With the current state of the national economy, it is no surprise that there are current, former and would-be cable subscribers that have comparatively low household incomes or poor credit scores. This customer segment has traditionally been under-represented within the cable television and broadband subscriber bases. A big part of the challenge is that cable's traditional business models do not mesh well with the needs of this demographic.
As Comcast Corp. (Nasdaq: CMCSA, CMCSK) showed last month with its offer to provide six months of free Internet Essentials service and amnesty plan for back due balances, there is always more that cable can do to bring consumers into the connected fold. This isn't just about chasing new business opportunities: It's about helping the underserved residents in the regions that cable serves become more engaged in the digital society.
The notion of a digital divide dates back to the early days of broadband services. In 1995, the National Telecommunications and Information Administration (NTIA) issued a report called "Falling Through the Net: A Survey of the 'Have Nots' in Rural and Urban America." This report is almost 20 years old but its findings are still relevant today. In short, broadband access can be a lifeline for those experiencing economic distress. Broadband can help them search for and apply for jobs, connect with government resources, access online educational resources, view health records and so much more.
Of course, broadband is just the beginning. Multichannel video can provide a range of useful news and information programming, including from networks such as CNN, The Weather Channel, C-SPAN and Discovery.
A sizable demographic, a major opportunity
The size of the segment we're talking about here is significant. IBB Consulting estimates that at least 15-20% of US households are not traditional video and Internet customers as a result of low income or credit issues. The harsh reality is that 15% of Americans are living below the poverty line, and an additional 33% are low income, living between 100-200% of the poverty line, according to the 2012 US Census
The market penetration for this customer segment is estimated to be as low as 25% for most Internet and video service providers. Only one third of households earning less than $30,000 annually have broadband service at home. Penetration is lowest for operators with stricter credit policies and a longer history of customer back balances.
In many cases, prospective customers want service, but they cannot afford it or do not qualify. A low credit score could make them ineligible. Some may not have a social security number or other required identification. Others might not even have a TV or computer. These are sizable hurdles, but they can be overcome.
One way to address these issues is to consider whether more economical service options can be offered. These can include providing a lower-priced service with limited speed or limited content. Examples include Time Warner Cable Inc. (NYSE: TWC)'s "Every Day Low Price" Internet service, priced at $14.99 a month for 2 Mbit/s or Cox Communications Inc. 's TV Starter package of 155+ channels for $25 a month.
Another model is basing eligibility for steep discounts on whether a customer receives government aid.
Many operators allow customers with a low credit score or no available credit history to obtain services by paying a reasonable, upfront deposit.
Further, there are always opportunities to be more flexible in how operators cater to specific customer needs. For instance, offerings such as XFINITY Prepaid Services or Dish Network's Flex TV allow customers to buy equipment up front and pay only when they need service.
Key considerations when designing plans
It's not enough to have the right offerings in place. Operators must be mindful of how and when they engage with existing and prospective customers. IBB Consulting's heavy involvement with operators on relevant initiatives over the past five years has revealed some key lessons that should be considered when designing plans:
- Be mindful of how offers are timed. Customers in this demographic are on a very limited budget for Internet and video services. Marketing messages should be delivered at a time in the month or year when customers are likely to be making non-essential purchasing decisions.
- Cash is still king for many. The majority of this customer segment prefers to conduct transactions in cash. About 8% of US households do not have a bank account and low-income households represent about three-quarters of these homes. Even customers with credit cards may be reluctant to use them in certain circumstances. Service providers should focus on direct sales channels that accept cash payments and keep price points convenient for cash-paying customers.
- Trust is built face-to-face. Many lower-income subscribers prefer to pay in person not just for convenience, but also because of trust factors. As countless news stories have shown, these customers are frequently targeted by scams or misleading offers that attempt to take advantage of their situation. Ideally, instead of a nameless, faceless sales person, there is a representative in their area with whom they can have an ongoing relationship to reach out to with concerns.
Serving low income customers with more flexible options represents a dual opportunity to meet social responsibilities and improve business economics. Making sound business decisions around broadband and video is important, but so is stewardship of these important resources. Cable already has the foundation in place. Now it is time to build service offerings and business models that will give even more people access to our connected world.
— Bryan Adamson, Principal Consultant, IBB Consulting