Finding More Monetization Opportunities in the Connected Home

Digital home services present a significant revenue opportunity for North American service providers. The digital home market, including digital gaming, is anticipated to be worth $632 billion by 2028, growing at a compound annual growth rate (CAGR) of 3% since 2023, according to Omdia research. 

“Fixed broadband remains the biggest market in the sector, and will be worth $128 billion by 2028, growing by 4% CAGR,” said Alzbeta Fellenbaum, Principal Analyst, 5G and Broadband, Pricing and Strategy, Omdia, during an October 2, 2024, Fiber for Breakfast webinar. “The next is online video, which will surpass pay TV by 2028 and will be worth $89 billion with a five-year CAGR of 5% and lastly, Smart Home Services will grow at the fastest pace at 20% between 2023 and 2028.”

Over the next five years, while the North American market is “quite saturated and developed,” said Fellenbaum, both subscriptions and revenue growth are expected to be quite significant, with subscriptions expected to grow from 144 million in 2023 to 160 million in 2028. Fiber and fixed wireless access are going to be the fastest growing access technologies according to Omdia projections, with a forecast of residential broadband penetration to reach 97% of households, growing from 92% over the next five years. Average advertised speeds that these households will subscribe to will grow from 588 Mbps in 2023 to nearly tripling over five years to 1.4 Gbps in 2028. 

Exploring the increase in broadband speeds further, households subscribing to speeds higher than one gigabit is expected to grow rapidly in North America, said Fellenbaum, growing from 53 million in 2024 to 79 million by 2028, with gigabit households expected to account for over half the connected households in the region. But she indicated there could be problems as speeds continue to increase across the market. 

“We see an increasing number of service providers now offering broadband plans with multi-gigabit and 10 gigabit services, either on the download or symmetrical,” said Fellenbaum. “This is being still done primarily as a means of differentiation in the increasingly competitive gigabit market. But this practice, if not done right, can actually harm the market and lead to cannibalization of the high premiums that these multiple [gigabit] and 10 gigabit offers should be associated with. If service providers are not careful, they will get dragged into a promotional frenzy that can see them offering premium speeds for only marginal price increases, and that’s something that we see across the world.”

The speed versus price downward spiral is a global trend, with service providers across 70 countries over the last five years unable to drive ARPU in line with the speed increases. On average, the global speed offer has increased by more than 950% but the actual ARPU reduced by 26%. Even in markets like the United States and Canada, where broadband ARPU has grown over the last five years, there’s been disproportion growth. In the U.S., speeds grew over 500% but ARPU grew by only 20%, largely because of the service provider focus on broadband speed and price. 

“What can service providers do to break out of this spiral and not get drawn into the promotional frenzy?” said Fellenbaum. “We recommend focusing more on quality of service and experience. We can see from our latest consumer research that we’ve done over the summer of this year, that while broadband speed is still important for consumers in North America, they value more a highly reliable and consistent quality connection which is available to them everywhere in their home by a good reliable network and comes with efficient and high-quality customer support if things do go wrong.”

By focusing on providing and marketing an overall superior quality of broadband service that meets all of these requirements, service providers will be able to capture greater market share and also convince many customers to pay more. The primary place where service providers can do all of this is in the home network, which is called upon to support increasing numbers of devices, along with “bandwidth hungry” applications running on those devices and placing a strain on the network.

“If neglected, the home network can become a real pain point, which will not be entirely solved by fiber deployments, because fiber actually targets bandwidth issues up to the point of the home,” said Fellenbaum. “If the home network is not properly managed, it will become the bottleneck and the issue for service providers, because they will still get blamed for services and devices not working properly in in the home.”

Service providers need to pay attention to the home network Quality of Experience (QoE) by not only offering the latest Wi-Fi hardware but offering smart management software on top of it to help monitor traffic on the local network and sometimes even prevent and troubleshoot issues before customers notice them. Implementing smart Wi-Fi management platforms can lead to major improvements in service provider operational performance, including up to 60% reduction in setup calls, reduction in customer support calls by up to 30%, and fewer on-site technician visits to diagnose problems, down by up to 30%. The reduction in support calls and onsite visits leads to higher NPS scores, can also positively impact the churn reduction by 12% to 30%, and also leads to ARPU increasing.”

Source: Omdia

Emphasizing on QoE can provide opportunities to driving further incremental revenues through applications such as mesh networking in the home, technology support for networking issues and devices, and advanced cybersecurity and parental controls which can be either bundled into a premium package or offered a la carte for the customer to purchase as they desire.

Another strategy is to target services and speeds based upon specific customer needs, rather than generically offering more speeds and more features. “Rather than just focusing on pure speed, offering targeting users based on their user preference, based on what they do, based on their personas can help as well,” said Fellenbaum. “We can talk about offering lower latency for gamers, dedicated Wi-Fi traffic streams for homeworkers that prioritize their calls when needed. Families will appreciate parental control and more cybersecurity for their kids. If there is someone who’s an online entertainment buff who wants the latest, the highest quality of video, that can also be tailored and prioritized. For social media users, upload speed boosts are another way of monetizing and offering a value-added service.”

Regardless of the new offerings, services need to be tailored and explained to customers in a way that makes sense for their lives and provides added value that they will be able to be willing to pay, since users will pay for things that matter to them, especially if it improves their QoE. Offering these improvements make customers feel seen and heard, and therefore more likely to choose one service provider over another and to pay more for services that can improve their online experiences.