Question: To Tier or Not to Tier?

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Cable-modem penetration is exceeding expectations, panelists on the Cable & Telecommunications Association for Marketing's National Show opening-session panel agreed.

But they differed on whether the cable industry should tier data service — or sell connections at various bitrates for different price points — in order to generate higher take rates.

Tiering may indeed make sense in the future, Comcast Corp. executive vice president of sales, marketing and customer service David Watson said at the May 5 session. But it's "premature to go to a lower speed and lower price," he said. "The demand is very strong."

Comcast's weekly demand is as strong in markets with penetration rates of 20 percent or greater as in systems where cable-modems have just been introduced, Watson said.

And there's a second issue: It costs just about as much to provide a slower tier of data as it does to provide the fastest speed, he said.

"We have to figure out a way to differentiate our cost structure" to maintain profit margins for lower-tiered products, he said.

ROGERS ON CASE

Canadian MSO Rogers Communications Inc. launched a 128 kilobit per second service four weeks ago, after studying modem churn rates, said vice president of product development Michael Lee.

"People who didn't use it enough were dropping down to dial-up," Lee said. The new tiering structure is designed to "capture them on the way out," he said.

"It's been very successful to this point and we haven't seen almost any cannibalization." Lee said.

Some Rogers subscribers even moved down to 128 kbps, then called back and asked to be reconnected to the faster service.

Cox Communications Inc. has been testing a lower-speed tiered service in Las Vegas, according to vice president of multimedia John Hildebrand, who said the MSO has found it successful.

Hildebrand believes tiering is "a good thing" to examine.

"The concern is, is there a segment that doesn't want to make the big jump from narrowband to high-speed?" he asked. That would make lower-speed service a viable option, he said.

Another panel topic was the growing importance of broadband-specific Web portal sites. Such portals are a "showcase to differentiate ourselves," said Watson.

"The portal should serve as a central point where we have a relationship with the customer," he added.

Such a Web site would be the venue for problem solving, or for upgrading or interacting with Comcast's entire range of voice, video and data services, according to Watson.

It would also serve as a showcase for Comcast's online content partnerships with programmers, said Watson. It could offer such applications as gaming, music downloads and digital photography, he added.

As broadband penetration moves past 11 million households, programmers have taken notice.

"The programmers can legitimately look at broadband as a new revenue opportunity," said Deborah Wilson, president and CEO of The Weather Channel's Web site, Weather.com.

Weather.com produces content for both a narrowband and a broadband site, she said. Over the next year or so, Wilson said, TWC will likely create a separate broadband content site, driven both by modem penetration and by the 50 percent of Weather.com users who visit via high-speed connections at work.

"Consumers want this content," Wilson said. "It's a revenue generator for us. We do very well with video advertising on our site."

BULLISH OUTLOOK

In the future, cable operators will make great strides with modems, panelists said.

"We will see significant take rates going forward," said Time Warner Cable Ventures president and CEO Chris Bogart. "Cable is the clear winner."

Operators will sell cable services on three platforms over the next few years: thin client set-tops, thick client set-tops with personal video recording capability and the high-speed data platform, noted Bogart. And MSOs will sell numerous applications and services in concert with all three offerings.

DOCSIS 2.0 deployments will be widespread, predicted Hildebrand, with cable using the platform to target business customers.

"Voice-over-[Internet protocol] will be absolutely the buzz two years from now," he said, and videoconferencing will be a tantalizing outgrowth of the DOCSIS 2.0 platform.

Rogers's Lee predicted that operators would extend network management into the home itself. He also hoped that digital-rights management issues would be sorted out, so more content providers could enter the broadband arena.

Watson envisioned widespread deployments of modems built into PCs, enabling cable subscribers to provision their own services.

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