Wednesday, July 23, 2003

Cable companies and phone companies compete on the matrix Here's another example of a competition matrix. Local telephone companies (RBOCs or Regional Bell Operating Companies) are trying to find ways to compete better with cable companies, which threaten to drive them out business. The war is fought on three fronts. Internet access Both cable networks and local phone companies are trying to be the preferred supplier of high-speed Internet service for households and small offices, a fast-growing opportunity. Cable companies offer cable modems; phone companies are offering DSL service through the phone lines. The cable companies have been winning this battle, but it's still close. Plain old telephone service While local phone companies have a near monopoly in their service araeas for local calls and a connection to the phone grid, cable companies are starting to offer phone service through the broadband cable service. Time-Warner Cable has started rolling out its "Digital Phone" service, which offers unlimited local domestic long-distance calls through the television cable for $40 a month. Comcast, Cablevision, and Cox cable networks are coming out with similar products. Several smaller companies are offering kits for adding voice over the Internet as well. With this technology, you can use normal phones (with an adapter) and call any numbers you want. It looks and feels like traditional phone service, but potentially a lot less expensive. The quality of these offering keeps improving, the price is right, and the expected phone services, like Caller ID and Call Waiting are coming as well. The local phone companies and the long-distance firms (AT &  T, Sprint) are rightly afraid that this new service will decimate their business, or, at least, force prices and profits down. And this is on top of the competition they are feeling from cell telephone providers. It's true that several cell companies are owned or partially owned by RBOCs (Verizon Wireless, Cingular), not all of them are, and they are already holding down local phone service prices. TV While cable dominates in providing TV services, local phone companies are starting to offer satellite TV as an offering to their clients, a kind of flank attack on the enemy. This is a move that will strengthen both the satellite TV firms (they get access to virtually every house in a region) and the RBOCs (they have a nice service to bundle with their local and long-distance services. SBC, the second-largest RBOC (Texas, California, and other states), has invested money in the EchoStar satellite company, and has started selling the service to its customers. Qwest, the fourth largest RBOC (Mountain and Plains states) now offers both EchoStar and DirecTV to its customers, depending on the region. Both companies plan to have the satellite TV capacity come as part of the phone bill. Any growth in satellite use hurts the cable TV companies, and makes it less likely they'll sell Internet and phone services. Conclusion Both of these industries have been pared in the last decade from many competitors to a few. Both have local monopolies in their areas of operation. But it's now looking more and more like they are in the same industry, or will be in a few years. But the period of heavy competition will be brief. In the end, these companies will find a way to combine with each other, drive the weaklings out of business, or form alliances to start price signaling. What neither industry wants, in the long run, is ruinous competition. Area Competitors Internet connectivity Cable companies (cable modems) RBOCs (DSL) Leased line suppliers (AT&T, Sprint, RBOCs)  Phone modems TV delivery Cable companies RBOCs (through satellite companies) Satellite companies (on their own)  Broadcast Local calling RBOCs Cable companies (just starting) and a few kit suppliers Outside local phone suppliers (mandated by FTC, but not very sucessful) Cell phone companies Long distance Long distance companies (AT&T, Sprint, etc.) RBOCs (recently permitted by FTC) Cable companies (just starting) Cell phone companies 8:58:52 PM

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