Some Overbuilders Reconsider Triple Play

It has never been easy to be an overbuilder (a firm that competes on a facilities basis) with both cable TV and telcos in the same territory) in the U.S. market.

Since local access is a scale business, any overbuilder has to attack a niche (such as multiple dwellings units) or overbuild an entire metro area, risking a huge amount of capital for hope for a 10-percent to 15-percent take rate.

To boost prospects, most overbuilders offer triple-play services (voice, video entertainment, internet access), which helps increase average revenue per account. But the economics of the triple play are changing. Voice take rates keep falling, and the video business case for a smaller provider always has been challenging, as programming contract discounts are based on volume, which, by definition, a small provider cannot attain.

Recently, there are possible signs of a strategy shift, in some instances. Google Fiber did not offer voice services, sticking with internet access and video. Sonic only offers gigabit internet access and voice. Ting Internet seems to be aiming at internet access only in its new builds.

The business case matters, for overbuilders or incumbents.

Incumbent provider CenturyLink is reconsidering whether linear video should be offered, as the economics of over the top video are better. Small telcos always have difficulty justifying offering video service as well.

Grande Communications, the Texas-based broadband communications company offering internet, TV and phone services, initially offered gigabit access to high-density living units, another form of picking a niche. Now Grande is providing gigabit internet service home and business subscribers in its Texas markets of Austin, San Marcos, Dallas, Midland and Odessa.

That move is made possible by introduction of DOCSIS 3.1 protocols that support gigabit access over a standard hybrid fiber coax network.

Even if the tier one cable and telco incumbents continue to focus on triple play, niche providers and new attackers might well choose not to do so.
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