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Verizon exec confirms price hike is coming for Fios broadband

Verizon Communications' chief marketing officer Mike Ritter says prices for new tiers of Fios broadband service, which effectively doubled speeds, will go up. But consumers will have more flexibility in creating bundles with video service, he adds.

Verizon staged promotional events when its Fios service first came to New York City to encourage new customers to sign up for the service. Marguerite Reardon/CNET

DALLAS--A Verizon executive confirmed today that prices will go up soon for Verizon's newly announced tiers of Fios broadband service. But more flexibility in the bundles that include Verizon Fios video service may actually result in some Verizon Fios subscribers paying less each month.

In an interview at the Telecommunications Industry Association's trade show here, Verizon's Chief Marketing Officer Mike Ritter confirmed that the company will be raising prices on the newly upgraded broadband services. Verizon announced last week that it is doubling the speed of its Fios high-speed broadband service. The company's fastest speed Internet service will now offer downloads up to 300 megabits per second. At the time of the announcement, Verizon didn't say whether pricing on these tiers of service would change.

Several blogs speculated the company would increase the pricing on these services. And a few days ago, The Verge reported it had received training material from an unnamed Verizon employee that indicated how much prices would increase.

In an interview with CNET today, Ritter confirmed pricing would increase, but he wouldn't say by how much. The new pricing on the tiers of service will be announced in mid-June.

Good deal for consumers?
Still, Ritter emphasized that subscribers would be getting more bang for their buck. Prices are only expected to increase slightly and speeds will be doubled. He also said that some customers who buy broadband service as part of a bundle with Fios TV may actually see their monthly bills decrease.

How? Previously, Verizon forced customers with the fastest tier of broadband to purchase the highest tier of video service with the most channels. Now if customers want a higher speed Internet service, they can choose that service and include a lower tier of video service in their bundle.

"A year ago, customers could only select three bundles of service," he said. "We automatically paired a video service with your broadband. But now we're giving consumers more flexibility and choice. And depending on what they choose, they could actually spend less each month."

Ritter said that Verizon is giving customers more flexibility because the company understands that consumers are watching more video over-the-top from streaming services, like Netflix, Amazon, or HuluPlus.

Verizon is preparing its own Internet video streaming service through its partnership with Redbox. Like Netflix, Verizon will offer streaming for some older content while offering DVD rentals via Redbox for more current titles.

Verizon hasn't announced specifics of the service, such as pricing or business model, but Ritter said the service is on track to launch by the end of this year. And it will be available nationwide to Verizon Fios customers as well as those without Verizon Fios service. This differs from other services offered by other paid TV providers, such as Comcast, which offer streaming video only to their own cable TV subscribers.

"With Fios we are building to 20 million homes," he said. "But there are 120 million households nationwide. Offering this service nationwide gives us more scale."

Verizon's Chief Financial Officer Fran Shammo previewed the new price hikes last month when he spoke at an investor conference. Shammo said the increases are partly to offset the increasing cost of acquiring video content for the TV services, but he also said that Verizon no longer needs to compete on price to continue to grow its subscriber base for Fios services.

Ritter further explained that Verizon has been selling its higher tier of Fios broadband and video services at a big discount compared to its cable competitors.

"We were aggressive in pricing and promotions in the beginning to get penetration," Ritter said. "And that's gotten us to a place where we have scale to be more efficient. But if you compare the pricing against cable competitors, you'll in some segments we are under-priced."

Verizon Wireless's deal with cable
These pricing increases come at a time when Verizon is trying to push through a deal with regulators to buy more wireless spectrum from a consortium of cable operators. As part of the deal, Verizon Wireless will resell cable TV and broadband services in its stores. And cable companies will resell Verizon Wireless service to their customers.

Consumer advocates have criticized the deal, because they feel that Verizon Communications, which owns a majority stake in Verizon Wireless, will not compete as aggressively with cable companies.

But Ritter said these fears are overblown. He said that Verizon Fios is likely to compete more aggressively with cable given that it will also be marketed alongside the cable offerings in Verizon Wireless stores in markets where it's offered.

While Verizon Wireless re-sells Verizon Fios in some of its stores today, the deal with cable would help expand this to all Verizon stores. Ritter noted that today Verizon Fios service is resold via a third party within the Verizon Wireless stores. This adds more cost, but it's necessary since non unionized Verizon Wireless workers aren't able to sell Verizon Fios service because those services must be sold by unionized workers on Verizon's traditional wireline business.

The deal with cable could help pave the way for tighter sales integration between Verizon Wireless and the Verizon Fios wireline business.

"The labor issue creates some complexity in how we can integrate and sell wireless and broadband services seamlessly," he said.