At a time when many communications companies and the analysts who cover them think there is no future for their consumer businesses, a new survey by Mercer Management Consulting finds pent-up demand for next-generation consumer services that represent an important opportunity for profitable growth.

John Hanson, a Mercer director who led the consulting firm's study entitled "Next-Generation Demand for Communications Services," comments that with broadband and wireless now widespread, consumers are reevaluating ideas that once seemed impractical and futuristic in narrowband. He states that the industry should follow their lead and take a fresh look as well. "There are new services, each with 10 percent to 15 percent penetration or higher, which could materially change the economics of the current telecom and cable companies," Hanson says.

For example, 43 percent of consumers in Mercer's survey say they're interested and willing to pay to receive one bill at a discount for a bundle of electric, gas and other home utilities. Some 37 percent of the consumers polled express a demand for connected home network services. Even landline video phones, which have been discussed for decades, now show latent demand among 11 percent of consumers. What's more, the survey indicates that consumers would choose regional telecom and cable firms to provide such services over other types of companies.

Mercer received responses from a random sample of 900 consumers throughout the U.S. via the Web. The respondents ranked almost 20 new services according to their interest and willingness to pay at a given price. They also answered questions about their purchases, technology habits, and demographics so that each new service could be matched to a profile of likely buyers.

Among the new services considered are these (with the percent of respondents indicating that they are extremely or very interested):

  • Home utility service bundles at a discount 43 percent
  • Self-designed home bundles 43 percent
  • Connected home network services 37 percent
  • Enhanced TV / movies / audio on demand 34 percent
  • Virtual home office manager 15 percent
  • Landline video phone 11 percent

Some service providers are already pursuing different "flavors" of bundling. And while no one service is large enough to be considered a breakthrough offering, collectively they represent significant growth potential, the Mercer study shows. Currently, the average monthly spending among these consumers for all phone, Internet, and TV services is $165. The new services would add between $41 and $63 in revenues per month.
"Various companies have made forays into similar services in the past without success," Hanson says. "What's different now is that the enabling technologies are in place and innovative players have begun to develop and market new offerings." For instance, he says, Cox is offering voice service over its broadband cable system and SBC is getting ready to market video services.

While the potential profitability of individual services varies widely, Mercer conservatively estimates the average monthly EBITDA (earnings before interest, taxes, and dividends) of incremental services at roughly $19 per customer, representing a major opportunity for profitable growth.

Since no provider has yet established dominance in these new services, there is a window of opportunity to establish a leading position. Hanson points out that regional telecom and cable firms currently have an edge over their competition because of their proven network capabilities and service delivery skills, their broad customer base, and their established brands. For instance, consumers surveyed overwhelmingly prefer their regional telecom provider over long-distance, cable, wireless, and Internet service providers when it comes to delivering a self-designed, home bundle service, but strongly prefer cable firms for the TV/movies/audio on-demand service.

"Telcos should stop worrying about where they'll find the next $50 billion 'silver bullet' offering and look at what consumers are telling them now," Hanson says, while noting that "companies in any other consumer industry would get very excited about a new offer that can penetrate 10 percent of all U.S. households."

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