Monday, February 22, 2010

Are Broadband, Voice, TV and Mobile Services Really Commodities?

Both industry executives and consumers might sometimes be accused of viewing mobile, voice, broadband and multi-channel TV services as "commodities." Whether that is true, and to what extent, is, and ought to be, a matter of debate, not certitude.

Consider Verizon and DirecTV, for example. You might say that both provide services that other key competitors also provide, and that the features and prices are, at some level, comparable and even similar.
But their offerings are not identical with the offerings of their key competitors, and that appears to be by design, not accident.

DirecTV is the biggest satellite pay-TV provider in the United States and competes with other satellite and cable providers.  But that doesn't mean it competes for an identical set of customers, even though there is much overlap.

The company is not exceptionally distinct in aiming to grow revenues in the future by focusing on average revenue per user growth more than growth in the number of subscribers. Indeed, virtually every provider expects to do that.

Nor is DirecTV distinct in that regard. In a competitive, multi-product market, virtually every provider seeks to get more revenue by selling more things to existing customers, not simply adding new customers.
But DirecTV and Verizon seem to be focusing on higher-spending customers, compared to the other competitors in each of their markets.

DirecTV focuses on "higher-quality" subscribers who tend to pay extra for its advanced services like high-definition and digital video recorder  service. In the fourth quarter of 2009, about 70 percent of new DirecTV subscribers signed up for HD and DVR services, for example.  Overall HD-DVR penetration amongst DirecTV’s subscriber base amounting to about 60 percent.

Some observers expect DirecTV’s HD-DVR penetration to increase to 80 percent by about 2016.
DirecTV plans to offer new services include mulit-room viewing and new broadband applications as well. DirecTV Cinema is a movie service that will allow subscribers to watch certain films through DirecTV as soon as they are released on DVDs.

Verizon likewise tends to focus on higher-spending customers as well.

The point is that even as broadband, mobile, voice and multi-channel TV services are highly competitive, they are not, in the strict sense, "commodities." It might not matter whether a sugar product was made from beets or sugar cane. It can, and often does matter, that a firm's customer service, features, devices, packaging or pricing are distinct.

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