Verizon is currently selling AT&T's DirecTV service… but 'next-gen bundles' are coming

mike dano
Today, if you want to, you can buy AT&T's DirecTV pay-TV and internet service from Verizon (AT&T's archrival). The offer is bundled with Verizon's "Freedom Essentials" voice calling service and costs between $70 and $95 per month.

The DirecTV offer from Verizon is scheduled to end in October, and represents the tail-end of a long-term bundling agreement Verizon inked with DirecTV prior to AT&T's $49 billion acquisition of DirecTV that closed almost exactly a year ago.

Verizon's DirecTV bundle, strange as it is, represents just one of the many bundling attempts Verizon has tested over the years. For example, to further differentiate its FiOS internet service from the likes of Comcast's Xfinity, Verizon in 2014 introduced its "double up" promotion, which was aimed at driving sales of FiOS and wireless. "I don't think that any cable provider can bundle wireless with broadband," Verizon CFO Fran Shammo explained of the offer. "We did that in our FiOS footprint and we think that's a very unique offer for our customers."

More recently, Verizon in March began offering to double the monthly mobile data allotments for new and existing wireless customers in the Northeast U.S. who also sign up for the company's FiOS service.

But Verizon executives have been clear that these sorts of bundles – basically combinations of two or more services, like wireless and home internet –  aren't good for the company because they can reduce revenues and raise churn.

"We've got our FiOS footprint and we can do quad plays today. … And at the end of the day, there was never a product that brought great value to the consumer. What the consumer wanted was a discount at the bottom of the bill and that's not to say that there'll never be a product that makes sense, but at the end of the day, quad plays equal discounts and -- we could certainly go do that today. We could do that in our FiOS footprint. We could figure out how to partner to do that in places, but that's really not our intent and our direction," explained Verizon's Marni Walden during an investor conference in January. "We did a lot of research with quad plays and combining services and there was also a lot of feedback and a tremendous amount of research that what consumers want to do when they get a quad play, if the bill gets too large, they start to strip services. So I think there is unit churn that can happen from that too. So we haven't figured out the perfect product lineup for a quad play. Doesn't mean we won't continue to look at it, but just discounting our services is not where we want to be today."

Meanwhile, AT&T loves bundling

Verizon's position on bundling is the direct opposite of AT&T, which points to cross-selling and bundling as some of the primary reasons it spent billions of dollars to buy DirecTV. AT&T's Ralph de la Vega said in May that 15 million of AT&T's newly acquired DirecTV customers don't subscribe to the carrier's wireless service, and 20 million of its wireless customers don't subscribe to the carrier's DirecTV service. "It's a huge cross-sell opportunity," he said at the time.

It's an opportunity the carrier appears to be milking. "We've seen very positive results from our customers," AT&T's John Stephens said during the carrier's recent second-quarter earnings conference call. "And I would suggest you'll see more things come out as we roll out our over-the-top offerings and other aspects. But right now, we are seeing some improvement in our attach rate of IP broadband with our video sales, and that is improving as we see the trends for the last four or five months. And we would expect to see some continued positive bundling, if you will, of wireless and video."

AT&T is partly following the lead European carriers have established in offering so-called quad-play services (mobile voice and data, TV, fixed voice and fixed broadband). Quad-play has been adopted with enthusiasm across Europe: A WSJ article last year, citing data from Strategy Analytics, noted that nearly half of all households in France buy three services from a single telecom company, but only a third of Americans do that. And in Spain, fully 60 percent of households purchase quad-play services, while just 6 percent of U.S. households do.

More recently, Ovum's Mark Newman noted that quad-play offers now account for more than 50 percent of new sales in many European countries, a situation that's damaging pure-play, mobile-only operators.

"I also believe that some of the motivation that the operators are facing to get quad-play going [in the United States] is coming from Altice entering the [U.S.] market," Jason Blackwell, an analyst with Strategy Analytics, told me. Altice recently closed its purchase of Suddenlink and Cablevision in the U.S., and has sniffed around T-Mobile. "They [Altice] have said that currently, they will concentrate on synergies and cost savings in the fixed services [in the U.S. market], but they also stated that eventually they feel they need a mobile piece to achieve their strategic goals in this market. Again, this follows the strategy that Altice has followed in other markets, particularly Europe, where quad-play has been important in their strategy."

But bundles are getting more interesting

I think Verizon is right about bundling, to an extent. Verizon's Walden said that most Americans look at bundling as a way to cut costs, and not much else, and that's probably true. Moreover, the bundles that Verizon can offer – wireless, internet and pay TV for like $200 or more – aren't necessarily as compelling in a world where T-Mobile's $50 per month plan gives you unlimited mobile access to HBO Now's $15 per month OTT service.

"The question for Verizon is finding the compelling wireline-wireless bundle to generate interest," William Ho, a 556 Ventures analyst (and a FierceWireless contributor) told me. "They have LTE Broadcast in the wings, they have Go90 exclusive Verizon-only content and they have Freebee Data as components to use, similar to AT&T."

I agree that Verizon needs to get a little more creative than just taking $5 a month off a bundle.

For example, shortly after buying DirecTV, AT&T revived its unlimited data offer – but only for its DirecTV customers. This isn't necessarily a bundle, but it does create a compelling reason for customers to sign up for both services. And already, AT&T counts a whopping 5 million customers who have signed up for the unlimited offering.

Of course, AT&T isn't the only carrier that has started combining innovative or unique services into one package. In the past month, Comcast finally relented to what I can only assume was overwhelming pressure from customers and will begin installing Netflix into its X1 set-top box. And in a much more interesting pairing, Comcast is now selling its prepaid Xfinity cable internet and TV services through Sprint's Boost Mobile prepaid stores.

Other innovative, bundling-style pairings include Sprint's teaming with Amazon to offer Amazon Prime membership to its high-value wireless customers, and Google's MVNO Project Fi combination of 1 million Wi-Fi hotspots and mobile service from Sprint, T-Mobile, U.S. Cellular and European operator Three.

 "Some things just work better together, and become larger than the sum of their parts," Gartner analyst Akshay Sharma told me. "For example, combine your digital TV subscription with home phone service, Wi-Fi broadband service, and you get TV call display on your TV along with both wireline TV, phone service with wireless, and enjoy bonus seamless session continuity of content and voice sessions on your tablet/smartphone, between fixed access, Wi-Fi and cellular."

As the telecom market heats up, I'm expecting to see more of these kinds of "next-generation" bundles. They are bundles that acknowledge Americans' desire to not only cut costs but also to have simple, cross-device, on-demand access to an increasingly fractured, over-the-top media and services landscape.

Any operator that thinks it can meet all of its customers' needs with a triple-, quad- or quit-play offering doesn't understand that a growing number of today's Americans are more interested in binging on Netflix's Daredevil during a long car ride than surfing through 300 TV channels in their living room. –Mike | @mikeddano

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