Market Insight

Com Hem betting on TiVo and broadband upgrades to counter subscriber losses

August 27, 2013

Martyn Hannant Martyn Hannant Manager – Research and Analysis, Service Providers & Platforms
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Declining subscriber bases and falling ARPU are beginning to exert downward pressure on revenue for Swedish cable operator Com Hem. Compared to the second quarter of 2012, total quarterly revenue decreased 3.5 percent to Skr1,108 (€123m) for Q2 2013. This has resulted in a revenue decline for the first half of 2013. H1 2013 revenue decreased 2.3 percent on half year revenue in 2012, standing at Skr2,231m (€247m). Blended ARPU for the second quarter was also down at Skr361 (€40) - a 2.9 percent decrease on the Q2 2012 figure. This marks the first year-on-year fall in quarterly ARPU since the initial signs of subscriber decline in Q1 2012.

At 30 June 2013, Com Hem had 606,000 direct digital pay TV subscribers, down 2.4 percent on the second quarter of 2012. Fixed telephony subscribers fell 7.3 percent to 334,000 over the past year while internet subscribers were down 0.2 cent , with total unique subscribers dropping from 835,000 in Q2 2012 to 822,000 in the second quarter of 2013. This in turn has had a knock-on effect on triple-play, where subscribers fell 10.5 percent to 247,000. Continued fixed to mobile substitution in the telephony space remains the key factor in this triple play decline. Com Hem's landlord business remained steady, with total homes connected increasing year-on-year from 1,749,316 to 1,777,042.

Despite the decline in revenue from its falling RGU base, Com Hem's adjusted EBITDA was up slightly on the previous year at Skr550m (€61m). The main reasons given for the decreased cost base were lower content costs relating to the fall in digital TV, decreased sales costs and the timing of marketing campaigns.

While the decline in pay TV, internet and telephony RGUs compared to the first quarter was more dramatic in 2012, it was not accompanied by a fall in blended ARPU, as seen in Com Hem's latest quarterly results. Published ARPUs for each service show that digital TV and fixed telephony were indeed the main factors towards the overall fall. Pay television ARPU was down 3.8 percent on Q2 2012 to Skr225 (€25), while fixed telephony decreased 11.2 percent to 105 (€12). According to the operator, the decline in digital pay TV ARPU has been due to a change in subscriber package mix, suggesting that subscribers are shifting towards lower-tiered packages. This suggests that the planned improvement to digital services from the imminent commercial launch of Com Hem's TiVo service will be well timed. The platform was soft-launched on 14 August, and is due for a commercial roll-out at the end of the third quarter. TiVo has so far proved successful for Virgin Media in the UK and Ono in Spain, with penetration of the service reaching 44 percent of Virgin Media's subscriber base, and 26 percent of Ono customers. This performance suggests that it can be an effective tool for customer loyalty to a certain extent, and can work as an ARPU uplift strategy. However, it must also be noted that in both the UK and Spain TiVo has not completely eradicated digital TV churn. If TiVo is successful for Com Hem, it will stave off downward migration of digital subscribers and ease off the increased churn to OTT services. According to Com Hem, there have been 45,000 pre-registrations since the soft launch, which is in line with the initial uptake of the service in its other Western European markets.

In addition to the upcoming launch of TiVo, Com Hem has recently announced a new broadband product offering download speeds of 500 Mbps. This is a strategy which provides an opportunity to offset the declines in digital TV and telephony ARPU with higher broadband ARPU. Broadband ARPU has lately proved to be fairly resilient in comparison to digital TV and telephony, having increased 1.1 per cent on the second quarter of 2012. According to the latest results, Com Hem have also experienced increased demand for higher broadband speeds over the past year, implying that this area indeed has potential for ARPU uplift.

Organization
Com Hem
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