Wednesday, May 7, 2014

Cable TV Becoming the Primary Facilities-Based Fixed Network Strategy for Mobile Operators

It is not yet a universal truism that a fixed network services provider “must” own mobile assets. It is not yet firmly established that a mobile service provider likewise must own fixed network assets.

Nor is it yet clear that untethered access--in addition to mobile access--can provide enough value to replicate the value of mobile asset ownership.

But in some Western European markets, ownership of fixed broadband assets and mobile assets is the clear strategic direction. And while incumbents continue to rely on legacy telco access network assets, attackers increasingly are turning to use of cable TV networks to compete on a facilities-based basis.

Larger attackers find that an attractive approach for several reasons. As it turns out, the cost of upgrading a cable TV network, which is, by definition, a broadband network, arguably is less than the cost of upgrading a telco network for faster Internet access speeds.

Also, operating costs for cable TV networks typically are less than for competing telco networks. Also, video entertainment revenues are growing, while voice revenues shrink. And video entertainment has emerged as the second most valuable service for a fixed network, after high speed access.

Also, control over a network provides strategic advantages, in terms of controlling costs and offering greater opportunities to create differentiated retail packages, compared to a wholesale approach based on use of a wholesale network and offer.

Also, in some cases cable TV assets might not carry wholesale obligations that likewise help a service provider maintain distinctiveness and uniqueness in the market.

Some indications of the new strategy, namely ownership of mobile and fixed assets, and often cable TV plus mobile assets, are recent acquisitions by leading Western European service providers.

Spain’s Telefonica is offering 725 million euros ($1 billion) for a controlling stake in Spain's pay-per-view TV operator, Digital Plus. Telefonica already owns 22 percent of Digital Plus.

Telefonica wants to buy the 56 percent stake in Digital Plus in the hands of Promotora de Informaciones S.A., or PRISA, owner of Spain*s daily El Pais and the Cadena SER radio network.

Vodafone, meanwhile, recently purchased Grupo Corporativo Ono, the largest cable TV provider in Portugal.

BT, which had divested all its mobile assets, is re-entering the mobile (untethered access) business, using a strategy that is similar in essence to the way U.S. cable TV operators are assembling widespread Wi-Fi networks, hoping to create “untethered” platforms that can wholly or, in part, support full mobile operations.

Vodafone, Telefonica, Orange and Deutsche Telekom own both mobile and fixed network assets.

And both Telefonica and Vodafone are acquiring--or perhaps thinking about acquiring--more scale in fixed networks, perhaps ironically buying cable TV networks, not other telecom access networks.

You might therefore ascertain that the strategy is “fixed broadband plus mobile,” with video entertainment playing a key role. For fixed network operators, video has emerged as the key complement to high speed access, but also a key means of providing backhaul of mobile Internet traffic.

For mobile networks, video already is playing a key role in driving mobile Internet access revenue, while fixed networks complement mobile infrastructure and add a key facilities-based way to increase product scope.

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