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Cable Technology Feature Article

October 03, 2014

Triple-Play is the Strategy, Unless it Isn't

By Gary Kim, Contributing Editor

Small independent telcos in the United States have different economic models than tier-one service providers—either of the cable TV, mobile or fixed line sort.

Some of the difference flows directly from scale. There are just some lines of business a small provider cannot reasonably expect to undertake, because scale is required. Mobile service, video entertainment or services for enterprises provide examples.

Without scale—both lots of customers and wide geographic scope—those businesses have tough business models. In fact, for years, small telco executives have said, either in private or in public, that they do not actually make money selling linear video entertainment.

Linear video is a business with substantial shared costs. And, by definition, better economics are obtained when a service provider can spread fixed costs over a large base of customers. A tier-one provider can do so; a small provider cannot do so.

The potential customer base also dictates and limits business models. Larger national or regional providers actually have viable enterprise segment opportunities, many small and mid-sized customer possibilities and lots of consumer accounts to chase.

Small providers, operating in rural areas, have few, if any, enterprise customers or prospects. They have smaller number of opportunities to serve small and mid-sized firms as well.

And population densities are much lower in rural areas.

Without in any way intending to demean, there actually is not a sustainable business model for many small telcos in rural areas. That is why universal service funds exist. Without the support funds, actual profitably or self-sustaining operations might not be possible for a fixed network or mobile service provider.

So even if it is quite clear that the triple play or quadruple play now is the offer sold to consumers by tier-one providers, that might not be feasible for at least some rural providers.

Whether a sustainable business model exists for high speed access, with voice, and without video entertainment, by fixed line operators in rural areas, is not yet possible to ascertain with certainty.

The key issue is that universal service funding now goes only to service providers who offer high speed access and voice. And if universal service funding is the difference between sustainability and failure, then it sort of makes sense that some executives would decide to get out of the costly and typically money-losing subscription video business altogether.

There often are exceptions even to good rules, and rural telcos might soon prove that adage remains apt.

Edited by Alisen Downey

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