AT&T, Verizon Will Gain Video Share in 2010

AT&T and Verizon are slowly gaining share in the U.S. multi-channel video market, while satellite providers DirecTV and Dish Network are holding their own, with Comcast and Time Warner Cable under a bit of pressure, but possibly facing more erosion over the next year, new surveys by ChangeWave Research suggest.

A key factor is simply that AT&T and Verizon now are able to market video services to millions more customers every year as they build out their new networks. Given a choice, some customers will exercise that choice, and switch from a current provider to one of the telco-provided services.

To the extent that customer satisfaction has a direct effect on churn behavior, Verizon, AT&T and DirecTV also stand to benefit, as their customer satisfaction ratings are at least three times higher than those of Comcast and Time Warner Cable, according to a recent Changewave Research survey of nearly 3,000 end users.

Still, market share changes relatively slowly in the video entertainment market. When asked whether they planned to switch TV providers in the next six months, about 12 percent reported they’ll be switching.

That works out to about two percent of the customer base a month, a figure quite consistent with what video operators have seen in recent years. But users rarely behave precisely as they say they will. One might expect churn to wind up being less than two percent a month, but more than one percent a month.

Also, service providers recently have found churn levels lighter than usual, in part because of slower housing starts, in part because of “save” offers made when customers call to disconnect, in part because bundles save customers money.

But prices seem to have very-high importance. According to the Changewave survey, price is the reason half of the “switchers” plan to make a change. Only about 10 percent indicated they would switch to get a bundle.

If price drives half the changes, rather than some other service attribute, many users who plan to defect will wind up staying because of a “save” offer that addresses the price objection.

Market share changes over the last year show just how stubbornly service providers are fighting to prevent churn in a saturated market that mostly is a zero-sum game.

For the U.S. market as a whole, cable TV operators retain dominant market share of 65 percent while satellite providers have 25 percent market share. Telcos now have 11 percent market share.

Comcast, with 23 percent share, slipped about one percentage point over the last year.
Time Warner Cable, with 11 percent share, gained one market share point over the same period.

DirecTV, with 13 percent market share, was unchanged over the year. Dish Network, with nine percent share, lost one share point over the last year.

Verizon’s FiOS has five percent share of the national market, while AT&T U-verse has three percent of the national market.

About 54 percent of the Changewave respondents who say they intend to switch providers say they will choose a fiber-optic service, an eight-point increase in three months.

Verizon FiOS TV remains the top provider that switchers plan to move to in the next six months. But AT&T’s U-verse service has jumped seven percentage points since Changewave’s March survey and is currently showing the most momentum among providers.

By way of comparison, just four percent of switchers saying they’ll sign up with Comcast and one percent say they’ll buy from Time Warner Cable.

Changewave researchers think cable and satellite providers will, for these reasons, face headwinds as the telcos gear up.

Fiber TV providers boast a big lead when it comes to customer satisfaction levels. Some 38 percent of subscribers say they are “very satisfied.”  About 27 percent of satellite subscribers say they are “very satisfied.”

About 13 percent of cable subscribers say they are very satisfied. So satellite subscribers are twice as satisfied as cable customers while fiber TV customers are three times as satisfied as cable customers.

The difference is even more evident at the individual company level, where Verizon has the most satisfied customers. About 47 percent of Verizon FiOS TV customers say they are very satisfied, while 39 percent of AT&T’s customers say they are very satisfied.

Some 34 percent of DirecTV customers say they are very satisfied. Just 11 percent of Comcast and Time Warner Cable customers say they are very satisfied.

MiFi: What's the point?

By most accounts, MiFi is getting a warm end user reception. Novatel Wireless, which makes the MiFi, posted a third-quarter profit, reversing last year's loss, as strong sales of its MiFi personal Wi-Fi hotspot. Novatel recently surprised Wall Street analysts by revealing it had received $100 million in orders for the MiFi in the first two months.

Novatel executives think the MiFi could be a new product category someplace between a dongle and a smartphone. That remains to be seen, as consumers ultimately will decide what the value is, and how big the value is.

The MiFi creates a mobile, personal hotspot for up to five devices using a single 3G connection. For some, it might be a more-convenient dongle or aircard for PCs. If so, the difference might turn on such simple issues as whether a device that requires use of a USB port is less functional than a device that doesn't require use of a port.

For others, the advantages will be the ability to connect devices without USB ports to a Wi-Fi network.  Dual-mode smartphones might provide one example, but they probably don't provide the biggest obvious benefit, especially when those smartphones have 3G connections.

More obvious value will be garnered by users of iPod "Touch" or other devices that operate only on Wi-Fi, not mobile broadband, and who already pay for a 3G connection, in any location other than the home or office.

Perhaps the more obvious application is a temporary Wi-Fi hotspot for business users in a workgroup setting. But I'd be willing to be that is only one of many uses consumers will find for the MiFi.

For some, the only additional required value might be the ability to use their 3G access device without tying up a USB port. For others it is the ability to access the Internet from their Wi-Fi devices wherever they can get a 3G signal, without needing separate 3G connections for each discrete device.

The point is that hard dollar savings will drive the value for some users, while for others it might be something as simple as "not tying up a USB port." Along the way, clever users will figure out other ways why a MiFi connection adds more value for a mobile broadband connection than using an aircard or dongle.

Quantifying the Carrier Wi-Fi Hotspot Business Model

Customer retention--not direct customer fees--might be the biggest part of the carrier public hotspot busimess model, says Stephen Rayment, CTO, BelAir Networks.

"Churn reduction is where lots of the value is," is Rayment. Assume churn per month of two percent a month, which means a typical customer provides 50 months of revenue, he says.

Adding metro hotspot access can provide a 10 percent churn reduction, he adds. Assume the 10 percent churn benefit on a typical subscriber relationship of 50 months, meaning the typical account now remains active for 55 months. Assume a typical customer average revenue per user of $130 a month.

That suggests an extra $650 of subscriber revenue over the length of a relationship. For a service provider with 100,000 subscribers that works out to $65 million in extra revenue.

If the average customer value is $2,000 per customer, and that service provider can use public hotspot service to reduce churn 10 percent, it adds about $200 per subscriber in terms of equity value.

For a service provider with one million subscribers, that's $200 million in incremental equity revenue.

For a service provider with one million subs, making an investment of $40 million to cover all the high-traffic spots, there is a five-to-one return on investment.

There arguably could be other revenue contributors as well, though none likely approaches the value of enhanced retention. There might be an opportunity for a small amount of additional revenue. Some customers will be willing to be stand-alone hotspot subscriptions.

Service providers might make some money from other carriers by offering hotspot access to customers roaming into the local area. There could be some advertising upside or some commercial upside from providing services to public utilities or public safety organizations, he says.

Some service providers also might look at public Wi-Fi as a way to add some mobility features to their landline service.

Mobile providers also likely will find public hotspots a useful way to offload traffic from the 3G and 4G networks to the fixed network, Rayment says.

"The networks are just choking" because of heavy new smartphone traffic, says Rayment. "People really did not see this until the iPhone, but 3 in the U.K. market also saw skyrocketing demand when it started selling the iPhone," says Rayment.

Up to this point, aircards and dongles used for mobile PC connections have been driving new bandwidth demand on the 3G and WiMAX networks. But that is changing. "Dongles drove the initial demand, but will be overtaken by the smartphone," he says.

Pingo Launches Smartphone-Based Global Calling Service

Pingo, the prepaid international calling service from iBasis, now has released a smartphone application enabling simple international calling from a wide variety of smartphones, including the iPhone, Blackberry, Treo and phones using operating systems such as Nokia Symbian, Windows Mobile and Google Android.

"Pingo EZ Dial" automatically syncs with the mobile's address book, so dialing happens the way it always does, but the Pingo client recognizes that an international number is being called and routes the call using the Pingo network.

EZ Dial users don’t dial access numbers, PIN codes or change their calling behavior in any way and does not require users to connect to Wi-Fi. Users will consume domestic or local airtime minutes of use, but incur no global calling charges from their mobile provider.

Users go to the Pingo Web site (http://www.pingo.com) to sign up for a prepaid account. Users of iPhone devices can download the client for free from the Applie App Store. Users of other phones simply enter a phone number and Pingo sends out a text message with a hot link that initiates the over-the-air client download.

Pingo thinks the move is important since more calls are being initiated from mobile handsets these days, so more global calling also is being initiated from handsets.

Users with feature phones can get the same low rates, but will have to dial a local access number, since those phones cannot download the EZ Dial client.

All of that will change as Long Term Evolution or WiMAX networks become more ubiquitous, since all devices operating on those networks will be data devices able to download clients.

In many ways, the Pingo mobile calling capability is a reflection of the broader shift to mobile-originated and terminated calling. Pingo long has been a huge supplier of white label wholesale services to other retail providers, and most of those providers were wired network providers.

Since the U.S. market is by far one of the largest global markets in the world, mobile support is important for any company that makes a living from international voice traffic. Also, mobile origination is more important in the U.S. market, since the ratio of origination to termiantion is about three to one outbound compared to inbound, says Jayesh Patel, iBasis VP. "Most countries don't have that sort of  imbalance."

Recently, iBasis has noted more use of its calling plans by business users as well, so EZ Dial is offered in a business account version that allows easier administrative setup and call tracking.

Verizon Droid Launches Today

Verizon Wireless has launched two Android-powered smartphones Nov. 6, 2009. At the top, the much-anticipated Droid retails at $199.99 and is the first Android smartphone to feature the version 2.0 platform.

But Verizon also launched a second Droid-branded device, called Eris and manufactured by HTC. Eris will retail at $99.99.

A successful launch is regarded by many as critical to Motorola's future success, as the company attempts to regain market share.

Verizon also launched a number of other handsets, including the new BlackBerry Curve 8530 (already offered by Sprint), a new LG Chocolate device, and Samsung's Push-To-Talk Convoy.

Droid will the most-important launch, for several reasons. The success of its Android phones is crucial for Motorola if it is to climb back into the top ranks of handset manufacturers. It would be fair at this point to say Android is a "do or die" move for Motorola.

For HTC, the device is less important than the fact that HTC now is trying to build its own brand name, growing beyond its contract manufacturing roots.

People Don't Buy Smartphones, They Buy the Experience and the Feeling

All engineering involves choices, and that is true of all smartphone design as well.

Perhaps one of the background pressures is the desire to create devices that perform reasonably across a range of functions.

But that might not be a formula for success. A recent study by Interpret might suggest that instead of balancing features, it might be better to "unbalance" and produce a device that is demonstrably better at one thing.

Though one can argue we are early in the adoption cycle, a panel of consumers indicated that the Palm Pre made them feel "smart," "trendy, hop or cool," and "productive" within some range of acceptance for a smartphone device.

The problem would seem to be that Pre scores highest on the emotional attribute that users say is least important of the top three. The Pre produces emotions on the "hip" and "productive" scale that make it analogous to the BlackBerry Storm.

The bigger problem is that the Pre does not produce unusually high key emotions on any of the top three most important measures smartphone buyers say are important to them. BlackBerry and iPhone probably are the best models. Each of them scores unusually high on at least one of the three key emotional drivers smartphone buyers say motivate them.

So maybe designers should forget "balance." So far, no single smartphone unit scores unusually high on the "it makes me feel smart" measure. The iPhone owns the "hip, cool, trendy" space. The BlackBerry owns the "it makes me feel productive" niche.

Smartphones are bought because of the "feelings" they produce, not the features they provide. As the saying goes, smartphones "sell an experience."

Consumer Behavior in Recession was as Expected

Time Warner Cable's third quarter results provide a bit of concrete evidence that consumers did what they said they were going to as far as watching their spending on communications and entertainment services because of the recession.

Consumers said earlier in 2009 they were least likely to cut or reduce spending on Internet access and most likely to cut back on buying pay-per-view movies downloaded over the Internet, according to a new survey by Alcatel-Lucent. But mobile service, basic entertainment video service and telephone lines were among the items consumers said they were most likely to keep, though cutting back on things such as going to night clubs and concerts or going out to movies and restaurants.

All of those patterns would be in keeping with past consumer behavior in recessions.

(see http://ipcarrier.blogspot.com/2009/06/network-services-generally-safe-but.html, http://www.blogger.com/post-edit.g?blogID=7312392900566055630&postID=5497830666217750659)

Generally speaking, people said they would be keeping their broadband Internet, wireless and video entertainment services, though showing much more willingness to curtail adding new enhanced or premium services.

Some surveys suggested consumers would accelerate their abandonment of wired voice, while others suggested demand for fixed telephone services would hold up.

Time Warner Cable's results show that broadband Internet additions held up as expected, though sales of digital video, a premium upgrade, fell, as consumers suggested would be the case.

Time Warner's new voice customers also appear weak, though that bit of data does not necessarily confirm analyst expectations. Existing customers of other voice services might simply have stuck with their existing providers instead of switching to Time Warner Cable.

Overall net new additions tend to show the impact of consumer caution. The company added 117,000 revenue generating units in the third quarter, compared to 522,000 a year ago.

More to the point, Time Warner added 8,000 net new digital video customers, compared to 56,000 net new subscribers analysts were expecting. It added 62,000 net new voice customers where analysts had expected 107,000. The firm also added 117,000 broadband Internet access customers, where analysts had expected 115,000.

So broadband held up, while digital video activity fell, as did voice services.

Still, there are lots of variables to consider. Local market competitive conditions can sharply affect results, as do promotional activities.

Comcast, for example, saw its digital video customer base grow a net 7.4 percent, while adding 6.4 percent net new broadband customers and 20.3 percent voice customers.

Still, the point is that consumers had suggested, and history suggested, that wireless, broadband Internet and entertainment video growth rates would slow, but that the services themselves would hold up. It appears they did, at least for these two large cable operators. At&T and Verizon also added large numbers of wireless customers, as well as a decent number of video and broadband access customers.