After several interviews, one thing becomes clear: Cable industry honchos differ on specific strategies, areas of emphasis and even their competitive assessments. But they all seem anxious to capitalize on new businesses such as voice over IP telephony, mobile services and commercial services. They’re also intent on grabbing more incremental revenue from maturing products such as high-speed data and digital TV. It won’t be easy. Consumer tastes are evolving by the week. Revenue streams seem to fluctuate with the wind. And the fast pace of technology—in front of consumers and behind the scenes—continues to blur the line between what is theoretically possible and what is ready for prime time. Despite the complex scenario, MSO execs told us that the cable industry has never been in a better position to grow, which is saying a lot considering the industry’s hyper-growth history. Perhaps such confidence is to be expected from those whose job descriptions include projecting eternal optimism. But even as cable operators face new competition from the telcos and DBS foes, these top decision makers project a sort of quizzical confidence—driving forward toward the brave new world of the quadruple play with as much intellectual curiosity as entrepreneurial bravado. Telcos are eyeing the same exact consumer and business markets, so it’s almost assured that the coming months and years will bring unprecedented competition from all sides. Clearly, cable executives are more than ready for a fight. COMCAST PRESIDENT SEES MAJOR CHANGES FOR VIDEO, DATA, COMMERCIAL SERVICES Comcast Cable president Steve Burke boldly predicts that eventually everything will be on demand. What will your business look like five years out? Steve Burke: Our video business is going to be a little bit bigger. Our high-speed data business is going to be a lot bigger. Our telephone business is going to be quite a bit bigger. And we’re going to be a much more significant player in commercial and in wireless. What’s on the wireless menu? SB: Wireless is going to be a big part of our future. The most exciting concept related to wireless is integrating it with our other products, so you create something completely new and different for the consumer. Streaming video is going to be a very big part of our business five years from now—on the television, on the computer, on your wireless phone. Sounds like a lot of work on the licensing front with programmers. SB: Yes. The job of head of programming is going to change more over the next five years than it has changed in the last 20. How will you defend against competitors? SB: We will take advantage of our platform and what the platform can do to differentiate it. And we will look for ways to create products that are converged products—things that you can only do when you get all three products

from a cable company. Comcast has bet much of its future on VOD. SB: We’re in the seventh or eighth inning in terms of fully building out what the VOD platform can do, and once that happens, it’s going to make our video product clearly superior to everyone else’s. Do we ever get to a point in which literally everything is on demand? SB: I think eventually you do. Eventually you get everything you want whenever you want it. Of all these new services, which one is going to be the big revenue driver? SB: It’s hard to imagine anything in terms of revenue growth being a greater opportunity than telephony. But in second place, I would list Internet content, commercial and ad sales. Interesting that you said “Internet content” instead of just Internet access. SB: A lot of consumer attention and eyeballs have moved to the Internet, and there still is a lot of money to be made with great Internet content. Since we have so many connections into people’s homes, there ought to be a way for us to be in the pole position. Comcast by the Numbers HOMES PASSED: 41,600,000
BASIC VIDEO CUSTOMERS: 21,449,000
DIGITAL CUSTOMERS: 9,789,000
HSI CUSTOMERS: 8,520,000
TELEPHONY CUSTOMERS: 1,321,000
AVERAGE REVENUE PER USER: $84.12/MO.
(NUMBERS AS OF JAN. 1, 2006) BRITT SAYS TIME WARNER CABLE WILL BUNDLE UP Time Warner Cable president and CEO Glenn Britt believes innovation will continue to be a vital part of competition and sees the power of the bundle brightening cable’s future. Where will your company be in five years? Glenn Britt: I see lots of features and services. Time Warner is very focused on innovation, and the new things will go into bundles. We’ll be migrating services into the triple play, as well as the quadruple play with mobile services. What’s the biggest threat today? Will the telcos become a tougher competitor than DBS? GB: The popular belief is that satellite companies only have one-way video and that they won’t be very competitive. But I think they’re going to remain very competitive. We take everybody seriously, and our focus is to try to innovate and come up with new things that maybe they don’t have. Then what’s the big opportunity for you? GB: Selling the bundle is going to be very strong. Clearly, there is a big migration going on from dial-up Internet access to broadband. And even though it has been a growth engine for us for several years, we’re certainly far from fully penetrated as a society. And obviously voice services are going to be a very strong source of growth. So what will customers want over the next five years? GB: People generate the most exciting content on the Internet. It seems to me that the most exciting trend we’re seeing is people creating their own things: blogs, websites, photographs, all sorts of things. That’s really what seems to be the driver. How does cable get in on that? GB: Well, we’re in on it. We’re enabling it. True, but you could take it a step further, maybe even integrating user-generated content into the same VOD system. GB: That’s something we’re looking at, and I suspect other cable companies are, too. Which products and services do you think will fuel the most revenue growth over the next five years? GB: I don’t know how to answer that. And in a way, I’d like to steer you away from the question because I think increasingly our business is about selling bundles. I think we’re going to focus far more on RGUs [revenue generating units] than on individual products and revenue from each product. With all of this bundling, will consumers finally view their cable company as a full-service telecommunications firm? GB: I actually think that has happened already. I think cable is already seen as more than television. Time Warner Cable by the Numbers HOMES PASSED: 19,000,000
BASIC VIDEO CUSTOMERS: 10,900,000
DIGITAL CUSTOMERS: 5,400,000
HSI CUSTOMERS: 4,800,000 RESIDENTIAL; 211,000 BUSINESS/COMMERCIAL
TELEPHONY CUSTOMERS: 1,100,000
AVG. REV. PER USER: $85/MO.
% OF PLANT UPGRADED TO 750 MHZ OR GREATER: 99% ESSER SEES COX BECOMING A HOME SOLUTIONS COMPANY Cox Communications president Pat Esser is excited about the potential for a product bundle in an integrated IP solution for the home and the commercial sector. Where are things headed in the next five years? Pat Esser: I think our products will be even more relevant to our customers. There’s a huge opportunity to really be our customer’s home solutions company. Will you face much competition on that front or is cable uniquely positioned to offer whole home solutions? PE: I think we’re uniquely positioned against some of our competitors. No. 1: cable is the incumbent. We already have an established relationship. We want to take it to the next level, and we understand what product reliability and service mean. And last, we have this trusted position…in the customer’s home. In a very complex and confusing world, we can solve the customer’s problems. I don’t think our competitors are in that position. But the competitors are still out there. How do you defend against them? PE: As for the RBOCs, their world is changing radically, and they’re trying to adjust their game plan. That will be interesting to watch. The one I don’t want to take my eye off of is DBS. We can win that war. We made huge strides in ’05 turning back DBS growth in our footprint. We’re doing the right things, and customers are picking us up as their provider. What’s the biggest opportunity? PE: Telephone—both residentially and commercially—is still going to be a huge growth engine for the industry. But if I pointed to two concepts, the first concept would be just commercial business services in general. We generate a lot of revenue in that space. It’s north of 25 %—and I see that business growing at 20% per year over the next five years. The other one is IP services. The cable industry is just starting to put those together and organize ourselves the way we want. And that’s really where the integration starts to show up. It’s really not just one data service. It’s a combination of a portable product, a wireline telephone, a wireless telephone, your data service—it’s all of those things combined. What areas will drive revenue over the next five years? PE: Commercial services are going to be huge. It will be a billion dollar business for us by the end of this decade. But it’s not any one product. It’s the combination of products that come together into integrated IP solutions that will pull each other along. It’s the combination of those things together that’s exciting. Cox by the Numbers HOMES PASSED: 10,800,000 (9,200,000 AFTER THE SALE TO CEBRIDGE CONNECTIONS CLOSES)
BASIC VIDEO CUSTOMERS: 6,200,000
DIGITAL CUSTOMERS: 2,600,000
HSI CUSTOMERS: 2,800,000
TELEPHONY CUSTOMERS: 1,500,000
(NUMBERS AS OF Q2 2005, DUE TO UNCERTAINTY RELATING TO HURRICANE KATRINA) CABLEVISION COUNTS ON PRODUCT CONVERGENCE Cablevision Systems’ chief operating officer Tom Rutledge sees big opportunities in commercial services and integrating products. What will Cablevision look like in five years? Tom Rutledge: We will see more product integration, different services working together to bring new functionality and more value to consumers. We’re already seeing convergence and interactivity among our products—video services through the Internet, an online Web portal to manage voice services and new advertising businesses offered through our digital cable service. This is really only the beginning in terms of what our products can do, their respective value propositions for customers and how much more functional and valuable they become together. You already face competition, but what are the new threats? TR: The biggest news on the competitive front today revolves around possible efforts by phone companies to again deploy competing video services—either over existing copper networks or through a new cable system—to become the fourth entrant bringing a “me too” service to market. Cable today is providing superior services over completed fiber networks that serve all residents, so we are well positioned for continued growth and success even if this new development comes to pass. What’s the biggest opportunity? TR: Like all cable operators, Cablevision has an enormous opportunity to attack the commercial market by providing better and more valuable voice, data and IPTV services to business. In our service area, businesses are spending nearly $6 billion each year for voice and high-speed data services, a level of spending that far exceeds the $4 billion in annual revenues generated by the cable company piece of Cablevision. The enormous capacity of our fully rebuilt network and the availability of our VoIP and high-speed data products open a whole new world of business-class services we can provide without having to upgrade our network architecture. We have the ability to significantly increase the current size of our business by seizing this opportunity. How are customer desires changing? TR: Customers will continue to rely more heavily on their broadband services and therefore look to their broadband provider for more bandwidth, reliability and quality of service to support consumer electronics and online needs. We have already begun to meet this need by upgrading our Optimum Online customers with faster speeds at no additional cost, and introducing new premium tiers of service, offering speeds of up to 50 megabits per second over our cable network, the fastest broadly deployed Internet speeds in the nation. Also, business customers have specialized and more intensive service and support needs, so we are putting the systems and infrastructure in place to successfully meet the demands of this new customer base. Cablevision by the Numbers HOMES PASSED: 4,484,000
BASIC VIDEO CUSTOMERS: 3,026,994
DIGITAL CUSTOMERS: 1,962,590
HSI CUSTOMERS: 1,694,334
TELEPHONY CUSTOMERS: 731,341
AVERAGE TELECOM REVENUE PER BASIC VIDEO CUSTOMER: $100.46/MO. (“RPS”)
% OF PLANT UPGRADED TO 750 MHZ OR HIGHER: 100% BUNDLING, MOBILITY AND TELEPHONY KEYS FOR MEDIACOM Chairman and CEO Rocco Commisso predicts data and telephony could nearly double Mediacom’s average revenue per subscriber. Where will Mediacom be in five years? Rocco Commisso: There’s going to be more diversification into data and telephony. Right now,
is about 77% of our revenue; it will be 60% in five years. Our data penetration is only 18% still—of homes passed—and we should get that out to 35%. We’ll have one-third of the market in five years, and that’s almost a doubling of our revenue from data. Do you worry more about the telcos or DBS looking out five years? RC: The video business is going to be more and more competitive. But we’re going to grow our revenue nicely from [data and telephony]. We could grow from $65 [average revenue per subscriber] to more than $100. We see our ability to get to that number as a no-brainer. The video business will grow, but because it’s so competitive and the phone companies are coming in, it will have nowhere near the growth rate of the other two products. But the telcos are obviously in those other two areas as well. RC: On the data side, they have the same penetration as we have. And they stand to lose a lot from the phone business. That’s the reason they’re getting into the video business. Is telephony going to outpace data in terms of growth for you? RC: Absolutely, because we’re starting from scratch. I don’t see any reason why we can’t have 25% market share. How important is the bundle to you? RC: Everybody’s bundling. More than two-thirds of our VoIP customers are triple-play customers. We’re bundling the hell out of it. For the first time in our history, we’re providing a price point that’s very competitive, and we should make a lot of money. On the data side, we will eventually have a 50 meg product. And within five years, we’ll be at 30 megs. We’re going to double the penetration. And I think we’re going to begin sharing some of the revenue that we’re not getting right now—the advertising, and some per-usage fees such as gaming. What about the wireless component? RC: Mobility is what the consumer is looking for. We’re going to provide it. Commercial services is the big thing for us now, too. We do very little right now, but frankly it’s a huge opportunity for us. Mediacom by the Numbers HOMES PASSED: 2,807,000
BASIC VIDEO CUSTOMERS: 1,423,000
DIGITAL CUSTOMERS: 494,000
HSI CUSTOMERS: 478,000
TELEPHONY CUSTOMERS: 22,000
AVERAGE REVENUE PER USER: $65.52/MO.
% OF PLANT UPGRADED TO 750 MHZ OR HIGHER: N/A INSIGHT’S WILLNER PUSHES INNOVATION AND EXECUTION Insight CEO and vice chairman Michael Willner says MSOs must “innovate and operate” to maintain their strong position. What’s on the five-year horizon for Insight? Michael Willner: The rollout of telephony is going to dominate business growth. It won’t take a lot of penetration in telephony to have a meaningful impact on the business. Is it voice over IP from now on? MW: We’ve rolled out circuit-switched in four markets that represent about 45% of our footprint. In the next several months, we will roll out VoIP telephony in the rest [of the markets]. We decided to make the switch when we were convinced that VoIP was ready for prime time, which we weren’t when we first rolled out circuit-switched. What’s the biggest competitive threat? MW: I don’t think that there’s an answer to that question. Every business that we’re in, we’ll continue to be in. Every business that we’ll enter, we’re not going to be alone. The industry’s biggest challenge is not just talking the talk but walking the walk on how to be a competitive industry. How does the industry achieve that? MW: Innovate and operate. The “operate” is execution, but the “innovate” is staying ahead of the curve. What about video on demand? MW: We’re going to have the richest VOD platform out there for the foreseeable future. Satellite can’t really compete in that arena. Digital video recorders are also part of the mix we’re providing now. DVRs seem vital lately. MW: Absolutely. The set-top device is an important ingredient here. How rich we make it is going to bring many, many choices to consumers. I think more and more people are beginning to take control of what they watch and when they watch it. What will drive the most revenue growth for you over the next five years? MW: Telephony is right up there; the cable modem business, too. And the other piece of this is putting the fourth leg on the stool and offering wireless services. Sprint has already struck a deal with four MSOs. Interested? MW: We’re looking at it. Either way, you’re looking to add wireless? MW: Yes. There are two aspects to wireless. One is the cellular experience. The other is what we do within the home. What will the cable-provided home network look like? MW: I think it will be different solutions for different house-holds, depending on what the consumer wants. Insight by the Numbers HOMES PASSED: 2,420,600
BASIC VIDEO CUSTOMERS: 1,281,600
DIGITAL CUSTOMERS: 518,800
HSI CUSTOMERS: 470,400
TELEPHONY CUSTOMERS: 89,900
AVERAGE REVENUE PER USER: $73.30
% OF PLANT UPGRADED TO 750 MHZ OR HIGHER: 97%
(NUMBERS AS OF JAN. 1, 2006) CABLE ONE SEES FUTURE IN VALUABLE BUNDLE While he sees competition lurking, VP, strategic marketing, Jerry McKenna believes bundled services give Cable One an opportunity to raise ARPU. Where will you be in five years? Jerry McKenna: We’ll probably be 30-40% penetrated with digital, and Internet at 50-60-plus%. Our phone business by then will be much larger than our digital business—probably by four or five percentage points in terms of penetration. Will Cable One ever join the video-on-demand party? JM: We are not into video on demand. We’ve focused on DVRs. We think you get most of the functionality that you get with video on demand, but it’s a little bit more personalized because people are recording what they want to record. And for digital households that have a DVR, we have a 40% reduction in churn. What’s the biggest competitive threat over the next five years? JM: We see increasing competition from municipal overbuilders, Wi-Max companies, small Wi-Fi companies getting into the market, telcos getting in very aggressively with DSL. Competition will also significantly limit our ability to raise prices. Sounds gloomy. JM: No, I don’t think so. By bundling services, we feel we’ve got a very significant opportunity to raise ARPU [average revenue per user]. If customers see these products as a good value, then I believe they’ll stick with us for a long time. What’s the biggest opportunity? JM: Telephony is probably the largest growth factor. We’re starting from a zero base. There’s a universal appeal. It appeals to competitive households. And this need for portability—getting video and audio on portable players—speaks well to phone and using wireless phones. Does portability become an extension of the telephony or the video product? Or both? JM: It really doesn’t matter to us, as long as they’re getting it from us. I think portability addresses a key need of a younger demographic, which is willing to trade off quality for convenience and sort of doing it on their own time. Which one of your services will drive the biggest revenues in the next five years? JM: Our high-speed Internet service. The number of applications that it’s going to be able to serve is only going to grow. Will cable be able to partner with some of the Internet content providers? JM: Certainly, we will try…I don’t know if we will get that revenue by partnering with others or if we will in fact become the providers ourselves. I think the jury is still out there. Cable One by the Numbers HOMES PASSED: 1,446,000
BASIC VIDEO CUSTOMERS: 720,000
DIGITAL CUSTOMERS: 220,000
HSI CUSTOMERS: 246,000
TELEPHONY CUSTOMERS: CURRENTLY TESTING
AVERAGE REVENUE PER USER: $67/MO.
% OF PLANT UPGRADED TO 750 MHZ OR HIGHER: 32% FOR CEQUEL III/CEBRIDGE, THE BUSINESS STARTS AT HOME Jerry Kent’s five-year plan is to provide the home with everything it needs for entertainment and communications. Where will Cequel III be in five years? Jerry Kent: We’re doing some strategic planning to figure out how best to position ourselves against competition. And while it is an ambitious goal over the next five years, we’d like to be in a position in which we provide all the entertainment and telecommunications services in the home. So you want to own it all in the home? JK: Correct—or at least be a trusted resource. We will not be the full provider of every service in the home, but home owners can call us as a trusted partner so that we brand ourselves as the best company to gain information and knowledge about all the customers’ needs. In this competitive environment, we need something to set ourselves apart. And we believe that’s our best opportunity. What’s the biggest competitive threat? JK: I don’t see just one competitive threat that keeps me up at night, I see several. We are in an all-out war with the telephone companies. We also have experienced significantly more video competition from the satellite companies. The broadcasters are becoming more and more combative. And there are other threats. We just feel like every part of our business has someone trying to come in and take away revenue. It usually and always comes down to providing the best customer service and fulfilling the needs and desires of the customer. Is it all about the bundle or are there particular opportunities related to specific services? JK: It’s all about bundling services together to provide the best service to the customer, and to maximize our revenue and profit potential. But in terms of growth going forward, there are several services we see as engines for growth, including telephony. We’ve seen a huge pickup in demand for DVR and high-definition television. Up ahead? JK: As I look forward, I think that you’re going to see actual adoption of high-definition television services that blows away any current projections. We’re not smart enough to know over the next five or 10 years what will be provided into the home. But we do know that cable is uniquely situated to benefit from the accelerating pace of technology because we have the best broadband pipe into the home. No one can compete with the speed, capacity and—more important—the interactive capability that we provide the customer. That gives us a competitive advantage. Cebridge Connections by the Numbers BASIC VIDEO CUSTOMERS: APPROXIMATELY 400,000 (EXPANDING TO 1.3 MILLION-PLUS, AFTER CLOSING COX AND CHARTER ACQUISITIONS)
HSI CUSTOMERS: APPROX. 100,000
(AS OF FEBRUARY 2006) SUNFLOWER GM URGES FAST-PACED INNOVATION TO KEEP CABLE COMPETITIVE Patrick Knorr, GM of Lawrence, Kan.-based midsize operator Sunflower Broadband, believes it will be crucial for cable to move at “Internet speed” and be flexible enough to provide customers with services that are easy to use. So what’s in your five-year plan? Patrick Knorr: You’re going to see more integration between video, voice and data products. As a product of that integration, you’re going to see more smart home integration—whether it’s security or remote access to DVRs. You’re going to see switched, IP video. Any challenges specific to a smaller operator? PK: As a smaller operator, we’re kind of a bolt-action rifle. We’ve got one shot. And when we hit the target, it’s OK. If we miss, that can be very harmful. We can’t just rip it out and try something else. What competitive threats worry you most? PK: I’m afraid of any provider that’s going to supply more flexible entertainment choices with the same or higher quality. Potentially, telcos like AT&T and Verizon could fall into that category, so could Google or some nameless 16-year-old computer whiz. The other main concern is the Internet becoming a commodity. What’s the biggest opportunity? PK: We have the best physical infrastructure. The challenge: Can cable innovate fast enough to take advantage of that physical infrastructure and provide the services that customers want? As an industry, we don’t have a very competitive vendor market. It’s more competitive than it was, but I’m not sure it’s competitive enough to move at Internet speed, which is the underlying infrastructure of most of our competitors. What do your customers really want? PK: Consumer expectations have risen with the Internet. The Internet has given them more control and more instantaneous response than ever. Customer expectations rise, but fundamentally what customers want has been the same throughout time—they want to be entertained. They want things to make their lives better and easier. And they want things that allow them to use their time more efficiently. What service will generate the most revenue for you over the next five years? PK: The Internet has got the biggest growth. That will continue to grow. It will be as ubiquitous as cable and DBS television. It will be available in more rural areas and become more deeply deployed. Second, more products and services are going to be deployed for IP. There will be more options for tiered revenue within the Internet product. The other revenue opportunity is going to be new products and services. Maybe it’s security. Maybe it’s new products as you get into the set-top box. I think we’re going to have new opportunities. Sunflower Broadband by the Numbers HOMES PASSED: 52,000
BASIC VIDEO CUSTOMERS: 30,000
DIGITAL CUSTOMERS: 14,000
HSI CUSTOMERS: 21,000
TELEPHONY CUSTOMERS: 13,000
% OF PLANT UPGRADED TO 750 MHZ OR HIGHER: 100%

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