizon Communications has been aggressively deploying new fiber optic lines throughout many Northern Virginia neighborhoods and other Washington, D.C. metro communities in the hope of competing against Cox and Comcast in the race to deliver the complete “triple play” package (voice, video, data) to consumers. Last year, Verizon sent a team of contractors out to my neighborhood to dig up my front yard, lay new fiber lines and install a new box. And then, for reasons I still can’t quite understand, another team came back and dug up my yard again to install more lines and a different box! My wife wasn’t real happy about the mess this created (and all the grass that died as a result), but I just kept telling her that one day it would all be worth it.
And that day has arrived.
Earlier this year, Verizon began dispatching door-to-door salespeople to my neighborhood in an attempt to sign up new subscribers for their new “FIOS” (fiber optic-based) service. I felt sorry for the salespeople who knocked on my door because they had no idea I was going to shower them with a litany of technical questions based on my knowledge of communications markets. But they were always very informative and helpful. And they REALLY wanted my business. Unfortunately, however, they had no control over the pesky city and county regulators who were holding up deployment of FIOS service in the area. In particular, Verzion had to fight for the right to offer consumers video programming services in competition with cable.
Luckily for me, they finally got permission in Fairfax County. (Of course, Verizon and other telcos are still fighting for permission to offer video services in countless other communities across America. And federal legislation is pending that would expedite that process through the use of national franchises). After I received confirmation that Verizon would at least be able to offer me everything I already had in my Cox “triple play” bundle, I finally decided to pull the trigger and sign up for a one-month trial of Verizon’s FIOS service in my home.
I made sure to get a guarantee that the installation would be free and that I could back out of the deal without any hassles or obligations after a month if I wasn’t fully satisfied. “Absolutely,” the FIOS salesman said. After all, even if I didn’t subscribe, it’s worth it for Verizon to make this deal so that they know my home will be “wired for the future” in case someone else is living there in 5 years and wants FIOS service. And so, on April 7, my wife and I signed the contract in our driveway with the Verizon salesman to give it a shot.
And so began “Adam’s Excellent Adventure with Competing Broadband Services”! What follows is a (rather lengthy) analysis of my experience with the competing triple play bundles offered by Verizon and Cox in Fairfax County.
Day 1 (Well, Not Really)
I was excited when Verizon called two weeks later and confirmed an installation date of April 24. They said a team would be out that day between the hours of 8am and 5pm. That’s a pretty big service window, but I was willing to take the whole day off work and wait it out.
And wait I did. For hours. Finally, around 3:00, a Verizon truck pulled up. But I immediately sensed something was wrong when just one guy got out of the truck. I knew FIOS installs require at least two guys to get the job done. But I asked the guy anyway: “You’re here to install my new FIOS system, right?”
“Uh… no,” he said. “I’m just here to switch you back to Verizon phone service.”
“But I signed up for your new FIOS fiber service,” I said.
“Uh… are you sure you have fiber in this neighborhood?” he responded.
I started laughing out loud. They hadn’t sent the right guy! So, while this poor guy was wasting his time switching me back to the primitive old copper voice network I got rid of two years ago, I got on my cell phone to try to figure out where the Verizon FIOS team was. And, again, I waited. First I called the service repair number. They had no record of my FIOS order (in fact the person had never heard of FIOS!). They only had a record of request to switch back to the old voice system. Of course, I had never placed such an order. So they transferred me to another person who also had no record (but who had at least heard of FIOS!). And then to a third person. Again, no record. Finally, about one hour later, I got a fourth person on the phone who was extremely knowledgeable and helpful even though she did not have any record of my transaction either. But she was quite apologetic and asked me to restate my entire order.
Once she got me back into the system, she rescheduled my installation for May 4. Unfortunately, May 4 came and again no one bothered showing or calling! After waiting patiently for several hours, I finally called the service line only to be told (by the third person I talked to after being on the phone for an hour) that my order had somehow been cancelled! I was pretty irate at that point and was ready to abandon this experiment entirely, but after I got done venting, I agree to give them one more chance to come out and get this done.
Needless to say, Verizon is going to have to run a tighter ship to capture customers from their cable and satellite competitors. Lost orders and long install delays (over a month in my case) are not a good way to get a new service off the ground. I’m hoping for Verzion’s sake that my experience was atypical in this regard.
Day 1 (Yes, the Real Day 1!)–INSTALLATION
OK, so the install team showed up on May 16 and got me all hooked up. To appreciate the sort of investment that Verizon and other telcos are making in their new high-speed broadband and video service offerings, you need to divide the installation process into two categories: external and internal. The external investment would include everything that the companies have to lay in the ground (or along poles) to get millions of homes connected to the new system. Needless to say, to deploy an entirely new network like this requires a significant expenditure of cash and labor.
But many people overlook the significant investment that these network providers must make INSIDE the home to complete this job. When Verizon comes to install FIOS, for example, the old copper network inside your home is terminated. It’s no longer needed because it just can’t handle everything that you’ll demand in the future and that Verizon wants to offer. The old copper phone network did have one important advantage over the new fiber system, however: it was independently powered by the phone company. Not so for IP-based systems. It’s powered by your home’s electrical system. Thus, Verizon has to install a big battery backup box inside every home now to ensure that, in the event your power goes out, you’ll still have connectivity.
After that’s done, the FIOS team has to snake a new drop of CAT-5e through your home up to wherever your main computer sits. The CAT-5 is needed, obviously, to transmit info from your computer or set-top boxes to the network. Once the CAT-5 line is installed (and that step alone can take hours depending on how they do it and how many holes they have to poke in your drywall), they next link it up to your computer and a new wi-fi router (G standard), which they provide. At that point, assuming you are switching over to the new FIOS video services as well, the embedded coaxial cable system in your home is switched over to the Verizon system so that you can receive their video feed. Your FIOS set-top boxes are then connected to each TV set (in my case, 3 HD boxes, each with dual PVR capability).
Are you keeping track of all this? We’re talking about a major internal investment here. And, in addition to the hardware, let’s not forget all the labor time / cost. These FIOS installs can take 4-6 hours, sometimes longer. And they usually require 2 or 3 technicians. (And those are union wage techs too!) So this is a huge expenditure and it remains to be seen whether Verizon can make this work out. To pay down the significant sunk costs, they’ll have to sign up A LOT of subscribers and do it quickly. (More on that point later).
Anyway, how does the FIOS triple play compare to what cable offers? Here’s a look at how it stacks up in terms of voice, broadband, video service and price.
Voice service is fine. Quality is about the same as what I’ve been accustomed to in the past with the Cox as well as Verizon’s old copper-based system. I use my cell phone for 90% of my calling activity, so I’m not really picky about wireline phone service anymore. It’s just there for emergency backup.
Cost = $39.95 per month and that provides unlimited local and long-distance calling plus all the other things you need (voice mail, caller ID, call waiting). After all the stupid taxes and fees get piled on, it’s roughly on par with what I was paying for Cox phone service. So it’s a wash. I suspect both cable and telco phone bills will continue to drop over time as wireless cannibalizes the wireline market.
Verizon is offering a three-tier pricing plan for its FIOS high-speed broadband service. The entry-level service offers customers 5 Mbps downstream / 2 Mbps upstream (a “5/2″ plan) for $34.95 to $39.95. (That’s what I opted for since it’s all I really need. And they offered me $10 off per month for the first few months as an added incentive to sign up). If you’re a heavier user, you can get 15 Mbps / 2 Mbps service for $44.95 – $49.95. And if you’re a serious broadband junkie and need even more bandwidth for home business purposes, or if you frequently have multiple family members online, Verizon also offers a whopping 30 Mbps / 5 Mbps plan for the much higher rate of $179.95 – $199.95. (Note: Verizon also claims that FIOS can be even faster in some regions and that it will grow faster in coming months / years. For the life of me I can’t figure out why anyone would need service above even 15 Mbps, and I doubt their computer’s processors could even handle broadband speeds higher than that).
By comparison, Cox offers 5/2 “preferred” service plan for $39.95 (which is what I had) and a 15/2 “premium” tier of service for $54.95. (It’s worth noting that today’s entry-level 5/2 service was yesterday’s “premium” offering. Just a few years ago, 5/2 service was available for cable companies in some areas, but it cost more than double or even triple what it goes for today. Thus, at this rate we’ll see broadband providers offering 30/5 plans for under $30 bucks in just a few years. So, despite what the critics say, we’re getting more juice at a lower price with each passing year.)
Regarding the overall quality of FIOS broadband… So far, so good. No service interruptions or drop-outs. I had a number of issues with my old Cox broadband service dropping out or failing to properly “sync” with my old Belkin “Pre-N” wi-fi router. Usually I just needed to turn everything off or unplug it and then reboot to get things working again. But Cox technicians had to be called in a few times. No problems of this variety with Verizon. At least not yet.
I also ran speed tests for both systems using the SpeakEasy.com broadband meter. FIOS almost always registered a dead-on 5/2 reading. My old Cox broadband service seemed to fluctuate a bit more, but generally was in a reasonable range of what I was paying for.
Let me also reiterate that Verizon provides you with a new modem and a wi-fi router when you subscribe to FIOS. I know Cox offers to rent you a modem for $15 per month, but I’m not sure about wi-fi equipment. I bought my own gear when I had Cox but now I’m using what Verizon provided me with. (I’m not happy about going back to the “G” standard router they provide since my Belkin “pre-N” had a broader coverage area and faster transfer rates, but this isn’t a deal-breaker for me since G systems provide a fairly respectable level of service. And I suppose I could always daisy-chain that Belkin “pre-N” router back into my setup somehow to achieve superior area coverage if I really want it).
Overall, both broadband offerings were very satisfactory at their advertised speeds. Verizon has an edge at this point with its slightly lower rate for entry-level service and its faster 30/5 offering for very high-end customers. But Cox is already offering discounts in response (see “PRICE” section below) and will likely boost capacity over time, especially as cable companies continue to transition their analog customers to digital systems to get back all that squandered bandwidth. Also, cable operators in other areas are already offering faster packages since the industry is learning how to squeeze more out of their existing systems. (Check out what Cablevision is up to!)
One final point: While the FIOS technician easily set up my modem & wi-fi system, and also got me connected to the Net right away, he failed to “lock-down” my wi-fi system upon request (i.e., encrypt it so others couldn’t use it in my area). He said he wasn’t sure how to do that, which really surprised me. Then I asked if he could at least help me name my new wi-fi network so that I could differentiate it from all the other networks in my neighborhood, which are all also labeled “default.” (Honestly, I can’t tell if I’m surfing off my own network or one of my neighbors when half of them are labeled “default.”) Again, the technician said he didn’t know how to do that either. So I asked if he was at least going to leave me with some manuals or literature about how I could do both those things myself. He said he didn’t have anything to give me. Not even a manual! If Verizon cares about network security and wants to avoid excessive broadband “piggybacking” (i.e., neighborhood network sharing) they need to make sure that their technicians now how to do these two simple things.
OK, now’s here’s what I really care about so I’m going to spend a little time on it. (Those of you who don’t care about TV quality or service can just skip down to the next section).
To say I am a demanding video consumer would be an understatement of massive proportions. I demand the absolute best from my video service providers in terms of both quantity and quality. In fact, I am now so picky about the quality of my video signals that I simply refuse to watch analog television anymore (with the notable exception of Comedy Central and CNN). If it’s not 480p or higher, it’s just not for me. I feel like my eyes are going to explode when I have to watch those grainy old analog television channels.
Luckily, I was not disappointed once I got the FIOS set-top boxes connected to my 3 separate HDTV sets. I’m not sure why, but I can see a subtle difference in terms of picture quality with FIOS. Everything seems just a little more crisp and even a bit more colorful. In case the videophiles among you are wondering, I am using the exact same video equipment (same TVs, same receivers, same interconnects, same power conditioners, etc..) I was using for Cox. Therefore, the only thing that could be improving the picture quality is either: (a) Verizon’s video feed or (b) the set-top box they gave me. Verizon is using the Motorola 6412 HD box. Cox is using the Scientific Atlanta (SA) Explorer 8000 series HD box. Perhaps the SA box isn’t as good as the Motorola box, or perhaps the default configurations on the Motorola box are producing a more pleasant image to my eye. I’m not sure. Alternatively, it could be that the stronger signal coming into my home from Verizon (since they are running fiber right up to my house) has more to do with the superior picture quality I’m seeing.
Of course, there are other technical reasons why the FIOS video feed might look better in my neighborhood than Cox’s: the distance of the cable drop from the box to my house for one versus the other; the age of some of the lines; the condition of existing splitters or other equipment; or even proper electrical grounding issues. But I had Cox technicians check all these things out for me over the past two years and they said my system was in good shape.
So I’m inclined to believe that Verizon’s superior bandwidth running directly into the house is the likely explanation. Indeed, when the FIOS tech was disconnecting the old Cox line into my home and connecting the FIOS system to it, he decided to bypass the internal line amplifier (15 decibel booster) that Cox had installed to boost the signal in my home before the signal was shipped across the cables to my TVs many rooms away. I asked the FIOS guy if it was really a good idea to bypass the line amp and he said that the FIOS signal coming into my home was significantly more robust that the cable signal and that no amiplifier was required. In fact, he said, the use of a line amplifier could actually introduce some “noise” or interference into the system. Regardless, whatever the reason for it, I am extremely happy with FIOS in terms of picture quality, although I doubt most consumers would notice much of a difference between the two systems. I have trained my eye to look for small difference, but many people I know don’t see even see a difference between 480p DVDs versus 720p or 1080i HDTV signals. So I doubt video quality is going to be a differentiating factor for FIOS over cable.
More importantly, however, at least in my area, Verizon currently offers almost twice as many HDTV channels as Cox. In addition to the other popular HD channels that Cox offers (like ESPN HD, HBO and Showtime HD, Starz HD), Verizon offers me ESPN 2 HD; Cinemax HD; NFL Network HD; HD Net; HD Net Movies; National Geographic HDTV; and a few others that Cox Communications does not have. (To be fair, I should note that Cox does offer some of these channels in other areas the company serves. Also, I live a few blocks away from Comcast territory and I know that my friends in Arlington County, VA get many of these channels from Comcast. So, for whatever reason, I live in an area that can’t get as many HD channels as other cable franchise territories. I can’t figure out why this is the case.)
For those of you interested in some of the other video intangibles, I’ll just briefly mention a few things. First, the Motorola (FIOS) and Scientific Atlanta (Cox) set-top boxes both have strengths and weaknesses but, overall, it’s a wash. The SA box is easier to use (especially the controller) but the Motorola box offers more functionality. Importantly, the parental controls on the Motorola / FIOS system are outstanding and can be almost perfectly tailored to any family’s needs. The on-screen guides are great on both systems and the PVRs offer plenty of storage capacity and the ability to record two shows at the same time. And lots of video-on-demand services are available on both systems, but as a Netflix junkie I just don’t take advantage of VOD very often so I can’t provide much more input on this.
Bottom line in terms of video service: Considering that Verizon is a new entrant into the video marketplace, I am extremely impressed with the quantity and quality of their new video offerings. Is FIOS TV really THAT much better than cable or satellite that you should consider switching when if it becomes available in your neighborhood? I doubt it. For most people, there just won’t be enough of a difference to make the switch. Some people might switch over just because they are also switching their broadband service over to Verizon. And discounted bundles might be another reason to switch (more on that next). But in terms of just the video offering, I think most people will look at FIOS and think to themselves: “Geez… it’s looks just like cable or satellite to me!” Most won’t care about the slightly superior video quality or other intangibles. Of course, this certainly isn’t the end of the story. All these video competitors are trying to up the ante and provide more and better video services to customers. So stay tuned (excuse the pun).
OK, now’s here’s what most of the rest of you really care about. I’m not a typical consumer since price is usually the last thing on my list of priorities when it comes to information / entertainment services. I want the best and I’ll pay whatever it takes to get it. But most people are far more cost-conscious and will take the best deal they can find.
As I mentioned, voice service is pretty much even in terms of cost. But when it comes to broadband and video parts of the bundle, Verizon has Cox beat. Because I’m a high-end HD customer and basically get everything except for foreign-language channels, my monthly bill with Cox is a whopping $210 – $220. When all is said and done, Verizon is able to get my bill down in the $180 range, although I have yet to see a final monthly statement. And they’re able to achieve that while also offering more of the HD channels that I really want. That’s a nice little cost savings when you add it up over the course of a year.
So, based on the superior HD offerings and the price difference, I decided to call Cox up and tell them I wanted to terminate all services with them as of June 1. The Cox service rep I talked to in San Diego was very helpful and did her best in terms of customer retention. She spent 35 minutes on the phone with me trying to convince me to stick with Cox and explaining the downsides of FIOS! But here’s the real kicker: She told me that Cox had just instituted a special customer retention plan for those areas served by FIOS and that she was able to offer me roughly half off my cable and Internet bill for a full year! Thus, my $220 monthly broadband and Internet bill would drop to roughly $120 bucks per month.
I told her that it was an amazing offer but that I was going to stick with FIOS for now and see how it works out. She said that the offer would remain open (at least for the next few months) so I could switch back at any point and probably get significant cost savings. She also said that all customer losses to FIOS are being reported back to Cox’s regional directors to encourage them upgrade local service offerings in terms of video options, especially HD channels. So that’s good news and I’m sure Cox will start rolling out more HD channels soon.
The best part of all this… I’ll now be able to use this Cox counter-offer to go back to Verizon and push for further cost reductions on the bill I just negotiated with them a month ago!
Folks, this is serious broadband competition. For those critics who say that the rivalry between two competitors will not be intense, I say come visit my neighborhood. You’ll see Verizon showering people with free gifts (flowers for women, baseballs for kids, and even free gas at local gas stations!) to try to build name recognition and win new subscribers. And you’ll see Cox responding with flyers and e-mails about new services that are coming in an effort head-off this threat. And then you’ll see Verizon flyers and ads responding to those Cox flyers and ads. And you’ll see both of them cutting prices left and right to get customers or win them back.
(Meanwhile, wireless lurks as an alternative that could decimate both cable and telco wireline providers if they can just get the broadband part of the puzzle solved. Rupert and the boys over at DirecTV are in the process of rolling out an ambitious HDTV plan. Can more robust, reliable satellite broadband services be far behind? If DirecTV ever merges with EchoStar and combines all that satellite capacity, look out. That’s when things will get really exciting.)
The real question now is not whether broadband competition works, it is whether or not it is sustainable among more than two players per region. I am one of just 3 or 4 people in my neighborhood who have signed up for FIOS so far. Verizon is going to need to get A LOT more subscribers AND SOON. If they get caught up in a price war with cable in the short term they could be in serious trouble because the fixed deployment and installation costs associated with FIOS are killing them. They need customers and they need them now. At a minimum, Congress needs to enact local franchising relief and make sure that burdensome state or local regulation does not stand in the way of Verizon and other telcos rolling out these exciting new services. The market challenge they face is stiff enough that they don’t need such artificial regulatory impediments to success standing in their way.
Will FIOS pan out? Will the Bells broadband / video gambit work? Will Wall Street analysts / investors and telco shareholders be patient enough to let this experiment run its natural course? Or will they pull the plug on it? All good questions and I don’t really have any good answers.
But, in conclusion, I think that the telcos are in big trouble unless:
(a) they get franchise relief right away to roll out these expensive services without cumbersome, confusing local franchise rules standing in their way; and,
(b) they start building significant “word-of-mouth” traffic and grabbing lots of new subscribers where they already have secured franchise agreements.
It is vital that those two things happen as soon as possible because Verizon and other telcos are hemorrhaging cash in the short term in the hope of generating a stable return on investment (ROI) in the long run. But when does the short term end and the long term begin? That’s why you hear the Wall Street crowd chattering nervously about subscriber growth and ROI for the telcos; everyone’s wondering when these investments start paying for themselves, if they every do at all.
Again, wireless broadband is the real wild card here. If it becomes a reality, the wireline telco operators could be in trouble. Of course, that’s exactly why Verizon has made such a significant investment in its “EVDO” wireless broadband service. They understand that they have to cover all the bases. The question is, how thin can they spread their cash and other institutional resources?
As someone who is currently living the dream of vigorous, head-to-head facilities-based broadband competition, I hope it all somehow works out. And I hope Congress gets all those burdensome rules and regulations out of the way that hinder this same level of intense competition from coming to your neighborhood next !