Insight Research - Cable Telephony: The Threat to Residential ILEC Markets 2007

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Residential Telephony 2007 - 2011

a market research report

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Market Segmentation

Table of Contents

Press Release

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Cable companies have been on a fast track, upgrading their networks to provide integrated digital video, high-speed data and voice services—which means incumbent telcos now face stiff competition from cable operators aiming to supply residential and small business customers with a bundled services. With competitors like Cox Communications, CableVision, Comcast, Charter, Time-Warner, and other top-tier cable operators launching telephone services to residential and small business, the ILECs face a situation comparable to what AT&T faced in the years just after Divestiture.

In this report, Insight Research analyzes the telephony and enhanced services that cable providers currently offer residential customers using four delivery options: standard telephony, channelized HFC, dedicated modem and shared modem service. Based on this examination, Insight quantifies the addressable market opportunity for cable companies in two-way capable cable markets, and measures the competitive risk they pose to the incumbent telephone carriers located within the cable systems’ service areas.

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Report Excerpt

1.0 Residential Telephony - ILEC's Versus MSO's

The residential telephone market battle between incumbent local exchange carriers (ILECs) and the cable television multiple system operators (MSOs) has accelerated in the last year, entering a highly competitive phase. Cable-based telephone service is being deployed on a much broader basis than ever before due to network and equipment upgrades which support telephony.

Providing telephone services, especially a voice over the Internet (VoIP) capability, has become the next logical step for cable MSOs after they successfully created a mass market for their residential high-speed access cable modem services. Every one of the MSOs in this study is offering residential telephone service.

The MSOs have found that telephony is a great complement to their base video and Internet service offerings. Not only does telephony increase the MSO’s revenue potential, the telephone service also provides the opportunity to offer triple-play bundles of video, high-speed data and voice services.

While the telephone service offered by cable companies is relatively new to the market, a large number of customers (ten million) have been convinced to switch from the ILECs to the MSOs with enticing cost savings and highly attractive bundles of video, voice and data service.

ILECs have countered by offering their own voice, high-speed data (DSL) and video bundles. Until recently, the ILECs had to rely on the resale of satellite service for the video service offering. The largest ILECs, namely Verizon, AT&T and Qwest, recently began deploying their own video services to compete with the MSOs. The ILECs have not yet been able to penetrate the residential video market to any significant level.

Without strong competition from the ILECs or satellite service providers for video, subscriptions to cable service have been steady and have ranged from 65 to 66 million over the last seven years. The population of cable video subscribers is expected to remain fairly flat through 2012. In the absence of greater competition, the digital cable portion of the cable services subscriber base is, however, expected to continue to grow at a substantial rate. Insight forecasts that digital cable subscribers will grow from 32 million to 50 million by 2012.

Although the competition for the residential broadband market is entering a more mature market phase, residential broadband households are still expected to grow from 46.6 million to more than 72 million households by 2012. DSL subscriber growth will outpace cable broadband connections through this period as more middle and lower income households subscribe to higher speed Internet services, as shown in the following figure....

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Market Segmentation

By Cable Operator
       Bright House
       CableOne
       Cablevision
       Charter
       Comcast
       Cox
       GCI
       Insight
       Mediacom
       Suddenlink
       Time Warner
              Household Income Distribution
              Residential TV Offering
              Telephone Offering
              Residential Internet Offerings
              Telephone Line Gain by ILEC

By ILEC
       Alaska Communications Systems
       AT&T (with Bell South)
       CenturyTel
       Cincinnati Bell
       Citizens Telecommunications
       Embarq
       Hawaiian Telecom
       Iowa Telecom Services
       Qwest
        TDS
       Verizon
       Windstream
              Household Income Distribution
              Residential TV Offering
              Telephone Offering
              Residential Internet Offerings
              Telephone Line Loss by MSO Competitor

By Household
       Number of US Households
       Household Distribution by Income
       Projected Household Distribution by Income
       Net Growth in Households by Income
       US Internet Presence in Households
       Household Internet Presence by Income Range
       US Households with Internet Access
       Dial-Up Households
       Internet Presence by Income
       Household Broadband Growth
       Distribution of Broadband Type in Households

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Table of Contents

Chapter I
EXECUTIVE SUMMARY

1.1 Residential Telephony – ILECs versus MSOs
1.2 Telephone Lines

Chapter II
CABLE NETWORK TECHNOLOGY

2.1 Development of the Cable Television Network.
       2.1.1 Traditional Coaxial Network
       2.1.2 HFC
              2.1.2.1 HFC Components
              2.1.2.2 HFC Topology
2.2 Circuit Switched Cable Telephony
2.3  Circuit Switched With Hybrid IP Networks
2.4  IP Cable Telephony
       2.4.1 Data Over Cable Service Interface Specification
              2.4.1.1 DOCSIS 1.1 & 2.0
              2.4.1.2 DOCSIS 3.0
       2.4.2 PacketCable
              2.4.2.1 PacketCable 1.1 & 1.2
2.5 Cable IP Telephony Implementation Issues
       2.5.1 Primary Line Service/E911
       2.5.2 Communications Assistance for Law Enforcement Act (CALEA)

Chapter III
TELCO BROADBAND TECHNOLOGY IMPLEMENTATION

3.1 DSL
3.2 FTTP Architecture

Chapter IV
RESIDENTIAL MARKET DEMOGRAPHICS

4.1    Household Growth 2006-2012
4.2    Household Income Demographics
4.3    Projected Household Income Distribution
4.4    The Residential Line Market Analysis Methodology
4.5    The Shift to Broadband in the Residential Premises Market
4.6    Residential Broadband Type Demographics

Chapter V
RESIDENTIAL TELEPHONE LINE MARKET SEGMENTS - ILEC AND MSO

5.1    The Residential Telephone Line Market
5.2    Impact of Cable Broadband on the Residential Telephone Line Market
5.3    The Total ILEC Residential Line Market
5.4    The Study ILEC Residential Line Market

Chapter VI
MSO RESIDENTIAL TELEPHONE LINE MARKET POTENTIAL AND OFFERS

6.1    MSOs
6.2    Bright House Networks
6.3    CableOne
6.4    Cablevision
6.5    Charter
6.6    Comcast
6.7    Cox
6.8    GCI
6.9    Insight Communications
6.10 Mediacom
6.11 Suddenlink
6.12 Time Warner

Chapter VII
ILEC RESIDENTIAL MARKETS AND SERVICES OFFERS.

7.1    ILECs
7.2    Alaska Communications Systems
7.3    AT&T
7.4    CenturyTel
7.5    Cincinnati Bell
7.6    Citizens Communications
7.7    Embarq
7.8    Hawaiian Telecom
7.9    Iowa Telecom Services
7.10 Qwest
7.11 TDS
7.12 Verizon
7.13 Windstream

Chapter VIII
MSO COMPETITION TO ILECS – MARKET OVERLAYS

8.1    MSO Market Overlays of ILECs
8.2    Alaska Communications Systems
8.3    AT&T
8.4    CenturyTel
8.5    Cincinnati Bell
8.6    Citizens Communications
8.7    Embarq
8.8    Hawaiian Telecom
8.9    Iowa Telecom Services
8.10  Qwest
8.11  TDS
8.12  Verizon
8.13  Windstream

Appendix

Table of Figures

Chapter I

I-1 Household Broadband Growth, 2006-2012

Chapter II

II-1 Traditional Tree-and-Branch Coax Architecture
II-2 Coax Distribution to Customer Premises
II-3 HFC Architecture Providing Voice and Video Services
II-4 Circuit Switched Cable Telephony
II-5 Typical Cable Frequency Spectrum Allocation
II-6 Circuit Switched with Hybrid IP Network Architecture
II-7 Cable IP Telephony
II-8 Basic DOCSIS
II-9 Basic PacketCable Architecture

Chapter III

III-1 Voice over DSL Generic Architecture
III-2 Telco Fiber to the Premise Architecture

Chapter IV

IV-1    US Households, 2006-2012
IV-2    Household Distribution by Income, 2006 (Millions)
IV-3    Projected Household Distribution by Income, 2012
IV-4    Net Growth in Households by Income, 2006-2012
IV-5   US Internet Presence in Households, 2006
IV-6    Household Internet Presence by Income Range, 2006
IV-7    US Households with Internet Access, 2006-2012
IV-8    Dial-Up Households, 2006–2012
IV-9    Internet Presence by Income, 2006- 2012
IV-10 Internet Presence by Income, 2012
IV-11 Household Broadband Growth, 2006-2012
IV-12 Distribution of Broadband Type in Households, 2006-2012

Chapter V

V-1 Household Cable Three Part Bundle Subscription, 2003-2006
V-2 Residential Digital Cable Growth, 2006-2012
V-3 Cable Residential High-Speed Growth, 2006-2012
V-4 Cable Residential Telephone Subscriber Growth, 2006-2012
V-5 Percentage of Telephone Subscribers to Digital Service Subscribers (Cable)
V-6 Forecasted ILEC Residential Lines, 2006-2012
V-7 Forecasted ILEC & Cable Residential Lines, 2006-2012 59

Table of Tables

Chapter I

I-1 ILEC Residential Telephone Lines, 2006

Chapter II

II-1   DOCSIS Evolution Service Comparison
II-2   DOCSIS Evolution Customer Equipment Supported
II-3   DOCSIS Evolution Upload/Download Speeds Supported

Chapter III

III-1 Versions and Features of DSL
III-2 Fiber Installation Cost Estimates
III-3 FTTP Cost Analysis: Earnings per Share Impacts

Chapter V

V-1    US Residential Access Lines, 2001-2004
V-2    US Residential CLEC Access Lines, 2001-2004
V-3    US Residential Access Line Trends, 2005-2006
V-4    US CLEC Residential Access Line Trends, 2005-2006
V-5    Verizon Residential Access Line Trends, 2006-2007
V-6    Qwest Residential Access Line Trends, 2006-2007
V-7    US MSO Residential Telephone Line Subscribers, 2001-2003
V-8    US MSO Residential Telephone Line Subscribers, 2003-2006
V-9    MSO Line Additions and Revenue, 2007-2012
V-10 ILEC Annual Residential Line Losses, 2007-2012
V-11 ILEC Annual Residential Line Revenue Losses, 2007-2012
V-12 Distribution of Residential Lines Among Top Twelve ILECs, 2006
V-13 Residential Line Losses Among Top Twelve ILECs, 2006-2012

Chapter VI

VI-2    Bright House Residential Cable and Telephone Offering
VI-3   Bright House Residential Internet Offerings
VI-4 CableOne Household Income Distribution
VI-5   CableOne Residential Cable and Telephone Offerings
VI-6   CableOne Residential Internet Offerings
VI-7   Cablevision Household Income Distribution
VI-8   Cablevision Residential Cable and Telephone Offerings
VI-9 Cablevision Residential Internet Offerings
VI-10 Charter Household Income Distribution
VI-11 Charter Residential Cable and Telephone Offerings
VI-12 Charter Residential Internet Offerings
VI-13 Comcast Household Income Distribution
VI-14 Comcast Residential Cable and Telephone Offerings
VI-15 Comcast: Internet Service Offerings
VI-16 Cox Household Income Distribution
VI-17 Cox Residential Cable and Telephone Offerings
VI-18 Cox Internet Service Offerings
VI-19 GCI Household Income Distribution
VI-20 GCI Residential Cable and Telephone Offerings
VI-21 GCI Internet Service Offerings
VI-22 Insight Household Income Distribution
VI-23 Insight Residential Cable and Telephone Offerings
VI-24 Insight Internet Service Offering
VI-25 Mediacom Household Income Distribution
VI-26 Mediacom Residential Cable and Telephone Offerings
VI-27 Mediacom Internet Service Offerings
VI-28 Suddenlink Household Income Distribution
VI-29 Suddenlink Residential Cable and Telephone Offerings
VI-30 Suddenlink Internet Service Offerings
VI-31 Time Warner Household Income Distribution
VI-32 Time Warner Residential Cable and Telephone Offerings
VI-33 Time Warner Internet Service Offerings

Chapter VII

VII-1 ACS Telephone Services
VII-2 ACS Internet Services
VII-3 ACS Internet Households Distribution, 2012
VII-4 AT&T Telephone Services
VII-6 AT&T Internet Services
VII-7 AT&T U-Verse Video Services
VII-8 AT&T U-Verse Video and Internet Services
VII-9 AT&T (Bellsouth markets) Telephone Services
VII-10 AT&T (Bellsouth markets) Video Services
VII-11 AT&T (Bellsouth markets) Internet Services
VII-12 AT&T Internet Households Distribution, 2012
VII-13 CenturyTel Telephone Service
VII-14 CenturyTel Video Service
VII-15 CenturyTel Internet Services
VII-16 CenturyTel Internet Households Distribution, 2012
VII-17 Cincinnati Bell Telephone Service
VII-18 Cincinnati Bell Video Service
VII-19 Cincinnati Bell Internet Service
VII-20 Cincinnati Bell Internet Households Distribution, 2012
VII-21 Citizens Communications Bundled Services
VII-22 Citizens Communications Internet Households Distribution, 2012
VII-23 Embarq Telephone Service
VII-24 Embarq Video Service
VII-25 Embarq Internet Service
VII-26 Embarq Internet Households Distribution, 2012
VII-27 Hawaiian Telecom Telephone Service
VII-28 Hawaiian Telecom Internet Service
VII-29 Hawaiian Telecom Internet Households Distribution, 2012
VII-30 Iowa Telecom Telephone Service
VII-31 Iowa Telecom Video Service
VII-32 Iowa Telecom Internet Service
VII-33 Iowa Telecom Internet Households Distribution, 2012
VII-34 Qwest Telephone Service
VII-35 Qwest Video Service (Non-VDSL)
VII-36 Qwest Video Service (VDSL)
VII-37 Qwest Internet Service
VII-38 Qwest Internet Households Distribution, 2012
VII-39 TDS Telephone Service
VII-40 TDS Video Service
VII-41 TDS Internet Service
VII-42 TDS Internet Households Distribution, 2012
VII-43 Verizon Telephone Service
VII-44 Verizon Internet Service (Non-FiOS)
VII-45 Verizon Internet Service (FiOS)
VII-46 Verizon Video Service (FiOS)
VII-47 Verizon Internet Households Distribution, 2012
VII-48 Windstream Telephone Service
VII-49 Windstream Video Service
VII-50 Windstream Internet Service
VII-51 Windstream Internet Households Distribution, 2012

Chapter VIII

VIII-1 ACS Market Overlap and Forecasted Residential Line Losses by 2012
VIII-2 AT&T MSO Market Coverage and Forecasted Residential Line Losses
VIII-3 CenturyTel MSO Market Overlap and Forecasted Residential Line Losses
VIII-4 Cincinnati Bell MSO Market Overlap and Forecasted Residential Line Losses
VIII-5 Citizens MSO Market Overlap and Forecasted Residential Line Losses
VIII-6 Embarq MSO Market Overlap and Forecasted Residential Line Losses
VIII-7 Hawaiian Telecom MSO Market Overlap and Forecasted Residential Line Losses
VIII-8 Iowa Telecom MSO Market Overlap and Forecasted Residential Line Losses
VIII-9 Qwest MSO Market Overlap and Forecasted Residential Line Losses
VIII-10 TDS MSO Market Overlap and Forecasted Residential Line Losses
VIII-11 Verizon MSO Market Overlap and Forecasted Residential Line Losses
VIII-12 Windstream MSO Market Overlap and Forecasted Residential Line Losses

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