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Analysis: Rising broadband usage the 'glue' that retains cable subscribers

The continued growth of video streaming services has U.S. households consuming more broadband than ever before, and analysts say this is all good news for U.S. cable operators.

Average monthly broadband usage rose to 268.7 GB per household in 2018, up more than 33% from 201.6 GB in 2017, according to new data from OpenVault LLC, a provider of industry analytics and technology offerings for internet service providers. While OpenVault noted that the growth has left some network owners exploring new strategies for coping with this increased demand, such as usage-based billing, other analysts said broadband providers will want to encourage further growth.

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"As connected devices, streaming services and broadband speeds increase, service providers need an alternative to infrastructure upgrades that would enable them to keep up with demand," Josh Barstow, executive vice president of corporate strategy and business development for OpenVault, said in a statement.

Barstow added that OpenVault's analysis shows usage-based billing is "among the most effective tools the industry has in managing consumption and reducing the need for massive capital expenditures."

According to OpenVault data, average usage for households with flat-rate pricing was 282.1 GB per month in 2018, over 9% higher than the 258.2 GB average usage for households on usage-based billing plans.

But other analysts expressed skepticism about the need or likelihood for usage-based billing options, with Kagan analyst Tony Lenoir saying in an interview that he sees wider implementation of usage-based billing as "unlikely in the near term".

Kagan is a research group within S&P Global Market Intelligence.

Bruce Leichtman, president and principal analyst at Leichtman Research Group Inc., agreed.

"I would bet against usage-based billing," Leichtman said in an interview, noting that cable customers, in particular, have long favored the bundle because their prices do not fluctuate from one month to the next.

Moreover, cable operators want to encourage increased broadband usage because it is the "glue" that increases subscriber retention, Leichtman said.

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"The more somebody uses something, the more likely they are going to want to continue to use that. So I think increased usage is the best retention device."

Lenoir said it is also in operators' financial interest to encourage broadband usage as it can benefit top-line growth.

"Usage can only go up and that is a good thing for ISPs. The higher the usage, the higher the demand for the more valuable tiers as consumers seek faster speeds and expanded bandwidth. This translates into higher ARPU, increased broadband revenues and margin expansion," the Kagan analyst said.

This is in line with comments from the largest U.S. cable operator. Comcast Corp. noted Jan. 23 that its median monthly data usage was over 170 GB per household for the second half of 2018, up over 30% year over year.

"We are delivering more value in our offering, and the utility of broadband continues to grow," Comcast CFO Mike Cavanagh said during a Jan. 23 earnings conference call, adding that he sees the company as well-positioned "to grow as the size of the broadband market increases and we take greater share with our differentiated product and highly capable network".

Comcast's median usage for the second half of 2018 was a bit higher than the median monthly usage of 145.2 GB per household that OpenVault reported for full year 2018. OpenVault tracks subscriber usage data from millions of subscribers from various small and midsize operators.

OpenVault said median monthly usage in 2018 was up 40% over the 103.6 GB consumed in 2017, noting that the higher growth rate for median usage over average usage indicates that consumption is increasing across service providers' entire subscriber bases, rather than only among heavy users.