Are adoption curves already signaling the end of broadband growth?

When I read a recent industry news article reporting that cable modem growth slowed during the fourth quarter of 2003, I immediately began to wonder if this meant that broadband is already a maturing market. Does it mean that healthy triple- and double-digit growth rates are already behind us? Or is this but a one-quarter anomaly in a steady stream of further growth in broadband adoption?  And what might this slowing mean for cable modem's major competition, DSL?

According to that same article, DSL growth expanded over the same period. But DSL deployment had several quarters of slowed growth before the more recent expanded commitment to DSL by the ILECs. No matter the answers to the subsequent questions, a slowing of growth should not be ignored, and everyone who has a vested interest in broadband being a major contributor to a rosy future for the industry should consider its implications and make certain their broadband strategies, plans and programs can continue to support a growth trajectory.  This goes beyond service providers--cable and telephony--and certainly includes the network infrastructure and client device vendors as well as the billing, customer care and OSS suppliers, all of whom are counting on broadband making positive contributions to profitability in the present and in the future.

Most if not all of us have some familiarity with adoption curves, like the bell-shaped curves popularized in Geoffrey Moore's technology business classics "Crossing the Chasm" and "Inside the Tornado." We're familiar with the terms "early adopters," "early majority," "late majority" and "laggards" as they relate to technology adoption. What do adoption curves have to say about cable broadband specifically and broadband adoption in general, and what should service providers--both cable and telephone--be doing to take advantage of any offered opportunities?

Let's examine the consumer broadband market in light of potentially slowing growth rates and implications from adoption curves. Cable modem broadband service has attained about a 30% share of cable homes (about 16 million subscribers) and still has more than two times the number of DSL subscribers. The total of broadband subscribers amounts to less than 20% of all households and is also less than one-third of the homes with Internet connections. So it appears somewhat surprising that growth should be showing signs of slowing. Are there reasons beyond adoption curves affecting adoption below rates we might expect?

Compared to cellular, with over 120 million U.S. subscribers, on the surface broadband should have further growth opportunities. I know that comparing broadband with cellular is an apples-and-oranges comparison, but the relative numbers of subscribers and penetration rates suggest that broadband still has a way to go. The challenge for broadband service providers is to find ways to extend the adoption to homes still without broadband, especially if the slowing growth rate indicates that the early adopters and many of the early majority are already connected and the late majority and laggards need to be addressed. Are the right homes available to be connected? Are the remaining required investments fungible?

Historically, adoption curves indicate that moving into a mature market is not all bad, because it is in the more mature mass market stages where profits are usually generated--after the major investments are made, awareness is built and Metcalfe's Law makes it valuable for more customers to jump onboard.

So what does the broadband industry need to do to grow and become highly profitable? Here are some steps worth considering, speaking as an industry consultant:

• Evaluate, via small market tests, whether price reductions will be elastic or inelastic--i.e., will more subscribers buy at reduced prices--increasing the size of the pie.

• Determine whether upgraded infrastructures allow for further economic deployment to greater portions of the total market.

• Test to determine where bundles are a defensive (protect existing customers) or an offensive (capture new customers) strategy, and learn where and how each can be applied appropriately, to grow market share, penetration and profitable revenue.

• Determine if additional services such as VoIP, collaboration, video-on-demand, etc. can further expand the take-up and profitability of broadband.

• For cable companies, determine if wireless services can be a positive addition to a cable-based bundle.

• For wireline companies, determine how adding video services (via satellite partnerships) can be a positive addition to a telephony-based bundle.

• For independent wireless companies, determine how and where to effectively use broadband data as an additional service to capture new customers and generate profitable incremental revenue.

All players in broadband should be examining the market dynamics and continued growth opportunities to be certain that they are making good investments to improve their market position.

David H. Yedwab is Executive Vice President of The Eastern Management Group, Bedminster, NJ. He can be reached at dyedwab@easternmanagement.com.

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