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Verizon Has a New Plan To Rent More Cable Boxes

By Daniel B. Kline - Mar 25, 2016 at 12:18PM

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The company is killing an app some Smart TV and Xbox customers used to get around having to pay the never-ending fees.

While the Federal Communications Commission (FCC) wants to open up the cable box market to competition, Verizon ( VZ 0.98% ) has decided to close off one of the few alternatives its customers have to renting boxes. 

Source: Verizon

The company has, according to multiple reports from its customers, decided to kill its app which allowed customers to watch its pay-television programming on Smart TVs and Microsoft's ( MSFT 1.75% ) Xbox. The email sent to people using the service was apologetic, but that will be cold comfort for people who now need to rent another box from the company.

On March 31, 2016, the FiOS TV app you are using to watch your FiOS TV programming through a Smart TV or an Xbox gaming system will be retired and will no longer be available for use. Sorry for the inconvenience.

But we have great news; you can watch your FiOS TV content using our FiOS Mobile app from your smartphone or tablet. This app allows you to stream TV content in and out of your home and so much more.

That's an odd definition of great news. Essentially what the company is trying to sell is that it's taking away an app that allows people to watch its programming on a full-size TV without a set-top box, while directing them to one that lets them watch on a tablet or phone. The mobile app is not a new thing, so the "great news" is that subscribers lost something while gaining nothing.

Why is this happening?
Verizon's decision to cut off Smart TV and Microsoft Xbox users comes suspiciously close to FCC Chairman Tom Wheeler announcing that his agency intends to implement rules which would open up the set-top box market to outside players. Currently, with limited exceptions, pay-television subscribers must use a box in order to receive programming.

Those boxes have to be rented -- there is no purchase option. That near-monopoly earns the industry about $20 billion in box rentals each year, according to Consumerist. That, according to a separate article from the same website, works out to $89 a year per box, with the average house having 2.6 boxes, coming to a cost of around $232 per year.

One of the few exceptions to that industrywide was using the FiOS app with Xbox or a Smart TV. Verizon is getting rid of the app, it told Ars Technica, due to "the limited number of FiOS customers who were using the FiOS app on the Xbox 360 and Xbox One."

By getting rid of the app, Verizon forces customers who used it to either rent more cable boxes or give up watching FiOS programming on their Smart TVs or sets hooked up to an Xbox.

Verizon's ads tout FiOS as being superior to cable. Source: Verizon

The timing is a little suspicious
Verizon's actions seem at best unfortunately timed and at worst look like the company has fired a shot back at the FCC. Dropping an app people used instead of renting a cable box right after the federal agency announced plans to try to end the industry's near-monopoly in that area looks bad.

This seems like little more than a naked attempt to make sure customers have no way around renting a cable box. And while that may seem like a smart play from the company since box rentals are a source of significant revenue, it's a plan that may backfire.

For consumers using the FiOS app on Xbox or through their Smart TVs, this could be the final straw causing them to cut the cord rather than paying more money to rent extra boxes. This action may pad Verizon's bottom line, but it does so at the expense of further testing customer loyalty. That may prove to be a very bad move at a time when many consumers are looking at ways to shave money from their cable bill if not drop it entirely.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Verizon Communications Inc. Stock Quote
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