Cable operators have always made single-family homes their biggest target for residential services, but with rising pressure from satellite and now telco competitors, the high-rise in the center of town is becoming a bigger bull's-eye as well.

But it isn't as easy as turning on a switch. While physical plant may be virtually identical to single-family peers, property ownership and the customers themselves present a tall order for MDU (multi dwelling unit) services, particularly in provisioning and backoffice support.

In the past, cable operators only had to deal with smaller operators cherry-picking MDU customers, and often these competitors didn't have the resources to offer sophisticated digital TV or high-speed Internet services. Then, about four years ago, satellite competitors started to reach into multi-family buildings, and the stakes went up dramatically, according to Jim Honiotes, vice president of Lynch Cable Resources, a company that specializes in MDUs and works as a consulting firm for MSOs.

"Sure enough, they started picking them off, and when cable operators are fighting tooth and nail for every customer, when they lose a 300-unit apartment complex and lose 150 or 160 or 180 customers in one fell swoop, that's painful," he says.

For some cable operators serving high-density urban areas, MDUs have been a longstanding—and important—segment of their business. That's the case for Time Warner Cable, where MDUs constitute about a third of its total homes passed.

While the MSO's strategy hasn't changed significantly, it is seeing an uptick in the competition to lock in apartment complexes and condominium units.

David Christensen
With reports that telco providers are now launching IP video services "I think we are preparing for a big wave," says David Christensen, vice president of Time Warner Connects, the Time Warner Cable unit that oversees MDU services. For a player entering the market "if you are looking at a builder who is building a couple hundred units, it's easier to tie that up than it is to knock on 200 doors."

Technology-wise, serving MDUs isn't much different than serving single-family customers, Christensen says.

Getting on the property

Where MDUs differ somewhat is in how services are marketed and managed. To start with, gaining access to the cable plant does become more complex in apartment environments.

Apartment buildings and other MDU communities are essentially private property, so cable operators must negotiate contracts with building owners for the right to come in and install equipment and use existing wiring.

Jeff Brooks
"Getting it into the building is the largest challenge that (MSOs) face," says Jeff Brooks, senior director of product management at ARRIS, which has been supplying MDU products for cable operators since about 1998. "There are some locations where the building owner claims ownership of the wiring that goes into the units inside the MDU, and the MSOs have to negotiate with the building owner to gain access to that wiring to deliver service to the tenants."

In other cases, the local incumbent telco may claim the phone wiring ownership and demand exorbitant amounts for its use—or deny access altogether, he notes. That is a particularly thorny problem for cable operators wanting to extend voice service complete with multiple phone extensions that normally would tap built-in phone wiring.

If the telco does own that wiring, that "could be a problem, and I could be violating some legal ownership by pirating their wire to deliver the service," Brooks says.

Added incentives

Contracts can also be significant. Service agreements with building owners are usually long term, stretching 10 years or more. There are a handful of very large apartment ownership companies in the United States, and traditionally cable operators have gone to these companies and signed large, nationwide, multi-year contracts where the building owner gets a piece of the revenue, Honiotes notes.

"Pretty much everything that is sold on an apartment property, the owner gets a piece of the action," he adds. That includes cable service, "so they expect that the cable company is going to do the same thing."

Not surprisingly, cable operators are often asked to offer added services as an incentive to the building owner to sign on the dotted line. That could include sharing a portion of the revenue, providing TV service or wireless hotspots in common areas such as pools or clubhouses.

"Perks are important," Christensen says. "In some cases there might be some gratis services if they have on-site staff. And we think that's important, because if a leasing agent is living on the property and that leasing agent is also marketing Time Warner services, if they utilize Time Warner services, they realize the value of it. So it is a lot easier for them to talk about that service."

New services pile on

Coaxsys’ TVNet C access device.

MDUs also can pose challenges if MSOs want to add newer services such as phone and cable modem service. Depending on the contract with a particular building owner, a cable operator may have to go back in and re-negotiate to add voice and data service offerings.

"In some cases the (contract) language allows the cable operator to offer the full complement of services—whatever might come down the line. In other cases it does not," Honiotes says.

These added services can present in-building networking and capacity problems, and that need is generating business prospects for Coaxsys Inc.

Although it has provided networking services aimed more at telco TV players, Coaxsys unveiled TVNet C, a product capable of providing a minimum 100 Mbps capacity (PHY rate) for MPEG video, voice and data services using a band above cable operators' 750 MHz to 860 MHz plant spectrum. Since that announcement, it has heard from all of the Tier 1 cable operators largely because of its MDU applications, says Adam Powers, Coaxsys' chief technology officer.

"We've talked to several large MSOs about MDU deployments in high rises, large hotels and condominium complexes, in which their primary concern is distributing their cable television just like they've been doing and distributing high-speed data networking to the units," adds Ted Archer, director of marketing for Coaxsys. "Moving forward, they have expressed an interest in doing IP video as well."

The problem with MDUs is the density of users, particularly when it comes to cable modem service.

"The way that they usually deliver IP to a typical home is DOCSIS," Powers says. "The problem...with MDUs is there is such a high concentration of people all in one spot [and] DOCSIS kind of gets overloaded kind of quickly."

The churn factor

Even if cable operators can offer an expanded range of services to MDUs, they face a chronic churn problem because of the transient nature of apartment dwellers. The average apartment dweller moves out after only six months, and that means a lot of service activation and deactivation tasks for the cable operator.

"That's always been the bane of a cable operator's existence," Honiotes says. "There is nothing you can do about somebody that moves out. So you have to build your business model around the fact that some people are just not going to be there that long."

Christensen acknowledged that apartment buildings do have higher churn rates because of people moving in and out.

"We just have more truck rolls per household than we do in single family. We take the responsibility for equipment collections and placements on move-out or move-in," he says.

That problem is amplified when new services are added into the mix. Keeping track of the customers—not to mention any potential revenue sharing cut the building owner gets or any commission per service a leasing agent may receive for promoting cable products—becomes a more complex factor, according to Curt Champion, Conversys' vice president of market and product strategy.

"You are now dealing with a more complex set of services," he notes. "First of all, I have a higher monthly bill, so I have a higher risk for a more transient customer, and it does cause some incremental issues in terms of billing and commissions. Many times the cable companies have an exclusive contract or a preferred contract with the building, and they're sharing revenue."

For cable operators facing churn management, a good option may be to leave the voice and data media terminal adapter as sort of a permanent fixture in the apartment, Brooks says. The line can remain active and serve as a "hotline," and when the new resident hooks up a phone and attempts to dial, "it shows up at the cable operator's CSR desk and they say, 'Hi, this is Cable Company XYZ. Would you like to turn on voice, video and data services at this residence?'," Brooks notes.

For some cable operators, MDU business may indeed involve some added work. But given increasing competition from longstanding DBS rivals and now telco players armed with video, it may be a necessary strategic move.

"I definitely think there is a lot more accelerated action on these fronts now, because the telco gnat at the ear—that people said would eventually get there—is real," Archer says. "It's actually happening, and (MSOs) are starting to realize that in some very real ways in some markets, and in very real dollars, they are being attacked," Archer says.