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Competitive Landscape Takes Time to Develop
30 Jan, 2008
Michigan passed a law, Public Law 480, about a year ago that lowered some barriers to market entry for incumbent cable company competitors. The goal was to encourage competition on the local level for cable TV services by allowing basically a statewide franchise. Multichannel News reports that a recent study reveals very little competition has actually arrived. Only 110 communities out of a possible 2,000 now have a legitimate competitor. Commenting on the study’s results, Michigan’s attorney general Jon Kreucher put a new twist on cable’s triple play accomplishments. "Unfortunately, cable companies scored the triple-play last year: Very poor levels of new competition, exceptionally bad levels of customer service, and prices that often increased ten times faster than the national consumer price index for other forms of recreation," said Kreucher. Needless to say, Michigan authorities are disappointed in the lack of competitive progress.
The Michigan example illustrates the reality of the competitive landscape. Beyond major metro markets, competition takes time to develop. As Gary Kim points out in his IP Carrier blog post, competition is expensive and time consuming. The cable overbuilding business is not for the faint at heart. Outside of the urban and suburban markets targeted by AT&T, Verizon, and the few remaining cable overbuilders, your left with the independent telco sector to fuel competitive build outs. While independents have been quite active with triple play competitive offerings, they aren’t in a position to dramatically increase competition on a wide scale basis. They simple don’t have the scale. It’s generally one community at a time. At that pace, tens of thousands of communities across this country will be lucky if they ever see facilities based competition for cable. Some will argue DBS is enough and if the market conditions are right, a community regardless of location will eventually see competition. In other words, you can’t force competition on a market where the returns for multiple operators don’t warrant it.
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Featured Article
Should Telephone Service be Free?
12 Oct, 2008
Comcast announced a new promotion last week that offers 12 months of free basic cable service for new customers who also sign up for an additional service. Customers who don’t want an additional service can get Comcast’s basic service of about 20 -30 channels for $10/month. The promotion is tied to the digital TV transition of February 2009 and entices potential customers to avoid the transition “hassle” by getting “free” cable service. “The simple fact is that basic cable is the easiest path through the digital transition and now consumers can get it for free,” said Derek Harrar, General Manager and Senior Vice President, Video Services for Comcast in a company statement. This move is similar to strategies pursued by other video service providers, who are hoping to leverage the digital TV transition for new subscriber additions.
But is this strategy a leading indicator for the future? Should basic core services like basic cable and basic telephone service be offered for free, used as a “carrot” to entice customers to buy “more important” services like broadband? Maybe a very basic phone service, with no LD, access to landline 911, and maybe outgoing service only (to avoid telemarketers) should be a free component of a bundled offering. Such a wireline service may appeal to a customer who previously cut the cord for wireless only, but also needs broadband. There is a growing portion of the population who find the value of traditional wireline phone service elsewhere – either through wireless or broadband/IP services. But, if they could get the security of landline 911, and an extra dial tone in their home as a free value add for subscribing to broadband (or video from a telco’s perspective), maybe a telco’s bundled offering may look more attractive than a comparable cable offering. I realize this idea is not appealing to the hundreds of ILECs who are a part of the current access/settlement system (in fact, it couldn’t work in the context of today’s regulatory structure), but I wonder whether it’s inevitable. In this possible future scenario, the current settlement system adapts to broadband as the underlying service, as opposed to voice.
This scenario cuts both ways. From a cable company’s perspective, a growing portion of the population is turning to the Internet as a source for their video content, and no longer see value in paying for a broad package of video as a part of a traditional subscription pay-TV service. But, if they could receive basic TV (which includes local broadcast affiliates) as a free value add for buying broadband, maybe the cable bundle is more attractive. In a true IP/broadband world, very basic phone and video service is relatively easy to deliver, and has little impact on bandwidth and network performance. Maybe the digital transition is opening the door to a future where free basic services are a regular component of a bundled offering. Thoughts?