Is it Time for Honest Pricing?

Verizon is getting a lot of positive press from changing its product pricing to be more transparent. I look at the new pricing structure. and see both plusses and minuses.

The new pricing is a straightforward menu of prices as follows:

  • There are three broadband products: 100 Mbps for $40, 300 Mbps for $60 and 1 gigabit for $80. The first two products charge $15 monthly for a router – a router is included in the gigabit product price.
  • There are new, and lower-priced cable TV options. Your FiOS TV is $50 (plus $12 for a settop box). A customer chooses 5 channels and Verizon provides 120 other channels based upon that choice. More FiOS TV provides 300 channels for $70 and includes one free settop box. The Most FiOS TV is $90 and comes with 425 channels, one free settop box and some use of a DVR. Verizon is also now reselling YouTube TV for $50.
  • A basic voice line is $20 and comes with caller ID. I assume voice mail is extra. They didn’t include it in the announcement, but there must be a higher-priced product that includes unlimited long distance.
  • Customers must use autopay and paperless billing to get any of these products.

There are some definite positives from the new pricing:

  • Verizon says they have eliminated hidden fees.
  • Verizon has eliminated term contracts for these products. It’s not clear in the announcement, but customers under current contracts are likely going to have to finish those contracts before moving to the new prices.
  • This eliminates the games that Verizon and other big ISPs have played with bundling discounts. With bundle discounts, customers got some nice price breaks for buying multiple products. However, the discounts were never associated with any product, and customers found that when they tried to drop any one product that they lost the bundling discount. This new pricing is a menu and customers can pick what they want to buy, and due to monthly billing can add or subtract products later with no penalty.
  • Along those same lines, Verizon will have finally taken out all of the hassles of trying to negotiate for standalone products. Customers can pick any products from this new menu of services, including standalone broadband.

Of course, there are also negatives:

  • The settop box and router fees at $12 and $15 are outrageous considering that in both cases the box that Verizon is providing likely costs around $100. These add-ons costs are still going to be mentioned only in the small print in advertising, which still smacks of hidden fees.
  • Verizon is also including a $15 per month product they call TechSure Plus that provides for 24/7 technical support. Reading between the lines, this product means customers will have to pay Verizon $180 per year to avoid the long phone waits for customer service. The unspoken threat is that customers without this service will go to the end of the customer service queue. It’s a ballsy product statement by Verizon – pay extra if you ever want to talk to us.
  • All of this is only available where Verizon has fiber – and there is still a lot of their market that is not wired with fiber.

The new pricing is a definite challenge to the big cable companies that Verizon competes with. The $55 price for 100 Mbps broadband ($40 for the broadband and $15 for the router) sets a market bottom price and is a definite challenge to the cable companies. It’s likely that a big majority of Verizon customers will choose this product because of the low price and because most homes today are going to be happy with 100 Mbps service on fiber. This product will make the big cable companies sharpen their pencils for their base broadband product and also might make them hesitate from the annual broadband rate increases they’ve now built into their planning.

It’s going to be interesting to see how Comcast and the other big cable companies react to these new prices. They can advertise promotional pricing that can beat the Verizon rates, but those specials will likely still include hidden fees, and the rates will spring back to full price at the end of the promotional period. The big cable companies also need to be careful about offering lower prices only where there is FiOS – this will annoy the hell out of customers in other markets who will understand they are subsidizing lower rates in Verizon markets.

It’s not going to be surprising to see Verizon take away customers from the cable companies with these prices. The prices are not particularly low, but for the most part, they are honest and transparent – a refreshing change from a big ISP.

Tackling Hidden Fees

The topic of hidden fees on telecom bills was in the news recently when AT&T tripled their administrative charge on cellular bills – a change that nets then $800 million annually in new bottom line. Consumer Reports recently launched a campaign they are calling “What’s The Fee?” that is identifying and tackling hidden fees from big corporations like ISPs, airlines and banks. Their advocacy branch, Consumers Union launched a web site to identify hidden fees and started a petition drive to notify the big companies that many of their customers are unhappy with these fees. Consumers Union says they get more complaints on the issue for Comcast compared to any other corporation.

I’ve written in the past about the hidden fees that ISPs put onto their bills. I think they use these fees for a number of reasons:

  • The hidden fees disguise the true price of their products. The big cable companies widely advertise the price of cable that doesn’t include the fees without telling the public that the fees can’t be avoided. They night advertise a $69 cable package that might actually cost over $90.
  • The big cable companies have increased the rates for the hidden fees at a much faster pace than the increases in the ‘basic’ published rates for cable TV. This disguises rate increases by holding down the published rates for cable TV.
  • The hidden fees put pressure on competitors. Any competitor to the big ISPs that wants to publish true rates is at a disadvantage when customers compare their true rate to the deceptive basic rates of the cable companies that don’t include the hidden fees. My clients wrestle with this issue all of the time – should they be honest with customers and look to be more expensive or should they follow the same practice of mimicking the hidden fee structure so that their pricing is more easily compared?

What are the hidden fees? Let’s look at Comcast:

  • Broadcast TV Fees. This fee supposedly covers the cost of the retransmission fees paid to the over-the-air networks like ABC, CBS, FOX and NBC. Comcast charged $1.50 for this fee in 2015 and it’s now up to $7.75. Comcast doesn’t mention on bills that they own NBC. Comcast already charges all customers a substantial fee for basic TV that far exceed the cost of buying this programming.
  • Regional Sports Fee. This fee is now up to $6.75 per month in many markets (varies somewhat around the country). This fee supposedly compensates for the various regional sports networks. What Comcast fails to mention is that they now own the majority of regional sports networks, including a big pile they are getting due to the AT&T / Time Warner merger. This fee was $1 in 2015.
  • Settop Box and Cable Modems. While these are not hidden fees, these charges are supposedly set to recover the cost of the hardware. But in recent years Comcast has jacked up these fees significantly, to the point that I would consider a big portion of these to also be hidden fees. The charge for a cable modem is now $11. The company charges $9.95 for the first settop box and $7.75 for additional ones. Just a few years ago these fees were around $5. In both cases it’s likely that the settop box and cable modem costs Comcast $100 or less.
  • HD Fee. Comcast no longer charges separately for this, but I still see this on the bills from some of the other cable companies. This fee was established years ago when HD was a new technology, but today practically every channel is HD.

The Comcast fees have gotten so large that they could add $25 per month to the advertised price of a cable / broadband package. There is an open class-action lawsuit against Comcast that is seeking damages for customers who were charged these fees when they purchased advertised products that didn’t mention the fees.

What is most perplexing is that regulators have been quiet on the topic, even though just about everything to do with these fees is deceptive. Comcast swears that it provide full disclosure about these fees and that customers are not deceived, but one has to read some truly fine print on their web site when ordering a cable product to understand that these fees will be added to the advertised price.