Cutting the Cord - Moving from Voice to Video

Cutting the Cord Moving from Voice to Video

Mike Jude, Program ManagerConsumer Communication Services

January 26, 2011

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Today’s Presenter

Mike Jude, Ph.D., Program ManagerStratecast, a division of Frost & Sullivan

Functional Expertise:30 years of experience in telecommunications and IT which includes technology application, market research, consulting, and operations management. Particular expertise in: Decision AnalyticsMarket and Business AnalysisDeveloping Innovation and Encouraging Creativity

Industry Expertise:Experience base covering broad range of sectors, leveraging long-standing working relationships with leading industry participants’ Senior Executives in:•Local Exchange Telephone Service Providers•Broadband and Wireless Telecommunications Providers•Network Automation Technology•Service Automation

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Poll Question

Which of the following cord cutting challenges concern you most?

• Revenue replacement

• Generation of new innovative service ideas

• Implementation of growth strategies

• A Growth Team focused on long term growth strategies

• A disciplined growth pipeline system with clear stages of generate, evaluate and implement

*Turn off your pop-up blocker, so you can respond to the next polling question

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Focus Points

• Frost & Sullivan Consumer Preferences Survey• Cord Cutting Continues in the Voice Space• Cord Cutting extending into Video?• Where are they going?• OTT Options• Ramifications for Service Providers• Frost & Sullivan Perspective

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Consumer Survey

• Survey conducted in November to gauge subscriber perceptions in the U.S. consumer communication services market

• Sample of 2012 residential consumers, yielding a 99% confidence level at a +/- 3% confidence interval: very accurate

• Results supplement and help explain the results from the quarterly Stratecast North American Telecommunications Trackers

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Cord Cutting in the Voice Domain Continues

• 5% continuing decline year over year.• Nearly 30% of those interviewed indicate they would drop

their landline if they had the option to do so.• Mostly people find a landline redundant• Yet, nearly 26% of those who drop their landline re-

subscribe.• A big reason they come back is for the security of the

landline connection.

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The Cord Cutting Dynamic

Source: Stratecast CCS 4-37; North American Voice Tracker 2010 Q3

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Drop phone for wireless?

0

5

10

15

20

25

30

35

City or town Suburb Rural

Location

% o

f S

amp

le I am considering it now

I might consider it in the future

I don't expect that I'd consider this

Unsure / undecided

Source: Stratecast

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Why did you drop?

20%

8%

3%5%60%

2% 2%

It was too expensive

It was less convenient

Landline features were too limited

I was moving

Since I use my cell phone all thetime, the landline was redundant

Poor customer service

Other

Source: Stratecast

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Did you re-subscribe?

26%

74%

Yes

No

Source: Stratecast

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Why did you re-subscribe?

4%17%

27%43%

9%

Cell phone service was too expensive

Cell phone coverage was limited

I needed the security of a land line

I subscribed to a bundled offering(video, internet, etc.) that included voiceservices

Other

Source: Stratecast

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Why do you keep your landline?

0

10

20

30

40

50

60

70

City or town Suburb Rural

Location

% o

f S

amp

le

I like the security of having a land line

Cell phone coverage in my home isspottyI make a lot of International calls and it'scheaper from my telephone.I like the innovative features I get, likecaller ID on my telephoneI don't have a cellphone

Other (Please specify):

For Internet access / DSL

Part of a bundle

For fax machine

For business purposes

Price / inexpensive

For other household member(s)

Do not have landline

Source: Stratecast

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Where do the landline subscribers go?

Source: Stratecast

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But Now Cord Cutting Seems to be Coming to Cable TV

• In 2010, we saw the first decline in cable TV subscriptions.• Decline of 3.2% year over year in third quarter.• Yet, at the same time, broadband subscriptions continue to

increase.• 2010 was the year of third party set top boxes

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Cable Subscriptions Decline

Source: Stratecast

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Why do subscription video consumers migrate?

0%10%20%30%40%50%60%70%80%90%

100%

Overa

ll Qua

lity

Ease o

f Use

Billing

Custom

er S

ervic

e

Value

Pricin

g

TV Service Attribute

% o

f S

amp

le U

sin

g C

able

TV

Ser

vice

Not-at-all Important

Moderately Not Important

Not Important

Neutral

Important

Moderately Important

Very Important

Most important consideration

Source: Stratecast

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Where are they going?

Source: Stratecast

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Third Party Set Top Boxes Proliferate

Roku BoxBoxee

Apple TV Google TVGraphics from: Apple, Google, Roku, Boxee

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OTT Projections

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

Year

U.S

. O

TT

Rev

enu

e ($

bil

lio

ns)

Total OTT RevenueMinimum

$3.01 $3.01 $3.20 $3.50 $4.50 $5.68 $8.00

Total OTT RevenueNormal

$3.01 $4.01 $5.60 $7.25 $9.75 $12.84 $16.50

Total OTT RevenueMaximum

$3.01 $5.00 $8.00 $11.00 $15.00 $20.00 $25.00

2009 2010 2011 2012 2013 2014 2015

Source: Stratecast

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Implications for Service Providers

• As broadband continues to penetrate the residential market over the top services will proliferate.

• Cord cutting in both the voice and subscription video domains is inevitable.

• OTT set top boxes are a gateway to a complete quad play experience; one that will be increasingly attractive to consumers and competitive with network operators.

• As Frost & Sullivan telemetry indicates, the attraction for consumers to retain landline services is the service bundle and security.

• Excellent customer service is critical.

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Frost & Sullivan Perspectives

• Carriers who wish to stop the erosion of their landline voice subscribers need to emphasize the attributes that consumers value beginning with security.

• Subscription TV services should focus on new premium content since archival content is increasingly the domain of the OTT provider.

• To the extent that conventional subscription TV can provide a “TV anywhere” capability, and more importantly brand that experience, it will help staunch the hemorrhaging.

• Focusing on ease of use can also slow cord cutting: it is the single most important reason cited by cord cutters for doing so.

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Next Steps

Request a strategic approach document for a Growth Partnership Service or Growth Consulting Services to support you and your team to accelerate the growth of your company. (myfrost@frost.com)1-877-GoFrost (1-877-463-7678)

Join us at our annual Growth, Innovation, and Leadership 2011: A Frost & Sullivan Global Congress on Corporate Growth, September 11-14 2011, Fairmont San Jose, San Jose, CA(www.gil-global.com)

Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities(www.frost.com/news)

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For Additional Information

Jake WengroffGlobal Director, Social Media Strategy and ResearchInformation & Communication Technologies(210) 247-3806Jake.wengroff@frost.com

Mike Jude, Ph.D.Program Manager: Consumer Communications Services Stratecast | Frost & Sullivan(303) 466-2377 mjude@stratecast.com

Angie MontoyaGlobal Analyst Briefing CoordinatorMarketing(210) 247-2435amontoya@frost.com

Craig HaysSales ManagerInformation & Communication Technologies(210) 247-2460chays@frost.com