Cable Technology Feature Article
Cable and Telco 'Triple Play' Business Strategies are Changing
By Gary Kim, Contributing Editor
A sort of funny transition seems to be happening in the consumer markets for triple-play and quadruple-play services. About 10 years ago, I'd have argued that cable operators were going to "merchandise" voice to protect their video business, while telcos would do the reverse, and merchandise video to protect voice. These days, with both cable and telco companies offering extensive triple-play bundles to consumers that are quite popular, it's a little harder to say precisely what is happening.
To some extent, both cable and telco providers are taking a haircut on gross revenue and margins whenever they sell a triple-play bundle, and the attribution of the discounts is largely arbitrary. But the larger issue is that both cable and telco executives are running out of headroom across the entire range of legacy products.
Talk to a cable operator these days and discussions about video will tend to revolve around controlling churn in an environment where subscriber bases actually are shrinking. Broadband access services are largely mature, and most cable operators likely now are encountering stiffer challenges in winning voice customers from telcos.
Most telcos arguably face a similar situation in voice and broadband. Voice has been a declining customer segment for at least a decade, while broadband net additions have slowed. Video remains an area where further growth can be expected, though.
Most cable operators these days see voice and data services for small and medium-sized businesses driving future growth, while telcos, where possible, tend to see mobile data as the brightest opportunity.
The perhaps-interesting new switch is that cable operators cannot afford to merchandise voice to protect video, while telcos cannot really merchandise video to protect voice. Voice and data remain cable growth businesses, albeit now in the SMB space. For telcos, video now emerges as a key growth area in the fixed-line space.
That probably is not a universally accepted point of view. Forrester Research (News - Alert) analysts, for example, have warned of key dangers to Western European telcos from adopting triple-play models. Forrester Research has warned that low revenue opportunities and the high investments needed for broadband triple play could result in significant losses for Western Europe's incumbent telecom operators.
The point is that it doesn't make sense to "merchandise" the growth businesses to protect the declining businesses. For cable companies, that means protecting pricing power, to the degree it can be accomplished, for voice and broadband sales to SMBs. For telcos, the new imperatives are to protect margins for mobile data and fixed-line video in the short term, while simultaneously launching new businesses largely in the application area. Mobile payments and machine-to-machine communications are the best examples.
But it seems likely that larger telcos will find themselves relying more on enterprise and business customer revenue as well. Cloud computing and M2M business segments provide further examples of that trend. Cloud services will be most attractive to enterprise and SMB customers, not consumers.
Still, telcos cannot afford to abandon their consumer customer bases, either. In that regard, television is becoming increasingly fundamental, according to Michael Hecker, chief strategy officer of multinational telecoms company MTS.
BT (News - Alert) also has also put television at the forefront of its strategy, Gavin Patterson, CEO of BT’s Retail division, says that, over time, BT intends to deliver high-definition and, eventually, 3D television-on-demand.
Patterson said BT’s television offering will become more compelling this year when it gives customers the opportunity to watch live Premier League football matches initially delivered via digital terrestrial transmission. Patterson sees a real opportunity to challenge the television pricing models of market-leader BSkyB (News - Alert), especially in sports.
In the future, BT plans to deliver this kind of linear television content over its broadband network, but Patterson said offering a broadcast service of this kind over a telecoms network isn’t straightforward.
Claudio Campanini, A.T. Kearney Milan analyst, argues that broadband providers needs to realign the value and cost of customers, replacing flat-rate data plans with linear data pricing, which has been successful for voice services. “Data pricing is something that is right at the beginning of its evolution,” he says. Again, the point is that telcos, for example, cannot so easily merchandise broadband access to protect the voice customer base.
The point, one might argue, is that the older effort to protect legacy revenue sources, while still important, has changed. For the most part, consumer broadband, voice and video now have become mature businesses. Growth drivers increasingly must be sought outside the consumer triple play or quadruple play.
Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.
Edited by Janice McDuffee