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Carrier Services
Competitive scorecard: MSOs & telcos vie for video, wireless market
Yet overall market growth remains a zero-sum game
by Doug Allen
The numbers are in for 2008, and they clearly show a continuing trend as telcos, MSOs and satellite TV providers fight for and win greater market share in each other’s traditional core business.
According to a Current Analysis review, telcos have gained double-digit penetration in digital TV, long the province of MSOs and satellite operators, while MSOs picked up about half of the eight million wireline voice lines that telcos lost to ongoing access line erosion. The other 4 million "lost" voice customers have switched from landline to wireless.
Telcos and MSOs alike registered high single-digit growth in terms of broadband customers, with MSOs taking the lead in number of new subscribers. Each provider segment — telcos, MSOs and satellite TV providers — managed to grow ARPU (average revenue per unit) by an average of 9.8 percent, 7.9 percent and 5.6 percent (collectively among DSB operators), respectively.
Let’s break down those numbers, shall we? A quick peek behind the headlines reveals these key points:
• As they have for more than five years, telcos continue to face the trend of voice access line loss, averaging slightly less than 12% for 2008, or about 8.3 million residential lines.
• Broadband access line growth was up in 2008, nudging to 8 percent in comparison to the previous year’s figure of 7.1 percent, for a total of just under 3 million users. But not all four of the Tier 1 telcos — AT&T, Verizon, Qwest and Embarq — contributed equally to these gains. Half of the new broadband subscriber total came from Verizon’s FiOS initiative, which picked up 956,000 Internet service customers, and 975,000 more signed up for FiOS TV. AT&T feel behind slightly at 814,000 of their own U-verse TV subscribers.
• The weighted wireline ARPU average for the telcos was $64.27, or more specifically; AT&T at $64.08, Embarq with $55.84, and Qwest at $55.84. Verizon led all comers with $68.46.
• U.S. Census figures from end of 2007 estimate about 24 percent of the pay TV market are served by direct broadcast satellite. But that penetration is largely due to the promotional efforts of telcos who bundle the satellite service into their triple play packages. Of the 1.1553 million new satellite TV customers acquired in 2007, 1.198 million came from the sales channels of AT&T, Verizon and Qwest. Looking at market leaders, AT&T, Qwest and Embarq accounted for 320,000 of the 688,000 total net additions for DIRECTV and DISH. While both satellite providers still claim greater pay TV subscriber bases than any other provider except Comcast, it’s clear that Verizon and AT&T are more interested in promoting their own digital pay TV services than satellite, at least in those areas where the services are available.
• Cable operators continue to do well in head-to-head competition with telcos. Picking up about half of those telco customers who decided to abandon their voice access lines for wireless service, the MSO added about 4 million new subscribers, led by Cablevision’s example; 60 percent of its video subscribers also signed up for its voice service, bringing its market share to 40 percent of homes passed. MSOs continue to outpace telcos in broadband subscribers, posting a 9.5 percent increase for 2008, and taking a 57 percent share of the overall market in broadband connections sold compared to the telcos at 43 percent. The one spot of contention for MSOs is the slight decline in basic video subscribers, which fell by 1.7 percent, and is usually attributed to AT&T and Verizon’s burgeoning wireline video initiatives.
As for wireless, the market continues to its hot growth streak. According to a December 2008 CDC study, about 17.5 percent of all U.S. phone users have given up their traditional landline (or is that land-locked?) home phone and moved exclusively to cell phones.
“Although wireless substitution had a material effect on wireline voice, accounting for about half of telecom consumer access lines lost, the 2008 results are also telling in what they don’t discuss,” Larry Hettick, a principal analyst for Current Analysis, opined in a recent intelligence report. “For example, attempting to address the ‘cord cutter’ market niche, Verizon and AT&T both offer a triple play that includes wireless voice, satellite or wireline video, and wireline data as a bundle.
“However, neither company has disclosed if this bundle had a material effect on 2008 voice losses; rather both companies suggest the triple play bundle that includes wireline voice is their most effective tool to combat voice line losses," he continued. "On the MSO side, cable operators espouse the need for mobile data and mobile video, yet almost a year after Comcast, Time Warner Cable and Bright House Networks invested billions in the Clearwire venture, no wireless commercial services are yet offered by these cable operators. Outside of MSO who invested in Clearwire, no other MSO have disclosed a strategy for out-of-territory 4G mobile services. And finally, despite long-standing satellite TV operator partnerships with the ‘old’ Clearwire to bundle data and voice service into a triple play, no market traction for a fully wireless digital home triple play is evident. Together, the ‘what’s missing’ from wireless integration represents an opportunity for future competitive differentiation.”
Summing up, Hettick characterized 2008 as a time when “finding and acquiring triple play customers became almost a zero sum game since cable operators have largely finished their voice deployments, adding to already ubiquitous video and data competition. Broadband speeds increased to meet customer’s needs for bandwidth-hungry applications — and customers are shifting from low-speed DSL to higher speed cable and FiOS solutions as evidenced by the net broadband growth categorization. Telcos continued to lose voice lines to cable competition and wireless substitution, although telco TV matured into a serious long-term competitive threat to cable and satellite video. Satellite TV provider’s growth slowed without their own triple play, and in the face of pay-TV market saturation — marking their continued dependence on telco bundles for net annual sales. And except for taking a tool as a competitor to wireline voice, integration of mobile data and mobile video into the digital home service bundle remains elusive.”
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