July 27, 2007

The Case for Cable

Part 3 in a Continuing Look at Cable’s Competitive Threat

Cable multiple system operators (MSOs) reaped the reward of having a lock on the video market and a competitive position in the data market, while the incumbent local exchange carriers – the “telcos” – have seen their voice market eroded by wireless competitors.  That’s not to say that cable companies haven’t had their own competition – satellite video providers have eroded the cable companies’ video subscriber base in recent years – but their core product (video) has been significantly healthier than the phone companies’ core product (wireline voice).  That has finally started to change.  Telcos are aggressively rolling out competitive video service over their own networks – Verizon via FiOS and AT&T via U-Verse – and the trend will only accelerate.  The cable companies, meanwhile, have hardly been competitively stagnant.  Their foray into the telco domain with telephone service has extended beyond the residential space, as the cablecos have targeted small and medium-sized businesses. 

Cable companies have been pursuing broadband and telephony options for many years.  With their core video programming market under attack from satellite providers and, recently, telephone companies, it is more important than ever for cable carriers to extend their reach into the data and voice markets.  For them “triple play” means survival.  And, indeed, during the last year the MSOs have achieved broad deployment of competitive residential telephony options.

Source:  New Paradigm Resources Group, Inc.

Relative to the traditional telephone companies, the cable carriers hold some advantages, such as more robust networks that extend deeper into neighborhoods.  Telephone companies, on the other hand, possess more robust networks in business districts.  Both hold enough cards that a high-stakes poker game is clearly underway.  While satellite holds the distinction of being a strong video competitor, the keys to the future may rest in wireless offerings, business customers and customer service.  Will the cable companies’ wireless partnership strategy pay dividends, or will they eventually want control over their own airwaves?  Will the cable companies be successful in luring higher-revenue business customers away from the telcos?  Have the cable companies solved their customer service weaknesses, or will their spotty customer service histories come back to haunt them?  Look for answers to these questions in NPRG’s future industry analyses.

For past articles, including other entries in this series on Cable’s Competitive Threat, please visit our news page.