Will Telco and Cable Revenue be Lead, Anchored By or Exclusively Driven by High Speed Access?

Will high speed access be the primary telco and cable operator revenue driver in the future? Looking at mobile services, one would be quite tempted to argue that will be the case. In many markets, and perhaps globally, mobile data already represents the majority of revenue, if not the majority of users.

For both cable and telcos, high speed access is the biggest revenue growth category and legacy lines of business are receding, across the landline business.

So it might not be unusual that Cablevision CEO James Dolan has said in public that "there could come a day" when his company stops offering television service, making broadband its primary offering.

Time Warner Cable CEO Glenn Britt said in 2011 that broadband already is cable’s anchor service, a less dramatic of saying the same thing Dolan said.

Cablevision Systems Corp. has a rather long history of maverick behavior within the U.S. cable TV industry, notably investing significant sums in satellite delivered television ventures on more than one occasion, something other cable operators never did.

But Cablevision also went its own way even in more mundane matters such as the wavelengths it preferred for optical transmission, choosing to use the 1550-nm window rather than the 1310-nm window virtually all the other service providers preferred.

Some might say that explains the candor. Cablevision just isn’t shy about going its own way. On the other hand, one might also say Cablevision executives do not actually believe they will be running the asset when that happens, either. Sometimes imminent freedom creates more opportunity for telling the truth, as one sees it.

The day when high speed access, not video revenues, anchor cable revenues is but is a simple extrapolation from the declining percentage of revenue virtually all U.S. cable operators earn from video services, compared to other newer services, especially broadband, voice and business services.

The parallel statement would be the CEO of a tier-one U.S. telco or mobile services provider saying it could envision a time when the firm no longer offered voice services.

Whether telcos actually completely abandon voice, or cable companies completely abandon video, probably is not the question. The question is what drives revenue growth for either cable or telco providers, and the answer revolves around broadband and service provider roles as Internet service providers.

Looking only at profit margin, broadband is the most lucrative service, and arguably becomes the foundation access mechanism for an IP network, including some content and communication services, if not eventually all of them.

An analysis by IBM Global Business Services, for example, predicts just a few basic future outcomes, characterized either by consolidation, disaggregation (breaking the firms up into more specialized assets)or some shift to more horizontal revenue models.

One might argue for a future where some service providers are in the consumer segments, while others are in the business segment.

Either of those choices would involve significant structural change for any major telco, involving a huge amount of operating cost and capital investment reduction for the surviving units.