Catering to Cord Cutters

Service Substitution Means Opportunity Transfer

Call it the Netflix shift, or the bucket effect: more and more American households see their telecommunications services as redundant. Wireless is replacing rather than complementing fixed-line in tens of millions of households, and streaming has become good enough to supplant pay-TV. We’re at an event horizon, and there’s no escape for the industry. Younger households are cutting the cord (or have never been corded) — it’s time to cater to the cordless.

It’s happening with talk and TV. The US is cable country, but more subscribers are now going than coming. Satellite operators are also feeling the effect. The audience is shrinking at an accelerating pace, and some service companies are creating models to adjust to this new reality.

Yesterday, AT&T introduced a new package deal aimed unashamedly at cord cutters. A $39-per-month bundle from the operator includes 45 Mbps Internet and subscriptions to Amazon Prime and HBO. It’s an acknowledgement that subscribers are smart enough to figure out the rest on their own. There aren’t any sports channels, cooking shows or 24-hour news stations, and a phone service is completely separate, but these deals are designed for the Game-of-Thrones generation.

This follows the introduction of Comcast’s Internet Plus, a similar bundle that was introduced last year that gives subscribers a 25 Mbps Internet connection, access to HBO, some local content and a movie streaming service for $40 per month. Other service providers have said they plan to introduce similar services catering to their broadband-only customers.

Operators hope to intercept the cord cutting with “cord shaving”, where subscribers simplify but don’t eliminate their relationship with the operators. It’s expected that soon more than half of American households won’t have a fixed-line phone. It’s a trend that’s spreading across all income levels. It means households of young adults are comfortable without the attachments.

Hardware providers are also keeping up with these changes. TiVo recently introduced a DVR specifically for cord cutters. TiVo’s Roamio box stores 75 hours of high-definition video from free over-the air stations and from streaming services including Netflix and YouTube. Any HD screen will do, and no television set is required.

The cord-cutting trend isn’t a fad. Younger households are using their tech knowledge as a competitive advantage, and ARPU will feel the effect. Operators should continue to innovate with tech-savvy bundles catering to the tech-savvy households.