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New challenges for cable operators

Download this report by Accenture that examines developments disrupting the European cable industry and outlines the strategies that all companies will need to adopt to be future proof.

Overview

The communication industry has made dramatic advances in the last five years, witnessing rapid adoption of the latest generation of connected devices and increasing investments in faster networks. At the same time, digital has transformed the consumer experience, bringing new expectations and different rules of engagement. Cable operators in Europe have led the change by shaping and meeting consumer needs with their high-speed communications services. This has helped them generate strong returns for shareholders.

Accenture found that three favorable factors drove this remarkable financial performance: speedier broadband services, a future-proof network technology and a more effective approach to service bundling. However, three challenges lie on the horizon for cable operators: competitive pressure from other industry players, consolidation in the industry and convergence of networks to provide a seamless experience for voice, data and video services. In this shifting environment,

cable operators must adopt a whole new strategy to attract the new digital customer and keep them engaged and happy.

Based on our experience of working with some of the industry leaders, Accenture recommends a judicious mix of short-term as well as long-term strategies to drive a new wave of growth in services and solutions. In the short term, cable operators can create growth opportunities by digitizing customer interactions and by investing in a new wave of digital innovation. In the long term, operators must focus on becoming seamless and integrated, with convergence of services, platforms and screens, to drive greater customer engagement. This will help them expand their service portfolio and capture a new wave of opportunities in areas such as connected home, smart city services, M2M enablement and cloud services. The possibilities are truly endless and with the right strategies in place, cable operators can make most of these opportunities for a lucrative tomorrow.


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Background

As consumers eagerly adopted the latest generation of connected devices, increasing investments in faster networks followed. New intelligent devices (wearables, in-home entertainment, connected home devices) are on the rise and the ubiquitous digital consumer has spawned a whole new breed of services and service providers that are disrupting traditional business. Netflix, which was predominantly a DVD rental company in 2009, now has 37.7 million subscribers for its video streaming services.

At the same time, digital has transformed the consumer experience, bringing new expectations and different rules of engagement. It has become something of a cliché to say that the digital consumer wants a seamless and personalized user experience—consuming content at the time and place of their own choosing. But then, there is no denying the truth of that statement. The pace of digitization is truly jaw dropping. Every 60 seconds, netizens upload 600 videos and 7,000 photos, make 700,000 search enquiries and send 170 million emails. Mobile data traffic too continues to increase primarily driven by video consumption.

Key Findings

To cope with the difficult economic conditions and dramatic technological evolution, several communication service providers adopted a reactive approach—adapting their service offering to the changes in the consumer demand. Other players proactively engaged with consumers in shaping their needs. Cable operators fall in the latter category, as they did extremely well in shaping consumer needs for their communication, media and entertainment services, and this has reflected in the total shareholder returns achieved by the cable industry till now.

In Europe, cable operators were particularly successful in generating demand and guiding consumers, and ensured a high average total shareholder return of 35 percent between 2010 and 2014. That’s approximately 24 percentage points higher than that achieved by satellite TV operators.

Superior broadband technology
Average broadband speed of cable operators is 58 Mbit/s compared to telecom operators’ average broadband speeds of 27 Mbit/s due to technological superiority of DocSIS 3.0.4 Furthermore, in Europe, nations with higher cable broadband

coverage tend to perform better in European Commission’s Digital Agenda Scorecard, emphasizing technological superiority of cable broadband compared to copper-based broadband technologies such as DSL.

More effective approach to service bundling
Cable operators have excelled at effectively selling triple- or quad-play service offering. For example, 52 percent of the cable operators’ customers in the United Kingdom, Spain, France, Germany, the Netherlands and Belgium avail triple-play offerings, compared with 22 percent of largest non-cable operator subscribers. Bundled services have helped cable operators generate higher average revenue per user (ARPU) as well as lower churn.

Better infrastructure to sustain innovation
The third advantage for cable operators has been a future-proof network technology that supported a lower incremental investment rate for every increase in bandwidth for broadband. In other words, the cable infrastructure requires lower investment to support higher bandwidth, allowing cable operators to offer a better viewing experience to customers and charge premium for their services.

Recommendations

In the short term, cable companies can create opportunities for growth by digitizing customer interactions and by investing in a new wave of digital innovation. Operators need to integrate customer interactions across all digital touch points to gain a 360-degree view of the customer—their usage, service interactions, preferences and social behavior through a full suite of digital customer-facing tools/capabilities and fully integrated digital channels. They also need to leverage existing capabilities to target adjacent markets. We envisage four major opportunity areas for cable operators:

Include HD and ultra HD in standard offering
Screens are getting bigger and better, making SD quality unacceptable for a high-quality viewing experience. Average TV screen size in Europe has increased from 24 inches in 2011 to 32 inches in 2014. Furthermore, more than 70 percent of consumers in the United Kingdom and the United States have HD-ready TV sets.10 Operators can benefit from making HD the default picture standard as it will improve customer loyalty, and fend off competition from OTT players. The real advantage stems from the fact that 70 percent11 of broadband connections in Europe are DSL based that tend to struggle to stream HD content alongside web browsing by other members of the households. Ultra HD is on

the horizon as initial consumer uptake of devices is very encouraging. Cable operators should take first-mover advantage by offering HD as a default picture standard and ultra HD as a premium service. This will surely increase spectrum demand but adopting more efficient High Efficiency Video Coding (HEVC)-based video compression technologies would compensate for the higher demand for spectrum.

Currently, most cable operators use MPEG2 for SD content and H.264 for HD content. By adopting HEVC, cable operators could offer HD as default picture standard and Ultra HD for premium content.

Offer OTT services for cord cutters
We recommend that cable operators invest in extending their foot print to ‘light’ pay-TV consumers and to cable cord cutters by offering their content through OTT services. This would allow them to target and acquire new customer demographics that can later be moved up to higher ARPU services. For instance, Sky’s OTT proposition in the United Kingdom—Now TV—helped increase its subscriber base by targeting pay light customers, and decrease customer churn. ‘If you can’t beat them, join them’ is the governing philosophy behind this strategy. OTT is here to stay and cable operators would do well to incorporate it within their own service