Friday, March 12, 2004

Competition matrix in communications We've pointed it out before, but a recent Business Week article ("Tearing Down the Walls of Telecom," 3/2/2004) illustrates fully the way in which once-isolated communication industries are converging into a new competition matrix. Local phone service, cell phone service, pay TV, and Internet connectivity all are starting to merge, and once-safe market positions are in jeopardy due to disruption. For that reasons, big players are scrambling to cover themselves with mergers and new product offerings. The rise of VOIP (telephoning over the Internet) is the biggest looming disruption, but there are others as well. Aside from the local phone companies, long-distance companies, cable TV companies, satellite TV companies, and cell phone companies there's a surprising new player in the mix - electric utilities. It turns out the same wires that carry electricity into the home or business can carry telephony, broadband Internet, and even TV. That technology is coming on strong, and the electric utilities already have a well-maintained connection to every house. The silo walls are about to fall down, as the article notes: Within five years, a relative handful of players might provide TV, phone service, and Net connections -- and some of them may even bill for those along with your electricity, water, and garbage fees, says Jeff Kagan, an independent telecom analyst in Marietta, Ga. Telecom "will be a sectorless industry," he predicts. Industry names like "cable" and "telecom" could eventually be replaced by terms such as CET -- for the cable, entertainment, and telecom industry. At one time, the old mastodons may have been taken unawares. Not longer. Planning for such a disruption is part of doing business now, and the big players are striving to be one of the survivors. The article mentions Comcast, Verizon, News Corporation, Cingular, Cox Communications, and even Microsoft as keen to dominate this new business alignment, and smaller companies, including the remnant of AT&T, MCI, and Sprint may be key acquisition targets. This will be a huge shift -- on par with the sweeping consolidation of car manufacturers and railroads years ago, says Rich Nespola, CEO of The Management Network Group, a telecom consultancy in Overland Park, Kan. The survivors likely will win a huge prize: Control the $200 billion phone business and the $55 billion cable-TV business -- plus associated entertainment businesses. What's certain is an increase in consolidation in and between businesses. And as the Comcast and News Corp. names indicate, it will extend from delivery to content generation. For the consumer, competition in the short run may be a boon. In the long term it will mean even fewer companies with a chokehold on all communication. 6:03:46 PM

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