Verizon and Yahoo! today launched the co-branded service they promised eight months ago and included a new, lower-cost DSL offering aimed at luring dial-up customers onto the phone company’s high-speed Internet service. The two companies also alluded to much bigger things ahead, involving other Verizon services and capitalizing on the tremendous capacity of its FiOS offering.

In a mid-day press conference, Bob Ingalls, president of Verizon’s Retail Markets Group, was careful to say that the new $14.95 service is not a price cut or a loss-leader, but a new product offering that delivers 768 kilobits per second downstream and 128 kbps upstream, based on a one-year, renewable contract.

“Nearly 50% of all Internet users are still on dial-up and our research shows that price is a big issue for them,” said Ingalls, under repeated questioning. In June, Verizon CEO Ivan Seidenberg had called cheaper DSL services – such as SBC’s newly launched $14.95 DSL – a potential drain on other services. “We think this will attract more customers to Verizon DSL and further strengthen our competitiveness with cable modem providers.”

The telecom giant is using the less-expensive service to lure dial-up users onto Verizon’s network and, in the process, make it much less likely that they’ll turn to cable telephony, he stated.

“We know that DSL reduces our churn, Ingalls said. “We also know that customers who come in at low-speeds gravitate to higher speeds. This is a chance for us to grab market share.”

Ingalls and Yahoo! COO Dan Rosensweig generally sidestepped any comparisons between Verizon Yahoo! and SBC Yahoo!, the long-standing partnership between SBC Communications and Yahoo! that delivers much of the same content that the new arrangement is promising. But both alluded to new possibilities ahead as Verizon and Yahoo explore what is possible on Verizon’s fiber-to-the-premises network, FiOS, with downstream speeds of up to 30 Megabits per second, and upstream of up to 5 mbps.

“We won’t be specific today, we think this is the first step in a very valuable partnership across multiple lines of products,” Rosensweig said. “We don’t take partnership lightly and neither does Verizon.”

While there are many similarities in the portal services – Yahoo email and content services, for instance – each telco partner does things differently, he added.

“We’ve done a lot of work to understand what consumers want on the Internet and whether in Verizon territory or SBC territory, we are bringing the best products in [each category],” he said. “But each partner will do different things and have different premiums. So it’s the best of the stuff we know works with everybody and some unique integrations.”

At the outset Verizon Yahoo! over DSL and over FiOS “are the same offering,” Ingalls said, but that will change in coming months.

“Particularly as you look at the upstream bandwidth at two and five megs, that is a huge capability that puts more power in the hands of the user,” Ingalls said. “We would expect to exploit that going forward.”

Verizon is also pushing the notion of consumer choice, which now includes a less-expensive, if slower, DSL service, along with a naked DSL offering that costs $24.95 a month for 768 kbps service, as well as a choice between the new Yahoo! portal and that of MSN, which previously teamed with Verizon.

Verizon Online’s DSL and FiOS customers will be able to access content, applications and features developed by Yahoo! including music, anti-virus and other security programs, email and parental controls. Yahoo will receive monthly per-subscriber fees from Verizon for providing the co-branded content and applications. Yahoo already is closely linked with SBC through SBC Yahoo! and with broadband service providers in Japan and Europe.

The Verizon Yahoo! portal will be the default selection for new customers ordering Verizon DSL or FiOS service.

The Verizon Yahoo! portal will be the default selection for new customers ordering Verizon DSL or FiOS service.