The most compelling word these days in telecom circles is "stickiness." No, they are not referring to the accumulation of earwax on your phone headset. The term refers to the phone company's ability to retain you as a customer. These days, a homeowner's "stickiness" is directly attributable to whether or not he receives multiple services from the utility, namely a "triple-play" combination of phone service, high-speed Internet or video-on-demand/cable TV/satellite TV, or phone service, which has been dubbed voice/data/video by the telecom industry. In fact, while voice customers tend to change carriers frequently, a homeowner with two or more services has only a 2 percent chance of changing carriers per year, according to Alex Arnz, vice president of marketing for Verizon Enhanced Communities in Herndon, Va.
Regional Bell Operating Companies (RBOCs) like Verizon, Qwest and AT&T (SBC and BellSouth) are now going head-to-head against Cable Multi-System Operators (MSOs) like Comcast, Time Warner, Cablevision, Charter and Cox. The "killer app" service these days appears to be high-speed Internet, which is expected to balloon to 69.2 million subscribers by 2009. (See chart on page 40.)
"It's a war for subscribers between cable and the telcos," says Bob Larribeau, a senior analyst for research firm MRG. "The early campaign strategies and special alliances with video programmers are key parts of bundling tactics in this important competitive battle for global markets."
In a nutshell, the MSOs are speeding up their service deployment of all-digital and all-IP low-cost networks, which has forced the RBOCs to boost their fiber deployment and satellite partnerships. All those services are wrapped in nice packages, or bundles, for homeowners. Utilities have instituted programs in which they supply a one-time marketing fee or even a percentage of the recurring revenue to the builder in exchange for exclusive rights to market to a community, or even exclusivity as the service provider if it is a private, gated community.
According to The Wall Street Journal (WSJ), the cable MSOs and RBOCs, along with independent Voice over Internet Protocol (VoIP) providers, are getting aggressive. The paper reports that MSO Cablevision's Optimum Voice service is gaining 2,500 customers per week, AT&T is expanding its VoIP service to 100 new markets, Verizon is launching its own VoIP service, and Qwest plans to offer VoIP in 14 states. Meanwhile, VoIP provider Vonage has signed up 125,000 customers in two years. According to WSJ, VoIP-based offerings may soon be a $90 bundle ($30 for high-speed Internet, $20 for phone and $40 for IPTV).
What's the right partnership strategy for a builder or developer? Do your homebuyers want service from an RBOC, MSO or some other third party? Should you offer it yourself? In many cases, your decision on a triple-play provider could affect your homebuyers' short-term and long-term satisfaction.
In an effort to help builders make that decision, TecHome Builder is offering a sampling of some of the triple-play bundles being offered in different regions of the country.
Is $99 the Magic Number?
What's the magic number for a bundle? For SunRiver St. George, a 2,500-home active-adult development in St. George, Utah, the magic number is $99. Darcy Stewart of SunRiver St. George Development Co. contracted with a third-party service provider called Triaxis to create a triple-play bundle in 2004. The partnership was forged out of necessity after the local RBOC, Qwest, informed Stewart that it did not plan to bring service to the Greenfield development located on the less-populated south side of town for another 18 months.
Today, SunRiver St. George owns the entire system itself. The developers were able to create a TV channel lineup suited to the demographics of the residents to keep costs down. (Do retirees really want to pay for MTV? Probably not.) The $99-a-month offering is about $30 to $35 less per month than the homeowners could get from the local phone (Qwest) and cable/satellite providers (Charter and DISH Network).
The projected take-rate is 90 percent. Stewart now has an ongoing revenue-producing relationship with residents that he can eventually choose to sell off if he wishes. The triple-play service is even more lucrative when the homeowner wants monthly monitoring of alarm signals (another $35 per month in recurring revenue).
Dishing it Out in HD
EchoStar Communications and its DISH Network satellite TV service are using high-definition service as a hook for new customers.
The company now offers national programming (ESPN, etc.) and local HD channels in 12 cities: Albuquerque, Atlanta, Boston, Chicago, Denver, Los Angeles, Minneapolis, Nashville, New York, Philadelphia, Salt Lake City and Washington, D.C. Those cities also have 15 original VOOM HD channels that provide commercial- free programming for movies, sports, family and original content.
In total, the service has 1,700 hours of HD programming per week on 23 channels and 70 standard-definition channels for $49.99 per month. According to the company, the average cable MSO offers only 10 HD channels.
MSO Offerings as Low as $69/Month
Charter Communications has been blanketing its coverage areas with postcard mailings announcing a $500 annual savings using its triple-play bundled package that totals $129.97 per month. The offer calls for $69.99 per month for digital TV with multiple pay channels like HBO, Cinemax, Showtime, Starz, The Movie Channel and Encore; Voice over Internet Protcol (VoIP) telephone service for $29.99 a month; and highspeed (3Mbps) cable modem Internet for $29.99 a month.
Cablevision's Optimum Triple Play package was reportedly successful offering standard digital video, a cable modem and VoIP for $29.95 each, for a total of $89.85.
Comcast has been offering a $99 bundle that is available to about 10 percent of its 2 million total customers.
Meanwhile, Time Warner, Comcast and Advance/Newhouse Communications have formed a joint venture with Sprint Nextel that brings a fourth service -- wireless phone service -- to the triple-play.
Meanwhile, SBC cut its DSL service to just $14.95 a month for new subscribers, while Verizon maintained its $29.95 monthly cost, but boosted its Internet speeds. There are still local companies competing quite successfully. For example, in Colorado Springs, Colo., local telecom firm Falcon Broadband offers a triple-play for $76.85 a month with 53 TV channels. PorchLight, another telecom firm in the city, offers a triple-play bundle with 146 channels for $74.89 a month.
Learning From Japan
To look at what the future may hold, a builder might take a look at what happened in Japan. According to WSJ, a Japanese phone company called Yahoo! BB became the leading provider of broadband in less than three years with an extremely price-aggressive package.
Yahoo! BB offers fast 12Mbps broadband for $30 a month, VoIP for $3 a month, and Yahoo! TV for an installation fee of $82 and a monthly fee of $20. That's a triple-play with Internet speeds more than double what is typically offered in the U.S. -- for $53 a month.
High-Speed Subscribers By Tech (In Millions):
Cable Modem
2005: 20.5
2006: 25.9
2007: 29.4
2008: 32.4
2009: 35.9
DSL
2005: 17.0
2006: 19.3
2007: 21.2
2008: 22.6
2009: 23.8
Fixed Wireless
2005: 0.6
2006: 0.7
2007: 038
2008: 1.1
2009: 1.5
FTTH
2005: 0.3
2006: 0.9
2007: 1.6
2008: 2.4
2009: 3.2
Satellite
2005: 0.6
2006: 1.0
2007: 1.4
2008: 1.7
2009: 2.2
Mobile Wireless (3G)
2005: 0.2
2006: 0.6
2007: 1.2
2008: 1.6
2009: 2.0
Broadband Over Powerline
2005: under 50,000
2006: 0.1
2007: 0.2
2008: 0.3
2009: 0.6
Total
2005: 41.2
2006: 48.5
2007: 55.8
2008: 62.2
2009: 69.2
Source: TIA 2006 TeleCommunications Market Review and Forecast