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Telcos vs. Cable: The Wrong War?

The growing competition between telcos and cable multiple system operators (MSOs) continues to build. Triple play, quadruple play (adding mobility into the mix), IPTV, video on demand, and the digital home – it's all about the battle for the 21st-century consumer.

But the consumer market is not the only battleground on which big telcos and big cable companies will slug it out over the next five years. There also is the market for business telecom services. That sector is worth $100 billion a year in the U.S. alone, and right now it is dominated by the telcos.

For the cable companies, it's an opportunity just waiting for action – or rather, inaction. The longer MSOs delay their move into the enterprise market, the lower the chance that they will ultimately succeed in that critical sector.

Cable companies realize that they need to look beyond consumer video for future growth. After decades of marketing broadcast video to consumers, that market already has maxed out in terms of subscriber growth, and in fact cable has seen its market share erode slightly at the hands of satellite competitors over the past few years. The expected push into video via IPTV will compound that problem.

It's hard to see how a purely defensive posture by cable operators will lead to long-term success. At best, MSOs will hold on to most of the video customers they have – and likely at lower prices, due to the intense competition. In all likelihood, they will sacrifice even more video service market share, even if the telcos are just moderately successful in their video ventures.

Today, cable operators are betting large on expansion of residential VOIP service – addressing the missing element in cable's service triple play – to counter-attack telcos in their own area of vulnerability. Early success is encouraging, but the residential VOIP market involves more players than just telcos and MSOs. A clear path to robust profits is far from assured. Furthermore, the efforts are draining resources away from the more profit-rich opportunity – business services.

For the cable operators, moving into business services is a way to both make up for lost video revenue and put the telcos on the defensive – moving the fight back even further onto the telcos' turf. New research from Heavy Reading – available in the new report, Cable vs. Telcos: The Battle for the Enterprise Market – shows the opportunity is there for MSOs. In an exclusive survey of 112 enterprise and IT professionals conducted in January 2006, Heavy Reading found the following:

  • 73% of respondents are already aware that cable companies offer business services.
  • 58% of businesses are willing to consider cable operators for future business services.
  • 55% rate cable companies as trustworthy for delivery of business telecom services – even though cable operators have relatively little experience in the business market.


The survey results are eye-opening for both telcos and MSOs. They clearly demonstrate that cable operators now have a golden chance to wrest market share away from telcos in the enterprise market, especially in the small to medium-size enterprise (SME) sector. And yet, the cable operators to which I spoke for this report are clear that their main priority in 2006 is to shore up their residential services portfolio, mainly by accelerating rollout of consumer-class VOIP.

This strategy should be welcome news for telcos, at least through 2006. But our survey results show clearly that telcos have some fences to mend with business customers, especially with SMEs. And some telcos are definitely more at risk from an eventual cable threat than others, based on the attitudes of our survey respondents.

The consumer front will continue to draw most of the attention this year in the telco vs. cable battle. Ultimately, however, this war may be won or lost in the pending fight for the enterprise. The time to get ready for that battle is now.

— Sterling Perrin, Senior Analyst, Heavy Reading

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