European Cable: strategies for success

SUMMARY

"Cable operators will struggle to keep up with the financial might of telcos, as their profitability is more comparable to that of unbundlers. Cablecos' key assets are not their networks but their subscriber bases and, in order to maintain these, they must ensure access to the best content, delivered in new ways over next-generation infrastructure. The price tag can be high, and cablecos must consolidate or face a dwindling subscriber base."

Martin Scott, Analyst

Cablecos' margins are acceptable and their businesses appear stable but they must not become complacent, as telcos, satellite players and DTT operators are closing in on all sides. European Cable: strategies for success identifies the issues that cable operators face, defines their position in the market and shows how to maintain a successful business case.

The report identifies the strengths and weaknesses of the European cable product portfolio and assesses the performance of service bundling to date, indicating how these can be improved. It also looks beyond present cable broadband technology to suggest how cable operators can provide faster and more diverse services. European Cable: strategies for success weighs the pros and cons of moving to pre-specification DOCSIS3.0 technology now, gauges the benefits of M-CMTS architectures and considers whether it would be wiser for cable operators to wait for full DOCSIS3.0 compatibility. The report also provides an in-depth analysis of trends in the pricing of cable and DSL broadband services, and points to the services that cable operators should be providing.

European Cable: Strategies for Success answers your key questions:

• What will a successful cableco look like in three years' time?
• How will interactions between cable operators, telcos and others shape the overall market?
• Do the cablecos have a viable business model for the future?
• How has pricing competition developed, and how should it change?
• What demand will there be for M-CMTS, pre-specification DOCSIS3.0 and full DOCSIS3.0 infrastructure; what are the critical factors?
• Which network upgrade path is best for cablecos?
• How much do upgrades cost?
• Why move to digital TV?
• What are the benefits of consolidation?
• How much of a threat is posed by DTT, DTH and telco TV?
• What makes a successful retail portfolio?

Who should read this report

• Cable operators: identify the product portfolio, retail pricing and route to network upgrade that best suits your business
• Investors and analysts: understand the place of cable operators within a converged telecoms- media market
• Equipment vendors: focus your marketing according to our independent analysis of pre-specification DOCSIS3.0, DOCSIS3.0 and M-CMTS architectures, and their roles in a cable operator's strategy
• Incumbent operators: develop a view of the competitive landscape; learn from the comparison of prices charged by European cable and DSL operators
• Pay-TV operators: identify the issues and limitations that cable operators have yet to address

TABLE OF CONTENTS

0. Summary

1. Telcos and broadcasters pose threats from different sides

• 1.1 Telecoms operators are focusing on services enabled by broadband, including TV
• 1.2 Established broadcasters hold a latent advantage
• 1.3 Some cable operators' networks still lag behind significantly
• 1.4 Regulation may work against the cable operators' interests
• 1.5 Cable operators must focus on content, including its presentation and delivery

2. Content must remain cablecos' top priority

• 2.1 Cablecos must continue to improve the quality and range of their content
• 2.2 Cable operators must prioritise building a national brand
• 2.3 Telecoms infrastructure increasingly facilitates content delivery

3. Upgrading to M-CMTS should be prioritised

• 3.1 Footprint limitations can be overcome by alternative technologies
• 3.2 Provision of higher bandwidths does not necessarily require more spectrum
• 3.3 (Euro)DOCSIS3.0 will enable increased bandwidth, scalability and new services
• 3.4 The M-CMTS standard enhances scalability and flexibility while reducing costs
• 3.5 Increasing downstream bandwidth may be achieved through pre-specification DOCSIS3.0
• 3.6 Ethernet-over-cable may also be deployed to achieve higher downstream speeds
• 3.7 Demand for upstream bandwidth is less well addressed than that for downstream
• 3.8 Cable operators should only employ pre-specification DOCSIS3.0 in small-scale trials

4. Price competition can only take an operator so far

• 4.1 Broadband prices are approaching rock bottom
• 4.2 Cable operators must consolidate a value-driven strategy
• 4.3 The cable broadband pricing portfolio can be streamlined and enhanced
• 4.4 Bundling services to increase perceived value is key

5. Only large scale will enable adequate content and technology

Actions

Figures and Tables

• Figure 0.1: Forecast ROI from four different infrastructure upgrades
• Table 0.1: Phases of build-out options A- D, 2008- 11
• Figure 1.1: RGUs within the Western European cable industry, 2001- 6
• Figure 1.2: RGUs within the Western European telecoms industry, 2001- 6
• Figure 1.3: Satellite TV subscribers in Western Europe, 2001- 6
• Figure 1.4: Coverage and adoption of cable services in Western Europe, December 2005
• Table 1.1: Estimated proportion of CATV network upgraded for two-way communication in selected European countries at December 2006
• Figure 2.1: Per-annum cost of first-division football league rights in selected Western European markets, 1999- 2006
• Figure 2.2: Typical household downstream broadband demand, 2006- 14
• Table 3.1: Typical frequency allocations for services in an 860MHz-bandwidth HFC cable network
• Figure 3.1: The impact of codec compression on the bandwidth demands of IP-based video services
• Figure 3.2: Comparison of EuroDOCSIS versions
• Figure 3.3: I-CMTS head-end architecture
• Figure 3.4: M-CMTS head-end architecture
• Figure 3.5: Cost of CMTS downstream ports and video EQAM ports, 2002- 7
• Table 3.2: Details of pre-specification DOCSIS3.0 channel-bonding CPE
• Table 3.3: Four upgrade options
• Table 3.4: Phases of build-out options A- D, 2008- 11
• Figure 3.6: Forecast ROI from four different infrastructure upgrades
• Figure 4.1: Average price of flat-rate residential 2Mbit/s retail broadband connections in Western Europe, 3Q 2003- 1Q 2007
• Figure 4.2: Net profitability of selected European unbundlers, 1Q 2004- 3Q 2006
• Figure 4.3: Net profitability of selected European cable operators, 1Q 2004- 3Q 2006
• Figure 4.4: Customer penetration of multi-play packages for selected triple-play providers in Western Europe, December 2006
• Figure 4.5: Telewest's monthly ARPS for telephony, broadband and TV and total customer ARPU, 2001- 5
• Table 5.1: Aspects of cablecos' strategy in historical media and future converged markets