Pay TV Decline & the Need for New Home Services Bundles

An increasing percentage of US broadband households receive a standalone, unbundled service from their internet service provider. As of Q3 2020, some 40% of US broadband households reported receiving a standalone service, a 10pp increase since 2014. Much of this decline has been driven by falling adoption of pay-TV bundles and the pay-TV sector overall. However, it is being offset by new home services bundles – including mobile and broadband value-added services. Parks Associates defines a “bundle” as receiving two or more services from the same home services provider.

Traditional Pay-TV Decline in the US

Parks Associates estimates that between 2014 and 2020, the US pay-TV industry lost over 18M subscribers, according to industry report, TV Services: Trends and Competition in Pay TV. In the year 2020 alone, over 7M left pay TV entirely.

• Traditional pay TV – that is, television service delivered over an operator-controlled network to an operator-controlled device – declined by an estimated 10M subscriptions.
• Online pay-TV service from virtual MVPDs, players that target the general population instead of offering it to a specific geographic footprint grew and vMVPDs overall have grown to represent an increasingly large percentage of the overall pay-TV market – accounting for 16% of US pay-TV subscriptions in 2020 as per Parks Associates estimates.
• In the US market, vMVPDs represented the only segment of the pay-TV space to experience growth during the COVID-19 pandemic. The decline of the US pay-TV sector is unlikely to reverse itself.

Internet service providers and others operating in the pay-TV space are thus seeking alternatives to traditional pay TV in their consumer services arsenal. Cablecos in the United States have had some success in encouraging new bundling by launching Wi-Fi first MVNO services, primarily running on Verizon’s network. Comcast Xfinity Mobile, Spectrum Mobile, or Altice Mobile are some of the largest players in the MVNO space. DISH Network, a leader in satellite TV, is similarly diversifying into both fixed and mobile internet service. ?(Note that DISH Network was originally part of EchoStar (HughesNet), but was spun out in 2008. DISH chairman and co-founder Charlie Ergen remains the primary shareholder and chairman of EchoStar.) While DISH has purchased satellite assets from EchoStar in the past, DISH does not currently offer a satellite internet service. In 2019, it launched a new DISH Fiber business – focused on offering managed high-speed internet access to MDUs and businesses. DISH is also currently in the midst of building a new 5G mobile network, based on Open RAN network architecture and making heavy use of white box and disaggregation.

Mobile Bundling and MVNO Services

While pay-TV bundles have overall fallen, bundling with mobile service is on the rise. Of particular interest to consumers are bundles of mobile and home internet service. In Q1 2021, nearly one-fifth of US broadband households reported subscribing to some combination of mobile and home internet service. The most rapidly growing combination is a straight pairing of home and mobile, but bundles with TV and home phone remain common.

AT&T and Verizon have historically been the main benefiters of home internet and mobile service bundling, offering the two largest mobile network in the United States as well as large broadband footprints. However, more recently MVNO offerings from Comcast and Charter Spectrum have experienced dramatic growth. Both services are only available to these companies’ broadband subscribers, making them de facto bundles. As per company spokespeople, and reported by Fierce Wireless, both services have already technically achieved profitability – although they continue to funnel revenue towards subscriber acquisition.

A unique factor in the MVNOs of cablecos is that they are effectively Wi-Fi first services making use of a hybrid of Verizon’s network and the cableco’s network of public and private Wi-Fi hotspots. A majority of mobile data is transmitted over Wi-Fi, allowing these players certain cost benefits compared to traditional MVNO services. This savings is then passed on to consumers, allowing cablecos to price and position their services at a highly competitive rate – generally $20 to $60 less per month than a compatible plan from a major MNO.

Cableco MVNOs do offer some restrictions: speeds are reduced or throttled after 20GB of use, hotspot data is tightly throttled, video quality is typically standard definition, and networks support a limited number of handsets – typically iPhones, Samsung models, and the Google Pixel. However, services are generally good enough for a wide section of consumers, and net promotor scores – a measure of customer satisfaction and willingness to recommend products and services – are above that of major MNOs.?

With 5G networks rolling out, another opportunity for cost reduction and service improvement has appeared – operators are seeing the potential in deploying their own 5G networks including announcements from Charter Spectrum, Altice Networks, and Dish Network.

Value-Added Services: Smart Wi-Fi and Cybersecurity

In addition to seeking new business lines, companies are further innovating on delivering broadband to consumers. One increasing trend in the industry is that of offering gateway-based solutions – that is, services that make use of a hybrid edge-computing model by which a software agent runs on the consumer’s residential broadband gateway to help orchestrate services partially located in the telco cloud or the service provider’s cloud.

Internet service providers have had great success in offering gateway-based, or embedded, solutions such as smart optimized Wi-Fi and cybersecurity to their residential customers. One of the most widely adopted business models is offering these solutions in higher tiered broadband plans aimed at households with many connected devices and robust connectivity needs. Internally, ISPs benefit from gateway embedded solutions that gather performance data and metrics, allowing them to know in real-time what the status of their network are and take action – thereby improving network functionality, increasing customer satisfaction, and decreasing support calls and truck rolls. Savvy vendors in this space offer multiple solutions types or partner with other vendors in order to create one-stop-shops for ISPs, making it easier to integrate software agents with deployed router gateway platforms.

In the United States market, adoption of various types of value-added services by consumers is high. In Q3 2020, Parks Associates found that roughly one in five US broadband households reported receiving a service that monitors or improves Wi-Fi in the home or a service that protects devices from viruses and hacking. Generally, most consumers receive these services “free” with their internet subscription, although a segment of users show a willingness to pay an additional fee.

The use of routers/gateways as a delivery mechanism for services offers various advantages to ISPs. As per players in the gateway-based cybersecurity market, gateway-based solutions offered by ISPs have much higher take rates compared to traditional standalone cybersecurity solutions. ?A growing number of ISPs are offering gateway-based solutions to their residential customer bases. This includes players of all sizes, from multi-state operators serving footprints of millions, to smaller and regional players serving hundreds of thousands, all the way to small companies with thousands or even hundreds of subscribers. ISPs are also rolling these solutions out to large segments of their customer bases.

With recent trends and renewed growth in the home broadband space, Parks Associates forecasts that by the end of 2025 approximately 93% of US households will have a broadband subscription – either fixed or mobile. This growth will come from three major sources. The mobile-only population – already internet users and comfortable with technology – will increasingly transition to home broadband.

This is an excerpt from Parks Associates library of research work authored by Kristen Hanich, Director, Research, Parks Associates.?For more information about our research, visit www.parksassociates.com ?We welcome all comments about our data and insights.?