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Thursday
Jan122012

For ILEC with 210k-Mile Network, IPTV Just "Another Application"

It appears CenturyLink didn't want to miss making an announcement at last week's Citi Entertainment and Media Conference, going with a "me too" approach to IPTV services. The "announcement" was modest, as CenturyLink revealed that they would be extending their IPTV services to one or two new markets in the former Qwest territory. Currently CenturyLink's Prism IPTV service passes 1m homes in select markets and, as of 3Q11, had 50k subscribers. For a telecom provider as large as CenturyLink, however, those numbers are relatively small—but what's interesting is how CenturyLink executive vp and cfo Stephen Ewing characterized IPTV: as just “another application.”

Ewing said, “The incremental cost of us rolling out IPTV is not significant. Once you get a 20 Mbps service out there to a customer the incremental cost of layering IPTV on top we view it as another application.” These sentiments, of course, square with what we've been saying for a while—that since so many providers spent so much time and money on network build-outs and improvements, this was the year to capitalize on those networks with new services, content, and applications.

But CenturyLink's "announcement" seems pretty modest, and offering IPTV in only two markets seems like a paltry "expansion," considering that the company has 210k miles of fiber. With its acquisitions and its expansive network, rollouts like IPTV appear to be an obvious next step. For now, Ewing said that, “The (IPTV) customer base is still small, but we did increase the customer base 25% during the third quarter.”

CenturyLink's network design also makes IPTV easier to distribute, as all of its video content is put into a head end in Missouri and, from there, distributed to each of the 8 markets currently served with IPTV. Each market also has its own mini-head end for local content, and all content is delivered over CenturyLink's fiber network.

Last fall, the company denied speculation that it would expand its Prism service to former Qwest markets. CenturyLink had just inherited Qwest's 1m DirecTV subscribers and was committed to satellite TV. But now the Louisiana-based ILEC says it's following a two-pronged approach to video services: satellite and IPTV. It's a strategy that allows CenturyLink to hedge its bets, capitalize on the satellite subs it's already inherited, and continue to anticipate consumer trends, as greater numbers of Americans access over-the-top video services like Netflix. Ewing said, “If over the top eventually takes some of the traditional TV market, we think we'll be well positioned with the bandwidth with have to our customers to participate in that.”

What is surprising, however, is that CenturyLink does not seem to have an overarching strategy to build out broadband to former Qwest markets. So far the company has just said, vaguely, that it plans to "expand its broadband footprint." Broadband has been a key component to the ILEC's business strategy for a while now, and in 3Q11, the service provider added 57k high-speed Internet subscribers, versus only 12k in 2Q11. Part of these gains, however, come from Qwest's FTTN initiative, which CenturyLink has continued after the acquisition. By the end of this year, CenturyLink estimates that it will pass 5.4m homes with FTTN.

In FTTN service areas, 75% of customers enjoy 20 Mbps speeds, while the remainder of subscribers have speeds of 10 Mbps or higher. As for CenturyLink's big picture, about 20% of subscribers can get 20 Mbps, over half can get 6 Mbps, and two-thirds can get 6 Mbps or higher. According to Ewing, “The speeds will continue to improve over 2012 and future years as we continue to build out the IPTV footprint and the Fiber to the Node footprint in the Qwest markets primarily,” he said.

Of course, CenturyLink will find itself increasingly in competition with LTE services (which we will look into more next week), but for now Ewing said CenturyLink seemed to have an edge, due to its increasing bandwidth. Ewing said that average customer usage is continuing to rise to about 18 Mbps, double where it was a year ago.