As consumers inevitably opt for one provider for all their communications and entertainment needs, telecom giants such as Verizon Communications and SBC-already hit by a landline consumer erosion-find themselves pitted against Comcast, Cablevision and Time Warner, who are offering Internet phone services.
"It's a lot bigger than wireless," said Jeff Kagan, an independent telecommunications analyst, referring to a marketing war that cost contestants $2.7 billion in measured media spending last year. "It's a do-or-die match."
Digital convergence has "thrown all of our tidy definitions and old ideas into a giant multimedia Mixmaster to turn America into a broadband nation," said Ivan Seidenberg, CEO of Verizon Communications. Firmly planting his flag among the traditional broadcast networks, he last month declared to the National Association of Broadcasters convention: "Verizon is first and foremost a network company."
Mr. Seidenberg, a Vietnam vet once dubbed "Ivan the Terrible" by union picketers, is reinventing his $71 billion telecom giant's operating in 29 states by spending billions to lay out a fiber-optic network. Named FiOS for Fiber Optic Service, it promises super-high speed Internet service, plus the TV content he is snapping up via long-terms deals with A&E Television Networks, NBC Universal Cable, Starz Entertainment Group and Discovery Networks. Verizon is also selling a movie-download service with Movielink's video-on-demand service. Verizon Communications' agency is McGarry Bowen, New York.
The cable companies, meanwhile, are building out one-bill packages for consumers. Most already offer what the industry dubs the "double play" of TV and Internet, but are expanding to include the triple play of Internet phone service.
But Verizon's traditional landline phones offer a fourth one-bill element. "We have a grand slam," said Mark Adams, executive director, Verizon consumer mass marketing. The benefit of having a customer with bundled services goes beyond the fact that the bill is usually bigger. Mr. Adams said customers that buy multiple Verizon services have, on average, a 25% to 75% higher retention rate than those who don't, depending on the package.
None of this is lost on cable companies. Comcast, for one, has been trying to overcome cable's heritage of customers complaints with a campaign focusing on the good it does for communities. It hired Marvin O. Davis from Verizon Wireless as senior VP-marketing and hired Omnicom Group's Goodby, Silverstein & Partners, San Francisco.
Comcast by next year will sweeten its bundle with an offering of a TiVo branded service. Time Warner's shoring up its bundle too with a nascent branded mobile-phone offering.
Yet the spending battleground may shift, especially given the local nature of cable companies. Mr. Adams said Verizon successfully launched its fiber-optic network in Keller, Texas, with a campaign centered on buzz marketing with gaming tournaments showing off FiOS's fast network, wrapped vehicles and mall interviews. "As we compete, the [marketing] mix changes," he said, with a more localized approach.
And the one-bill strategy may not prove to be the killer marketing app after all. "If people see how much they are spending, they'll have a heart attack," said Colin Probert, president, Goodby, Silverstein. "Keeping cell and landline bills separate is very much in the telecom industry's interest."