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Surfers Get Price Sensitive

11/28/2008 7:00 PM Eastern

Three out of four high-speed data customers would switch providers given a lower-priced alternative, according to a recent survey from Boston-based Strategy Analytics, throwing a wrench into what has been one of the cable industry's steady growth engines over the past several years.

The survey seems to contradict what cable operators have been saying for years — that price doesn't matter — but there are two important caveats to the survey. The first: It doesn't differentiate between multiplay customers and those with only one service. The second: Although lower prices may attract customers, the hassle associated with switching services appears to be a more compelling factor in a customer's decision to stay with a provider.

Cable-modem service has historically been priced at more than double that of telco digital subscriber line service and has managed to outpace its rival. That trend appears to be continuing.

Cable companies added about 1 million broadband subscribers in the third quarter, ending the period with 38.8 million customers, according to SNL Kagan. That compares with 434,000 additions by the telephone companies, which finished the quarter with 31.4 million broadband customers.

According to the Strategy Analytics report — Broadband Satisfaction and Customer Churn: US 2H08 — Time Warner Cable is the most susceptible to customer defections in a price war, with AT&T vulnerable to rival offers of faster speeds.

Cox Communications, according to the survey, has the most secure customer base.

Strategy Analytics surveyed more than 1,000 broadband decision making customers during September and October of this year. The study focused on the so-called three pillars of churn: Customer satisfaction, propensity to churn and perceived obstacles to defection. Respondents were presented with various broadband speed and price scenarios to gauge sensitivity.

According to the report, three key findings emerged — high customer-satisfaction ratings don't necessarily correlate with a customer's willingness or propensity to churn; even consumers who report high satisfaction ratings are susceptible to being poached by competitive offerings; and perceived inconvenience to switch is almost as big a factor in keeping a customer with a provider as brand loyalty and value.

Strategy Analytics analyst and director of its Multiplay Market Dynamics Service Ben Piper said the sample included four different scenarios regarding price and speed. And within that sample, “Time Warner was the most likely to be swapped,” Piper said.

Time Warner Cable, like other cable operators, has been introducing different tiers of service, offering slower speeds for lower prices. So that may end up satisfying some price-conscious customers.

And the company has been adding high-speed customers at a rapid clip. In the third quarter, the New York-based MSO added 214,000 broadband customers, more than AT&T and Verizon Communications combined.

“Time Warner Cable offers its customers value and a strong bundle of services which include a best-in-class high-speed data product, Road Runner,” said TWC spokesman Justin Venech. “We've been adding customers and we can point to our recent success in the third quarter and our additions as an example to our customers seeing the value in it.”

Piper said the shift appears to be the result of two factors — the widening gap of broadband prices and the failing economy.

“It's a mixture of both,” Piper said. “The market is becoming very commoditized.”

However, Piper said that although many customers showed a desire to switch to a lower-priced service, that switch would have to be virtually hassle-free. According to the survey, respondents said that the difficulty in scheduling connection and installation of new service was one of the most significant barriers, with 36% responding that it was very important and 41% responding it was somewhat important.

“The promise of a 'four-hour slot,' it seems, is not enough to persuade customers to switch providers,” Piper said. “They expect their service provider to turn up at an agreed appointment time, and if that promise can't be made, they will prefer to avoid the inconvenience altogether.”

September