Creating Value at High Internet Speeds

It has been 66 years since John Walson Sr. invented cable TV in America. Today, about 100 million U.S. households pay for TV, according to research firm SNL Kagan, or approximately 85 percent of all households in the country.

Despite such penetration, the pay TV market is actually in decline, experiencing its first full-year drop in subscribers last year amid competition from satellite and mobile. To capture new subscribers and stop losses from cord-cutters, cable and telecom companies should rethink their business models and focus on building frictionless user experiences that create value for customers.

The answer may be found online. Only 70 percent of American households have an active high-speed Internet connection at home, according to Pew Research. Meanwhile, 93 percent of all American households have access to broadband Internet, according to an NCTA analysis of SNL Kagan and Census Bureau estimates. That gap points to potential for growth.

In the early days of cable, value was created through providing hundreds of channels in the comfort of your home. Today, cable TV is not the value — the value is high-speed Internet access. While broadband speeds have increased for consumers, and revenue has increased for cable and telecom providers, the value of the service has not kept pace.

Value for subscribers can be created by boosting broadband speeds and offering value-added services to the network infrastructure — an emerging business opportunity that cable and telecom companies in the U.K. are starting to explore.

In the U.K., BT has strategically decided to offer complimentary access to BT Sport for free to all existing broadband customers, in order to gain new subscribers and market share. BT has about a 31 percent market share of the broadband market, which totals more than 22 million broadband subscribers, or 78 percent of all households.

Not to be outdone, Virgin Media, with about a 20 percent market share, has focused on complementary international Wi-Fi access for subscribers. Through a Wi-Fi sharing access agreement with Comcast, Virgin Media subscribers will be able to access Comcast’s Wi-Fi network when they travel to the U.S. Comcast is on track to have more than 8 million Wi-Fi hotspots live by January 2015.

Over in France, Bouygues Telecom — whose 2 million customers translates into about an 8 percent market share — recently announced a deal to give subscribers access to Netflix through their set-top TV boxes.Bouygues made the strategic and symbolic move to embrace Netflix, while creating value for their subscribers. After the deal, Bouygues Chairman Olivier Roussat said, “We intend to continue enhancing our offer so that customers can enjoy the best innovative content.”

As Roussat and his counterparts in Europe explore new business opportunities, U.S. executives are starting to take notice. Time Warner has just announced that HBO would unbundle HBO and offer it as a stand-alone service. “It is time to remove all barriers to those who want HBO,” said Richard Plepler, chairman and chief executive of HBO, in announcing the move.

As the price of broadband Internet access continues to rise, cable and telecom executives in the U.S. would be smart to follow the lead of their European counterparts and create value for subscribers by offering complimentary value-added services before Apple CEO Tim Cook does it for them.

Cook recently described the current state of TV as “stuck back in the 70s.” Cable and telecom executives should consider the Cook’s statement a shot across the bow. To anticipate a potential move by Apple into the TV business, they should double down on innovation that creates value for subscribers.

For inspiration on the future of TV, look to Europe. The TV/broadband relationship is changing to the benefit of consumers. Cable and telecom companies who put their subscribers first and create value through complementary value-added services will likely be the ultimate winners, and in turn gain revenue and market share.

Creating Value at High Internet Speeds is an article written by Brulte & Company Co-Founder Grayson Brulte that was originally published on General Electric Reports.