"'We've become less of a TV company than we were previously,"said Glenn Britt, Time Warner Cable CEO recently said, adding that the company's focus has shifted more toward its role as a provider of infrastructure for the delivery of media. That might have been an odd statement 10 years ago, when both cable companies and telcos began to find that the competitive market was forcing a rethinking of product bundling.
In a monopoly environment, with high end user penetration, it is rational to build networks that have only a single service to sell. That used to be the case for cable operators selling video entertainment, or telcos selling voice. In a competitive environment, with multiple providers, any provider can expect penetration ranging from 20 percent for any major new service, and a declining share of the original legacy business, if there was one.
For a cable company or telco, that has meant selling multiple products to a smaller base of customers. That's why triple play or double play packages have become so important in recent years. Now, though, even that strategy requires revision. Once a network has been built, and a company has gotten about as many triple play or dual play customers as it can, it makes sense to avoid stranding assets by selling single services, if one can, to customers that have chosen to buy a key service from another provider.
In cable's case, that means acknowledging that, for many customers, a satellite service simply makes more sense, and that some customers will not give up their satellite TV services for a terrestrial alternative. So Time Warner Cable now wants to "take what the market will give it" by focusing new market attention on "broadband only" sales to customers unlikely to abandon their video or voice services providers.
That is not to say the fundamental economics of a broadband fixed-line network do not require healthy triple play or dual play sales. That still is necessary, under conditions where other contestants are going to get significant market share. But neither does it make sense to strand assets when some percentage of customers can be enticed to buy a single product, in cable's case broadband access.
There is another interesting nuggest in Britt's remarks, though. Note the statement about Time Warner Cable's overall "role as a provider of infrastructure for the delivery of media." That's a flat out acknowledgement that the growing part of Time Warner Cable's business is the "dumb pipe" part, broadband access, not entertainment video or voice.
Protestations to the contrary notwithstanding, Britt is correct. Time Warner Cable is close to the point where its "dumb pipe" customers will equal the number of legacy video customers. The company has about two million customers who buy broadband access, but not video. It has 12.5 million video customers.
There is something else to be gleaned here. Britt noted that about half its "broadband only" customers were business accounts. So although Time Warner Cable expects to sell more "broadband only" accounts to residences, it likely also will find it is selling more business access accounts as well.
So not only is Time Warner Cable shifting from "video first" to possibly "video or broadband first," it also is shifting towards sales to business customers, where its legacy business has been consumer focused. That is not to say either cable or telco service providers will not strive mightily to create other new revenue streams. It is to say that "dumb pipe" remains foundational to the overall business.
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