Verizon's regulatory strategy for capturing cable's premium customers.

Implications: This article is important because the implications are beyond the privatization of Cablevision. FiOS may have a more immediate impact on the sale price of Cablevision, but the other cable companies are  at risk of seeing their most lucrative subscriber base shrink. That base consist of urban  dwellers. The core group that Verizon is targeting;  Verizon has the advantage of not  having to service sparsely populated or low rate of return areas where cable companies provide services.   However, three key impediments challenge Verizon's success: (1) access to multiple dwellings units (MDUs) (large residential buildings; (2) access to regional sports programming and (3) access to "must have" programming at competitive rates. Verizon is in the midst of executing a regulatory strategy which may bring  their desired results sooner than anticipated.

Analysis: Access to MDUs is  critical for  FIOS's success.  Inability to obtain MDU access due to long term self -renewing "evergreen " contracts between cable companies and landlords was a major contributing factor to Starpower's failure and has stymied RCN's growth efforts.  

Verizon has targeted major metropolitan areas for its initial launch of FiOS because urban dwellers are most likely to subscribe to the higher premium services, and on a per subscriber basis  it is less costly and easier to service an MDU  than a  single family home; (2) access to "must have" programming such as sports programming which current rules do not require vertically integrated companies like Cablevision and Comcast  to share, if delivered terrestrially; and (3) access to other "must have "programming at costs that are competitive with the price that cable affiliates pay for programming.

Verizon was successful in getting the FCC to agree to examine the exclusive sports programming and cost issues in an upcoming rule making. On the MDU front, things may be looking up for Verizon.  Previously, the FCC had refused to act on this issue concluding that it did not have the jurisdiction or was constrained by the Constitution's impairment of contract clause. However, Chairman Martin has publicly indicated a willingness and desire to ban exclusive MDU contracts and has begun to garner support from other Commissioners for taking action.  Expect stringent resistance from landlords, their lobbyists and  cable companies--but don't count out this FCC moving to limit or ban exclusive contracts.

If Verizon is successful on both fronts, the implications for consumers may be good, but for cable it could lead to a loss of premium subscribers, at a minimum, it would  cost cable more to keep these customers.  For the Dolan's this might be a good time to think about moving on to greener pastures, even if it means taking a lower price, Comcast and the other cable companies had better prepare for regulatory war.