Friday, January 4, 2019

Business Services are Changing Cable TV Strategies

Incomplete network coverage always is an issue for fixed network connectivity service providers selling to national and other multi-location businesses, for the simple reason that no service provider in the U.S. market has full coverage.

In principle, U.S. cable operators have just a couple major choices as they seek to sell services to multi-location enterprises. They can partner with other service providers out of region or they can build some of their own facilities. The former strategy is necessary most of the time, but cuts margins; the latter is possible some of the time, but means competition with other cable operators.

That is not an issue in the broader telecom industry, but is a cultural switch for the cable industry, which has historically operated with a "you do not compete with another cable operator" ethos.

But that attitude has to change, in some ways. Some lines of business beyond consumer triple play services necessarily require either national scale or operations outside of region.

In addition to multi-location enterprise services, mobile services at scale require a national footprint, while profit margins for services sold to smaller and mid-sized local businesses eventually require the use of owned facilities as well.

Even incumbent service providers with local assets use a standard “edge out” strategy to expand service beyond present boundaries. That is true for incumbent telcos, cable operators or even new CLECs with core metro networks. Though sometimes leased facilities are the only available means of supplying service, such firms move as swiftly as possible to build their own facilities.

That has been true for decades as business-oriented service providers have moved out of region. The typical initial approach is to buy wholesale capacity. That gets a foothold, but almost never works at scale, pushing competitive local exchange carriers to build their own fiber backbone facilities, at a minimum, with direct optical access facilities to larger buildings.

That need for scale outside of region (to serve small and medium businesses; enterprises or mobile customers) is what is driving cable operators to violate a historic industry courtesy of never competing head to head with another cable operator.

That worked for consumer triple play services. It does not work well for SMB services, once existing markets are saturated in-territory. Nor does that approach work in the multi-location enterprise market, where service might be needed almost anywhere in the United States or internationally.

Also, leadership in the mobile market necessarily requires a national footprint.

For such reasons cable operators will find they have to choice but to compete with other cable operators, on a limited basis, at least, to continue growing their enterprise and SMB business segment revenues.

Eventually, Comcast and Charter Communications might find they must take similar steps in the mobile business as well. For the moment, the effort is simply to protect the existing triple-play revenue stream. So mobile service is an in-region marketing effort, even if customers expect national service.

It is possible that a facilities-based approach will eventually be tried, in region, where Comcast and Charter have facilities, with wholesale sufficing out of region. But if and when either firm decides it prefers a leading market share role, it will be hard to avoid a national facilities strategy that finds Comcast and Charter selling services in regions where other cable operators are incumbents.

So far, neither Comcast nor Charter has shown appetite for competing in the streaming video subscription market. But any shift of thinking, perhaps in a mobile video direction, as perhaps a couple of the leading national mobile providers now contemplate, will again find Comcast or Charter competing against other cable operators, in those service segments.

That probably does not mean a complete breakdown of industry collegiality. But it will fray.

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