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Rural Telcos Say Video's Worth It

Raymond McConville
LR Cable News Analysis
Raymond McConville
10/24/2007
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ATLANTA -- TelcoTV 2007 -- Does it even matter that offering television service isn't pulling down a profit for some North American Tier 3 telcos? Not if the end result is holding onto a landline customer -- and protecting a future revenue stream.

"Basically, we did it as a way to solidify and diversify our offerings," said Levoy Knowles, the CEO of Ben Lomand Telephone Co-op Inc. Knowles pointed out that the video business was largely unprofitable for his company until it had 4,500 subscribers. But even now with 8,000, the service provides "paper thin" profit margins.

"We knew we'd be put out of business without video. We made the big investment knowing it would take a while to get a return on the investment," says Cavalier Telephone Inc. CEO Brad Evans.

Ben Lomand's Knowles says even if the service were unprofitable, it would be necessary to stay in business. "We had 36,500 access lines at our peak and we're now down to 35,000. We had to diversify and get into some other business."

The carriers on hand were Ben Lomand Telephone, which has a little over 8,000 video subscribers since it started offering it over two years ago, Cavalier Telephone –- a CLEC with 650,000 lines and 5,000 TV subscribers -- and West Kentucky Rural Telephony, a rural carrier with 18,000 customers and 600 video subscribers.

The carriers here tend to agree that the customer premises, typically the most expensive part of any deployment, were easier to handle than the outside plant. "We're in a learning curve. Our biggest problem is getting our outside plants in order and cutting our loop lengths down. That's pretty tough in a rural market," says Knowles.

"Initially, we couldn't get our loop links to work," said Trevor Bonstetter, the CEO of West Kentucky Rural Telephony. "We deployed in July when it was 100 degrees. Weather has a big effect for us on the outside plant."

"The management of rolling out a new product was difficult," said Bonstetter. "We had a lot of set-top box and middleware issues."

Evans of Cavalier added: "Our biggest disappointment has been the set-top box and chip manufacturers and getting them to handle the things we need them to do. They've missed a lot of deadlines in delivering their products to us."

Even when smaller carriers do get their TV systems working, they have to fight a price war with cable, DBS, and, yes, other telcos.

Cavalier's Evans says Cox Communications Inc. lowered its prices immediately when his company first offered a triple-play service bundle. When Cavalier launched its service at $95 a month, Cox came down to $99 a month from $150 a month. Cavalier has since lowered its price to $79.99. But now Verizon has started offering FiOS packages at $99 in the same area.

— Raymond McConville, Reporter, Light Reading

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