Cord Cutting/Shaving Discussion

Cord cutting or cord shaving is when consumers drops their paid video service and purchase a broadband-only service from their local access SP, telco or cable. In the U.S., numerous estimates show more than 300,000 subscribers switched to broadband only in 2Q14. This is significantly lower than previous quarters. Yet it is still significant. SPs need to monitor this trend to see of it is in fact slowing or grow.

The economic impact of cord cutting has reverberations throughout the ecosystem. For the SP it merely shifts revenue and margin to the broadband business. For the ecosystem, revenues and margins are shifted to the OTT player such as Netflix and adversely affect the traditional “upstream” value chain including channels, for example, ESPN, TV and movie producers and advertisers.

This trend is impacted by consumer viewing habits. The younger generations are more mobile and are less likely to spend limited discretionary dollars on a large-screen TV and also to pay for a subscription video service. Video subscriptions are also impacted by macro economic trends. Broadband has become the last service to be eliminated.

Tomorrow's "real cord cutting" refers to consumers who completely stop all services from a wired service provider and go completely wireless. We have seen the prequel with the elimination of a "home phone." This next-generation cord cutting has consumers relying on their 4G/LTE/5G service for all broadband applications. This can be accomplished by simply turning their smart phone into a Wi-Fi access point when in their home. The economic impacts of next-generation real cord cutting are severe. The fixed access service providers not only lose all service revenues but also lose customers entirely. This will be particularly painful for cable MSOs that lack integrated wireless services.

As 4G/LTE and eventually 5G deployments expand and as more small cells get deployed the average bandwidth per device will increase substantially. Slowing down real cord cutting will be the price of mobile data plans and data CAPS, which will eliminate the intended savings in the first place. Service providers with wireless assets will be in a strong position to succeed in this future scenario. Other, such as cable MSOs, will need to address their pricing plans, which are driving customers away in the first place. They can also compete with unique content, primarily "sports and wars," (for example, live programming) and push for better quality video, such as emerging 4K technologies.  

To discuss this please email me at gwhelan@acgresearch.net