Top 10 trends: Making the triple play
The battle for voice/video/data subscribers gets nasty.
December 15, 2003
Red Herring
After a decade traveling distant tracks, the paths of cable service providers and telecom carriers will finally intersect in 2004. Both will vie for a common set of offerings that include video, voice, and data – the communications triple play. Ultimately, nearly every major player in cable and telecom will offer this triad of services, shedding old roles as the once-distinct sectors fuse into one.
The big dogs in the cable and telecom industries have been fighting for broadband subscribers since the first cable modem lines went into service in 1996. That battle will get nastier and widen as the largest telecom firms focus on increasing the base of DSL customers and adding video services. Cable companies, on the other hand, will seek to maximize use of their pricey infrastructure – the industry has spent $75 billion since 1996 upgrading networks to offer the triple play.
Notably, each side is encroaching on ground once held exclusively by the other. Both aim to boost profits by increasing their share of the amount consumers spend on communications each month – about $124, according to research firm Forrester Research. Voice and long distance take the largest share at more than $50. Video consumes just over $47, while Net access fills out the total at $26. The data suggest that both sides are leaving an amount about equal to their core service revenues in the other’s payment envelope. To capture those dollars, cable companies will build upon their strong, though small, foundation of voice subscribers, while telecom firms deploy video through partnerships with satellite firms.
Increasing the average monthly bill is not the only factor driving the triple-play shift. Big companies are keenly aware that the cost of acquiring a new customer is far greater than keeping an old one. Their focus is thus on reducing churn, or the number of subscribers that cancel service. A drop in churn supports overall revenues – a subscriber saved is a subscriber earned, as they say – and trims marketing costs tied to keeping existing customers happy. Case in point: Cox Communications has seen basic video churn cut in half to 1.6 percent per month for those customers that opt for the three services. Marketing dollars were thus spent more wisely. Even though Cox’s third-quarter broadband-related marketing costs were the flat, subscriber additions grew 50 percent to 169,000.
The move toward a unified set of video, voice, and data has been building since Cox debuted its cable triple play in Orange County, California, in October 1997. Since then, Cox has attracted 912,000 voice subscribers, 19.3 percent of homes to which the service is available. More than three quarters of the customers opt for lucrative long-distance services.
Cable companies now manage 2.3 million phone customers, up 1.2 percent from the quarter prior. Progress is slow, but momentum is growing. Strong growth at Cablevision, Charter Communications, Cox, and Insight offset a 4 percent loss at Comcast, the largest provider of cable telephony services in the U.S. at 1.3 million customers. Having reduced attention to telephony as it digested its AT&T Broadband acquisition, Comcast has reported it expects to renew its growth efforts in telephony next year.
The cable telephony customer total represents only slightly more than 1 percent of the number of telephone access lines in the United States. But the tiny share leaves the larger telecoms no less wary of the threat. Total revenues for the telephone operations of the Incumbent Local Exchange Carriers (ILECS), which were the telecom companies in business when the Telecommunications Act of 1996 was passed, peaked in 2000 at $116.9 billion according to the FCC. The total for 2001 fell slightly, and 2002 figures, though yet unavailable, will certainly be lower than that.
To counter that decline and to counter cable’s encroachment on their core voice business, telecom firms will add video service to their arsenals next year. In July of 2003, SBC announced an agreement with satellite television provider EchoStar that would enable SBC to offer video services to their voice and data customers on one bill in early 2004. BellSouth announced a similar partnership with DirecTV in August, and Qwest has made deals to market both DirecTV and EchoStar.
As each side prepares to steal the other’s bread-and-butter business, an already ferocious battle for customers will intensify. Over the past seven years, cable companies have managed to gain an enormous lead in broadband Net access. As of Fall 2003, cable companies maintained 15 million customers according to the National Cable & Telecommunications Association. That is 78 percent greater than a total of 8.4 million U.S. DSL subscribers Red Herring extrapolated from currently reported figures. Telecom firms are surely hoping then that cable companies are not as successful in offering voice. If Cox is any example, the telecoms are in for one long, tough battle. |
