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Survey: Services Spending Stays Steady

Light Reading
News Analysis
Light Reading
12/28/2004
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Consumers expect the royal treatment from service providers, but don't expect them to spend like kings in 2005. That's the gist of Heavy Reading's “Survey of U.S. Consumer Telecom Purchasing Plans for 2005,” a new report released last week (see Service Providers See Growth in 2005 and Enterprise Spending to Rise in ’05).

The survey, completed by 438 Internet users, looks at consumer perceptions and spending plans for telecom services in 2005. It found that a majority of consumers surveyed find the prices they pay for Internet, video, and wireless services too high, and they have no plans to change the amount of cash they shell out in the near future.

More than 60 percent of respondents say they expect their spending on Internet service to stay static in 2005, with almost 10 percent planning to cut the amount they spend. Nearly two-thirds will spend about the same amount on video services next year, and almost 60 percent of wireless users predict no spending increase.

Consumer perception of broadband service was somewhat mixed, with the majority of respondents seeing DSL as a great bargain but lacking the performance capabilities of cable networks. More than 55 percent of DSL users characterized the cost of service as being either reasonable or a great bargain, but fewer than 45 percent of cable modem subscribers felt the same way.

The survey also found that consumer loyalty is strongly ruled by cost and service quality. More than 60 percent of all Internet broadband users surveyed said they would consider switching providers if they found a better alternative; 10.8 percent of DSL users and 7.4 percent of cable modem users said they will definitely switch providers next year.

Because the cost of telecom services is “top of mind” with most consumers, providers that can bundle services will have an inherent advantage. Cable providers have an early lead here; nearly 90 percent of respondents who use cable modem Internet access also get video services from their cable provider.

The appeal of getting bundled service from a single operator is also strong. More than 40 percent of respondents saying they'd consider switching to a provider that could deliver a full range of services, reinforcing wireline carriers' rush to add video services so they can enter the lucrative triple-play market, bundling video, voice, and Internet access.

Indeed, there appears to be room for a rightly priced video offering to take share away from cable and satellite providers. About 55 percent of cable and satellite video subscribers feel they are paying too much for those services; only 5 percent consider video services to be a bargain.

Consumer interest in advanced telecom services is picking up but is still not a high priority for users. Video-on-demand services, including pay-per-view movies and events, are the top attraction for those consumers who buy advanced video services.

But interest in advanced video services is far from universal. More than 60 percent of respondents saying they do not use advanced video services. Even among the respondents who are the biggest spenders (those who spend more than $50 a month on video service), 44.9 percent said they don't use advanced video offerings at all.

These results seem to indicate that the best way to attract video subscribers is through reduced pricing, rather than focusing on advanced service features or more robust programming lineups. But that isn't necessarily the case.

In some cases, the newness of the services, and the lack of marketing, may dampen usage. "It's just familiarity," says Heavy Reading analyst Stan Hubbard. "I don't think it has that much to do with lowering prices.

"People are always willing to spend on entertainment, but providers have to market it right and make it convenient."

Indeed, Comcast Corp. (Nasdaq: CMCSA, CMCSK) executives recently said its average revenue per user is slightly up from early 2004. The company reported “absolutely no downward pressure," a sign that lower pricing won't always win in the video services game.

Price is a factor in the wireless arena as well, but service quality reigns, with nearly half of all respondents (45 percent) saying they'd consider switching providers if they could get better service. Almost 80 percent of wireless users surveyed said they'd be willing to change service providers within the next 12 months, with 13.4 percent saying they definitely will switch. The survey also found that, while consumers have issues with wireless reliability, more than 40 percent of wireless users surveyed said they would consider eliminating their wireline phone service in favor of using wireless service for all calls. Couple that with the 83.9 percent of wireless users who ranked their wireless service as being essential or very important to them, and the writing could be on the wall for wireline services.

Heavy Reading's report, “Survey of Consumer Telecom Purchasing Plans for 2005,” costs $2,495. For more information, please click here.

— Chris Somerville, Senior Editor, Next-Generation Services

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