Comcast and AT&T will Transform and Dominate U.S. Triple Play Market

Assuming both the Comcast acquisition of Time Warner Cable, and the AT&T bid to buy DirecTV are approved by regulators and antitrust authorities, the U.S. communications market (which now is becoming inseparable from the video entertainment services market) would be transformed.

Comcast would be the largest U.S. service provider, ranked by customer relationships, while AT&T would be only the second largest. Verizon would be a distant third.

Prospects for Sprint and T-Mobile US would still be significant in the mobile segment, but the really big change would be the change in what we might call the triple play services market that now defines the fixed network market.

Before one can analyze a market, one has to define a market. And that is the growing problem for the network services business, including high speed access, voice, video entertainment and mobile services, for both business and consumer segments.

Does one analyze each product segment, or all products sold by all contestants, even if some do not compete in all segments?

Even once those questions are answered, one has to decide whether to rank by subscriber or customer counts (consumer and business accounts included or disaggregated), by country where revenues are earned, or customers are served, or to use revenue (gross revenue or net revenue).

In the U.S. market, for example, measures of size based on mobile subscriber or revenues give different answers about which firm is bigger, AT&T or Verizon. And a mobile services ranking does not include Comcast, the biggest of the cable TV providers.

In the high speed services market, ranked by subscribers, Comcast clearly is the leader, while AT&T is number two and Time Warner Cable is number three.

Verizon is number four and CenturyLink is number five.

In video, Comcast in the biggest, ranked by subscribes, followed by DirecTV. Dish Network is number three, while Time Warner Cable is number four. AT&T follows at fifth and Verizon is sixth.

In voice services, AT&T is number one, ranked by customers, with Verizon and Comcast in second and third. Time Warner Cable is fourth. But many could note that Verizon and Comcast have almost the same number of voice customers.

In terms of total customer relationships, across high speed access, video entertainment and voice segments, Comcast is the biggest, followed by DirecTV.

AT&T is third, followed by Time Warner Cable, then Dish Network. Verizon is sixth biggest.

All that would change if both the Comcast acquisition of Time Warner Cable, and the AT&T purchase of DirecTV are approved. In that case, Comcast would be the largest U.S. service provider, with AT&T the number two, with both companies far ahead of all the others.

Video and high speed access would be the key services for both firms.

Video Provider	Subscribers at End of 1Q 2014	Net Adds in 1Q 2014	Net Adds in 1Q 2013
Cable Companies
Comcast^	22,601,000	24,000	(25,000)
Time Warner	11,359,000	(34,000)	(118,000)
Charter	4,355,000	13,000	(35,000)
Cablevision	2,799,000	(14,000)	(5,000)
Suddenlink	1,187,500	2,400	800
Mediacom	937,000	(8,000)	(1,000)
Cable ONE	524,563	(14,331)	(5,435)
Other Major Private Cable Companies*	6,655,000	(20,000)	(40,000)
Total Top Cable	50,418,063	(50,931)	(228,635)
Satellite TV Companies (DBS)
DirecTV	20,265,000	12,000	21,000
DISH	14,097,000	40,000	36,000
Total Top DBS	34,362,000	52,000	57,000
Telephone Companies
AT&T U-verse	5,661,000	201,000	232,000
Verizon FiOS	5,319,000	57,000	169,000
Total Top Phone	10,980,000	258,000	401,000
Total Multi-Channel Video	95,760,063	259,069	229,365

source: Leichtman Research Group

Broadband Internet	Subscribers at End of 1Q 2014	Net Adds in 1Q 2014
Cable Companies
Comcast*	21,068,000	383,000
Time Warner	11,889,000	283,000
Charter	4,788,000	148,000
Cablevision	2,788,000	8,000
Suddenlink*	1,103,100	35,100
Mediacom	984,000	19,000
WOW (WideOpenWest)	756,700	16,700
Cable ONE	484,168	11,537
Other Major Private Cable Companies**	6,450,000	65,000
Total Top Cable	50,310,968	969,337
Telephone Companies
AT&T	16,503,000	78,000
Verizon	9,031,000	16,000
CenturyLink	6,057,000	66,000
Frontier^	1,873,000	37,000
Windstream	1,170,400	(500)
FairPoint	331,538	1,772
Cincinnati Bell	270,000	1,600
Total Top Telephone Companies	35,235,938	199,872
Total Broadband	85,546,906	1,169,209

source: Leichtman Research Group

No Sprint Bid for T-Mobile US, After All

Sprint will not be makinng a bid to buy T-Mobile US, after all. On Aug. 5, 2014, Sprint said it was abandoning its effort to buy T-Mobile US, because it believes regulators would not approve such a deal.

As some of us have been arguing, even had the acquisition been attempted, and approved, the likely structure of the U.S. mobile market of the U.S. mobile market would have remained at a minimum of four, and possibly five leading national providers.

Some of us also have been arguing that the U.S. market also would remain unstable, based on some classic patterns of market share.

CNBC also reports that CEO Dan Hesse will  be "replaced tomorrow." 

Some wonder what will happen next. Dish Network and Illiad are among the firms that have either said they would be willing to make a bid, or, in Illiad's case, already have made an initial offer to T-Mobile US.

Among the most logical questions is what will happen to T-Mobile US, as it still is believed to be "in play." The equally-important question is what Sprint will do. 

Over the last year, Sprint executives have increasingly been vocal about the need to gain scale faster to compete effectively in the U.S. market, even if a slower growth pattern still was possible without a merger of Sprint and T-Mobile that would create a much-larger number three provider in the U.S. national market.

Sometime in 2014, though, an independent T-Mobile US is likely to pass Sprint, for the first time, as the third-largest U.S. mobile provider, ranked by subscribers. T-Mobile US also has the fastest growth rate of the four national providers. 

Most likely believe there is little chance of a buyer trying to buy Sprint, rather than T-Mobile US, though perhaps that is conceptually possible. So Sprint now will have to execute on a business plan based on operation as an independent company, likely as the smallest U.S. mobile provider.

And though many expected Sprint to launch disruptive attacks on U.S. market structure, that role has been claimed by T-Mobile US. 

And, at least so far, there is not much reason to believe that regulatory opposition will be a key issue for Dish or Illiad. 

Coincidentally, 21st Century Fox also dropped its bid to buy Time Warner on the same day.

Tablet Market Slows

Global tablet shipments fell five percent sequentially in the second quarter of 2014, to 48.4 million units, as Apple and Samsung suffered shipment declines, according to Canalys.

Apple shipped just under 13.3 million iPads in its weakest quarter since the first quarter of  2012. Samsung shipped just under 8.9 million tablets during the quarter, which represents a sequential decline.

Apple and Samsung continue to account for 46 percent of global tablet shipments, and as a result many markets hinge on their combined success.

Tablet shipments in Asia Pacific (including China) came in eight percent lower, sequentially.

Shipments in EMEA fell 11 percent year on year, with declines in Central and Eastern Europe, and Western Europe negating growth in the Middle East and Africa. In Western Europe, sequential shipments fell 18 percent.

Canalys Senior Analyst Tim Coulling argues “a slowdown in the pace of innovation is creating an issue for tablet vendors.”

Some argue the tablet market already faces the old PC problem, where capabilities for new models is not sufficient to drive upgrades.

source: Canalys

Some might now be wondering just how big the tablet market is going to be, a somewhat shocking development for a product that many observers say has been the fastest-adopted consumer product of all time.

Best Buy, for example, says tablet sales are “crashing.” And during its second quarter 2014 earnings call, Corning acknowledged it had seriously misjudged demand for glass that goes into tablets.

“We just got that really wrong about what was happening in the tablet market,” said Jim Flaws, Corning CFO. “And we have adjusted down our forecast for that dramatically compared to our original expectation.”

Tablets, recall, were supposed to be a prime example of the “post-PC” era. In May 2014, for example, IDC lowered its forecast for tablet sales to 12 percent annual growth, from an earlier forecast of 52 percent.

Comcast, CenturyLink Take Different Paths to Challenge of New Gigabit Markets

The shift to gigabit access continues to gain traction in the U.S. market. Perhaps the interesting now-developing issue of how a legacy provider adjusts value and pricing of its offers to protect legacy revenues while adopting a new pricing umbrella set by gigabit services.

In other words, if a telco or cable company sells a stand-alone standard high speed access product for $50 to $80 a month, how does it align value and price in a market where 1 Gbps costs only $70 a month to $80 a month?

The issue is, depending on your view, either less complicated or more complicated because a clear majority of cable and telco customers buy services as part of a bundle, where the actual cost of each component service is hidden, more or less.

Still, all telcos and cable TV companies have to post stand-alone prices, because at least some customers prefer to buy service that way. Comcast and CenturyLink are taking two possible, but different, routes.

As part of a move to higher speeds, Comcast has doubled Internet access speeds that it has increased Internet speeds for customers in almost all of its residential service areas in California, as well as select markets in Kansas, Missouri and Texas, doubling speeds for buyers of 25 Mbps and 50 Mbps services, for example.

Customers now will get 50 Mbps or 100 Mbps for the same price they have been paying for either 25 Mbps or 50 Mbps services.

That is a classic example of how prices and value historically have been changed, over time. Customers get “more for the same price,” while more-pricey and faster offers are added at the top end.

Such an approach protects revenue earned from the standard offers, while gradually allowing faster speeds to be sold, for higher prices, and simultaneously adjusts value-price relationships.

Separately, CenturyLink has launched symmetrical gigabit speeds for residential and business customers in select locations in 16 cities. But CenturyLink is taking a different tack, apparently leaving existing prices for its 20-Mbps or 40-Mbps standard services in place, with unchanged value propositions, but adding a new higher-price option.

It is a subtle difference, but an important strategy. Committed to a new top-end speed of 1 Gbps, CenturyLink also wants to avoid cannibalization. But it can do so by leaving the current value proposition where it has been, and simply adding a new offer.

To stay within the broad framework of “1 Gbps for $70 or $80 a month,” CenturyLink offers that price only to customers who bundle a voice line, a product some 40 percent of potential customers likely do not want.

The additional revenue from the unwanted product then brings the effective revenue for the gigabit service up to about $120 to $150 a month.

Comcast, by taking its “more for the same price” strategy, does not immediately have to commit to upgrading to a gigabit service, but also provides more value for money, making its lower-speed offers superior to the CenturyLink standard offers at speeds Comcast already can offer.

In essence, then, CenturyLink will try to leapfrog to higher speeds, for more money, while Comcast will try to supply a better value proposition for the lower-speed offers, now boosted to 50 Mbps to 100 Mbps.

Both approaches make sense for suppliers who have made different decisions about physical upgrades. To offer a gigabit, CenturyLink has to make a historic break with its traditional fiber to neighborhood approach.

Comcast is able to keep its hybrid fiber coax approach, without immediately shifting to a fiber to home approach. In essence, Comcast is betting that much faster speeds for the existing prices will be valuable enough to forestall share losses to a competitor offering much higher speeds.

The other consideration is that the full extent of CenturyLink’s upgrades are as yet unknown.

The initial deployments are said by CenturyLink are said to reach “thousands of locations.”

CenturyLink expects to have gigabit services available to “hundreds of thousands of residential and business customers”  within the next 12 months.

The 10 cities where both consumers and business customers can buy include Columbia, Mo.; Denver; Jefferson City, Mo.; Las Vegas, Minneapolis-St. Paul; Omaha; Orlando; Portland; Salt Lake City and Seattle.

Markets where business customers now can buy 1-Gbps symmetrical services include Albuquerque, N.M.; Colorado Springs, Colo.; Phoenix; Sious Falls, S.D.; Spokane, Wash. and Tucson, Ariz.

CenturyLink plans to charge $150 a month for the service, but $80 a month if the access is purchased in a bundle including fixed network voice service. Since many customers really do not want to buy voice service from CenturyLink, the effective price in many cases really will range from $125 to  $150 a month.

Comcast has increased the speeds of three Xfinity Internet tiers: "Performance" now offers speeds up to 50 Mbps, up from 25 Mbps; "Blast" is now 105 Mbps, up from 50 Mbps; and "Extreme 105" has been bumped to 150 Mbps. The changes impact all California customers (except those in Santa Cruz, Scotts Valley, Isleton, Lodi and Rio Vista), as well as those in the Olathe, Kan., Independence, Mo., and Houston, Texas markets.

Those speed boosts will be provided at no charge for Comcast customers.

Essentially, Comcast will in the near term simply boost value while maintaining price. CenturyLink will preserve existing offers while adding a pricier and faster option at the top of the range.