Broadband Cable Association of Pennsylvania


September 24, 2012

Tucked amid rows of office cubicles at the sprawling Verizon Wireless headquarters here and hidden behind a locked door sit the company's best kept retail secrets. The mock store looks like a Verizon Wireless retail outlet right down to the signs for the iPhone 5 and racks of mobile accessories. But on one wall, an experimental display of tablets and smartphones labeled "Home Services" offers Verizon customers a new service: cable TV.

The display is a little-known result of Verizon's $3.9 billion purchase of spectrum from Bright House Networks, Comcast, Cox Communications and Time Warner Cable that the Federal Communications Commission approved last month. While most attention has focused on how the purchase of unused airwaves will help Verizon expand its new fourth-generation wireless network, a less publicized result is that cable companies can now use Verizon's retail presence to sell cable packaged with phone and wireless service. So in mock store displays to be introduced across the country next month, Comcast's Xfinity cable service app appears on an "attract loop" that plays on a plasma television. Verizon customers will be able to browse television listings on a Verizon Samsung tablet and learn to set their DVR remotely using Xfinity's service. "Verizon Wireless & Xfinity, Better Together," an in-store sign says. "Frankly, this is not something people expect to see in a Verizon store," said Tony Heyman, Verizon's president for converged solutions, which include overseeing partnerships with cable companies.

The partnership signals a major shift for both industries. Until recently, wireless and cable companies were archrivals. Major cable providers owned spectrum and hoped to start their own wireless businesses, while wireless companies wanted to compete in cable. The new spirit of cooperation is jolting analysts. "We were all trained to believe cable operators and the phone companies were natural enemies," said Craig Moffett, an analyst at Sanford C. Bernstein & Company.

Cable operators and phone companies thought so, too, but the cable companies have largely ended efforts to compete in the mobile phone business because the cost of building their own wireless networks could be prohibitive. Instead, they can use Verizon to attract customers without investing in a network of stores. "We've looked at a whole range of options for how to fulfill that customer need, including building our own cellular carrier, but we concluded we would be a late entrant in a highly competitive business," said Peter Stern, chief strategy officer at Time Warner Cable. Cox, which tested the waters in the wireless market, now sells Verizon products and services in its Cox Solutions Stores in Tulsa, Okla., and Oklahoma City. Cox, which is based in Atlanta, has 130 retail locations and predicts Verizon will be a major part of its offerings. "We don't have the capital investment ourselves to go into this very capital intensive business, but we can utilize the retail network we have," said Judy Train, Cox's vice president for strategic partnerships.

At the same time, Verizon has not signaled that it plans to expand its ambitions in cable. Analysts estimate the company's FiOS network covers just 14 percent of the United States, and have said it was unlikely that Verizon, the country's largest wireless provider, would invest in further building out its $20 billion fiber optic network.

For the cable providers, the partnership reflects a change in how consumers watch television and use mobile devices. Cable subscribers do not expect service just in the home; they also want access to their favorite shows, movies and sports events outside the home on tablets and smartphones. The wireless industry has expressed concern about a looming spectrum crisis in which carriers run out of airwaves to power smartphones and tablets that guzzle data as users stream videos. "This is where the world is going," Mr. Heyman said. "Customers want to take their movies, TV shows, and even files and other things, with them anywhere."

Verizon began testing the idea months before it got F.C.C. approval. Six hundred Verizon stores already sell Comcast, Time Warner or Cox service to customers and offer gift vouchers of as much as $300 and other incentives if a Verizon customer signs up for cable. By the end of the year, Verizon expects 75 percent of its nearly 2,000 stores and kiosks to offer cable bundles to wireless customers. Not everyone sees the partnership as the brave new world of mobile and cable convergence. The Justice Department approved the deal before the F.C.C., but regulators expressed concern about the retail partnership, particularly in areas where Verizon FiOS is sold.

The Justice Department said the deal could "unreasonably diminish competition between Verizon and the cable defendants - competition that is critical to maintaining low prices, high quality and continued innovation." Regulators advised that Verizon not sell cable service in FiOS markets, but that provision appears to be malleable. Time Warner Cable says it plans to have a presence in select Verizon stores in New York City, although FiOS is available in much of the area. Comcast says it plans to enter the Northeast market, too, possibly via the Verizon Web site if it is not permitted to enter stores in FiOS areas.

"We'll work around that and figure it out while complying with the consent decree," said Cathy Avgiris, Comcast's executive vice president and general manager of communications and data services (and Cable Academy 2012 presenter). Mr. Heyman said whether cable service may be sold in Verizon stores would be determined on a customer-by-customer or store-by-store basis, depending on where FiOS is available. Consumer groups have expressed concern that the partnership would essentially lead to monopolies in many markets that would limit competition and hurt customers. "These companies will lose the incentive to develop new services or partner with different companies to offer competing bundles, and that will lead to higher prices for consumers," said Jodie Griffin, a staff lawyer at Public Knowledge, a nonprofit organization based in Washington that promotes an open Internet.

Cable executives disagreed. They said buying a bundle of cable, home phone and Internet service with Verizon's wireless service would provide the best deal. Comcast offers gift certificates that would cover the cost of some models of new smartphones if customers sign up for its Xfinity "triple play" service. Time Warner Cable and Cox have similar introductory incentives. "The offer we have is to entice customers to make a purchase decision around both home services and wireless services in one single purchase decision," Ms. Avgiris said.

Comcast has trained Verizon salesclerks at its "Comcast University" center in Philadelphia. In an early test store in Seattle, a retail professional greeted Verizon shoppers with a chipper, "Do you know we now have a great partnership with Xfinity?" Time Warner Cable says it may install its own salesclerks in Verizon stores, similar to the way it does at select Best Buy locations. It appears quirks still need to be worked out. Mr. Heyman says he does not plan to have cable companies' salesclerks in Verizon stores. "We want this to be part of our core business," he said.

The retail partnership will extend beyond the kiosks, displays, signs and clerks pushing triple play. Comcast says it hopes to also jointly develop services for customers of both Verizon and Comcast. Comcast's ideas include mobile phones that could ring on a landline when customers are at home, text messages that appear on television screens (though in focus groups teenagers opposed this feature), a single voice mail box for both home and mobile phone numbers, and movies and photos shot on a smartphone that could easily appear on a television screen. "What if when you walked into your house and turned on your TV, the remote control app would automatically come up on your mobile phone?" said Sam Schwartz, president of converged products at Comcast. "We've had teams of products and marketing people and consumers from both companies brainstorm what's possible," he said. But, at least for now, do not expect one pinnacle of convenience: A single bill for mobile and cable services. Comcast's research showed that customers tend to exhibit sticker shock if a monthly bill is too high. New York Times

Coinstar Inc's Redbox and Verizon Communications Inc., providing details of their challenge to Netflix Inc., will offer subscription streaming, movie sales and rentals by Christmas, along with DVDs from the local kiosk.

Redbox Instant by Verizon, being tested in the homes of about 500 Verizon employees, initially will focus solely on newer movies that have been available for sale and rental, Eric Bruno, Verizon's vice president of strategy and planning for consumer and mass business markets, said yesterday in an interview. The venture, 65 percent owned by Verizon, will battle Netflix and Inc for the growing number of consumers who watch movies and television shows online and on devices like Apple Inc.'s iPhone. The U.S. market for subscription streaming rose fivefold to $1.1 billion in the first half of 2012 from a year earlier, according to data from the Hollywood studio-backed Digital Entertainment Group.

Verizon and Bellevue, Washington-based Coinstar are focused on a streaming network "that can stand on its own against Netflix, against Amazon," Bruno said. Netflix, based in Los Gatos, California, had 24 million U.S. customers of its $7.99 a month subscription streaming service as of June 30, by far the largest competitor. Amazon, the Seattle-based online retailer, offers free two-day shipping and access to 25,000 movies and TV shows for $79 a year. It doesn't disclose its subscribers.

Redbox Instant was announced earlier this year. In addition to a monthly subscription and an allotment of DVDs from Coinstar's almost 40,000 kiosks, it will offer a la carte movie rentals online and purchases for download, Bruno said. Customers will be able to download titles to mobile devices, game consoles and set-top boxes through an application that will be available at Apple Inc's app store, Google Incs Android store and other marketplaces, he said. While there's no specific date, the venture is targeting a start to the service between late November and mid-December, after a short period of initial public testing, Bruno said. Coinstar has previously said that the service is targeted to start before year-end.

Coinstar and Verizon will pay content providers based on the number of subscribers, similar to traditional cable-TV systems, rather than a set payment, Bruno said. Netflix has paid a set amount for streaming rights to movies over a specific period of time, a model that increases the pressure to attract new subscribers. Redbox Instant hasn't announced pricing. In August, Coinstar Chief Executive Officer Paul Davis said the venture will focus on "value" pricing. Coinstar rose 1.3 percent $46.52 yesterday in New York. It has gained 1.9 percent this year. Verizon, based in New York, climbed 0.3 percent to $45.64 and has added 14 percent in 2012. Bloomberg

TiVo says Verizon will pay it at least $250.4 million to settle a patent lawsuit related to its DVR technology, and the two have a licensing deal. Shares of the Alviso, Calif., digital video recording pioneer are up 9.5 percent in premarket trading. TiVo Inc. says the settlement with Verizon Communications Inc. includes an initial cash payment of $100 million and quarterly payments totaling $150.4 million through July 2018. Verizon will also pay monthly license fees through July 2018 for each Verizon DVR subscriber above a certain level. The deal with Verizon is the latest in a string of patent settlements for Tivo. Last year it settled with satellite TV providers Dish and EchoStar for $500 million, and earlier this year resolved a lawsuit against AT&T for $215 million. Associated Press