Verizon's Shammo: Content providers see value in toll-free data model
Fueling the fire surrounding the likelihood of toll-free data coming to the U.S. market soon, Verizon Communications (NYSE:VZ) CFO Fran Shammo told investors at a Barclays Global Technology, Media and Telecommunications conference today that content providers are starting to see the value in paying the wireless operator for the data consumed by their subscribers when they view their content via a mobile device.
Likening the service to a toll-free calling service, in which a company buys an 800-number for consumers to call instead of racking up long-distance charges, Shammo said that content companies understand the value they will get if they pay an operator like Verizon for the data charges a consumer incurs when viewing their content. "The content providers will be willing to pay for the content, if we don't charge the consumer," Shammo said. He added that content companies want eyeballs on their content and Verizon can potentially deliver 100 million eyeballs across its various channels.
He also shrugged off concerns this model may fly in the face of net neutrality constraints. "Net neutrality is about prioritizing the delivery of content," he said. "We aren't talking about that. This is who pays for the delivery of that content."
Net neutrality advocates, including representatives from public interest groups, have said such plans will favor rich and large content companies over smaller ones, and that they will show that carriers' data usage caps are artificial if they can be so easily circumvented by companies that are willing to pay to get around them.
However, he admitted that changing the business model is not easy as content providers have enjoyed the current model for a number of years. "It's a difficult negotiation because you are breaking up the model they have had for years," he said.
Shammo's comments are similar to those made by AT&T (NYSE:T) CEO Randall Stephenson last week at a J.P. Morgan Global Technology, Media and Telecom Conference. Stephenson said that he expects content and app developers to soon introduce new types of business models that will allow customers to get access to their content without racking up high data usage bills.
In addition, in mid-May, the Wall Street Journal reported that ESPN was in talks with a Tier 1 wireless operator about potentially subsidizing consumer access to the company's content via mobile.
Interestingly, Shammo also told investors that Verizon's LTE network will have the same amount of coverage as its 3G CDMA network by next month. And while it is no longer investing in its 3G network, Verizon does want to keep traffic on that network. One way to do this is to offer prepaid service via 3G. Shammo said that Verizon will likely get more aggressive with prepaid on its 3G network but not necessarily by using the Verizon brand. "There are certain niches I won't play in because it doesn't make sense to bring my brand to those areas," he said. "Prepaid is one area."
Instead, the company will likely work with resellers to build traffic on the 3G network. Shammo noted that in the first quarter Verizon had a million net additions and most of them were in the prepaid area and through the reseller channel.
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