Is Customer Trust really a priority of Service Providers?

Posted on May 17, 2012 by Teresa Mastrangelo

Over the last few weeks there has been a lot of talk in the industry related to building “customer trust”. What exactly does that mean?

The foundations of trust are integrity; reliability; confidence; dependability; truth; hope; commitment and responsibility.

Building, earning and retaining customer trust should always be a priority of any business – yet this seems like a new concept to many of our service providers.

Some examples of trust as it relates to service providers include 1) security of my personal information; 2) my bill represents the services provided and/or used; 3) the services that I receive are what was expected when I contracted for those services.

The problem is that service providers keep changing the rules.  Unlimited plans are no longer “unlimited”; lifetime guarantees do not actually mean your lifetime, but some pre-determined (and undisclosed) lifetime of the product/service; and advertised speeds are possible occasionally – if the right conditions exist. Not to mention frequent price increases.

As operators choose to offer and bundle more services, customer trust becomes increasingly more challenging and important.  Especially, as these services become more personal and involve bank accounts.

As a consumer, I often ask myself if I really want to entrust all of my services with a single provider. For instance, do I really want to buy home security or elder-care services from my mobile, telco or cable operator? 

Do as I say, not as I do….

I’ve seen examples where Utilities want customers to engage in home energy management services, yet implement a surcharge when they haven’t used enough power/gas/water.

Mobile phone operators sell unlimited data plans, but change the rules of the game when customers want to upgrade their device or move to a faster service.

Broadband operators want to implement metering caps, but provide no way for customers know how much bandwidth is being used.

None of these examples earn trust.  As a result none of the major U.S.  service providers rank very high in the Reputation Institutes’ annual survey of the 150 most reputable companies.

Southern Company was the highest ranked Utility at #75, while CenturyLink was the highest ranked Telco at #95, followed by Verizon at #106.  According to the survey, direct experience (using its services, working for it, dealing with it) has the most impact on how consumers view them.  Maybe that is why Apple ranks at #8. 

For many services – electric, gas, water, fixed line telephone and broadband – consumers have no choice but to use the few service providers that are available.  So continuing with them has nothing to do with trust – but everything to do with the fact that there is no other option.   

But the same is not true for Pay-TV services and certainly not mobile – where most of us have multiple choices.  

Reward Me

Maybe some of these operators should take a closer look at U.S. Cellular and its rewards program that gives its customers points each month that can be redeemed free ringtones, faster phone upgrades, phone discounts, etc.

I can eat in a restuarant 10 times and get a free dessert – why can’t Cox give me a free movie on demand after I have paid for 5?

So it is really about trust or is it simply about loyalty?  I don’t hear CEO’s talking about earning trust – I hear them talk about customer retention and increasing ARPU.  

Enough said.

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Broadband Gains Steady; Pay-TV Momentum Continues in 1Q12

Posted on May 16, 2012 by Teresa Mastrangelo

Data for 1Q12 is in for just about every operators in North America. So how did the quarter shape up?  Here are the highlights:

  • Total Fixed Broadband Subscribers were just under 101 million
  • Cable represents 55 percent of subscribers, while Telco (FTTH + DSL)  represents 43%
  • FTTH Subscribers reached 6.1 million at the end of 1Q12
  • Demand for Pay-TV Continues to Grow; MSO losses at lowest levels in 3 years
  • Telco TV remains the fastest growing segment of Pay-TV in 1Q12
  • Telco TV Subscribers reach 10.3 million, AT&T & Verizon represents 81% of total
  • Broadband penetration is 74.5% of U.S. households, 82% of Canadian households

During 1Q12, Cable contributed 68 percent of total net additions; followed by FTTH at 17 percent, DSL at 12 percent and Other at 3 percent.

Comcast maintains the lead as the largest provider of broadband in North America with 18.58 million subscribers, followed by AT&T with 16.53 million.

Overall demand for Pay TV services from North American operators continues to grow modestly in 1Q12, adding 552,000 net new subscribers to reach 111.802 million subscribers.  As shown in the Figure, Telco TV and Satellite operators had positive net additions, while Cable MSOs continue to lose subscribers – however, the loss is the lowest in nearly 3 years and some operators such as Cablevision actually experienced growth. Telco TV remains the bright spot, as net additions remain robust. 

Comcast remains the largest Pay TV operator in North America with 22.294M subscribers, followed by DIRECTV with 19.97M.  

Despite the fact that demand for streaming video services continues to grow, its impact on Pay-TV subscribership remains minimal and continues to perform more as an ancillary service to Pay-TV.

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AT&T Jumps on the Home Security/Automation Bandwagon

Posted on May 8, 2012 by Teresa Mastrangelo

On Monday May 7, 2012, AT&T announced plans to launch a home security and automation service called Digital Life – a service that was previously demonstrated at the 2012 Mobile World Congress shown in Barcelona.  The service would provide professional 24×7 security monitoring as well as support a variety of devices for home automation applications such as remote video monitoring; remote lighting and thermostat control; appliance control; door lock control; water/flood monitoring; as well as emergency alerts – to name just a few applications. 

The sensors and camera devices will wirelessly connect to the IP-based AT&T Digital Life platform (home control hub) inside the home via Wi-Fi and/or Z-Wave, while a 3G mobile  broadband connection will provide the link back to AT&T’s security monitoring center.  According to early reports – the fixed broadband connection can only be used as a back-up link – due to the fact that it is unmanaged and therefore not considered secure.

Customers will be able to access their Smart Home service through a Web portal or wireless device app. 

The cloud-based service will leverage its 2010 Xanboo acquisition – a company in which AT&T and Motorola were key investors and which Motorola had an OEM agreement to rebrand under its HomeSight product line (prior to Motorola’s acquisition of 4Control)

Second Time a Charm for AT&T

What is interesting about this announcement is the fact that AT&T tried this once before in 2006 via its Cingular Wireless division.  At that time, the service was a $9.95 per month add- on to existing wireless plans.  The service never garnered any mass appeal and was quietly removed from the product lineup.

Thus far, AT&T has provided no guidance on packaging and pricing – however, competitive services run anywhere from $29.95/month to $59.95/month depending on the features and capabilities provided and all of them require a minimum of a 3-year monitoring contract.

AT&T is apparently investing heavily in this segment through the establishment of a Digital Life business unit within the emerging devices unit of AT&T Mobility.

Joining the Home Automation Bandwagon

These types of services are currently being offered by operators such as Verizon, Comcast, Time Warner Cable, Rogers and Comporium Communications – to name only a few.  In general, operators are looking for new vertical market segments to generate additional revenue, as new subscriber growth levels off.

AT&T is differentiating its service from the pack in a few distinct ways.  First, it is 100% cellular for both the monitoring communications and remote access features; second, it does not require users to be customers of AT&T; finally, it will offer this service on a nationwide basis – while most of its competition is currently limited to its regional/broadband footprint.

As stated earlier in this post, AT&T will be using its 3G network to transmit the data back to the monitoring center.  The greatest benefit of this is the fact that the entire system is less likely to be the victim of power outages – which greatly impacts a fixed broadband network. However, the customer will likely use its fixed broadband connection for the in-home network to connect multiple devices, either via Wi-Fi or through HomePlug adapters. 

Another differentiator is its use of Xanboo.  Most of the current solutions, including ADT rely on iControl for its software, while Verizon is utilizing 4Home (via Motorola).  Xanboo was the first to offer a cloud based service for security and automation, holds multiple patents in this area and offers an SDK which allows for third part development/applications.

ADT has a target on its back

So the real target is ADT and its ADT Pulse service.  According to Tyco Electronics’ latest filing with the SEC – ADT security services supported 6.432 million customers with ARPU of $37.98/month – generating nearly $3.5 billion in annual revenue with nearly 87% of that recurring.  Therefore, it is not surprising that AT&T and every other broadband operator would like to have a slice of that pie. 

However, it should be duly noted that ADT experiences significant churn – averaging 13% per quarter for its security service.  Part of this is certainly the result of people moving, but alot is also related to the ability to afford this service. Another fact – ADT’s customer base has stayed relatively flat for a considerable period of time and only a very small portion – approximately 100k have signed up for the ADT Pulse service.

Home Monitoring/Automation Does not Come Cheap

Installation runs on average $199 and typically includes some basic devices, such as a couple of motion detectors and window sensors.  The more devices – the more expensive the installation.

Indoor/Outdoor cameras, glass-break sensors and motion detectors run around $149.95/each, while window sensors run around $99.95/each.  Start adding intelligent outlets and such and you can see where spending $4,000+ would not be unreasonable for the average household.

 The Challenge

AT&T is hardly synonymous with home security, and will have its work cut out to establish a knowledgeable and efficient installation workforce and call centers.  Not an impossible task, but it will certainly take time to train and certify operators and installers.

Clearly, the limited trials in Atlanta and Dallas, will enable AT&T to identify the gaps in its solution before rolling it out on a wider scale.  Additionally, it will have to make sure it complies with UL 827 (Central Station Alarm Services) for insurance purposes and obtains the appropriate licenses to provide these services within each state.

Unlike a home broadband network – home automation and home security take things to a new level.  Will AT&T be able to handle the customer service requirements that come with supporting things like cameras, light switches, door sensors – especially when they don’t work properly?  Honestly, support of this type makes more sense coming out of the wireline division rather than the mobility segment – the wireline techs already have to deal with installations and failures.

Finally, the real challenge will be customer acquisition.  Can AT&T establish the level of trust required with its consumers to allow AT&T to become their home security provider?  Time will tell.

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U.S. Broadband Stimulus – Exceeding Expectations

Posted on April 10, 2012 by Teresa Mastrangelo

The NTIA recently issued its quarterly status report related to the Broadband Technology Opportunities Program (BTOP). 

For refresher purposes – As part of the American Recovery and Reinvestment Act (ARRA) of 2009, both the NTIA and the RUS announced broadband stimulus programs.  The NTIA’s Broadband Technology Opportunities Program (BTOP) was primarily focused on middle-mile infrastructure, Public Computing Centers (PCC) and Sustainable Broadband Adoption  (SBA) programs.  The RUS Broadband Initiatives Program (BIP) was primarily focused on last-mile infrastructure and connectivity.  In all, both programs awarded a total of $7.4 billion in grants and loans for 648 projects in support of broadband programs.   Award recipients must substantially complete projects within 2 years (67 percent complete) of award (2012) and all projects must be fully completed within 3 years – meaning the bulk of the projects must be fully competed by September 2013.

The current report is the 12th quarterly report to Congress since the program was initiated and the results are not only encouraging but better than expected.  Although the RUS BIP program is also required to provide quarterly reports – the last publically issued report was for 4Q10.

According to the BTOP report,  grant recipients collectively exceeded all performance goals established for FY 11 (runs October 1 to September 30.) as shown in the figure below:

  • Infrastructure Projects:  Vastly exceeded the FY11 target of 10,000 miles with 29,191 miles at the end of FY11.  Additionally, BTOP projects have already reach 90% of its FY12 target to deploy 50,000 new or upgrade miles.
  • Community Anchor Institutions:  Exceeded the goal of connecting 3,000 anchor institutions by end of FY11 and has reached 64% of its FY12 goal to connect 10,000 institutions
  • Public Computer Center Workstations:  Surpassed the goal of 10,000 workstations by installing 24,512 by end of FY11 and have already reached 84% of FY12 goal of 35,000.

Regarding Sustainable Broadband Adoption programs, NTIA also report higher than expected results with more than 230,755 households and business subscribing to broadband services, versus the FY11 goal of 100,000.  Additionally, this program has already reached 74% of its goal of 350,000 for FY12.

Finally, NTIA announced that BTOP recipients had reached a milestone in December 2011, surpassing $1 billion to total draw-downs.  NTIA also visited 33 recipients representing total grants of $571.6 million and, to date, has visited with 53 percent of awards, representing 80% of total BTOP funds.

Undoubtedly, this is great news – but it is the last mile projects that will have the most impact on broadband subscriber growth.  So my message to the RUS is: “Show us the money and what is being done with it” and start publishing a quarterly update similar to the NTIA or some other type of update that demonstrates a similar succces story as NTIA.

The next NTIA update is expected in July 2012.

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European Commission Updates on National Broadband Plans

Posted on April 9, 2012 by Teresa Mastrangelo

The European Commission recently provided an update on the implementation of the national broadband plans in the EU-27 countries, along with Croatia, Norway and Switzerland.

For reference, the Digital Agenda for Europe (DAE) required all Member States to devise and make operational by 2012, national broadband plans which would enable the EU to meet the broadband targets for Europe by 2020.  Those targets are as follows:

  • Basic broadband (512kbps to 4Mbps) to all by 2013
  • Fast broadband by 2020: broadband coverage at 30 Mbps or more for 100% of EU citizens. 
  • Ultra-fast broadband by 2020: 50% of European households should have subscriptions above 100Mbps.

To date 22 Member States have national broadband plans, with the remainder either in review or in the drafting process.

 Current Status

 Table 1 provides a summary of the current status of EU National Broadband Plan Targets

 Table 1:  EU NBP Targets

  Basic Broadband 

As shown, the majority of Member States will support 100% basic broadband by 2013, with the exceptions of Bulgaria and Romania, which have set 2015 as their target date.

Next-Generation Access (NGA)

 To date, 21 Member States have defined quantitative coverage for NGA with downstream speeds ranging from 25Mbps (UK) to 1Gbps (Luxembourg), while 8 have subscribed to full DAE targets.  Little attention was directed towards upstream speeds with the exception of Finland (100Mbps) and Luxembourg (500Mbps).

According to the report, the most quoted reason for lack of NGA commitments was “there are not many applications which would require NGA bandwidths in the foreseeable future”.  These same operators also point to low take-rates in areas where ultra-fast connections are already available – such as France where FTTH penetration is at 13.5% and KPN which has penetration of 12.5%.

NGA does not equal FTTH

It is important to note that the EU continues to take a technology neutral approach towards NGA – its does not specify a technology, rather leaving that up to the individual operator to determine the best possible solution based on various factors.

As such, there are multiple technologies that can support the goals of the DAE as shown below and many operators will likely take a multi-step approach towards full FTTH deployment, including interim steps of upgrading to FTTC/N+ VDSL2 with the possibility of implementing vectoring capabilities to increase bandwidth.

 Facilitating Investment

Per the report, the EU states that facilitating investment to close the gap between the amount that operators plan to invest in network infrastructure and the investment required for achieving DAE targets is paramount.  As such, many National Regulators are in the process of doing studies that look at the ROI of NGA investments – particularly FTTH.

Of course, the key to all of this investment is take rates - or in the EU’s terminology “demand stimulation”.

Although many countries have been active in implementing programs to increase the availability of broadband services; few have engaged in activities to increase demand (a key failure of the U.S. National Broadband plan) – and this is especially true of NGA networks.

This brings about a Catch-22 scenario.  Operators don’t want to deploy these networks because consumer demand is low – since there are few applications and services that require this type of bandwidth.  Unfortunately, by the time consumers “need” these types of networks – it will be too late or the investment will take even longer to pay itself back.

EU Conclusion

Although the Commission appeared satisfied (I will not go so far as to say happy or thrilled) with the current status of NBPs, there is concern about the sustainability of some of the broadband plans due to the lack of measures aimed at demand.  It is believed that if more plans focused on the demand side – the business case for the investment side would prove to be more viable.

The Commission stated it will perform another analysis of this type by the end of 2013, with a special emphasis on NGA.

The full document may be accessed here: http://ec.europa.eu/information_society/newsroom/cf/itemdetail.cfm?item_id=7948

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New Issue of “The Voice of Broadband” Newsletter – Vol. 7, Issue 1

Posted on April 5, 2012 by Teresa Mastrangelo

After a long hiatus, we have restarted publication of our newsletter.  This issue is a bit longer than normal, but we will be back to a 2-3 page format going forward.  We plan to issue this monthly.

To download online, please visit:  http://www.broadbandtrends.com/news__events/newsletter

 Two ways to become a subscriber: 

 Fill out the online form at http://www.broadbandtrends.com/news__events/newsletter  or please send an email with “subscribe” in the subject to editor@broadbandtrends.com.

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Cisco Continues to Bet Big on Video with $5B Acquisition of NDS

Posted on March 15, 2012 by Teresa Mastrangelo

On March 15, 2012, Cisco announced its plans to acquire NDS Group – a leading provider of Conditional Access & Digital Rights Management, as well as Software and Services for the digital Pay-TV market.  The deal is valued at approximately $5 billion. 

The acquisition provides a number of immediate benefits to Cisco – including expansion into emerging markets (China, India and Latin America)- where demand for Pay-tv services is growing rapidly, as well as into additional market segments – particularly Satellite – where Cisco has a limited presence.  Additionally, key technology from NDS – chiefly its Content Protection and Software Solutions, will enable Cisco to strengthen its existing relationships with operators.  Finally, Cisco acquires strong expertise in multi-screen service delivery solutions that have been deployed by NDS customers for some time.

The greatest asset of the NDS acquisition is Content Protection (and its VideoGuard product family) - which accounts for 55% of NDS’s 2011 annual revenue and is deployed across nearly 126 million households – with 84 million in emerging markets, and protects over $50 billion in pay-TV revenues.  In September 2011, NDS announced its VideoGuard Connect; its next generation DRM for multi-platform pay-TV, enabling operators to seamlessly extend their pay-TV services to connected media devices. It enables the secure ingestion, delivery and consumption of premium content over both managed and OTT networks whilst maintaining subscription privileges across devices.

The Software Solutions segments includes DVR software, Middleware and Electronic Programming Guides.  Its middleware is deployed in approximately 214 million units, its DVR software is deployed in approximately 47 million units; while its EPG is deployed across approximately 221 million units.

NDS’s largest customers are satellite operators.  With DirecTV, BSkyB and SKY Italia accounting for 41% of revenues during2011.  As such, NDS has developed solutions to address the “hybrid” approached favored by these operators which enables operation of set-top boxes and the delivery of content over both broadcast and broadband networks as well as over-the-top (OTT) to broadband connected set-top boxes.

The combination of Cisco and NDS will enable them to cover all market segments – IPTV, Cable and Satellite – and count the some of the largest operators in each segment as their customer.

Emerging markets represent a strong and growing market for NDS, accounting for 39% of revenues in 2011, up from 35% in 2010. NDS has strong relationships with key operators in these markets, including Bharti, CCTV, DIRECTV Latin America, Hathway and Tata Sky. The India DBS satellite market is currently experiencing phenomenal growth, with the 6 major operators adding 3 million subscribers per quarter.

Other key customers include Astro (Malaysia), Bouygues Telecom, Cox, Kabel Deutschland, Sky Deutschland, UPC (a unit of Liberty Global) and Vodafone.

During the conference call to discuss the acquisition, Cisco touted NDS’s expertise in multi-screen solutions and cloud based services and alluded to the inclusion of these capabilities into the Videoscape platform.  This will definitely create an unparalleled end to end solution for future video services.

John Chambers stated that “video is the next voice” as collaboration & entertainment will become blended, enabling a completely different experience.  He also stated that multi-screen video is becoming Bring-Your-Own-Device (BYOD) market and that Cisco has no plans to enter the consumer device market.

The acquisition is expected to close in 2H12 and NDS will become part of the Cisco Service Provider Video Technology Group (SPVTG).

Dr. Abe Peled, NDS Executive Chairman, will be named Senior Vice President and Chief Strategist for Cisco’s Video & Collaboration Group, of which SPVTG is a part. Dr. Peled will report directly to Marthin De Beer, Senior Vice President, Cisco Video and Collaboration Group.  He has signed a 3-year commitment to stay with the company.

 

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Verizon Officially Launches LTE for Fixed Broadband Services with HomeFusion

Posted on March 6, 2012 by Teresa Mastrangelo

On Tuesday March 6, 2012, Verizon announced the official launch of its HomeFusion service – an LTE-based broadband solution targeted at households that cannot get another type of fixed broadband – such as DSL, Cable or Fiber.  The service was expected to have launched at the end of 4Q11.

Service fees start at $60 per month and come with a 10GB data cap.  Verizon is expected to offer additional plans, such as 20GB of data for $90/month and 30GB of data for $120/month.  It will charge $10 per GB of data overage on any of the plans.

In addition to the monthly cost, the service requires the installation of a cylindrical antenna, often referred to as the Cantenna as well as a broadband router. The broadband router can connect up to four wired and at least 20 wireless devices inside the home using Wi-Fi.

The  LTE Cantenna is a fixed LTE antenna that would attach to the outside of the house and transmit the signal to a broadband router inside the home.  The LTE Cantenna (not a Verizon product name, but a generic term for this type of device) is about the size of  a 5-gallon bucket.  The cost of the hardware is $200, but Verizon, through it partnership with Asurion, will install it for free.

Asurion is an interesting choice, considering its primary activity is insuring wireless handsets.

Verizon had trialed this device with DIRECTV back in 2010, before it decided to focus on its partnership with Comcast.  Regardless, Verizon “found it to be extremely acceptable by the consumer”.

Verizon Wireless, will likely offer this as a bundled two-play wireless product via its own retail stores as well as through its affiliate network. 

The service is expected to offer speeds of 5 to 12 Mbps for downloads, and 2 to 5 Mbps for uploads – significantly faster than most rural broadband offerings – especially for upstream.  In addition, due to the lower density of subscribers, it is very possible for them to experience even significantly faster speeds – as much as  70 Mbps for downloads.

Obviously there are concerns about the data caps – which do not apply to any other fixed broadband service offered by Verizon.  The 10Gbps limit will definitely hamper services such as Netflix or any type of streaming video service – allowing about 10 hours of HD quality video per month.  But this also provides some opportunities for Verizon bundle this with its recently announced streaming services (via the RedBox JV).

So how does this compare to other services such as Satellite?  ViaSat’s Exede service offers a package with similar speeds (12Mbps/3Mbps) for $49.99/month with 7.5GB data, $79.99/month with 15GB data nd $129.99/month with 25GB data.

The service will initially launch in Birmingham, AL; Dallas, TX; and Nashville, TN and will likely be offered on a nationwide basis by the end of 2012.  

Despite the criticism that these market are hardly considered rural – it should be noted that availability of either DSL or cable-based broadband remains below 90% in each of these markets – according to the latest National Broadband Map. 

Similar to Clearwire’s service – this is strictly a fixed broadband service – a consumer would need to have a mobile broadband package for mobility outside the home.

broadbandtrends has been commenting for some time that 2012 will be a pivotal year for fixed broadband operators – and this will certainly put some pressure on rural operators that have not chosen to make an investment in fiber.  Is it a DSL killer as some suggest?  In some markets, perhaps.  But bandwidth caps and high prices will make this unattractive to a large number of potential customers. 

Nonetheless, rural operators should look at this as an opportunity to up their game – either through network upgrades to through better quality of service and experience.

We will closely monitor the success (or failure) of this service offering, particularly how it chooses to bundle the packages – for many customers – they will simply take a mobile broadband plan that offers a personal hot spot rather than buy two separate plans.

We will update as additional information becomes available.

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North America Broadband Subscribers Near the 100M Mark in 2011; Cord Cutting a Non-Event

Posted on February 29, 2012 by Teresa Mastrangelo

Although there are a handful of smaller operators that have not reported their 4Q11 numbers, there is enough information available to estimate the size of the North America broadband and video market for 2011.  At the end of 2011, broadband subscribers reached 99.5 million and have most certainly passed the 100 million mark as this goes online.  In addition, it appears that the pace of cord-cutting has definitely slowed during 2011.

So how did 2011 shape up?  Here are the highlights:

  • Cable operators accounted for 67% of total net additions, compared to 29% for Telcos (both DSL and FTTH)
  • FTTH represented 64% of total Telco net additions
  • FTTH represented 5.85 million fixed broadband subscriptions, with Verizon representing 82% of total
  • Annual DSL net additions declined by 32% from 2010
  • Telco TV subscribers near 10M in 2011
  • Broadband penetration has reached 73.5% of households in the U.S. and 80.5% of households in Canada

Cord-Cutting Slows during 2011

Despite the continuing threat of cord-cutting, demand for pay TV services from North American operators experienced positive net additions during 4Q11 of nearly 300,000.  Cable MSOs continued to take the big hits, losing nearly 300K (down from 450k in 3Q11), while Telco IPTV and Satellite picked up the slack during the quarter. Cable represents 58% of the market, followed by Satellite at 33% and Telco at 7%.

Comcast remains the largest Pay TV operator in North America with 22.34M subscribers, followed by DIRECTV with 19.9M.  During 4Q11, AT&T experienced the largest net additions at 208,000, followed by Verizon with 194k.  Comcast experienced the smallest decline in in subscriber losses – losing only 17k – its strongest quarter in 5 years.

From a year-over-year perspective, AT&T leads with 805,000 net adds, followed by Verizon at 701,000 and DIRECTV at 662,000. 

From an ARPU perspective – DIRECTV broke through the $100/month mark during 4Q11, while other operators saw annual ARPU increases of anywhere from 4% to 8%.

With the introduction of services such as Comcast’s Xfinity Streampix and the continuing evolution of TV Everywhere and Multi-screen services, cord-cutting is becoming less relevant – especially given the increases in ARPU across the board.  Although some of this increase is associated with price hikes; adoption of advance services continues to grow.

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Verizon’s Over-The-Top Video Ambitions

Posted on February 8, 2012 by Teresa Mastrangelo

Earlier this week, Verizon and Coinstar announced the formation of a joint venture that will combine Redbox DVD/Blu-ray rentals with video on-demand streaming and download services from Verizon. There were few details provided about the service which is scheduled to be launched in the second half of 2012. The JV provides Verizon with an opportunity to sell video services outside of its operating territory and possibly create some interesting mobile broadband packaging with its wireless service. It also enables Verizon to leverage its Digital Media Services platform that was announced in 2011.  For Redbox, it greatly expands its brand name and potential revenue opportunities.  The JV hopes to differentiate itself from other OTT providers through both its physical and digital content.  Although the JV is choosing to enter an ever increasingly crowded OTT space, its well known national brands should help it gain market share relatively quickly.  But it is its potential to act as a virtual MSO that makes this a service most interesting to watch in the coming months.

The JV is being formed between Redbox and Verizon Ventures IV LLC, with Verizon holding a 65 percent ownership share and Redbox holding a 35 percent ownership share at the outset.  According to information from the LLC Operating agreement, the JV was formed “for the primary purpose of developing, launching, marketing and operating a  nationwide “over-the-top” video distribution service that provides consumers with access to video programming content, including linear content, delivered via broadband networks to video-enabled viewing devices and offering rental of physical DVDs/Blu-ray from DVD rental.

In addition, there are licensing arrangements under which Redbox will make available to the JV, DVD/Blu-ray rental rights from Redbox kiosks, while Verizon will make available certain rights to video programming content delivered via broadband networks.

According to Verizon, the yet unnamed service will operate under a subscription-based pricing model, but will not give customers the option of choosing between a separate streaming or DVD/Blu-Ray subscription package like Netflix offers today. 

Why This Announcement Is Important

For Verizon and Redbox it offers an additional revenue stream.  For Verizon, it will be able to market a national on-demand video service.  Additionally, it provides opportunities for Verizon to drive additional traffic across it network which will benefit both its wholesale and wireless operations.

From a competitive perspective – the target is most definitely Netflix.  But its impact will likely be far greater as the addition of a well known provider of services to the OTT market will put considerable pressure on all Pay-TV operators (Cable MSOs, DTH and IPTV), potentially accelerating the practice of “cord-cutting”. Although it is not expected that the JV will provide linear and live TV at its initial launch; the fact that is could act as a virtual MSO is game-changing to the entire industry.

Like all OTT providers, the JV will be able to take advantage of the increasing speeds of broadband services and the proliferation of internet enable devices (game stations, Blu-ray players, Television, etc.).  Additionally, the JV will be able to leverage the 37 million active Redbox subscribers who rented 684 million DVDs at over 35,000 kiosks at 29,000 locations during 2011.

We came up with 7 key reasons why this service will be different from its competition, but that info is for clients only!

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