Verizon Says Early Promotional Push Didn't Work for Fios

Telecom Bet on Giveaways, Ad Blitz, but Couldn't Lure Consumers to Fiber-Optic Offering

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SAN FRANCISCO ( -- As if the pressure from the iPhone wasn't enough, Verizon Communications is now dealing with the slowing growth of its $23 billion fiber-optic internet and video services, whose recent laggard performance management blamed on ineffective marketing.

The lesson? Despite a $100 million-plus marketing blitz to lure customers to its Fios service, consumers are looking for deals and value, not bells and whistles.

In the second quarter, Verizon was testing a campaign that gave away free netbook computers and camcorders to spur consumers to sign up for its Fios bundled service that includes broadband, TV and phone. In tests, the campaign performed well, said Verizon spokesman Eric Rabe, but by the time the promotion hit the market in July, consumers were in a more somber state of mind, and hungry for cash in their pockets, rather than nice-to-have freebies. (But it's worth noting that one of Verizon's best-performing Fios promotions included free TV.)

"The economic environment had changed and consumers were much more dollar-conscious," Mr. Rabe said. "I don't fault the [promotional] execution or the plan, the economy just forced people to think differently, and we were caught in that."

Verizon then switched gears and offered instead a $150 cash back for customers who signed up for the package. But because it took awhile to get the new campaign into the market, consumers did not sign up as quickly as management had hoped.

On its third-quarter earnings conference call this week, Verizon's chief financial officer, John Killian, stated that "churn remained low in the quarter, gross sales were lower, primarily due to a change in promotional activity."

McCann Erickson, Verizon's agency of record, did not return calls by deadline.

Some industry watchers say the digital-video space is getting soft due to the sour economy, and marketing can't always shoulder the business performance.

"The cable operators are seeing their premium subscribers going down and rolling back to the basics," said Bob Rosenberg who heads up Insight Corp., a telco research and consulting firm. "This is not just happening to Verizon."

Mr. Rabe declined to say whether the cash-back promotion was performing as expected, only saying that Verizon is "sticking with it right now."

Verizon netted 198,000 new Fios internet subscribers last quarter, vs. 225,000 a year ago, while 191,000 new customers signed up for TV, vs. 233,000 a year ago. Overall, Fios has 6 million combined video and internet Fios customers, up 57% from a year ago.

Verizon is pinning hopes on Fios to offset its declining landline business, as consumers cut the cords of their wired phones and rely solely on their mobile handsets. Verizon hopes to prove its $23 billion Fios network is going to pay off as it completes its initial deployment next year. For the third quarter, Verizon reported revenue of $11.57 billion for its older landline business, down 5% year on year.

Meanwhile, the cable guys are getting aggressive, and calling on new Fios customers to switch back, in some cases offering to pay the termination fees imposed by Verizon on those who exit the service before their contracts expire. Verizon, in turn, has been stepping up on its "Quadplay" promotion that throws in cellphone plans on top of its Fios triple-play offerings, in hopes that its wireless service is a differentiator from the cable companies.

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