Telephone and Data Systems (NYSE: TDS) said on Wednesday that it's on track with its IPTV service, incrementally adding customers in the seven markets it currently serves.
Carlson (Image source: TDS)
Speaking at the UBS Global Media & Communications Conference on Monday, Leroy Carlson, president and CEO of TDS, said that the service provider will pass 65,000 households with its TDS TV IPTV service by the end of the year.
Thus far, the IPTV rollout is driving eligible consumers to take a triple play bundle that includes voice and broadband services. Currently, TDS can offer up to 25 Mbps over existing copper via VDSL2 to 25 percent of its footprint with plans to reach 40 Mbps. Customers that are served by one of its FTTH networks can get speeds that scale beyond 25 Mbps.
Similar to CenturyLink (NYSE: CTL), which continues to ramp up its IPTV service in its respective markets, TDS is also finding that IPTV is helping lower customer churn rates.
"By offering this high customer satisfaction service, which uses Microsoft's (Nasdaq: MSFT) Media Room, we are increasing our residential bundle penetration and reducing ourchurn," he said, adding that that "almost half of our new TDS TV customers in our new markets are purchasing our highest tier product."
In January, TDS said it would extend IPTV into an additional 19 markets this year and into 2013 as demand dictates. To date, the telco delivers its TDS TV service in seven markets with plans to add three more by the end of this year.
"Next year we will be mostly focused on expanding our footprint within those 10 markets, and we'll look at launching several additional ones, but we have not identified yet which ones those will be," Carlson said.
One of the issues that have come up in rolling out IPTV that it is more expensive to use existing copper in some cases versus a Fiber to the Home (FTTH) architecture. As seen by other traditional wireline telcos such as Verizon recently in New York City, it is sometimes more economical to replace the copper with fiber.
"What we found is the cost of implementing IPTV where we have to upgrade traditional copper facilities is running somewhat higher than where we had thought it would run so we are taking another look at different paths of moving to IPTV and seeing if there's a way for us to do more fiber build rather than the upgrade of traditional copper facilities," Carlson said. "The fiber build will carry us further into the future and future-proof our network."
However, the other reality about IPTV for TDS is that since a number of the markets it operates in are very sparsely populated rural areas, it's not feasible to deliver the service everywhere.
Like fellow telcos AT&T (NYSE: T) and CenturyLink, TDS Telecom will continue to offer satellite-based services in markets where it either does not currently or can't make a business case for IPTV.
"If it were economically feasible we would love to take IPTV to all of the households that we pass at TDS Telecom, but because of who we are and the companies we have acquired over the years--many of them are low density--it won't be practical to bring IPTV to them," Carlson said. "We'll continue to work closely with Dish Network (Nasdaq: DISH) to provide the triple play to those areas where we cannot bring the IPTV service."
In its initial markets the IPTV take rates continue to be 30 percent, meaning that its business cases are proving themselves out.
Carlson said that TDS has "to be very careful that we don't overinvest in old technology because we might have to replace copper technology in five years and that would be a double investment."
The other issue for TDS in supporting IPTV is program costs. In recent years, there have been several debates between content providers and IPTV players on this issue.
"Programming costs are really a challenge not only for us as a relatively small television provider, but it's a challenge for the entire industry," Carlson said. "When we do our economic models we assume that the programming costs will continue to go up."
TDS purchases its content through a cable cooperative, meaning it achieves the same economies of scale that a cable company can with about 500,000 customers.
But Carlson admits that the prices keep going up, so TDS has to continually raise its IPTV service rates.
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