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Time to Prepare for DOCSIS 3.0 is Now
07 Aug, 2008
Second quarter results for broadband growth were a tad underwhelming. There are any number of factors which probably contributed to this slowdown, with the economic slowdown and housing crisis certainly towards the top of the list. But growth is also slowing because broadband penetration has grown considerably over the past few years, now ranging somewhere between 50% to 60% (depending on who you ask), and is beginning to slow down. There certainly is more room for growth, but at some point in the near future, broadband penetration will slow even more as it approaches saturation. It’s anyone’s guess what saturation is, but I would bet somewhere around 75% penetration of households (as a national average - individual markets will vary widely). From a service provider’s point of view, that suggests that posting continuing net adds of broadband customers will increasingly involve convincing a competitor's broadband customer base to switch service.
Recent evidence suggests that cable companies seem to be winning this battle. Consider that estimates range from 70% to 90% of net new broadband adds in 2Q08 were captured by cable companies, while telcos saw dramatic decreases in DSL growth. A somewhat revealing nugget of information came from Comcast, when their CTO revealed that new broadband subscribers in 2Q08 selected their premium broadband tier four to one over their economy broadband tier. That suggests that new broadband customers to Comcast are attracted to their “premium” broadband service the most. If that data point is more than an anomaly and representative of a trend, cable companies may be positioned to extend their 2Q08 gains. Through the introduction of DOCSIS 3.0, cable broadband products will be significantly enhanced. The improvements will come in dramatic increases in downstream and upstream speeds, better symmetrical service offerings for the SMB market, and broader abilities to support multiple IP devices, including mobile and portable devices. Companies like Comcast, Cox, Time Warner Cable, and Charter have already announced their migration plans to DOCSIS 3.0. Smaller cable companies like Mediacom are also eyeing the technology as a competitive differentiator.
For cable competitors, especially DSL operators, the time to begin planning for DOCSIS 3.0 competition is now. Waiting until it shows up in the marketplace wouldn’t be wise. We certainly can’t predict that DOCSIS 3.0 will be a game changer in every market. Other factors will come into play. But in the quarters and years to come, taking broadband customers from competitors will be a major driver of broadband subscription growth. It would be wise to develop a strategy now that addresses how you will combat the DOCSIS 3.0 onslaught. Otherwise, you may find yourself in a losing battle to hold on to your existing broadband subscribers and gain new ones.
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Should Telephone Service be Free?
12 Oct, 2008
Comcast announced a new promotion last week that offers 12 months of free basic cable service for new customers who also sign up for an additional service. Customers who don’t want an additional service can get Comcast’s basic service of about 20 -30 channels for $10/month. The promotion is tied to the digital TV transition of February 2009 and entices potential customers to avoid the transition “hassle” by getting “free” cable service. “The simple fact is that basic cable is the easiest path through the digital transition and now consumers can get it for free,” said Derek Harrar, General Manager and Senior Vice President, Video Services for Comcast in a company statement. This move is similar to strategies pursued by other video service providers, who are hoping to leverage the digital TV transition for new subscriber additions.
But is this strategy a leading indicator for the future? Should basic core services like basic cable and basic telephone service be offered for free, used as a “carrot” to entice customers to buy “more important” services like broadband? Maybe a very basic phone service, with no LD, access to landline 911, and maybe outgoing service only (to avoid telemarketers) should be a free component of a bundled offering. Such a wireline service may appeal to a customer who previously cut the cord for wireless only, but also needs broadband. There is a growing portion of the population who find the value of traditional wireline phone service elsewhere – either through wireless or broadband/IP services. But, if they could get the security of landline 911, and an extra dial tone in their home as a free value add for subscribing to broadband (or video from a telco’s perspective), maybe a telco’s bundled offering may look more attractive than a comparable cable offering. I realize this idea is not appealing to the hundreds of ILECs who are a part of the current access/settlement system (in fact, it couldn’t work in the context of today’s regulatory structure), but I wonder whether it’s inevitable. In this possible future scenario, the current settlement system adapts to broadband as the underlying service, as opposed to voice.
This scenario cuts both ways. From a cable company’s perspective, a growing portion of the population is turning to the Internet as a source for their video content, and no longer see value in paying for a broad package of video as a part of a traditional subscription pay-TV service. But, if they could receive basic TV (which includes local broadcast affiliates) as a free value add for buying broadband, maybe the cable bundle is more attractive. In a true IP/broadband world, very basic phone and video service is relatively easy to deliver, and has little impact on bandwidth and network performance. Maybe the digital transition is opening the door to a future where free basic services are a regular component of a bundled offering. Thoughts?