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Cable “Digital Phone” Service Hits Speed Bump: No More Easy Money, Says Wall Street Analyst

Phillip Dampier July 27, 2009 Cablevision (see Altice USA), Data Caps 11 Comments
Richard Greenfield, Pali Research

Richard Greenfield, Pali Research

Wall Street media analyst Richard Greenfield of Pali Research is telling investors that the era of quick cash from “digital phone” service customer additions is probably coming to an end.

Greenfield penned a research note last week pointing out that despite the blizzard of postcards, mailers, and wall-to-wall advertising cable operators do to promote their “digital phone” services, it’s getting tougher to sign up new customers.  Mike Farrell in Multichannel News condensed the marketspeak down:

In a research note, Greenfield noted that industry-penetration leader Cablevision Systems, which has telephony in 40% of its homes passed and more than 60% of its basic-video base in a triple-play bundle, took six years to reach those milestones. Time Warner Cable after five years has about 15% penetration (27% of subs in a bundle); Comcast, four years into telephony, has 13% phone penetration and 24% of its subs in a triple-play bundle.

The year 2008, the analyst noted, was the first that net telephony additions fell for both Comcast and Time Warner Cable.

“While Cablevision is way ahead of its peers in telephony, the question is now becoming, will its peers be able to get to even 25% penetration, let alone the 40%-plus levels Cablevision has achieved or is the opportunity to further cement the bundle simply dwindling by the day?” Greenfield asked.

For the uninitiated:

  • “Homes passed” refers to homes where cable service is available;
  • “Triple play bundle” refers to customers who take three services – cable TV, Internet, and telephone service in a bundled package from a provider;
  • “Penetration” refers to market share.  In the case of Time Warner Cable, only 15% of their subscribers sign up for “digital phone” service, but the number is higher for those with a bundled package.

Greenfield, who often annoys cable companies and instigates angry press releases from some cable trade associations, represents the Wall Street investor types, who are not pro-company or pro-consumer.  They are simply pro-money for investors.

Investors are very concerned this year about cable company stock value.  They worry customers are starting to cancel cable television packages (or at least downgrade their service to get fewer channels), and are now also concerned telephone revenue will not grow at the traditional rate it has since “digital phone” service was introduced.

Broadband service is the exception.  It remains highly profitable and is continuing to grow even during hard economic times.

Stop the Cap! believes that cable operators will look more and more to broadband profits to help prop up their stock price, making it imperative that broadband service deliver as much profit as possible, while operators crack down on costs.  Internet overcharging schemes, such as limiting and discouraging access, raising prices, or a combination of both can reduce costs even further while maximizing profits, particularly in markets where limited or no competition exists.

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BrionS
Editor
15 years ago

The bitter irony of raising prices on the one profitable market segment to prop up less profitable segments is that it will be off-putting to those users who feel, rightly so, that they are truly subsidizing unprofitable business models and will begin to tighten their belts on that segment as well. As the saying goes, you cannot get blood from a stone and you cannot get more money from people than they are willing to give (short of outright extortion). Cable needs to re-evaluate their business models in all market segments and re-invent the models so they don’t have to… Read more »

Tim
Tim
15 years ago
Reply to  BrionS

What they need to do, to save the cable TV side, is go to a pay for what you want model. I know networks own several channels but still it is going to be that or people going to the net and watching TV there. Most people, myself included, are sick and tired of paying near $100 for TV service that comes with channels that are never watched or wanted in the first place. That is major reason fueling the internet TV revolution. People are just tired of being screwed in the rear. This is what is killing the digital… Read more »

BrionS
Editor
15 years ago
Reply to  Tim

I’ve heard some good things about MagicJack but haven’t used it myself. I originally had Vonage then left them for SunRocket because their (Vonage’s) customer service was less than pathetic and their service was intermittent. Unfortunately SunRocket folded about 1.5 years after I joined (a 2-year up-front payment for services) and ViaTalk (http://viatalk.com) took me in. It took a bit to set up my phone with them because of the huge influx of people trying to get service after the SunRocket debacle, but they’ve been solid ever since and their customer service rocks! I still pay one year in advance… Read more »

Smith6612
Smith6612
15 years ago
Reply to  BrionS

As always, I’d love to see TV go pay for what you want to have, but even so all I do is watch content on the internet now, and that’s because despite my lack of bandwidth here on the DSL lines, there is more content that I can get for free, that is also ad-free as well. Viacom I know as well as many other networks have been giving TV companies trouble when it comes down to prices. LIN TV and Viacom both had issues during the Winter months here with Time Warner over price agreements. Now, I have satellite… Read more »

BrionS
Editor
15 years ago
Reply to  Smith6612

I’m with you – I don’t pay for cable or satellite because the value simply isn’t there for the amount and type of TV I watch. However, I’ve found there is not really any “good guy” in the TV world except perhaps PBS because they are non-profit and have to fight for viewership and donations just to keep airing their content (so it can’t really be a bunch of fluff that no one wants). As evidence I submit the battle between Time Warner Cable and Viacom in 2008 over Spongebob Squarepants and MTV (http://www.redherring.com/home/25695) and way back in 1992 also… Read more »

Smith6612
Smith6612
15 years ago
Reply to  BrionS

My Gaming PC has a Digital OTA/FM Radio/S-Video TV tuner in it. Scanning for channels on a small 6 inch antenna hooked up to the back of it gives me roughly 8-14 channels depending on the day. They come in nicely and look nice in 720p (even though my monitors are running at 2560×1600). But certainly, if anything the Internet is one of the last things to go here.

Uncle Ken
Uncle Ken
15 years ago

Brion all they need to do is block all tv, streaming anything, video, and they will be happy and there is nothing we could do about it. Why did I always know TV over internet
would be the downfall. The system was not built for tv and gaming.

BrionS
Editor
15 years ago
Reply to  Uncle Ken

Downfall of what? TV or the Internet? I argue the network was built to transmit data. At first it was email and simple files (with fetch and gopher), and later it was enhanced and adapted with new protocols or ways of transmitting data that allowed users to view web pages. Over time it continues to evolve and change the format and types of data being sent but in the end it’s still a bunch of 1s and 0s in specific patterns. The fundamental concept of sending one bit of data from location A to location B hasn’t changed, only the… Read more »

Rob
Rob
15 years ago

I remember the days when wall street analysts were claiming everyone would purchase cell, Internet, and phone service from one company. They called it the triple play. They claimed consumers would love it because they would save money by bundling services. As it turns out most people don’t want to do this or can’t. Why put “all your eggs in one basket”?

jr
jr
15 years ago

“we should charge extra to call the police”-cable phone execs

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