Cable Calling: Barron's(6/28) Review & Preview Follow-up:
26 Jun 00:11
(From BARRON'S)
By Eric J. Savitz
The battle for customers between the cable-television industry and local phone companies has heated up. Cablevision last week began offering new customers the chance to get video, broadband and voice services for $29.95 a month apiece for 12 months. That's about $90 for a package of services that local telephone companies would have difficulty matching, and about a 30% discount to the company's previous prices.
Cablevision's announcement confirms a primary conclusionof our recent cover story on Internet-based telephony ("Talk Gets Cheap," May 24), namely that the cable industry would use voice-over-Internet protocol, or VOIP, to steal away customers from the local phone companies. Cablevision also extended its offer to current cable customers who agree to take broadband and voice service as well.
The news seemed to unsettle investors: Cablevision shares last week fell about 10%, to 20, largely on fears the promotion will trigger a long price war with Verizon Communications, the prime target of the cable operator's move.
Bethpage, N.Y.-based Cablevision reports that it already has 100,000 customers for its VOIP-based calling services, adding them at the rate of 3,200 a week in the first quarter.
This is just the latest sign that the former Bell operating companies face a serious new threat from the adoption of VOIP telephony by cable operators.
Scott Cleland, an analyst with the Precursor Group, a Washington-based research firm, notes that phone companies can't easily respond by cutting rates on video service. All four of the Bell companies have signed marketing deals with a direct-broadcast satellite company, but they simply serve as resellers, which limits their ability to cut prices to lure cable customers.
The phone companies, Cleland says, "aren't offering deep discounts on pay TV to get you as a phone customer. Voice is what'sgoing to get squeezed." In part, he says, this reflects the fact that it costs next to nothing for a cable company to add VOIP service to its network.
Over time, he adds, Cablevision's costs for adding voice are so low that the company could cut phone pricing to "single digits" and still make money from telephony.
Cleland notes that Cablevision's primary rival in phone service, Verizon, is bundling DirecTV satellite service with other offerings as a way to defend its turf. But he doubts it will work. "Verizon appears to have fired a shot across [Cablevision's] bow, but Cablevision is shooting back, and is the more seaworthy vessel. When you are in the voice business, like Verizon, you don't want to commoditize voice." |
