July 13, 2007

Entering the Fray: Cablecos Set to Go

After ILECs’ Sweet Spot

Part 1 in a Continuing Look at Cable’s Competitive Threat

Last fall, we wrote that the number of telecommuters was on the rise and that a new “triple play” of communications offerings had emerged.  Since Cable Companies had already established a strong presence in the residential market with video, Internet, and most recently VoIP telephony, we predicted that if appropriately prepared, Cable Companies would be a shoe-in to win the hearts (and cash) of the small office/home office (SOHO) customer.  We now revisit the history, progression, and our future predictions of Cable Companies into the residential and commercial triple play sector.

Let’s Rewind

Even before Comcast acquired AT&T Broadband, NPRG was examining Cable Multiple System Operators (MSOs).  During the mid-1990s, cable companies focused on providing five more Home Shopping channels than the Satellite guys; back then it was a simpler time.  Cable-provided business telephony was not even a glimmer in the collective cable industry’s eye.  Since these “early years,” however, things have changed.   

DOCSIS 1.0

The innovation and expansion of cable-based technology began with the adoption of the DOCSIS (Data Over Cable Service Interface Specification) 1.0 standard.  While high speed internet access developed throughout the 1990s, the DOCSIS 1.0 standard was not introduced until 1997 (not coincidentally this occurred just prior to Microsoft’s firm entrenchment of Internet Explorer into its Windows 98 Office Suite).  The DOCSIS defines an international standard for data over cable systems by outlining interface and high speed data transfer requirements.  In March 1997 the first version of DOCSIS was released; it was quickly revised in April 1997 as DOCSIS 1.1.  DOCSIS was revisited again in 2001 and 2006 as DOCSIS 2.0 and 3.0, respectively.      

Wake Up!

By harnessing DOCSIS 1.0 technology, Cable MSOs provided high speed internet service over their existing coaxial infrastructure.  Through the aggressive marketing of cable modem Internet access, Cable MSOs expanded the contracts of their existing residential video entertainment customers to include high speed internet.  Although most Cable MSO pricing was higher than many local phone companies and approximately $20 more per month than DSL, the Cable MSOs’ “faster than DSL” service won the race for residential broadband customers.

Source:  New Paradigm Resources Group, Inc.

DOCSIS 2.0

As Cable MSOs realized the benefits of also providing data services, technology standards caught up with industry imagination.  DOCSIS 2.0, a 2001 updated version of the same standard, allowed Cable MSOs to provide real-time services such as IP technology. With the introduction of DOCSIS 2.0 and its increased transmission speeds, Cable MSOs began to dream of providing a reliable voice product over their existing facility-based coaxial networks.  The stage was now set for MSOs to begin looking into offering the triple play of internet, voice, and cable services to their customers.

To examine the possibilities of their triple play idea, the Cable MSOs began VoIP application testing; these tests continued through most of 2003, and by 2004 many Cable MSOs began offering voice services to residential customers.  By early 2006, cable companies counted some 5 million telephone customers.

Cable MSOs Set to Take a Bite of the SMB Pie?

Since the late 1990s, Cable companies have sought to upgrade their networks and provide integrated digital video, high-speed data and voice services. These cable operators not only aim to supply residential customers with bundled services, but to acquire the telcos’ last stronghold, the lucrative small and medium-sized businesses (SMB) market.

In future Communications Technology Advisors we will continue our look at Cable MSOs by examining companies who currently provide “triple play” services to SMBs.  We will also take a peek into just how big of a bite the Cable MSOs can expect to take out of the SMB pie – and just how they intend to do it.