AT&T's Internet usage penalties a potential black eye for telco

editor's corner

Jim O'NeillStrategy Analytics analyst Ben Piper, in a report released late last week, said cable TV operators weren't paying enough attention to the cord-cutting phenomenon that thinned the MSO's subscriber logs by 2 million customers in 2010.

"Throughout the past seven consecutive quarters of subscriber losses, the inclination of Cable has been to point the finger at various external factors," said Piper, director of the Strategy Analytics Multiplay Market Dynamics service. "Our analysis shows that neither the economy nor the housing market is to blame for these subscriber defections. The problem is one of value perception."

Piper suggested that same value perception has helped satellite TV providers and telco TV providers fluff up their subscriber ranks during the same period. In fact, AT&T (NYSE:T) said its U-verse service added 218,000 subscribers in the first quarter, with Verizon (NYSE:VZ) saying its FiOS TV added 192,000 subs, continuing the telcos' trend to add subscribers as cable lost them, a trend to which no telco exec of sound mind would object.

Which is why, even though AT&T's move this week to cap broadband use was expected, it's still somewhat disappointing. The telco Monday joined Comcast (NASDAQ:CMCSA) as only the second major pay-TV operator to place a limit on the amount of bandwidth consumers can use. The cap is pretty liberal; users still get 250 GB to burn any way they'd like, far better than the draconian limits several Canadian operators have placed on users. Even AT&T's penalty, $10 for an additional 50 GB, is pretty much a throwaway.

But with consumers looking increasingly at over-the-top services like Netflix (NASDAQ:NFLX) and Hulu as complementary services to their pay-TV subscriptions, does it really make sense to push them away? Especially with the apparent consumer satisfaction--and value perception--the telcos currently enjoy over cable?

There's no doubt that Netflix and Hulu have become extraordinarily popular with consumers; last month Nextflix reported 23.6 million subscribers for the first quarter of 2011, edging past Comcast, the largest U.S. cable operator. And, although Hulu is a long way behind, it continues to grow its premium Hulu Plus service, forecasting it would top 1 million subscribers this year.

Israeli OTT platform Tvinci, at the ANGA Cable Show in Cologne, Germany, today made a case for pay-TV operators to embrace OTT as a tool to help them grow services, monetize premium content and reinforce customer loyalty.

"There is a strong focus throughout the industry on the effects of online TV consumption and whether consumers will cancel subscriptions to find their content elsewhere, but we feel that rather than focus on the risks, operators should see the opportunities that combining their offering with OTT services presents," said Ido Wiesenberg, co-founder, Tvinci. "By accessing content on additional devices in a personalized manner and under the same subscription, consumers can maximize the value of their service, and benefit from additional content over-the-top through a number of payment models... Consumers will enjoy the benefit of additional choice, flexibility and personalization, and at the same time operators will retain subscribers and perhaps even benefit from higher ARPU as their services become more comprehensive, within the house and outside of it."

ISPs, and AT&T is the largest one in the country, obviously need to find a way to monetize the traffic that flows through their pipes. But AT&T's caps are already drawing fire for potentially hobbling Internet adoption and the growth of Web technology, something it, as a proponent of IP television, really can't afford; something it as a proponent of technological innovation should itself be opposed to.

If, in fact, only two percent of its customers are exceeding reasonable limits, why bother imposing a cap at all? Usage caps are a Gordian Knot that can't be hacked at... they need a more cautious unraveling.--Jim

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