According to Pew Research, in 2010 the rate of growth for new broadband subscribers slowed dramatically, with penetration increasing only three points from 63 percent in 2009 to 66 percent by midsummer last year. In its study Pew found that only one in ten of the non-Internet users expressed an interest in going online in the future. Almost half (48 percent) cited lack of relevant content as a barrier, while six in ten would require assistance in using computers.
But while it’s clear that broadband is a maturing market, it’s just as clear that operators are discovering new ways to drive revenues, thanks in part to the way vendors are enabling cost-effective approaches to delivering TV-quality video services over their broadband pipes and in part to new demand for value-added services in vertical markets. Moreover, many operators are finding it makes sense to put new low-cost fiber options to use in extending their reach beyond traditional service boundaries.
For example, even where competition is intense, operators are finding that by enhancing infrastructure with fiber to the premises they can offer a higher quality service that makes a difference, especially among people with more money to spend. SureWest, which serves suburban areas of Sacramento, Calif. and Kansas City, Mo. markets, is a case in point.
“SureWest has chosen not to chase customers who are only interested in finding the lowest price and who churn at higher rates than customers who are more concerned with the value they are getting,” says Anne Chacon, manager of corporate communications at SureWest. “We have had to be more aggressive with our promotions recently as a result of the market and competition. But for us, the old saying is true, ‘It’s more expensive to acquire a new customer than it is to keep an existing one.’”
According to Jonathan Hurd of Altman Vilandrie & Company, his company’s research indicates that quality of video matters a lot to consumers. “We found that 18-34 year olds – the age range that most frequently watches video over the Internet – are most likely to be bothered by lower-quality video. There’s an opportunity for providers of managed video services to emphasize quality in order to appeal to these consumers.”
The research also found that the more a customer pays for monthly subscription services, the more he or she values quality. Thus, providing a high-quality and reliable signal is a competitive advantage, particularly against over-the-top video services, for attracting and retaining the higher-ARPU subscribers.
In fact, reports Gary Schultz, president of Management Research Group, one of MRG’s clients recently achieved a 50 percent reduction in churn by implementing technology on its IPTV system that allows the operator to proactively identify and repair quality issues.
High definition and DVR set-tops are now a given of the subscription TV service. But there’s plenty of upside to be gained with a move to whole-home DVR and even 3DTV. Hurd says his firm’s research confirms the growth potential for operators who make a commitment to delivering 3DTV.
“Of the respondents who had seen 3D movies or video in the past year, 75 percent agreed that it is a better experience than 2D,” he says. “And more than half plan to purchase a 3D-capable TV in the next 3 years.”
But for service providers who are offering traditional TV services over legacy IPTV, analog and MPEG-2 infrastructure as well as for those who are not, it’s within the IP broadband service stream that the greatest growth opportunities can be found, notwithstanding the falloff in sheer penetration growth. On the entertainment side, the upside stems from the fact that vendors are now offering software and premises gateway products that offer operators great flexibility to enhance their service portfolios at much lower costs than has been the case with traditional approaches to subscription TV.
For example, the new all-fiber network built by Fibrant, the municipally owned provider in Salisbury, North Carolina, has switched out a legacy IPTV platform in favor of the blended services platform offered by Minerva Networks. Fibrant’s new TV services include high-definition broadcast television (HDTV), whole-home digital video recording (WHDVR), video-on-demand (VOD) and Internet TV, says Len Clark, manager of sales and marketing for the City of Salisbury.
Fibrant’s strategy, like that of many other small-market operators, is all about “the future of data, voice and video services delivered over an open, IP-based infrastructure,” Clark says. The company plans to leverage the software platform in combination with its fiber infrastructure to offer online education services, digital signage and remote healthcare.
New home gateways are contributing to the flexibility essential to adding IP-based TV services that can reach any device in the home as well as lower the costs of whole-home DVR by eliminating the need for costly set-tops at every TV in the home. For example, GTC Broadband in Granby, Mo. is deploying media hubs and IPTV receivers from Entone to expand its service portfolio to include whole-home DVR and to enable easy access to personal media and popular Web content and services from a single user interface. These include video on demand (VOD) from Vudu, music streaming from Pandora, photo sharing from FlickR and Picasa, social media from Facebook and Twitter, and other Web applications.
“In order to differentiate ourselves and to maintain our market leading position, we needed a reliable and future-proof solution,” says Bryan Johnson, technology engineer at GTC Broadband. “Entone’s devices allow us to quickly and effectively deploy a compelling video service while also providing our subscribers with an enhanced and integrated TV experience.”
Of course, little things can make a difference as well, as was apparent from responses to a survey of small operators conducted by Viodi, a supplier of consulting and video support services in the tier 2 and 3 market. Paul Bunyan Telephone, for example, reported it developed its own iPhone app for surfing its content offering, thereby overcoming the limitations its legacy TV navigation system imposes on users’ access to all options in the carrier’s catalog.
One rural company, instead of spending to upgrade its system to support digital TV, created an affordable analog package, which, at $26 per month provides customers access to all the TV stations in the region. The idea of standing pat with analog TV and using the broadband stream to support premium service delivery in over-the-top mode is now catching on, thanks to the versatility of software platforms like Minerva’s that are designed to support a wide range of hybrid service models in conjunction with hybrid premises devices.
Smaller rural operators have been using the benefits of fiber to consolidate operations for years. In many cases, these fiber routes pass through markets outside an operator’s existing exchange or franchise boundaries. Expansion into these adjacent markets is an opportunity for the operator to increase their customer base, while giving residents of these communities expanded choice.
Some operators are now using an edge-out wireless strategy. The approach starts with fixed wireless and then, as justified by customer additions, last-mile fiber infrastructure replaces the fixed wireless connections, which can be redeployed to new markets.
Indiana independent Smithville is finding success building a fiber-to-the-premise network in the Bloomington area. Already the largest independent telecommunications provider in Indiana, Smithville and its subsidiary Smithville Digital is roughly doubling the size of its addressable market through a fiber-build, edge-out strategy.
In addition to serving businesses and multi-dwelling units, Smithville is finding new applications such as telemedicine that play to its traditional strengths as an operator able to meet the stringent reliability and security requirements of the public switched network. Cullen McCarty, executive vice president of Smithville Digital, notes that while the state’s population is 33 percent rural, only 13 percent of the state’s doctors reside in those areas.“Using fiber-based connectivity on the Indiana Digital Gateway from Smithville Digital, Bloomington Hospital has brought lifesaving cancer treatment to rural areas of southern Indiana,” McCarty says.
Smithville is also breaking ground in another niche that could work for smaller operators – video conferencing centers with telepresence capabilities. The company has created a conferencing center with a state-of-the-art 16-by-5 foot HD screen for local businesses to use.
An operator might have to dig a bit to find such opportunities, but it’s worth the effort. For instance, one operator tells Viodi it picked up a hospital campus for its video product when the city-funded channel was shuttered. Another operator provides a bulletin board for a community college as a managed service.
Operators are also discovering their ability to offer TV channels can help win commercial services customers. In these cases a business TV package is offered as part of the deal with channels devoted to financial and general news and possibly other topics. And there are opportunities for customizing the package, as in the case where an operator managing a hospital’s internal network adds a local “Health Minute” component that allows doctors from the hospital to offer health tips as part of the operator’s local channel programming.
This leads to the idea of being the outsourced IT expert for small businesses. Many operators sell and repair PCs today. The local operator is often the most technologically savvy business in the community and is used to providing 24/7 secure service, so extending the relationship to include IT services is not a stretch.
Along these lines, video surveillance is in an area that seems like a natural for operators. Many report they are getting into these services, both as turnkey integrators as well as service providers.
Security system vendor Comporium estimates that security industry sales were over $28 Billion with three million systems installed in 2009. One operator exploiting this demand is Massilon Cable TV. The cable company, which serves 47,000 customers in central Ohio, last year signed up for Comporium’s Security Dealer Program to deliver the firm’s uControl solution, a single-device based platform that supports alarm system, communications gateway and home automation functionalities.
“We are always on the lookout for complementary services for our customers,” says Massillon Cable TV president Bob Gessner. “In the near future, security monitoring will grow to encompass a variety of futuristic services that we want to deliver to our customers.”
The future of broadband is about leveraging the links now in place to deliver a virtually unlimited range of advanced services. It may not be as easy as simply selling more broadband connections, but initiatives along these lines will secure the future for operators in markets where the only other service recourse is big national providers who have no links to the local market.