FTTP Feasibility Study. Task 3 Report: Broadband Market Demand

Transcription

1 FTTP Feasibility Study for The City of Fort Collins Task 3 Report: Broadband Market Demand August 2016 Uptown Services, LLC Dave Stockton & Neil Shaw, Principals

2 This report summarizes the research findings of 3 specific market segments in Ft. Collins: 1. Residential Market Quantitative Survey Design Consumption Patterns Satisfaction & Attribute Importance Demand Estimation 2. Small Business Market Same as residential 3. Large Business Market Depth Interview Participants Current Service Configuration and Price Levels Available Service Features and Needs Satisfaction & Attribute Importance Demand Estimation 2

3 Residential Quantitative Survey Current Broadband Services Usage

4 Area of Interest: Universe of 60,000 households (HHs) Total sample size of 400 respondents 95% Confidence Interval with ± 4.9 sample error) Results weighted to reflect Ft. Collins actual age distribution from 2010 Census data (age of householder) Respondents screened to ensure Decision-maker for telecommunications and entertainment services in the home Respondents with immediate family members employed by any of the following were excluded: The City of Fort Collins CenturyLink Comcast 4

5 99% of Fort Collins households use the Internet at home Cable Modem and DSL have the vast majority of market share at 94% Incidence of Internet Households 1% 99% No Internet Have Internet Internet Market Share (Households) 4% 2% 37% 57% Dial Up DSL Cable Modem Satellite Other 5

6 Comcast and CenturyLink are the only two ISPs with material market share in Fort Collins 30% Monthly Internet Spend Stated average monthly Internet spend is $46 per household 20% 10% 0% < $30 $30 $40 $50 $60 $70 > $70 Internet Access Provider Market Share 61% 37% 1% 0% 1% Comcast CenturyLink FRII Rise Broadband Other 6

7 Incidence of No Internet by Income Internet usage is prevalent across all income and age groups Overall, the type of Internet does not vary significantly across age groups 20% 15% 10% 5% 0% Up to $50k $50k - $100k $100k - $150k $150k - $200k > $200k 20% Incidence of No Internet by Age 80% Internet Type by Age Cable Modem DSL Satellite 15% 60% 10% 40% 5% 20% 0% 0%

8 Wireless substitution is lower than the national average at 24% of HHs A further 9% of wireline phone users will drop for wireless in the next 12 months The average number of lines is: All Households: 0.9 Wireline Households: 1.1 Q12: How likely are you to disconnect the wired phone line and only use your cell Definitely Will 6% 46% 41% Number of Phone Lines in the Home 24% 42% 64% National Average Longmont Ft Collins 7% 8% 6% 5% None or More Source: National Health Interview Survey, July-December 2013 Households Without Wireline Phone Service by Age 67% Probably Will 12% Might/Might Not 14% Probably Won't 24% 16% 14% 10% 6% Definitely Won't 44%

9 CenturyLink still maintains market share leadership of the residential voice market Stated residential spending on local phone service averages about $34 monthly per HH Q8: Who is your local phone service provider? 0% 24% 32% 44% CenturyLink Comcast TDS No Wireline Monthly Local Phone Spending 30% 20% 10% 0% $20 $30 $40 $50 > $50 DK 9

10 Only 68% of households use traditional pay TV (cable or satellite dish) In Fort Collins today, 32% of households do not have Pay TV The national average for HHs without Pay TV is 24% (Pew Research) Stated average monthly spend: Cable: $70 Satellite: $68 Q2: For TV service, do you have 10% 14% 8% 24% 44% Cable Satellite Off Air Online Other/None Monthly Pay TV Spend 40% 30% 20% 10% Cable Satellite 0% $25 $50 $75 $100 $125 + Don't Know 10

11 Over-the-Top (OTT) or online TV viewing has recently become a material substitute service for traditional cable TV with a majority of households using OTT Among younger households, up to 35% are using OTT or Off Air as a substitute service Uptown estimates a further 7% of pay TV users in Fort Collins will cut the cord in the next 12 months Households Using Substitute Service In Place of Pay TV by Age Q6: Do you sometimes watch TV online? (Among Pay TV Households) 36% Yes 63% No Likelihood of Cancelling Pay TV for OTT (among all pay TV users) 23% Definitely Not 41% 12% 15% 15% 15% 9% 5% 1% 2% 14% Probably Not Might/Might Not Probably 7% 16% 31% Definitely 5% 12/23/2016 Online Off-Air Study conducted by Uptown Services, LLC 11

12 Across all households in Fort Collins 40% have all 3 services from a single provider. This is higher due to incidence of wireline voice service The importance of bundling is low when compared to our 2013 Longmont survey Importance of Having All 3 Services from a Single Provider (Among All Respondents) Incidence of Triple Play Bundle 20% 40% 40% 19% 18% Ft Collins Longmont 30% 29% 22% 20% 13% 10% 24% 15% Have All 3 Services From Multiple Providers Have All 3 From Single Provider Do Not Have All 3 Services Very Important Somewhat Important Neither Somewhat Unimportant Very Unimportant 12

13 Satisfaction Rating by Service/Service Provider (Mean Rating on a 1-10 Scale) Ft Collins 5.7 Longmont Cable TV Satellite TV Non-Pay TV DSL Cable Modem Telephone Utility Satisfaction Rating by Service/Service Provider (Percent Rating a 9 or 10 ) 80% 64% 65% 60% 40% 20% 23% 20% 36% 31% 29% 23% 12% 15% 19% 23% 41% 31% 0% Cable TV Satellite TV Non-Pay TV DSL Cable Modem Telephone Utility 13

14 9 The chart below compares the results of this study with 24 other markets where Uptown has completed similar quantitative research: Northern Ohio (2) Washington North Carolina Oregon (2) Southern Ohio Wisconsin Kansas (2) Alabama Georgia Oklahoma (2) New York Arkansas Tennessee (4) Michigan Kentucky Colorado (2) Satisfaction Rating by Service/Service Provider (Mean Rating on a 1 to 10 Scale) Cable Satellite TV DSL Cable Modem Telephone Utility 12/23/

15 While reliability and price are always important, Internet speed has dramatically increased in importance over the last several years. Bundling and Brand are secondary in importance to other attributes Importance Rating of Select Broadband Service Attributes (Mean Rating on a 1-5 Scale) Brand Service Bundle Customer Service Ft Collins Internet Speed Price Reliability Longmont 15

16 Question 33: What aspect of Internet speed is most important? Importance of Internet Speed on Download vs. Upload 59% 59% 37% 34% 1% 4% Download Most Important Upload Most Important Both Important Ft Collins Longmont 16

17 Lower prices and increased Internet speed dominate the wish list for services improvement as Internet speed has gained importance Q32: What would you like to see most improved from your current broadband services? Lower Prices 37% 49% Increased Internet Speed 29% 34% Reliability Nothing 10% 16% 15% 34% Longmont Ft Collins Customer Service 9% 10% Channel Selection 6% 4% Bundling Service 1% 17

18 Question 29: In your opinion, is the availability of low-cost, high-speed Internet important to the future local economy? Importance of Having Low Cost High-Speed Internet Ft Collins Longmont 81% 68% 14% 25% 2% 4% 2% 2% 1% 1% Very Important Somewhat Important Neither Somewhat Unimportant Very Unimportant 18

19 Over half of Ft Collins households support the payment of a monthly $5 surcharge to help fund the new fiber network Q34: Would you support adding a $5 monthly fee to your electric bill to partially fund the construction and operation of this network for the first 24 months of operation? Ft Collins Longmont I would support 43% 57% I would be neutral 21% 35% I would not support 22% 22% 12/23/

20 Residential Quantitative Survey FTTP Market Potential

21 70% of respondents indicated they would definitely or probably switch to the FTTP system for Internet service Q25-27: How likely would you be to subscribe to [insert service] if it were 10% less than Comcast or CenturyLink charges? 100% 75% 50% 25% 0% Internet Phone Video Definitely 40% 25% 19% Probably 30% 31% 32% Might/Might Not 19% 17% 19% Probably Not 6% 11% 17% Definitely Not 3% 13% 10% Don't Know 3% 3% 3% 21

22 Uptown uses a Likert Scale with Overstatement Adjustment Conservative research techniques from the Packaged Goods sector Clearly specify purchase intent vs. interest and removes overstatement bias Example: How likely would you be to subscribe? Definitely Would 21.5% x 70% = 15.0% Probably Would 35.6% x 30% = 10.7% Might/Might Not 20.0% x 10% = 2.0% Probably Would Not 10.4% 27.7% = Penetration Estimate Definitely Would Not 4.4% Don't Know 8.1% Residential (Terminal / Year 5 Eroded) Longmont (Terminal) Video 24.6% / 20.9% 23.2% Internet 38.8% 36.4% Telephone 28.6% / 14.3% 19.6% 22

23 Expected Internet purchase intent by current connection type: Cable Modem User: 43% would switch DSL User: 36% would switch Satellite User: 36% would switch Purchase Intent by Internet Connection (Top Two Box at 10% Discount) 47% Cable Modem DSL Satellite 33% 35% 36% 27% 26% Current Internet Market Share (Households) 4% 2% Definitely Would 2% 2% Probably Would Internet Market Share Post FTTP System (Households) 37% 33% 39% 57% 24% FTTP System DSL Cable Modem Satellite Other FTTP System DSL Cable Modem Satellite Other December 16 Study conducted by Uptown Services, LLC 23

24 The majority of respondents, when given the choice, would prefer to receive high speed Internet from the City Q28: Among the following list of potential providers, who would you prefer to receive high-speed Internet service from? Ft Collins Longmont 52% 45% 11% 9% 15% 12% 4% 3% 8% 23% 19% 24

25 In terms of both preference for the City as well as purchase intent, younger households (20-34) place the greatest value on the fiber project and the City s role 88% 78% 78% 81% 71% 54% 51% 49% 44% 43% 37% 34% 35% 32% 23% Prefer City As Provider Low Cost High Speed Internet 'Very Important' Definitely' Subscribe 25

26 Question 31: In stating that you would definitely or probably subscribe to the fiber network for Internet service, what is the primary reason you would switch? 36% 39% 20% 4% Prefer City as Provider Prefer the Lower Price Prefer Higher Capacity Other Reason 26

27 Terminal Penetration by Service (Across all Tested Price Points) 50% 40% 30% 20% 10% Video Internet Phone 0% Market A Market B Market C Market D Market E Market F Market G Market H Market I Market J Market K Market L Market M Market N Market O Market P Market Q Market R Market S Market T Market U Market V Market W Market X Market Y Market Z Ft Collins 27

28 Business case projections for voice penetration reflect the quantitative research outcome and reflect ongoing wireless (voice) and OTT (video) substitution within the residential segment 45% Service Penetration (By Year Since Launch) 40% 35% 30% 25% 20% 15% 10% 5% 0% Year Phone Video Internet 28

29 Internet Penetration (By Month Since Launch) 50% 40% 30% 20% 10% 0% Month Sallisaw, OK Morristown, TN Pulaski, TN Wilson, NC Tullahoma, TN Murray, KY Bristol, VA Ft Collins Forecast 29

30 Phone Penetration (By Month Since Launch) 30% 25% 20% 15% 10% 5% 0% Month Sallisaw Morristown Pulaski Wilson Tullahoma, TN Bristol, VA Ft Collins Forecast 30

31 Video Penetration (By Month Since Launch) 60% 50% 40% 30% 20% 10% 0% Month Sallisaw, OK Morristown, TN Pulaski, TN Wilson, NC Tullahoma, TN Jackson, TN Murray, KY Columbia, TN Bristol, VA Ft Collins Forecast 31

32 Internet Penetration (By Month Since Launch) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Month Sallisaw, OK Morristown, TN Pulaski, TN Wilson, NC Tullahoma, TN Clarksville, TN Murray, KY Salisbury, NC Bristol, VA LPC LPC - All Premises LPC - Serviceable Premises December 16 Study conducted by Uptown Services, LLC 32

33 Small Business Quantitative Survey Current Broadband Services Usage

34 Area of Interest: Universe of 7,000 small business establishments Establishments with 0-19 employees Total sample size of 50 respondents Respondents screened to ensure Decision-maker for telecommunications services at the business Have Internet Located within city limits and not home-based Respondents with immediate family members employed by any of the following were excluded: The City of Fort Collins CenturyLink Comcast 34

35 Monthly Internet Spend Comcast and CenturyLink are the only two ISPs with material small business market share in Fort Collins Stated average monthly Internet spend is $98 per small business 30% 20% 10% 0% Internet Access Provider Market Share Subscribed Download Speed 54% 42% 26% 34% 14% 1% 0% 2% 6% 2% 8% 8% 2% 35

36 CenturyLink still maintains market share leadership of the small business voice market Stated spending on voice service averages about $370 monthly per small business Average number of lines per business is % Number of Phone Lines at the Business (Among establishments with wireline voice) 15% 26% 15% 13% 6% 13% Q8: Who is your local phone provider? 6% 2% Monthly Local Phone Spending 16% 48% 28% CenturyLink Comcast Other No Wireline Don't Know 40% 30% 20% 10% 0% 36

37 Only 24% of small businesses have pay TV at their business Stated average monthly spend is $71 Q2: For TV service, do you have 22% 2% 76% Cable TV Satellite None Monthly Pay TV Spend 60% 50% 40% 30% 20% 10% 0% $50 $100 $150 Don't Know 37

38 Two-thirds of small businesses in Fort Collins are under contract for both their Internet and voice service. Incidence of Provider Contracts 26% 2% 6% 66% Both Internet and Voice Internet Only Voice Only No Contract 38

39 Satisfaction Rating by Service/Service Provider (Mean Rating on a 1-10 Scale) Pay TV Internet Voice Utility Satisfaction Rating by Service/Service Provider (Percent Rating a 9 or 10 ) 80% 78% 60% 40% 20% 8% 28% 24% 0% Pay TV Internet Voice Utility 39

40 While reliability and price are always important, Internet speed has dramatically increased in importance over the last several years. Bundling and Brand are secondary in importance to other attributes Importance Rating of Select Broadband Service Attributes (Mean Rating on a 1-5 Scale) Brand Customer Service Internet Speed Price Reliability Small Business Residential 40

41 Question 25: What aspect of Internet speed is most important? Importance of Internet Speed on Download vs. Upload 76% 59% 37% 16% 4% 1% Download Most Important Upload Most Important Both Important Small Business Residential 41

42 Lower prices and increased Internet speed dominate the wish list for services improvement as Internet speed has gained importance Q23/32: What would you like to see most improved from your current broadband services? Lower Prices 32% 37% Increased Internet Speed Reliability 34% 34% 34% 48% Nothing Customer Service 10% 10% 10% 10% Residential Small Business Channel Selection 4% Bundling Service 1% 42

43 Comcast and CenturyLink are the only two ISPs with material small business market share in Fort Collins Q24: What level of Internet download speed would you want if the following were available to your place of business? 36% 26% 12% 18% 2% 6% Same As Have Now 20M 50M 100M 1G Don't Know 43

44 88% of small businesses indicated they would definitely or probably switch to the FTTP system for Internet service Q19-21: How likely would you be to subscribe to [insert service] if it were 10% less than Comcast or CenturyLink charges? 100% 75% 50% 25% 0% Internet Phone Video Definitely 44% 38% 12% Probably 44% 44% 14% Might/Might Not 10% 12% 16% Probably Not 2% 6% 10% Definitely Not 46% Don't Know 2% 44

45 Residential (Terminal / Year 5 Eroded) Small Business (Terminal / Year 7 Eroded) Video 24.6% / 20.9% (Year 5) 14.2% / 11.2 (Year 7) Internet 38.8% 45.0% Telephone 28.6% / 14.3% 41.0% Diffusion % (Years 1-7) 0 / 45 / 75 / 90 / 100 / 100 / / 25 / 50 / 70 / 80 / 90 /

46 The majority of respondents, when given the choice, would prefer to receive high speed Internet from the City Q28: Among the following list of potential providers, who would you prefer to receive high-speed Internet service from? Small Business Residential 36% 45% 24% 24% 23% 11% 6% 15% 2% 4% 4% 0% 0% 0% 2% 0% 2% 3% 46

47 50% Service Penetration (By Year Since Launch) 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Year Phone Video Internet 47

48 Large Business & Institutions

49 Internet Access Metro Ethernet (Transport) Dedicated Internet (Access) Market Segment Network Architecture Potential Market Size Small Businesses and Medium/Large depending on sector Last Mile (Copper, Coax, or Fiber) Majority of connections (90% of all premises) Medium to Large Business and Institutions Last Mile or Middle Mile (Fiber lateral to ring) Typically less than 100 connections per urban market Connection Type Shared bandwidth (GPON) Dedicated Private Circuit(s) or MAN Dedicated bandwidth (ActiveE) Typical Data Service Set Standard Internet tiers up to 1G Point-to-point transport from 100M to 10G+ Dedicated access bandwidth from 100M to 10G+ December 16 49

50 Typical High Capacity Needs and Desired Service Attributes Infrastructure Availability: Fiber is the Standard Dedicated Capacity: Superior to shared bandwidth connections Competitive Pricing Service Experience: Reliability, Customer Service, and Responsiveness Network Integration: Select firms require national/global tier 1 provider High Capacity Providers in Fort Collins Infrastructure & Bandwidth: FRII, Comcast, CenturyLink, Level3, PRPA Bandwidth: FRII, Comcast, CenturyLink, Level3, PRPA, AT&T, Integra December 16 Study conducted by Uptown Services, LLC 50

51 Qualitative assessment of large business market in Ft. Collins 24 Depth Interviews of minutes Responses aggregated for confidentiality Identify key market characteristics Fiber availability, capacity needs, performance criteria Current price levels, use of contracts, and connection requirements Estimate potential market share Satisfaction and switching criteria Openness to City-provided fiber services December 16 Study conducted by Uptown Services, LLC 51

52 Health Care Univ. of Colorado Health Services Press One Customer Care Exponential Engineering Neenan Archistruction Brinkman Construction Retail Goods New Belgium Brewery Odell Brewing Co. Technology Riverside Technology Numerica Wolf Robotics Woodward Inc. Technigraphics (CACI) Air Resource Specialist Broadcom CSI Web Education/Government Poudre School District Poudre River Library District Colorado State Univ. Other Fort Collins Chamber of Commerce Manufacturing Rodelle Tolmar Forney Industries In-Situ Retail Service Provider FRII December 16 Study conducted by Uptown Services, LLC 52

53 Nationally, aggressive rollouts of fiber by incumbent and alternative providers have substantially increased the availability of fiber to commercial buildings "The majority of new fiber deployments were focused on connecting medium and smaller buildings in the metro areas surrounding major cities across the U.S. Broader accessibility to on-net fiber has started to shake up the services markets. - Rosemary Cochran, principal at Vertical Systems Group Percentage of Commercial Buildings Served by Fiber (Total U.S. Buildings with 20+ Employees) 43% 39% 32% 28% 19% 11% Source: Vertical Systems Group, April 2015 December 16 Study conducted by Uptown Services, LLC 53

54 Due to multiple incumbent providers competing for the commercial segment, fiber has been deployed to most business locations and is heavily utilized. Advanced data needs are being met, but businesses will consider the City as a provider option Fiber Available? 19 1 Have Fiber? 17 3 Dedicated Connection? 24 8 Have Redundancy? 15 5 Yes Have Unmet Needs? 1 19 No Under Contract? 17 3 Will Consider the City? % 20% 40% 60% 80% 100% December 16 Study conducted by Uptown Services, LLC 54

55 Satisfaction levels are moderate and higher for alternative providers Average satisfaction is 3.7 in Fort Collins Average satisfaction in Pasadena is 3.4 Four providers were rated by 3 or more firms Satisfaction Rating by Service/Service Provider (Mean Rating on a 1-5 Scale) Reasonably Satisfied Reliability Technical Knowledge Areas for Improvement Proactive Service Local Staffing/Support Level3 FRII Comcast CenturyLink Primary Providers in Fort Collins PRPA City of Ft Collins AT&T 3.5 Integra 3.0 = Less than 3 responses December 16 Study conducted by Uptown Services, LLC 55

56 Among selection factors, reliability and cost rank highest, likely a result of the commoditization of high cap services 5.0 Broadband Provider Selection Criteria Importance (Mean Rating on a 1-5 Scale) Brand VAS Local Support Technological Superiority Redundancy Customer Service December 16 Study conducted by Uptown Services, LLC 56 Cost Reliability

57 $120 Price levels in Fort Collins benchmark as high for capacities below 200M but are more competitive at higher capacities. Average spending per connection is $1,575 per month $100 $100 $100 $80 Fort Collins Dedicated Access $60 $63 $63 Fort Collins Shared Access Pasadena $40 $46 $43 $35 $36 Typical Municipal $20 $0 5 $20 $25 $19 $15 $12 December 16 Study conducted by Uptown Services, LLC 57 $3 $20 $8 $9 $10 $2 $4 $4 $ Source: Fort Collins Depth Interviews among 23 commercial institutions (2016) and Pasadena Depth Interviews among 19 commercial institutions (2014).

58 Large businesses in Fort Collins are moving away from traditional voice circuits and onto VoIP platforms that move traffic onto the firm s data connection. Average cost per analog line (1FB): $50 per month Average cost per PRI circuit (1FB): $400-$500 per month Voice Solution Type (% of Respondents) 28% 11% 11% 50% 1FBs PRI Hosted PBX VoIP over Data 58

59 Percentage of Respondents by Motivation Choice (Closed Ended with 3 Options) 62% 33% 5% City Revenue Diversification New Tech. and Econ. Development Provide Better Service 59

60 Research Findings: Fiber is widely available and there is a high incidence of dedicated access via fiber Most firms have sufficient bandwidth currently, but some would upgrade if cost effective Telecom and broadband needs are being met, but firms are open to considering the City network for a data connection. Lower price is a key switching factor for these firms Some firms will wait to evaluate the track record of the FTTP system Pro Forma: Estimate the dedicated access market as 5% of the all commercial entities ( 400) with penetration growing to 20% by Year 8. High incidence of dedicated access, but competitive. Estimate ARPU at $1,500 per connection to reflect 30% discount (at tiers of 500M+) Voice services can be delivered via PRI, analog lines, and hosted PBX solutions, but migration to VoIP over the data connection will limit long term revenue potential. December 16 Study conducted by Uptown Services, LLC 60

61 The two incumbents have the vast majority of market share for both Internet and voice services in Fort Collins Satisfaction for Internet and voice service benchmarks low. Video is average. Top market needs are: Mass Market: Lower prices, increased Internet speed, and improved reliability Complex Market: Lower prices and carrier-grade reliability Mass market purchase intent is very high and exceeds Longmont survey metrics Complex market needs are being met, but price levels are high up to 200M Strong provider preference for the City within the mass market. The complex market is open to considering the City FTTP network as a provider option. The project appeal and purchase intent is strongest among younger households December 16 61