IP Democracy: Top Cable Ops Eye Pay-As-You-Go Broadband

Two of the nation’s top cable operators are exploring the possibility of giving away en masse cable modems to dial-up-only customers in their service territories with the understanding that these non-broadband users can tap into high-speed service on a pay-as-you-go basis.

The goal is to reach into the roughly half of American Internet households that don’t currently purchase broadband service and gain a toe-hold for the cable industry in this untapped market without having to compete on price with the phone companies. For the most part, non-broadband homes are composed of two consumer segments: consumers who don’t think they can afford broadband service or users who access the Internet for limited purposes, such as checking email.

With the cream of the early adopter and early majority broadband users already skimmed, high-speed service providers can bank only on these non-broadband homes for future growth. Although top telcos, including Verizon and AT&T, have opted to compete on price to gain market share, cable companies have so far resisted the urge to reduce the monthly price of broadband service, which is typically $42/month.

The solution for the cable industry is to convert remaining dial-up homes to broadband without cutting monthly rates. That’s where the pay-as-you-go system, developed by Washington, DC-based tech provider Next Generation Broadband (NGB), comes into play.

NGB’s “no-touch” functionality enables a new cable subscriber to initiate service by merely plugging in the cable modem. Its pay-as-you-go system, layered on top of this self-install technology, collects customer contact and billing information and is capable of initiating sessions of varying lengths (one hour, one day, one week, one 24-hour time period) depending on the operators’ needs.

Two top U.S. operators (and one European cable operator) are talking to NGB about using this technology to convert non-broadband subscribers. Here’s the scenario under discussion: the operator offers dial-up customers free cable modems (which cost in the low-$20s/unit wholesale) with the offer that the dial-up customer can tap into the broadband network at any time for limited periods.

Then, for the price of, say, $2.95/day, or $10/10 hours per month, or any other increment, the customer can log into the network and check email, download videos or surf the web. Once that day has ended, or once those ten hours are used up, the customer can purchase additional increments of time, or sign up for a full monthly subscription.

For light Internet users, this approach can end up costing as much or even less than dial-up service, but with faster, better service. For customers looking to contain monthly costs, this pay-as-you-go system can allow them to manage usage so that they end up paying on a monthly basis something less than full cable modem subscription costs.

Operators benefit by heading off telco competition at the pass without lowering monthly prices and will likely persuade a high percentage of these pay-as-you-go customers into becoming full-freight monthly subscribers. A handful of DSL providers in Europe are pursuing a similar strategy, and are experiencing conversion rates of 60%, according to NGB’s CEO Martin Hannes.

But DSL providers in the U.S. can’t offer this kind of option, at least not economically. DSL modems aren’t standards-based the way cable modems are, and therefore cost up to twice as much as cable modems on a wholesale basis. Telcos can’t afford to give away DSL modems and hope to make up the difference with low-cost pay-as-you-go pricing.

Moreover, initiation of the cable service is relatively automatic for most cable companies, requiring no technician time to get a customer going, a substantial cost-savings in jump-starting a new broadband subscriber. Even with self-install DSL technology, someone has to manually do a “patch” in the central office to start a DSL customer’s service.

It’s possible that the two U.S. deals with NGB won’t fly — all vendors like to promise big news. But Hannes says that if they do, look for this pay-as-you-go option within a year.

Posted by Cynthia Brumfield on July 19, 2006 3:42 PM to IP Democracy