Cable modem/CMTS

TW Cable Could Reap $300M From Modem Fee

A new monthly cable modem fee could add US$300 million to Time Warner Cable Inc. (NYSE: TWC) 's annual revenues, a cable industry analyst estimates.

Time Warner Cable, the second-largest U.S. cable operator, has initiated a modem lease fee of $3.95 per month that will be applied across its footprint over the next month or two, a company spokesman confirmed. Customers can avoid the fee by purchasing supported modem models at retail.

About 275,000 broadband customers who have signed on since the start of the year are already paying the new fee, according to Investor's Business Daily.

ISI Group Inc. analyst Vijay Jayant estimates in a research note that 90 percent of TW Cable's 10.77 million existing cable modem subs will be affected by the new fee, which isn't being applied to customers who take some of the MSO's lower-end tiers and premium service packages. Jayant's estimates also assume that 10 percent of TW Cable's customers already own their modems, and that 15 percent will do the same once the new plan takes hold.

It represents a big change in policy for TW Cable, which generally has not been charging for the equipment, but the operator says it's too early to determine how customers will react. "We do not have any information regarding how many customers will choose to continue leasing our Modems vs. purchasing their own Modem from a third party retailer," a spokesman said, in a statement.

Customers who opt for the new leasing fee will end up paying an extra $47.40 over a 12-month period. Among some Motorola Mobility modems presently available for purchase at BestBuy.com, a stand-alone Docsis 2.0 modem sells for $59.99, a 3.0 version sells for $99.99; and a Docsis 3.0 wireless gateway with 802.11n on board fetches $149.99.

Why this matters
U.S. cable operators continue to be strong in the broadband category as video subscriber losses mount, but the introduction of modem fees will enable them to bump their average revenue per unit (ARPU) in the category by implementing what could be considered a form of a rate increase. And it's a growing trend for operators that already charge leasing fees for set-top boxes. Cox Communications Inc. and Comcast Corp. (Nasdaq: CMCSA, CMCSK), for example, already charge as much as $7 per month for modem leases, according to Jayant.

TW Cable's ARPU for high-speed data was $39.12 in the second quarter of 2012, up from $38.26 in the year-ago quarter. The operator added 59,000 new cable modem subs in the second quarter.

For more

— Jeff Baumgartner, Site Editor, Light Reading Cable

shygye75 12/5/2012 | 5:20:02 PM
re: TW Cable Could Reap $300M From Modem Fee

Does that reflect an increase in churn because of the fee change?

shygye75 12/5/2012 | 5:20:02 PM
re: TW Cable Could Reap $300M From Modem Fee

This modem fee move seems like a giant step backward to the days when cable ops had no competitors and could levy fees for equipment that's required for them to deliver service. Did your industry analyst expert factor in customer churn in coming up with that $300M figure?

Jeff Baumgartner 12/5/2012 | 5:20:02 PM
re: TW Cable Could Reap $300M From Modem Fee

Yes, the analysis used an estimated monthly churn rate of 1.5%. JB


Jeff Baumgartner 12/5/2012 | 5:20:01 PM
re: TW Cable Could Reap $300M From Modem Fee

It appears so, though doesn't offer a direct comparison from what I can tell... but I'd certainly expect a higher churn rate than usual based on the policy. Be interested to see how the churn rate on the product is here in the next few quarters. JB

shygye75 12/5/2012 | 5:20:00 PM
re: TW Cable Could Reap $300M From Modem Fee

Considering that high service cost is the number-one reason (by far) that subscribers leave their video service provider (this according to our latest US consumer survey that will be released at Telco TV), this decision to pad revenues by charging for something that used to be free is questionable. People who live in markets where there is no second choice of provider -- and those who are not motivated to check their monthly bills -- will of course pay. Let's see what happens with the others.

AESerm 12/5/2012 | 5:19:59 PM
re: TW Cable Could Reap $300M From Modem Fee

Back of envelope: If 6% or more of b'band subs churn out, looks like they lose more than the $300m anticipated. If less than 6%, they come out ahead. (Plus, there's the benefit of not having to mind/manage the 500k+ modems that ownership-minded subs are expected to buy.)

shygye75 12/5/2012 | 5:19:59 PM
re: TW Cable Could Reap $300M From Modem Fee

Thanks, J -- they'll likely not hit 6% churn on this, but there has to be a more friendly way to pad revenues. Most industries are going through the "let's add fees on stuff that used to be free" phase now. It works when their customers (a) have no options other than to do without or (b) are not motivated to find a better price option. I guess I could add (c) will form long lines to pay for your marginally upgraded iDevices no matter the cost.

krishanguru143 12/5/2012 | 5:19:57 PM
re: TW Cable Could Reap $300M From Modem Fee

I wonder if all of the TWC know about this.  Every single local TWC entity is separate from the rest.  If you move from one city to another, you have to cancel in the first and subscribe as a new customer in the second.  Have a credit on your bill, can’t move it between accounts.  If you had an email address you used in the previous location, it doesn’t move with you.  When I moved I had my own modem and they said I could use it but it would take three weeks to get entered into their system.  I wonder how many people will be happy when they are told $3.95 to rent or they could buy their own and when they buy their own they have to wait three weeks before service can be started.


What will they do with all those used modems if even 25% of the customer base buy their own.  Many already have their own router, so buying a modem for $50 is not a big deal.  13 months later it has paid for itself.

At the end of the day, the customer will view it as just another grab.  The modem was paid for a longtime ago.  It costs TWC $0.00 to offer the modem for free.

I wonder if enough customers buy their own if TWC won’t add a fee to enter the modem into their system; modem registration fee $24.95.  lol

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