TDS Telecom will expand IPTV and managed services in 2011

TDS Telecom (NYSE: TDS) is taking a page out of the playbooks of its larger compatriots to transform itself from being another telephone company that only sells PSTN service to become a broadband company.

LeRoy T. Carlson, Jr., TDS president and CEO, speaking at the Morgan Stanley Technology, Media & Telecom Conference outlined how the wireline business is embarking on a new journey to transform its consumer and business service segments.

On the consumer side, TDS Telecom growth efforts are centered on creating broadband triple bundles.

Similar to AT&T (NYSE: T) and CenturyLink (NYSE: CTL), TDS sees that when it sells a triple play set of voice, DSL data and video, whether it's IPTV or satellite, customers are less likely to defect to cable.

"We have achieved the highest rates of broadband penetration of any LEC or RLEC in the industry and we have made a significant presence with triple play, which includes a video product offering today mainly through DISH," Carlson said, adding that these efforts "have helped us reduce our churn to only one-half of 1 percent."   

For the business market, TDS's focus is set on expanding its managed service offerings through its ILEC and CLEC for the SMB market organically and through targeted acquisitions.

"We recently acquired two companies to data and hosting services to extend data and hosting services to our commercial customer base," Carlson said.  

IPTV, broadband transformation
With broadband services as the consumer anchor, it's not hard to imagine that TDS is looking at broadband and even TV services to offset inevitable PSTN landline losses.

While it continues to see traditional line loss of 4.5 to 5.5 percent, those losses are being offset by DSL growth and IPTV service. Initially using DISH satellite TV as the video component of its triple play bundle, TDS plans to expand its IPTV service beyond its two initial test markets, in 2011.

"Our physical line losses are offset by a degree by our DSL connections and now our very early additions in our IPTV service, which we see as a layer of revenue we can add into our system," Carlson said. "I don't think the trend of physical line losses won't go away anytime soon so what we need are these other revenue streams, whether they are data, IPTV or managed services, to compensate for" those line losses.

To deliver IPTV service on a broader scale, TDS believes it needs to have at least 25 Mbps to each home in the near term, while in the medium term it would like to have 50 Mbps with 25 Mbps allocated to IPTV and 25 Mbps for IPTV.

"It only takes 6 Mbps to encode a high def signal, and if you got four TVs running at high def at that same time that's a lot, but a lot of customers like a lot," Carlson said.   

Outside of its FTTH-based markets, TDS will likely deliver its IPTV service over its existing copper plan on VDSL2. To date, it has launched its VDSL2-based 25 Mbps data service in 20 of its 30 markets.

Carlson is confident that despite having long loop lengths in its ILEC markets that with a combination of VDSL2 with bonding and vectoring "we can get the technology to the point where at 4,000 feet we can get very close to 50 Mbps speeds over the next three years."

TDS Telecom has set some ambitious goals for its VDSL2 network drive.

Over the next five years, it has set a goal to enable 54 percent of its ILEC serviceable addresses to get access 50 Mbps or higher speeds in the markets where it competes directly with cable operators that are also delivering 50 Mbps and higher over their HFC plant.   

Carlson said that its five year 50 Mbps broadband drive "covers most of its cable footprint because cable only covers two-thirds of our telecom footprint."

Managed services bet
While TDS continues to see its SMB customer base remain cautious about spending money on services, it is seeing continued interest from business customers for managed services.  

In addition to seeing continued data services growth, TDS's managedIP offerings ILEC and CLEC) grew to 27,400 from 13,900 during the fourth quarter.

The ILEC bolstered its managed service play by acquiring privately-held data center provider Team Companies, which immediately expanded its data center presence and new capabilities in colocation, disaster recovery, and data security capabilities.

Carlson believes that it can use managed services as a platform to upsell other network services in both its ILEC and CLEC territories.

"We think we can take customers of hosted and managed service companies and bring them carrier services," Carlson said. "Ten to fifteen of the revenues of a hosted management that has a full product line can be carrier services so it's a two say cross site sales opportunity."

Of course, TDS is not alone in building its managed service capabilities through acquisitions. Other ILECs including Verizon (NYSE: VZ) and Windstream (Nasdaq: WIN), and even cable operators like Time Warner Cable (NYSE: TWC-WI) have been bolstering their managed service capabilities.

Despite the growing competition from other carriers, Carlson believes TDS is well positioned to serve the SMB's managed services needs by acquiring smaller data hosting/colocation providers.

"It seems like the whole carrier world, whether it's cable carriers or wireline carriers, are following this approach, but we're focused on the smaller companies that may not have enough financing to realize their full potential," Carlson said. "We think we're filling a special niche in terms of our acquisition strategy in this area whereas other folks are focused on these big companies that have no problems financing themselves."

For more:
- listen to the webcast here

Related articles:
TDS Telecom takes a proactive, practical approach to its VDSL2 migration
TDS expands hosted/managed services play with Team Companies acquisition
TDS introduces 25 Mbps VDSL2 service in seven states
TDS Telecom wins $114.5 million in broadband stimulus funding

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