New ISPs Have Potential to Seriously Disrupt Cable, Telco Business Models
There is a good reason why Comcast and AT&T have dramatically committed to widespread gigabit Internet access networks: they have to, just to stay competitive with growing threats from independent Internet service providers.
The dynamics of monopoly fixed network access markets are one thing. The dynamics and business model impact of a strong two-provider market are quite another. To note just one huge change, stranded assets become an immediate problem.
In a monopoly market, a service provider might expect to potentially get nearly every household or location as a customer, for an anchor service.
In a duopoly market, that potential drops to perhaps 50 percent, assuming two contestants, equally skilled and offering similar services.
Three-provider markets, though historically rare, are becoming more common. Again assuming three providers, equally skilled, potential might drop to perhaps 33 percent.
The business model impact is stark. A monopoly market provider can hope to generate revenue from up to 100 percent of locations. A duopoly provider, over time, should reasonably expect to generate revenue from half of location.
In a three-provider market, revenue could be generated from only about a third of locations.
Even in multi-product markets (triple play), the same sorts of dynamics apply.
In Hamilton County, Tenn., where EPB sells gigabit Internet access, entertainment video and voice services, and is the only provider of gigabit services, EPB has gotten 43 percent market share in the consumer Internet access business, leaving the incumbent telco and cable TV operator to split 57 percent between them.
In Kansas City, where Google Fiber first launched its gigabit service, at least one survey suggested Google Fiber was getting 75 percent market share in some neighborhoods, and no worse than 30 percent in any neighborhood.
The long term issue is what percentage of all U.S. homes will eventually have three providers. If that happens, and if the new providers are competent, and have market-standard (or better) offers, incumbent telco and cable TV business models will be severely disrupted.