Study: RBOC video bundles priced too high

The new satellite video bundles offered by RBOCs are not priced aggressively enough to prevent their competitors in the cable industry from continuing to dominate the residential triple-play market, according to a new study released by the Convergence Consulting Group.

That’s not to say RBOC satellite video bundles are necessarily more expensive than cable bundles. On the contrary, though cable players generally offer more speed for a given price, RBOC bundles are priced slightly below higher-speed cable bundles in some cases and effectively match their prices in many other cases. And SBC, whose bundles effectively match competing cable bundles, according to Convergence, recently matched cable’s data speeds with the 3-Mb/s service it announced last week.

But given the cable industry’s history of selling video and a few disadvantages specific to satellite services—satellite subscribers have to buy more receivers and other equipment, for example—satellite bundles would have to be priced lower to offset cable’s advantages, the consultancy said.

"[RBOC satellite video bundle prices] probably have to come down at least another 10% to really cause damage effectively to the cable companies," said Convergence president Brahm Eiley, adding that RBOCs probably won’t opt to make such price cuts. "These are really excellent first goes by Verizon [Communications] and Echostar and they’re going to do well by them, but the cable companies are not going to take this lying down."

RBOCs have lowered their bundle prices and raised their broadband speeds recently (Qwest introduced a 1.5 Mb/s service and lowered its prices, SBC is now offering 3 Mb/s broadband and Verizon is offering 1.5 Mb/s for $35 a month), but cable companies have been not only increasing their broadband speeds but using promotional pricing to hold on to their lead. For example, Time Warner offered its residential broadband for $27 a month for one year in Kansas City last year to compete with SBC’s bundles, Eiley said.

Convergence predicts the North American cable industry will continue to add more residential subscribers than the DSL industry each year, as it did in 2003, when residential cable subscribers grew by 4.85 million and residential DSL subscribers grew by 2.7 million. In 2004, cable will add another 4.7 million subscribers while DSL adds another 3.35 million, Convergence said.