TDS Telecom (NYSE: TDS), like many traditional wireline ILECs, has had to face up to the fact that they'll need new revenue sources like IPTV to offset ongoing wireline voice revenue declines.
Speaking at this week's Citi Entertainment, Media and Telecommunications Conference, LeRoy T. Carlson, Jr. president and CEO of TDS, outlined its IPTV roll out and broadband plans.
Following an initial two-market rollout, TDS plans to extend IPTV into an additional 19 markets this year and beyond as demand dictates.
Thus far, TDS' bet on IPTV has proven to be successful in the two markets it serves.
"We have gained 30 percent share against two national cable operators in just three years, and based on that success we're planning to roll out to these 19 markets during 2012," Carlson said. "Then we'll see if there are additional markets to roll out into in future years."
For the consumer, the ILEC's focus will continue to be on building broadband service packages that bundle data with voice and increasingly video. Coupled with its own internal programs, TDS is leveraging its $100 million in broadband stimulus funds to extend services into many of its rural territories.
Carlson reported that it has about 55 percent market share of broadband in its traditional ILEC territories, which he says is "quite different than the other ILECs that typically have only 40 percent share compared to cable's 60 percent."
Last year, the telco also began rolling out VDSL2 in 20 markets of its 30 operating states, offering up to 25 Mbps. It also continues to operate and offer traditional ADSL and ADSL2+ services.
"On the ILEC side, the primary drivers of growth have been on pushing DSL further to our customer base," Carlson said. "Sixty-one percent of our lines now have some form of DSL and we're pushing faster speeds out there."
Building on top of the $37 ARPU (average revenue per user) will be its IPTV service.
As seen by fellow independent ILEC CenturyLink (NYSE: CTL), TDS Telecom is seeing that adding IPTV as part of a larger dual- or triple-play bundle has reduced churn in many of the markets it serves.
"What we have found is that when we have three services in a household our churn rate drops from over 2 percent for a single service to 1.5 percent for two services and down to .5 and .6 percent when we have three services," Carlson said. "As we add DSL on top of voice and we add video on top of voice and DSL we dramatically reduce our churn in the consumer household."
Carlson added that its bundling strategy is not only "important for moderating its voice line loss, but it's also very important in driving our top line revenue in our consumer business."
Not content to be another me-too TV service, TDS Telecom will improve the user viewing experience of IPTV. Similar to AT&T's (NYSE: T) U-verse service, TDS plans to leverage Microsoft's (Nasdaq: MSFT) Media Room platform in its new IPTV markets.
"If you look at the consumer ratings of the AT&T U-verse experience it's at the very top," Carlson said. "It's a great experience from the consumer standpoint and that's what we're implementing."
Outside of the consumer market, the business service segment of TDS continues to find success in providing data center and managed services.
Through its managed services division, TDS offers a host of cloud and data center services, including everything from colocation to security, managed unified communications and content filtering.
"The hosted managed services, data center and cloud offering is high priority for us and will enable us to achieve positive momentum and positive growth on top line at TDS Telecom," Carlson said. "That will get additional emphasis both from an M&A perspective and working to fill up the two data centers we built on a Greenfield basis since we acquired two operators in the last couple of years."
Over the past two years, TDS has aggressively pursued the data center and cloud services market via targeted acquisitions, including VISI, TEAM and OneNeck, which operate as part of its Hosted & Managed Services (HMS) division.
Such investments have been paying off for the service provider.
As of the end of Q3 2011, TDS reported that its managedIP station customer base 12 percent to 39,400 customers.
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