[ATHM]Bargaining Power over Suppliers.................PART II
The third, and constraining, supplier is (are) the cable MSO (Multiple System Operator). These MSO's (potentially) supply the end-user connectivity to the @HOME residential internet service (once they provide the 2-way, broadband connection by upgrading their infrastructure).
Bargaining power over these constraining suppliers is very low; in fact, @HOME is essentially "hand-cuffed" by the cable MSO's, as they own the end-user infrastructure for the @HOME service. Although ATHM has exclusive rights as the sole PROVIDER of high-speed (defined contractually as >128kbps) data services (until 2004) with the US cable MSO's that it has contracted with, these cable MSO's are NOT contractually obligated to ever offer the ATHM service to their customers. Nor are they contractually obligated to upgrade their infrastructure to support high speed data services. As well, the cable operators are permitted under their agreement to engage in activities which could compete, directly or indirectly, with @HOME's services.
Is any of this likey? I don't think so because none of these clauses are likely to be exercised (it was simply "a way out" for the cable operators if the service proved to be a flop). The cable operators don't have core competencies in the service areas that @HOME addresses. @HOME provides them a turnkey solution. For the cable operators to attempt to develop such services from scratch is beyond their capabilities, and is too large an undertaking / distraction from their core business areas. It is unlikely they could develop a cost and value improvement to the turnkey solution offered to them by @HOME.
Another key point is that even when the infrastructure upgrades are "completed" in the future, a person desiring the @HOME service still can't necessarily get it due to the "sole source" nature of cable services nationwide. This is not necessarily as negative as it may sound because, on the one hand, it will never be available to everyone; but on the other hand, those cable subscribers that it is available to have no real choice at present, other than @HOME (this will be discussed further when we talk about competition).
PRIMARY SUPPLIER (MSO) CONSTRAINTS:
The types of services @HOME can offer are contractually limited (in the US). The "exclusivity" agreements with cable operators covers ONLY high speed residential internet services. Except through special agreement with each cable operator, @HOME cannot collect revenues from streaming video greater than 10 minutes duration (i.e. "clips" only). They cannot collect revenues from telephony services, internet telephony, internet video telephony, or internet video teleconferencing. They cannot collect revenues from local content (cable operators receive all revenues derived from local content distributed locally through portions of the @HOME broadband network to local subscribers).
Is this a serious impediment to @HOME's revenue stream? Only if these services become extremely popular, i.e. "must have" with consumers. @HOME had to make concessions in order to get exclusive supplier rights to residential internet. You couldn't expect the cable operators to just let @HOME jump into their infrastructure and make all the money on all the potential new services. These concessions were simply an integral part of @HOME gaining any access at all to the cable operators franchise (and you had to expect that it would be slanted in the cable operator's favor--at least, in the cable operator's view). I've seen no indication that any of these excluded services will be in high demand any time soon, so I don't consider this a serious impediment at present. Such services are discretionary expenses by the consumer, and are more of a novelty feature than a utility feature for most consumers. Business customers, on the other hand, could easily justify the value of video/audio conferencing services. The business arm of the company, @WORK, has no barriers to carrying such services (more on that when I address @WORK specifically).
The costs of local marketing efforts for the @HOME service are borne by these "constraining" cable operators (but @HOME assists them in preparing the material), as are the costs of upgrading and maintaining the cable system, installing the @HOME service, and procuring the cable modems. Thus, if the cable operators decide to put off these expenses, @HOME suffers from missed market opportunities. This in fact is hampering unbounded growth at present, but in a sense it is allowing more controlled growth to take place. This may be a blessing in disguise because it allows the customer support to expand at a controlled rate also. Maintaining top-notch customer support is a high priority to the company, and this is evident from the non-traditional, but very effective, organization of this group (see SEC filings for more detail). My personal experiences with customer support have all been positive. Poor or unresponsive customer support is the norm for most every online service I have had, so this is another area that they stand out.
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