Research Information Cablevision’s Machiavellian Move
Written by Om Malik- Posted Wednesday, May 17, 2006 at 7:43 PM PTFree SkypeOut might be putting the heat on Vonage and others, but the flat rate international long distance plan introduced by Cablevision is truly a move befitting Machiavelli.
The company introduced a $20 a month plan which allows subscribers of its $35 a month voice service to call anywhere in the world. Since the plan is capped at 500 minutes a month, that works out to about 4 cents a minute. Many believe that it is a way to respond to Free Skype or a blatant attempt to take the wind out of Vonage IPO’s sails. But that’s overlooking Cablevision (and its cable-cos brethren) real enemy: the phone company.
The New York-based cable and broadband service provider is trying to turn the screws on its phone company rival, Verizon. The availability of this plan - will prompt Verizon customers to ask questions, and perhaps seek a similar deal from Verizon. There is a good chance that Verizon will have to respond with a similar if not better offer. (Of course, they can let customers switch!)
Since Verizon’s footprint is much larger that Cablevision, it would have to offer a similar package to its entire customer base, and that could start eating into the voice revenues. Cablevision of course could kill birds with one stone - it will force that hand of the likes of Vonage to respond in kind as well.
This dovetails with my previous arguments that Cable guys can leave the phone guys twisting in the wind. The phone-companies video networks are nowhere close to mass deployment, which leaves them dependent on data and voice revenues. Cable guys, as Cablevision’s announcement shows, can do a handful of things that can inflict financial pain to the phone companies. (Oh how I love the sound of two leviathans - phone companies and cable companies - crashing into each other!)
If you look at the Cablevision announcement, it is publicity ploy which doesn’t cost the company much. And instead the can boast about no hidden fees. Of course there are upfront fees - a monthly $35 voice plan - but that is a minor detail when it comes to reporting. Cablevision will have nothing to lose, because of this little trick that will suck-up those 500 minutes in a jiffy.
One-minute rounding is in effect. We round up to the nearest minute. Example: A 25 second call = 1 minute.
Just to nit-pick, if you look at Cablevision’s geographic footprint - in New York, Connecticut and parts of New Jersey, you will find a heavy concentration of immigrants - the most lucrative segment when it comes to long distance dialing - from South Asia, China, Puerto Rico and rest of Latin America.
The $35 a month voice plan Cablevision sells offers unlimited calls to the U.S., Canada and Puerto Rico. That’s one big demographic segment that really doesn’t need to spend an extra $20 a month. Other countries like say India, Bangladesh, China and many Latin American countries have high termination charges, so perhaps its going to cost Cablevision some money. But the $35 a month voice plan, and those rounding-tricks should ensure that the losses aren’t too much.
As I said, its about Verizon!
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Comments and Trackbacks
You see Apple and Creative Labs duking it out the same way over MP3’s… Hu’s going for broke at Creative.
Who runs out of oxygen first in the leviathan wars? What’s your call?
oh i am just a humble chronicler of events. who knows and who wins. just enjoy the sound of cracking bones.
helped me, may help you: http://en.wikipedia.org/wiki/Machiavellianism
This is just frothy marketing. Pay $4 a month to Verizon and calls get heavily discounted.
The only thing that matters is which company can compete more effectively once you whittle residential landline caling margins down to zero. That company is Verizon.
Wall Street Journal smashing VONAGE today…Cablevision putting the screws to Verizon today======I declare all out Global Nuclear Voip war has begun=====Weapons of Mass Dialing have been flashed!
skibare
A price war is as American as you can get.
Cablevision is in Long Island and now Verizon is bringing fiber to our homes.
Love the price war. The ultimate winners are the consumers. I see Verizon folding and ceding to Cablevision on this one. Instead they go after in certain geographic markets (like Long Island) with their video offering and hit Cablevision at where it will really hurt - its core business of offering video at wildly expensive monopolistic prices.
Rounding up to the nearest minute is pretty much standard practice for consumer LD. Six-second increment billing (often with an 18-second minimum increment) is usually only offered for business LD.
That aside, this has the potential to do to ILD what Digital OneRate did to domestic LD - crash the prices through the floor.
I actually worked on this biz model while working at CVC. This part of the analysis while correct leads to an incorrect hypothesis provided in the main blog.
The NY DMA is THE premiere DMA — most wealthy demographic. I have looked at VoIP addoption at all 700 zip level and HH income is 25-35% higher than the national average.
Secondly people just do not out of nowhere become friends with people in foreign countries. You may have some friends/family in China but probably not a lot. Call volume will go up but it will not lead to unprofitability unless for some reason there are a lot of “immagrants” that are friends with folks in Cuba which has the HIGHEST termination fee.
So yes this is ALL ABOUT VERIZON. And its aim is PR, I think they did a good job. Initially the plan was to be UNLIMTED worlwide minutes but I could not find a way to make it profitable — too much risk.
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