Broadband providers' 1 Gig rollouts drive consumer 'halo effect' in speed tiers

Sean Buckley, FierceTelecomA 1 Gbps fiber-to-the-home service (FTTH) service may be enticing in terms of the nearly ubiquitous speed it provides, but it's hardly a fit for most consumers. Instead, a number of ILECs--including CenturyLink (NYSE: CTL), Consolidated and TDS Telecom--are finding that their 1 Gbps buildouts are creating a broadband "halo effect."

What this halo effect means is in an area where providers offer 1 Gbps services, it drives interest in other speed tiers ranging from 10 to 100 or 200 Mbps and above.

CenturyLink (NYSE: CTL) said that in Omaha, Neb., one of its initial 1 Gbps markets, sales of its existing copper-based 20, 40 and 80 Mbps tiers continue to rise outside of the FTTH network territory.

Stewart Ewing, CFO and SVP for CenturyLink, said during the recent Morgan Stanley Leveraged Finance Conference that the 1 Gbps service is creating overall awareness about their broadband services.

"Although we only covered 45,000 homes in the Omaha market, it made the phone ring," Ewing said. "Outside of the areas where we had fiber-to-the-home and where we were able to deliver 20 Mbps, 40 Mbps and in some cases 80 Mbps, it allowed us to sell to those customers as well because they were unaware of the fact that they could get the higher speed services for us."

A similar issue is happening at TDS Telecom. Earlier this year, the telco set an aggressive plan to equip 25 percent of its access lines this year with 1 Gbps.

Matt Apps, senior manager of Internet product management and development at TDS Telecom, told FierceTelecom that rolling out 1 Gbps in a number of rural New Hampshire and Wisconsin communities is giving it credibility in markets where broadband options have traditionally been lacking. A number of customers have adopted its $35 a month 100 Mbps customers (their minimum FTTH market speed) versus the $99 a month 1 Gbps service.

"We have our 1 Gbps products out there and are taking that market leadership position," Apps said. "If you weren't on their radar before--especially that top tier of heavy data users who may have thought of TDS as that old phone provider--now you're saying you have a Gig product, it gives you that credibility that's difficult for other competitors to match."

Likewise Consolidated Communications started lighting up the headlines when it launched a 1 Gbps service to battle Google Fiber in Kansas City. During the first quarter, the telco said that while 1 Gbps subscriber numbers are relatively low, more customers are subscribing to a 20 Mbps tier or higher.

"We don't get a lot of demand for the 1 Gig service, and what we've seen is that it makes the phone ring quite a bit," said Rob Koester, vice president of consumer product marketing for CCI, in an interview with FierceTelecom. "We won't see them jump to the 1 Gig even though it's a pretty attractive price point, but they will look at a 50 or 100 Mbps service, and we fully expect to see in our Texas markets as well."

Outside of the mainland United States, Hawaiian Telcom, which launched a 1 Gbps product earlier this week, says that while interest in 1 Gbps is ripe, they don't expect a massive wave of orders.  

"We don't expect a lot of people ordering 1 Gig, but we're hoping to pique their interest and call us and then ultimately buy one of our faster speeds like our 25 or 50 Mbps service," said Shannon Sandry, director of consumer product management for Hawaiian Telcom.

Telcos aren't the only ones that are preparing for this phenomenon.

Comcast (NASDAQ: CMCSA), which has been touting a 2 Gbps service, has also been upgrading its existing HFC plant to support an additional 250 Mbps tier. Meanwhile, regional cable operator Grande Communications, which has been rolling out 1 Gbps in Austin and San Antonio is also offering a range of HFC-based tiers ranging from 50 to 400 Mbps.

There are a few realities to these 1 Gbps rollouts. First, the 1 Gbps service is far from being ubiquitously available and there are strong differences in pricing. Grande and Consolidated offer the lowest prices at $65 and $70 a month, while TDS is still competitive at $99 a month. Other providers like Hawaiian Telcom and Comcast have yet to reveal pricing.

Despite the differences in approach and price, the 1 Gbps drive is showing users that they can get more bandwidth and is creating awareness that service providers are willing to deliver more speed choices that fit a diverse set of needs.--Sean