HDTV is the horse to bet on in the race for better ARPU.

BY TIM DODGE

Few businesses have enjoyed the rapid growth and sustained acceptance of cable. The cable industry grew from a handful of subscribers in 1948 to over 60 million in the 1990s. During that time, the cable industry was able to increase its average revenue per user (ARPU) regularly with such services as expanded channel lineups and premium subscription packages. Content, not technology, defined the successful cable business model.

Today, that is changing. Programming has become ?commoditized,? with both cable and direct broadcast satellite offering a broad selection of programming packages to meet a wide variety of consumer tastes. It is becoming increasingly difficult for service providers to demonstrate differentiation in terms of content, and both cable and DBS are looking for ways to increase revenue and retain customers. In order to continue its growth, cable needs to increase its ARPU. This will be done not through additions to the programming lineup, but by exploiting the industry's technological superiority.

For MSOs, future ARPU growth will come from additional services like HDTV, VOD, high-speed Internet and telephony. Each will provide consumers with additional value and add to cable's ARPU, a must for topline growth. The ability to deliver these new services places cable at the top of the multichannel video food chain.

Perhaps the most exciting service for cable in the short term is HDTV. Anyone who views a sporting event or music video in HD is immediately convinced of the merits it offers. As the color television revolutionized the viewing experience in the 1960s, HD will redefine television in the years to come. Widely craved by consumers, HDTV promises significant financial benefits for MSOs because of the following reasons:

Consumer acceptance ? Consumers recognize the value of HDTV, and are willing to pay for it.

High penetration ? By year-end 2004, over 10% of homes will have purchased an HDTV set. This number will rise to over 40% by year-end 2007.

Wide availability ? Cable is able to carry more local and national HDTV channels than DBS. Over 800 affiliates now broadcast in HD.

Breadth of content ? ESPN, HBO, Showtime, Bravo and Discovery are televising in HD. There will be nearly 30 HDTV channels by 2007.

The financial upside that HDTV promises is obvious, and has led cable and DBS to an aggressive race of one-upmanship in HD rollouts. The provider that gains the HDTV foothold will have a better chance of retaining customers, increasing cash flow and thwarting the competition's efforts. Simply put, to continue gaining on DBS, cable must deploy HDTV channels quickly and in quantity.

Today, cable is positioned to turn the tables on DBS and gain back many subscribers. Here's why:

Cable's solution is superior ? Today, cable's infrastructure delivers hundreds of Mbps of content to customers. Neither the telephone industry's copper pair network nor DBS can match the multitude of services delivered via cable.

Cable is a true two-way solution ? Despite numerous attempts by the satellite industry to provide customers with high-speed Internet solutions, all have failed.

Cable is reliable ? DBS suffers weather-related outages such as rain fade, and reliability is absolutely critical for VOD, voice and high-speed data services.

Cable is future-proof ? Cable's last mile infrastructure will support the average customer's bandwidth needs well into the future.

Cable can deliver HDTV the way customers want it ? Both local and national HD content can be delivered via cable. DBS still has not solved this problem.

Cable has little upfront costs or installation issues ? Unlike DBS, cable customers are not required to buy an upfront service contract or pay up to $500 for a dish and receiver.

Cable is still the only true ?triple play? solution ? Cable can offer video, voice and data over the same infrastructure.

With almost 70% penetration, the cable industry's future growth must come from its existing customers. It is recognized that advanced services such as high-speed Internet and cable telephony are key to revenue growth, and investment in these technologies has been significant. However, customers still choose their service provider based on the quality of video offerings, and it is imperative that the cable industry continues to improve the video portion of its product portfolio. A concerted effort to aggressively roll out HDTV will provide customers with the HD content they desire, minimize the threat of DBS, increase ARPU and lead to the next great growth phase of the cable industry.