More Trouble for Cable?

Once upon a time, the cable TV industry was a struggling insurgent industry, long on hope, short on finding, basically a rural market service retransmitting urban market off-air signals to areas that couldn't receive them.

All that changed during the 1980s when major metro markets were wired, channel capacities grew into scores and independent programmers changed the business from "remote channel importation" to an "add choice" model.

By the 1990s cable gradually captured 70 percent of homes. Over the last 19 years, as video penetration saturated, cable modem and voice services emerged as the growth drivers. But cable now is an incumbent. Like the telephone companies, it faces negative growth in its legacy business, partly from satellite providers but increasingly from at&t and Verizon.

As a result, cable stocks have dropped about 35 percent since last summer. UBS analyst John Hodluk thinks more pain is coming, as consumer spending slows, broadband access additions decelerate and the telcos start to make themselves felt in video service.

Hodulik says the two telcos will double the reach of their video services this year to about 18 percent of homes passed, and will double again by the end of 2010. As a result, cable basic sub losses could triple in 2008.

On the other hand, Qwest Communications might lose nearly 10 percent of its consumer lines this year as well.

The good news for most telcos is that revenue sources have diversified quite a lot over the past decade. Consider Cincinnati Bell, an independent telco.

About 83 percent of its service revenue in 2007 was earned from areas other than the traditional consumer wireline voice traffic. In 2006, Cincinnati Bell earned about 80 percent of its total revenue from sources other than consumer landlines.

Business market revenue is part of the reason. Revenue from data center managed services increased 43 percent in 2007, for example. Wireless service revenue from business customers grew by 17 percent and business access lines were actually up almost two percent. As a reflection of this growth business markets revenue represent a 57 percent of total 2007 revenue compared with 55 percent in 2006.

Which is largely what the Federal Communications Commission forecast would happen when it decided the basic competitive framework for the U.S. market would be to encourage the telcos and cable companies to have at it. That hasn't been helpful for other would-be competitors, including competitive local exchange carriers and independent VoIP providers.

But there's reason to believe the framework is working, at least to a significant extent. A great deal of the credit, though, is because of the contributions made by Internet-based application providers. That payoff seems clearer every day.

Voice Continues Wireless Shift

Wireless access "lines" not only outnumber wired lines by a three to one margin, wireless accounts now blow away wired lines in terms of growth, say researchers at the Organization for Economic Cooperation and Development. Which explains the attention now paid to seamless experiences in either the voice or Web realms. If so many people are going to spend so much time in mobile settings, then the things they might do on a PC or desktop phone have to be available on their mobile devices. Ideally, the context a user expects in a stationary or tethered experience also would be replicated in the mobile context as well. Price, while always a factor in a buying decision, is a matter of "hygiene."

If the price is wrong, no sale occurs. But price is not something that can make a user happy. Think of price as something that instead prevents a user from being "unhappy."

But even the right price makes a user "happy." The things that make users happy are on a different plane, entirely. Coolness, features, form factor, user interface and lots of other things people find they can do with a service and device are the essential parameters for driving "happiness." And the attempt to find "happiness" is what drives the purchase.

If you want people to buy something you make, you have to remember that "happiness" and "hygiene" are not on the same continuum. There are two different scales, and you have to be on the right side of each scale.