MDU Broadband Providers Seek Profitability in Wake of Failed Business Model

SCOTTSDALE, Ariz., September 5, 2001 - The inability to capture a substantial subscriber base has forced in-building broadband providers to seek additional means by which to achieve profitability according to Cahners In-Stat Group (http://www.instat.com). The high-tech market research firm reports that providers, in the wake of a failed business model, are working to introduce a variety of entertainment options to their service package. While offerings like gaming will deliver some increased revenue potential, providers will bank more heavily on voice and video offerings. "The in-building broadband delivery model was created as a more cost-effective means of bringing broadband services to tenants of multi-tenant buildings. However, despite the cost savings of an on-premise Point of Presence (POP), many of the providers in this market are struggling to generate revenues necessary to make the venture profitable," says Amy Cravens, Industry Analyst with In-Stat's Multi Tenant Broadband service.
In-Stat has also found that:
• Identifying target audience trends is even more crucial in this soft economic market. When service providers are developing marketing campaigns, it is important to direct the message toward the upscale renter market.
• Asia currently represents the largest Multi-Dwelling Unit (MDU) market due to the architectural, demographic, and technology trends in that region. With a much higher percentage of the population inhabiting MDUs and the recent push for broadband, these markets are primed for in-building deployments.
• Despite the difficulties encountered in the MDU broadband market, revenue growth is strong over the forecasted 5-year period with the worldwide market for services and hardware projected to grow from $393 million in 2001 to $3 billion in 2005. The direction and nature of this growth, however, has shifted considerably between 2000 and 2001. A significant portion of the total MDU revenue in 1999 and 2000 streamed from hardware sales, whereas during later years, equipment revenues decline considerably as a portion of overall revenue.

MDU PENETRATION RATES

The fundamental failing, to date, is the inability for these providers to attain the solid penetration rates that are the basis of the model. The MDU market is based on broad penetration and numerous subscribers, compared to the commercial markets where subscription fees are multifold residential rates . The low-cost/high-volume method is proving to be the best model across all residential broadband markets as higher priced models are proving unfavorable.
However, because of the low per-subscriber fee, it is critical for MDU providers to have a mass audience to generate acceptable revenue. This requires, in the in-building model, strong penetration rates within the property, which were not achieved. The MDU model requires penetration rates in large properties of at least 20 percent, yet the current average looms around five percent. Because providers have not captured the subscriber base anticipated, they are searching for additional means to bring them to profitability.