Light Reading
Selling by speed, and then compensating with caps, is a recipe for trouble

Cable's Speed Addiction

Michael Harris
LR Cable Opinion
Michael Harris
1/31/2008
50%
50%

In February, the Association of Cable Communicators will announce the winners of its annual Beacon Awards "honoring excellence in communications and public affairs throughout the cable industry." (Stop laughing, we haven't reached the punch line yet.)

Were there an instructive "What-Not-to-Do" category in the judging, Time Warner Cable Inc. (NYSE: TWC) would undoubtedly share top honors for its "Usage-Based Billing in Beaumont" PR campaign with co-recipient Comcast Corp. (Nasdaq: CMCSA, CMCSK) for its "BitTorrent Throttling" customer appreciation program (chortle here). (See TWC to Test Broadband Toll Booth and Comcast's P2P Problem.)

Tongue-in-cheek cable PR comments aside, both episodes highlight a real problem for MSOs – the cost of their unchecked addiction to selling speed.

It's no secret that broadband Internet access has been the engine for cable operator cashflow growth over the last decade. To keep that motor humming, MSOs have continually ratcheted up the advertised peak downstream burst speed for their broadband Internet products. The motivation is twofold.

First, creative marketers that they are, cable operators have concluded that being "the fastest" is their optimal differentiation in the broadband marketplace. Second, by continually adding more megabits to their product, MSOs have avoided lowering broadband Internet prices in the face of DSL competition. So far, the approach has worked insofar as it as helped MSOs maintain broadband Internet ARPU (average revenue per user). However, cracks in the façade are starting to appear.

It's not surprising. Logically, increasing access speeds opens the door to increased consumption, and thus, the expenses required to fulfill it. That means more capital outlays for infrastructure hardware upgrades, as well as skyrocketing expenses for fatter backbone connectivity.

So, while ARPU may remain steady, two other key metrics by which MSOs are judged – operating cashflow and capital spending – are put under pressure. Hence the recent maneuvers by MSOs to curb consumption, either by throttling bandwidth-hungry applications (like Comcast) or tinkering with usage-based billing plans (à la Time Warner).

Here's a sign of the severity of cable's speed addiction. At the same time MSOs are feeling the pain from spiraling consumption-related costs, they are touting plans to further increase access speeds, as high as 100 Mbit/s, by shelling out more capital for Docsis 3.0. It seems they just can't help themselves. And unfortunately, the conflicting messages MSOs are communicating to the marketplace are confusing consumers.

An MSO talking 100 Mbit/s out of one side of its mouth and usage caps out the other is like a bi-polar buffet restaurateur. They continue adding more entrees to an all-you-can-eat spread, and then reduce the size of the plates and tell diners they only have 10 minutes to chow. It's a recipe for dissatisfaction. The buffet looks bigger and tastier – so the patron's hunger grows – and then they are asked to practice portion control.

Confused and cranky customers tend not to be loyal customers, particularly in a soft economy, when they are on the prowl for savings.

Even for bigger spenders, cable's "being the fastest" positioning has drawbacks. Because MSOs have convinced consumers that speed should be the primary criterion for their broadband purchasing decision, all a competitor needs to do is offer a faster product to win away cable customers. Can you spell "FiOS"? Additionally, ultra-fast pipes enable competition from over-the-top video providers. Worst of all, though, the always-increasing speed strategy rewards (from a profitability perspective) cable's worst customers.

By its own estimates, Time Warner Cable reckons it is suffering from "5 percent of subscribers who utilize over half of the total network bandwidth."

Back to the buffet analogy, it's like an old Hill Street Blues episode where a raging, rotund fellow pulled up a rolling stool to an all-you-can eat salad bar and started coasting around and pigging out. His defense: "But it says all you can eat!"

Wisely, the manager called the cops on the guy, instead of telling everyone else in the restaurant to eat less. Cable operators should do the same. Rather than capping – and irking – 100 percent of their customers, MSOs should simply refuse service to the hogs. Let them switch to FiOS and cripple a competitor's cashflow.

Selling by speed, and then compensating with caps, is a recipe for trouble.

What really matters to broadband consumers is the overall quality and value of the experience, a blend of access speed, low latency, reliability, support, bundled applications, and freedom from worries about usage penalties – all at an attractive price, of course. It's time for cable to slow down with speed-related hype and sell on quality and common sense.

— Michael Harris, Chief Analyst, Cable Digital News




Interested in learning more on this topic? Then come to Docsis 3.0 Strategies: From Product Development to Service Deployment, a conference that will take a comprehensive look at the cable industry's plans to roll out its next-generation architecture around the world. To be staged in Denver, March 19, admission is free for attendees meeting our prequalification criteria. For more information, or to register, click here.


(1)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
dontcallmedarling
50%
50%
dontcallmedarling,
User Rank: Light Beer
12/5/2012 | 3:48:39 PM
re: Cable's Speed Addiction
I tire of directionless tirades like this. There's nothing to write about this week. Let's complain about usage throttling again. Yawn.

Yes, MSO feed on speed as a selling point. Dude, no one said you can't take stuff down the fastest. To you use your analogy BUT correctly, you can eat as fast as you want. But that is completely different from volume or usage. The Buffet, as you so incorrectly allude to, is SPEED. It's right in your title. So you can eat as fast as you want up to their advertised rates. It's the race it's not a Roman eat-a-thon. It's a Chariot race.
Flash Poll
From The Founder
It's clear to me that the communications industry is divided into two types of people, and only one is living in the real world.
LRTV Custom TV
Razorsight Expert's Advice on Real-Time Analytics

11|27|14   |   1:43   |   (0) comments


Razorsight's powerful cloud-based Predictive Analytics solutions are used by the world's leading communications and media brands to drive smarter decisions, enable faster actions and optimize outcomes. Get expert advice.
LRTV Interviews
From 4G to 5G: Alcatel-Lucent's Dave Geary

11|25|14   |   09:09   |   (1) comment


Dave Geary, President of Wireless at Alcatel-Lucent, talks about the evolution of the 4G market, small cells, partnerships, 5G and the IoT.
LRTV Huawei Video Resource Center
Building a Secure Telefonica Network With Huawei's High-End Firewall

11|24|14   |   4:37   |   (0) comments


Andrew Davies, IP architect of the Telefonica, a leading digital communications company, discusses the Huawei security gateway solution and putting the solution into the testbed.
LRTV Huawei Video Resource Center
Huawei Partners with Spirent to Verify CE12816's 10GE Port & TRILL Networking Capabilities

11|24|14   |   2:50   |   (0) comments


Spirent Communications is the world's leading supplier for telecom testing appliances and solutions. Spirent has been in a close partnership with Huawei for a long time.
LRTV Huawei Video Resource Center
Saudi Airlines & Its ICT Transformation

11|24|14   |   2:07   |   (0) comments


In this video, Saudi Airlines discusses its network problems and how Huawei's Agile Network is its all-in-one solution.
LRTV Huawei Video Resource Center
Huawei's Agile Switch Benefiting Saudi Arabia's Yamamah Hospital

11|24|14   |   2:40   |   (0) comments


Saudi Arabia's Yamamah Hospital speaks about how Huawei's Agile Switch has improved the medical service's network infrastructure.
LRTV Huawei Video Resource Center
FanPlay & Huawei Build a Wireless Agile Smart Stadium

11|24|14   |   2:13   |   (0) comments


FanPlay is a cloud-based white label service, which is effectively a football fan engagement platform underpinned by mobile payment technology.
LRTV Huawei Video Resource Center
Building an Agile Stadium

11|24|14   |   3:54   |   (0) comments


Stadiums may be thousands of tons of concrete and steel, but they now need to be agile. Being at the stadium may not be as alluring as it once was. Sports franchises and stadium operators discuss how to get fans back.
LRTV Huawei Video Resource Center
Huawei Helps ChinaCache Tackle Challenges in the Internet Industry

11|24|14   |   3:09   |   (0) comments


ChinaCache is China's largest content distribution network supplier. Huawei's CE12800 has provided ChinaCache with very strong support in its establishment of an infrastructure network.
LRTV Huawei Video Resource Center
Cefinity on Managed Security Services & Next-Generation Firewall

11|24|14   |   7:05   |   (0) comments


Cefinity is a cloud management service provider in Southeast Asia. Ivan Zhang, CEO of the company, discusses the implementation of security service management in the cloud era.
LRTV Huawei Video Resource Center
Huawei's Agile Gateway in the Eyes of Cefinity

11|24|14   |   2:11   |   (0) comments


Cefinity is a managed service provider for enterprise networks. The company currently uses Huawei's AR series routers for the most complete range of functions. CEO Ivan Zhang speaks about the advantages of the AR series routers.
LRTV Huawei Video Resource Center
CTO of Bus-Online Talks About Huawei's Agile Gateway

11|24|14   |   2:53   |   (0) comments


Bus-Online covers around 100 million users everyday. In addition to providing mobile TV, and advertising services to the public, Bus-Online has also entered the field of mobile Internet.
Upcoming Live Events
December 2, 2014, New York City
December 3, 2014, New York City
December 8-10, 2014, Reykjavik, Iceland
February 10, 2015, Atlanta, GA
April 14, 2015, New York City, NY
May 6, 2015, McCormick Convention Center, Chicago, IL
May 13-14, 2015, The Westin Peachtree, Atlanta, GA
June 9-10, 2015, Chicago, IL
Infographics
Irish Telecom outlines the rise of VoIP technology, including its adoption within businesses and their perception of its quality.
Hot Topics
Net Neutrality Even Mark Cuban Could Love
Mitch Wagner, West Coast Bureau Chief, Light Reading, 11/26/2014
Eurobites: Net Neutrality Battle Looms
Paul Rainford, Assistant Editor, Europe, 11/27/2014
Why 5G Is a Different Beast
Robert Clark, 11/26/2014
New Juniper CEO Can Be Thankful for $14.5M
Mitch Wagner, West Coast Bureau Chief, Light Reading, 11/25/2014
Amazon Eyes Ad-Supported Video – NY Post
Mari Silbey, Independent Technology Editor, 11/25/2014
Like Us on Facebook
Twitter Feed