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Cable Technology Feature Article

January 21, 2013

Breaking Up the Bundle: Consumers Look to Ditch the Triple Play

By Tara Seals, TMCnet Contributor

Voice, data and broadband: selling a bundle of the golden triangle of home communications services has long been the established model for cable to minimize churn and lock in attractive monthly average revenues per user (ARPU). And with ARPU for triple-play packages across pay-TV operators hovering around the $100 mark with introductory pricing, and escalating upward with regular pricing, it’s been a sort of “set it and forget it” strategy that has worked well as a cash cow for residential services giants—so far.

However, there is trouble in paradise. Consumers are increasingly looking to save money on cable, phone and Internet bills as a matter of course—ubiquitous Vonage (News - Alert) commercials lauding the freedom of cheap over-the-top VoIP is one indicator of that. The fact that cable MSOs are continually losing basic video subscribers to IPTV and satellite quarter-after-quarter is another. As we hit 2013, consumers are trying to take more control over their communications costs, and the fact is, there’s plenty of room for them to do so.

Promotional pricing for the triple play is the bait that most residential triple-play customers have been happy to swallow. Getting a free year of a sought-after sports premium package, or reduced top-tier broadband for six months, are effective carrots. Then when regular pricing kicks in, it’s either too much of a hassle or too time-consuming for many end-users to bother canceling services, shopping around or negotiating with their provider.

But that gravy train is about to come to a screeching halt. Increasingly, consumers realize that they’ve signed up for a lot of bloat that they don’t need. Most people don’t need unlimited long-distance at home (especially if they own a cell phone), or multi-mbps into the home for Internet. On the cable TV side, even the basic tier of cable offers a wide range of unwatched and unwanted channels, lessening the perceived value of the package for end-users.

It’s all given rise to an increase in savings-oriented strategizing—consumers are simply looking to ditch the conventional bundle.

As Motley Fool columnist Dan Caplinger noted, a first strategy for end-users is uncovering little-known, stripped-down options beyond the premium level has become a popular New Year’s resolution. For instance, most people still want to keep a landline around for voice, for the back-up and voice-quality value if nothing else. But they probably don’t use it as their primary calling method, and they could likely save a lot of money by asking for a measured service that charges by the minute used.

Similarly, cable TV packages (this part of the bundle can run $60-$80 in an average scenario) actually do come in more than the 100+ channel flavor. "Broadcast basic packages, however, can give you better reception on network channels as well as a small group of other offerings at ridiculously low prices of $10 per month or less,” Caplinger advised.

Video alternatives are also starting to make their way into the mainstream consciousness too, although true cord-cutting has yet to make its impact known. As the Penny-Pinchin’ Mom blog helpfully notes, “If you are paying for specialty channels (like HBO for example), you might be surprised at how much you are actually paying vs. how much you watch. For example, if you pay $15 a month and only watch 5 movies, then you are paying $3 per movie. You can rent movies at RedBox for just $1.20 each instead – which is much more cost-effective!”

Or, she adds, just drop the cable box and bring back rabbit ears plus a streaming box option, like Roku.

Then there’s broadband, a consistent bright spot in earnings reports for traditional cable operators. The Internet has been a saving grace for the sector, which finds itself making up for lost video subscribers with increased uptake for Internet.  According to the Leichtman Research Group, the 17 largest cable and telephone providers in the United States – representing about 93 percent of the market – acquired about 580,000 net additional high-speed Internet subscribers in the third quarter of 2012. The top broadband providers now account for more than 80.7 million subscribers, with cable companies having 46.2 million broadband subscribers and telcos having 34.5 million.

Overall, broadband additions in the most recent third quarter amounted to 92 percent of those in 3Q 2011. In large part thanks to broadband, top cable companies added about 575,000 subscribers, representing 110 percent as many additions as the year before.

Consumers, in short, need to be online. However, not all broadband is created equal. Absent a heavy amount of online gaming or video streaming, a lower tier of broadband than what’s typically included in an introductory triple-play package is likely sufficient. To support e-mail, Web browsing, social networking and in-home tablet/smartphone use via Wi-Fi can likely be well-handled by one of the unpublicized but nonetheless available lower-tier Internet packages.

All of that gives consumers leverage. “Companies don't want to lose customers, and in the current ultra-competitive environment, they may give you added enticements to stay on board,” Caplinger postulated. “As a result, you may get an offer to keep your current service at a lower price, leaving you with two winning alternatives to choose from.”

All of this points to the need on the part of cable MSOs to make a swift change to break up the bundle hegemony and implement personalized service packaging, which would allow consumers to select a mix of upper-tier and stripped down offerings. For instance, consumers may want to invest in a premium tier of broadband if the deal comes with native apps for over-the-top (OTT) streaming services. Then, they could add stripped down traditional cable TV package with access to only major networks and, say, ESPN (News - Alert).

Cable has also mulled the idea of à la carte television, which would allow consumers to pick and choose which channels are included in their TV packages in a mix of basic and premium nets, rather than being constrained by pre-set bundles or tiers of content. The Diffusion Group (TDG) said in an e-mailed analysis that implementing an à la carte strategy could stop the video decline. Without it, the number of U.S. households that subscribe to traditional cable-like pay-TV is projected to slide from nearly 101 million in 2012 to less than 95 million in 2017.

Content companies make it difficult for pay-TV to think about disrupting the licensing model. DISH Network’s Dave Shull said during a panel at CES that two media companies account for about 50 percent of pay-TV providers’ content costs (you can be sure that Disney (News - Alert) is one of them, thanks to ESPN and ABC in particular), meaning that an à la carte approach would make it impossible to spread out the cost of carriage fees for the other channels. However, mini-packages or modules of channels that can be combined for a more tailored TV selection are a possibility, he said—and that alone could change the triple play business as we know it.

Consumers should also stay tuned because others are looking to force cable’s hand. According to reports, Intel (News - Alert) is planning to launch its own set-top box, perhaps in beta as early as March, which will offer consumers an à la carte selection streamed to any device with an Internet connection. Microsoft continues to add video functionality to the Xbox 360 to turn it into a multimedia living room hub. And Apple (News - Alert) TV is reportedly looking around to partner with pay-TV operators to provide the user interface for set-tops and offer an OTT-enabled experience to customers that could shake up the force-fed channel lineup approach.

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Edited by Rachel Ramsey

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