Market Insight

Com Hem continues to lose triple play subscribers

May 27, 2013

Martyn Hannant Martyn Hannant Manager – Research and Analysis, Service Providers & Platforms
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Com Hem, Sweden's largest cable operator, reported an 11 per cent decline in triple-play customers in Q1 2013 compared to the same quarter last year.

The number of direct customers taking triple-play services stood at 254,228 at Q1 2013, mainly due to a decline in fixed telephony customers, which fell eight per cent from 369,505 to 339,494 year-on-year. The cable company blamed fixed to mobile substitution from higher smartphone penetration and an increasingly competitive environment as the key reasons behind these declines. In addition, Com Hem reported a slight drop in cable broadband customers from 550,056 in Q1 2012 to 542,399 in Q1 2013.

Com Hem has also experienced difficulties in growing its digital subscriber base over the last few quarters. At the end of the first quarter of 2013, Com Hem had 613,272 subscribers to its digital pay TV services. This follows a period of decline in the first half of 2012, following churn of digital customers back to analogue TV after an aggressive promotional period in late 2011. Com Hem's digital subscriber base has since stabilised, but has failed to reach its previous high of 658,400 at the end of 2011. The result of this has been a slight decline in digital pay TV revenue from Skr425.18m (€47.05m) in Q1 2012 to Skr420.86m (€46.58m). This was offset however by increased digital ARPU, which was up 5.2 per cent on the previous year, due to price rises for digital TV services.

Despite the declines in digital pay TV and bundled customers, Com Hem managed to add 28.1k homes connected in the quarter, primarily from its dealings with landlords and housing associations. In addition to this, blended ARPU per unique subscriber increased from Skr352 (€39) in Q1 2012 to Skr355 (€39.3) in Q1 2013. Com Hem's ARPU growth in the last year has been largely driven by the digital TV price increases, and some migration of internet subscribers to higher broadband speeds.

Com Hem is addressing declines in digital TV and telephony customers with product investments in cross-platform gateway TiVo and a smartphone application enabling voice over Wi-Fi. The decision to launch TiVo is a particularly interesting move since Com Hem is to position this as an entry level product, as opposed to its usual guise as a high-tiered product. The success of this strategy is likely to depend on the pricing of the product and the richness of the content offering. A further challenge will come from converting the predominantly analogue base of landlords and housing associations, which make up around 54 per cent of Com Hem's homes connected. The commercial launch of TiVo is expected in Q3 2013. As a result, a significant increase in digital TV subscribers may not be realised for a few quarters yet. Digital TV ARPU may not experience notable changes either. In its results conference call, the cable operator stated that it sees limited headroom for price increases in digital TV during the rest of 2013, due to the competitive environment created by other pay TV operators and OTT services.

The introduction of voice over Wi-Fi using smartphone apps in January 2013 was a defensive move against the threat of mobile substitution by introducing a service fixed-telephony subscribers can use on smartphones. However, if fixed telephony subscribers continue to decrease, it may result in a move away from the traditional triple play combination of TV, fixed internet and fixed telephony for Com Hem. Instead, IHS expects it may increase its focus on bundling TV with high speed broadband services, which continue to generate ARPU. While the exact positioning of TiVo is still unclear, it is likely that this will also be incorporated into a bundling strategy.  If sufficient revenue can be generated from both TiVo and voice over Wi-Fi, Com Hem will be able to reverse the downward pressure on revenue that the reduced demand for digital TV and bundles is influencing. In addition, while mainly analogue (and hence lower ARPU), landlord arrangements remain a relatively stable source of income for Com Hem, and will partially offset its direct subscriber losses to help maintain its leading market position.

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