Mediacom Hits 105 Mbps In Push to DOCSIS 3.0

Ed Pardini, SVP, North Central Division, Mediacom

Ed Pardini, SVP, North Central Division, Mediacom

February 4, 2009 – With a population of about 500, Dagsboro, Del., seems like an unlikely place to find North America’s fastest residential broadband service. But it is, and the reasons why are worth studying for insights into the market for DOCSIS 3.0 services.

Mediacom launched Ultra 105 – 105 megabits per second down and 10 mps up – in Dagsboro and Waterloo, Iowa, in December 2009, followed by Ultra 50 in Columbia, Mo., and 11 other markets.

“I think it’s pretty cool to put an ad in the Waterloo newspaper that says: ‘Who’s got the fastest Internet? New York? Los Angeles? Chicago? Waterloo?'” says Ed Pardini, senior vice president for Mediacom’s North Central division. “It’s in line with what Mediacom has always thought: You can do this in smaller markets and make a very healthy business out of it.”

Ultimately that business health depends on consumers, who are the initial target for both Ultra tiers. Ultra 105 runs $150 per month and Ultra 50 $100, both under promo pricing that’s good for the first year. (Installation is another $100.)

Is that a good deal? The answer is, it depends. Mediacom believes Ultra stacks up well against similar MSO and telco offerings.

“We think $124.95, [Ultra 50’s price after the first year], is a very compelling offer for the speed, especially when you compare that to what a telco might charge for a T1,” Pardini says.

Niche Play, for Now

But judging by uptake of other MSOs’ and telcos’ super-fast services, Ultra probably will be a niche play for at least the next two years.

“It’s fairly well known throughout the cable industry that [for] a lot of these high-speed services, the take rate has been pretty low,” says Mike Paxton, principal analyst in In-Stat’s Digital Entertainment Group, which periodically surveys consumers about how much they’re willing to pay for wired broadband.

“That limit is about $40-$45,” Paxton says. “Only 11 percent said they would be interested in paying a greater amount per month than they are now for higher bandwidth services. Those 11 percent are more of the early adopter type.”

In the current economy, it’s no surprise that most consumers would hesitate to shell out a C note or more each month for faster broadband.

“As availability becomes more ubiquitous, the price may drop, particularly installation prices,” Pardini says.

Price aside, another adoption factor is the percentage of consumers who need 50-105 mbps services.

“Most consumers don’t use the bandwidth that they have now,” Paxton says. “They’re not maxing out their capacity.”

Still a Good Deal

So are Mediacom and other operators simply wasting money on bragging rights? Not necessarily. For example, although DOCSIS 3.0 has its costs, such as new modems, it’s relatively inexpensive compared to, say, running fiber laterals to each customer’s home. Mediacom also is freeing up capacity by using digital terminal adapters (DTAs) to translate digital TV services to analog for analog households.

“Eighty to 90 percent is already there in terms of the network,” Paxton says. “There’s very little downside for them, even if few people are taking the service.”

Rolling out Ultra now also positions Mediacom to start exploring ways to both monetize and co-opt over-the-top (OTT) video services such as those delivered to Internet-ready TVs. (See January issue, p. 1.)

For example, some customers with Net TVs might upgrade to one of the Ultra tiers if they believe the extra speed is a must-have for HD OTT video – especially if the other connected devices in their home would grind to a halt if the TVs hog the bandwidth. Mediacom also could get royalties from OTT video by partnering with companies that provide it. One possibility: Blockbuster, which in September 2009 announced a strategic alliance with Mediacom that includes VOD, although any OTT component is yet to be announced.

Ultra also is a good fit for OTT video because Mediacom says it doesn’t plan to institute caps or metering.

“We’ve already factored that into the pricing,” Pardini says. “We’re not contemplating a metered service.”

But that leaves the door open for Mediacom to meter its non-Ultra broadband services. If it does, then it could nudge existing customers who enjoy OTT video to upgrade to Ultra.

Eschewing metering also could help Ultra compete against telco and CLEC offerings that are capped. In that sense, Mediacom would be like some WiMAX wireless operators, which differentiate themselves against 3G carriers not only by offering higher speeds, but also by forgoing the 5 gigabyte-per-month cap that’s currently the norm in cellular.

In the future, price cuts also will help Ultra tap a wider market.

“Two or three years from now, I’d expect those $99/month plans to drop down to $60 or $70,” says In-Stat’s Paxton.

Mediacom hints that price cuts are possible at some point.

“As availability becomes more ubiquitous, the price may drop, particularly installation prices,” Pardini says.

Which comes back to the original question: Is Ultra a good deal? It’s a question not only for potential customers, but also investors.

“In a way, it’s a little difficult to criticize them because they’re future-proofing their networks,” Paxton says of Mediacom and the other MSOs and telcos rolling out super-fast broadband. “Three or four years from now, these services will be in much higher demand.”

Getting Down to Business

Although Ultra currently is aimed at the residential market, Mediacom is already eyeing the business market. That’s a familiar strategy: The MSO launched telephony initially for consumers before launching a business version.

At least initially, Mediacom’s Ultra business offering would focus on small and medium businesses (SMBs), partly because telcos historically have focused on large enterprises.

“That focus on larger businesses and ignoring smaller businesses is what has allowed smaller telcos, like Socket and Tranquility here, to do well,” says Jonathan Sessions, co-owner of Tech 2 Consulting, which has been testing Ultra in the Columbia, Mo., market.

Sessions sees Ultra as a good fit for some of his bandwidth-hungry clients, such as marketing and ad agencies that routinely send and receive 1 GB art files.

“They did what the telcos told them: ‘Get a T1, and it will take care of all of your needs,'” Sessions says. “Now they’ve got 30 people, and they can’t load a Web page to show a client a page they’ve developed. So our solution is to keep the T1 for their mail server and all of that, and bring in a line of Mediacom cable Internet to provide the bandwidth needed for port 80 and all of the things that creatives do in the back room.

“We’ve put all of that on Mediacom’s network because it’s able to handle that amount of traffic, and we just can’t get a comparable price from the telcos here, [such as CenturyLink].”