CenturyLink (NYSE: CTL) plans to pass an additional 300,000 homes with its Prism IPTV service this year.
Speaking at the Goldman Sachs 23rd Annual Communacopia Conference, Stewart Ewing, CFO and EVP of CenturyLink, told investors he expects to end the year with a total of 2.2 million homes passed.
"At this point, we will have added 300,000 homes by the end of the year to the footprint we had at the beginning of the year," Ewing said. "We'll be up to about 2.2 million homes passed."
The service provider is still looking at other areas where it will bring Prism IPTV next. Potential targets for IPTV service expansion would be the Denver market and others where it has seen good service take rates like Omaha, Neb., where it offers a 1 Gbps fiber-to-the-home (FTTH) service.
"We do have service available in one of the markets adjacent to Denver, and we'll look to edge out in other areas of Denver first and then other markets would come after that based on the experience that we have seen," Ewing said. "We had a good experience in Omaha, in Colorado Springs, and Phoenix so we'll expect over time to roll out more Prism TV."
While CenturyLink recognizes the challenges of building a profitable business from video, the service provider, like AT&T (NYSE: T), sees value in bundling IPTV with other services.
"The margins aren't that great in terms of selling the content because we don't have the scale that the large cable companies have, but it does make the customer stickier," Ewing said. "Over 95 percent of the customers that take the Prism service also take our high speed Internet service and they tend to take higher speed service because they have to have 25 Mbps to get the Prism service."
Ewing added that "even though the margins are not what we're accustomed to in some of the other products and services we offer, we think the benefits of having the service are significant enough to roll it out on a facilities basis."
CenturyLink continues to see the fruits of its IPTV labor pay off. In the second quarter, the service provider added nearly 16,000 Prism TV customers, increasing penetration of the more than 2.1 million addressable homes to approximately 10 percent.
In tandem with its growing IPTV business, CenturyLink has launched an aggressive proposal to bring 1 Gbps FTTH service to 16 markets over the next year.
During this campaign, the service provider plans to connect a mix of traditional residential homes and businesses to its GPON-based network.
"We'll connect more homes than we do business, but it's a combined strategy of getting the business park areas that are located fairly close to existing fiber as well as the neighborhoods that have the density and propensity that are cost effective to build," Ewing said.
The areas where it plans to build out FTTH are what CenturyLink says are less expensive to serve.
In areas where it has aerial cable, the average cost to pass each premise costs about $600. If CenturyLink brings a connection to a customer to deliver data and IPTV service, it would cost an additional $400 to $600, which covers the fiber drop, network interface device (NID) and a set-top box.
Although FTTH service adoption is a major priority for CenturyLink, Ewing said the company hopes it will provide a halo effect to attract more traditional DSL customers that reside outside the fiber footprint. This phenomenon has taken place in the Omaha market, which was the first market to get the FTTH service last year.
"We're hopeful that in these 16 cities that we go to we can be build enough fiber-to-the-home and fiber-to-the-business to get the buzz going in the community about the services we're offering there," Ewing said. "We find that like in Omaha, people outside of those areas that don't have fiber-to-the-prem call and request the Gigabit service, but most want the 20 and 40 Mbps services, a lot of which we can provide."
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