It's a familiar "boxing" match in the cable industry — a customer disconnects from digital cable, and the operator has to figure out how to get the set-top box back.
MSOs don't always win that match, and that is the problem startup Sterling Solutions LLC is looking to solve. Sterling is staging something of a "coming out" party at the National Cable and Telecommunications Association confab this week in Chicago, hoping to attract cablers to its box retrieval service.
It's the brainchild of CEO Dan McGough, who until recently was a senior manager in Charter Communications Inc.'s San Francisco area system. There, he witnessed firsthand the difficulty in retrieving digital cable terminals (DCTs), particularly from delinquent subscribers whose service had been shut off, but who failed to return the unit as promised. Given that the average value of a digital box is about $265, plus an average $65 cost for a truck roll to reclaim the unit, the effort is a significant money drain, he said.
"The problem is, we as an industry went out and spent billions of dollars on these boxes, and when it comes time for people to churn off or disconnect, they are not giving them back — and they are not giving them back by the millions," McGough said. "So I sat down and figured out a way to get them back."
McGough's plan involves offering exiting customers a disconnect kit, consisting of empty UPS boxes sent to their home by the next day. They can then call UPS and schedule a pickup at the home or office. Or they can drop it by any one of 40,000 mail center locations nationwide. Sterling manages the orders and delivery, charging $32 for each box it returns.
"When you get ready to move, you simply put the DCT and the remote in there, call UPS to pick it up – no charge to you. Done," McGough said. "And within 24 hours, the boxes are back in the warehouse."
Will the mail pickup system work? Sterling has just started a market test with an unnamed MSO, in which it is sending out 5,000 kits to delinquent accounts. Results from that test will be available in about 60 days, and it will be shared with the operators, McGough said.
With the idea of low-cost, retail digital boxes now gaining some buzz in the industry, it may be that MSOs in the future won't see the economic incentive of box retrieval. But McGough doesn't see that happening for quite a while.
"We don't see the marketplace being flooded by retail sales because of the cost of DCTs," McGough said. "We've watched it for years, and people are not be running out and buying boxes at $200 and $300 — even if it gets down to $100 or $150 in large quantities. So we think the shelf life of this retrieval business — and it's all asset retrieval — is clearly out beyond the 10-year range."
It also isn't clear if MSOs feel a box-loss pinch now, according to analyst Matt Harrigan of Janco Partners. Although MSOs are reluctant to give out specific churn numbers, the majority of boxes that cable operators put in the field are collected when the customer disconnects, he noted.
"If it was a marginal box that they wouldn't get back otherwise, obviously that is extremely accretive," Harrigan said. "But if that is the blended price across boxes you would have otherwise retrieved, it doesn't do much at all."
While Sterling so far has made pitches in meetings with regional execs for the top cable MSOs, it is planning its big marketing push at the National Show — with a lot riding on the outcome.
"Our hope is to get before every MSO, have them take a look at our product and whether it is dangerous to say or not, we have the option of either smacking a home run or they can throw us out," McGough acknowledged.