How Comcast is changing tactics in response to cord cutters

Comcast aims to hedge against cord cutters by enticing millennials to connect and levying higher access charges on heavy internet users.

Comcast Stream service unlimited data plan
Credit: Thinkstock

Reddit user demian87 recently posted a letter from Comcast notifying him or her of a new Comcast internet access pricing plan being trialed in Fort Lauderdale, the Keys, and Miami, Florida. According to this letter, Comcast will set a limit beginning on October 1 of 300 GB per household per month. Customers who exceed this limit will have to pay $10 for every additional 50 GB needed after that, or sign up for an unlimited data plan for an additional $30 per month.

Comcast spokesman Charlie Douglas confirmed that the letter is authentic, along with the company's new unlimited pricing plan. Douglas explained that "the company has trialed three other pricing plans since 2012 when Comcast had a static limit of 250 GB per month."

In a related development reported by the New York Times, Comcast will campaign to win over the quintessential cord-cutter class with new TV services designed to entice them into subscribing to its internet access service. Comcast will begin offering a $15-a-month TV service called Stream that includes broadcast networks and HBO for its internet customers. The new service will be available in Boston, Chicago, and Seattle later this year and across the company's coverage areas in the United States in 2016.

Stream looks similar to the Aereo service that carried over-the-air (OTA) television on top of the internet, but should perform even better because it operates on Comcast's managed network. Aereo lost a court battle to ABC and was forced to shut down, but not before proving that consumers would pay for crystal-clear OTA television delivered over the internet rather than get poor reception with an antenna. Stream improves upon Aereo by bundling a really cheap HBO subscription.

What's new is that Comcast's unlimited plan looks like a hedge against the attrition of its television subscriptions to over-the-top (OTT) streamed television from HBO, Netflix, etc., while placing heavier demand on its internet. And, at the same time, Comcast's Stream differentiates its commodity internet service and connects millennials to its network, creating future opportunities to sell other types of streamed content to them.

Some consumers have not cut the cord and fully substituted cable TV with streamed TV because certain popular content, such as local news, sports, or reality TV, have limited availability online. But if it were possible to transition the entirety of TV viewing to an online-only model, the typical household of three adults would likely consume about 400 hours of streamed television per month. That amounts to 400 GB of data per month at standard television resolution, and 1,200 GB of data at HD television resolution. To check these estimates, Nielson's Q1 2015 Total Audience Report pegged average television viewing at 165 hours per month, and Netflix says an hour of streamed television consumes 1 GB of data per hour for each stream of standard definition video, and up to 3 GB per hour for each stream of HD video.

The completely OTT consumer would use much more data than the average Comcast subscriber. According to Douglas, "92% of its customers use less than 300 GB of data per month, 85% use less than 200 GB, and 70% use less than 100 GB."

This means that 8% of the customers consume 300 GB or more, a tiny number of users that have a significant impact on Comcast's network. Douglas also said, "less than 10% of its customers use about half of all the data carried on Comcast's consumer internet network." Comcast could simply suspend the subscriptions of heavy internet users under its acceptable use policy, like it did a few years ago, but this anticompetitive behavior would start another consumer uproar and might raise the ire of the Federal Communications Commission, which recently ended Comcast's and other ISPs' levies against streamers like Netflix for carrying their content.

In the long term, Comcast faces the risk of becoming a commodity internet access provider if its television services are abandoned by consumers in favor of OTT streamed television, adding television transmission costs to its network without the related TV revenues. The other risk is that Comcast fails to attract large numbers of millennials, who purchase separately branded TV entertainment from commodity internet services to replace aging baby boomers, who bought both services together.

Cord cutting and cord shaving is a growing and very real phenomenon. Pay TV declined for the first time in the first quarter of 2015, and Tivo subsidiary Digitalsmiths reported that last year 8.2% of cable subscribers had cut the cord, growing by 18% over the prior year. This is just the beginning of new strategies and tactics by Comcast to adapt to the rapidly changing landscape of television and entertainment.

This story, "How Comcast is changing tactics in response to cord cutters" was originally published by Network World.

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