Who’s Winning the Telco/Cable Battle?

There has recently been a lot of media attention focused on the cable providers, not only because they’ve been emerging as players in some next-gen technologies like SDN, NFV, and the cloud, but because they’ve been gaining market share on the telcos after losing it for years.  All of this seems tied to trends in television viewing and broadband usage, but it’s hard to say exactly what factors are driving the bus, and so hard to know where it’s heading.

One thesis for the shift is that because cable infrastructure is fairly constant throughout the service area, cable companies can deliver broadband services more consistently.  Telcos usually have zones where they can justify high-capacity broadband infrastructure, where customer density and economic status is high, but others where it’s plain DSL.  There can easily be a factor of 100 between the fastest and slowest broadband available, and cable rarely has anything like that ratio.

Another thesis is television viewing.  TV is dominated by channelized video services, the competition for “broadband” was really a competition for video.  Cable infrastructure is inherently superior to DSL (and, most agree, to satellite) for delivering channelized video.  The slower DSL connections have to husband programming to avoid congestion on the access line, and I think this was a major factor in inducing AT&T to move to satellite video delivery.

The third theory is that it’s really mobile broadband that’s the culprit.  Telcos have been focusing increasingly on mobile services because they’re more profitable, and as a result they’ve been scrimping on modernization of their wireline services, both Internet and video.  The cable companies’ primary revenue and profit center is the delivery of TV and wireline broadband, so it’s not surprising that they’ve put more into those areas, and are reaping the reward.

There are other factors too, which might form the basis of their own thesis or might be a complication in one or more of the others.  Telcos came late to the TV delivery market, and had an initial advantage in being the new kid, able to cherry-pick geographies and tune services to beat competitive offerings.  Those benefits have now passed on.  Cable companies have been a bit more successful in consolidating than telcos, and up to the AT&T/Time Warner deal (yet to be approved, but it probably will be) the cable companies have had a leg up on getting their own content properties.  All of these points are factors.

The current situation is that cable companies, who lost customers to telcos from the time when telco TV launched, have started to gain market share back.  The shift is slow because it generally requires some considerable benefits to drive consumers to go through the hassle of changing their TV, Internet, and phone, but it’s already quite visible among new customers.  At the same time, there is an indication that TV isn’t the powerful magnet that it used to be.  Verizon reported that its vanilla-minimum-channel offering ended up taking about 40% of renewals and new service deals.  Streaming video has changed the game.

Streaming video’s immediate impact on both cable companies and telcos is to shift viewing away from channelized programming, even in the home.  This means that the inherent advantage of cable for channelized delivery is minimized, but it also means that satellite TV isn’t going to save low-speed DSL companies from cable predation and that you’ll need better WiFi and data service to the home.  The phone or tablet, or the streaming stick or smart TV, is the TV of the future, and it needs a data connection.  So far, the net advantage is with cable companies.

The next level of impact here is the mobile/TV symbiosis.  AT&T’s plan to offer unmetered mobile streaming to its DIRECTV customers, and possible symbiotic features/services to enhance viewing of a telco offering on the telco’s own mobile network would open ways to empower TV and fixed broadband providers who have a mobile service, which cable companies do not.  This is almost certainly why Comcast is looking to offer some sort of MVNO service that, like Google’s Fi, feeds on WiFi wherever possible.  Comcast has public WiFi hubs, and could certainly deploy more.

In my view, the future of wireline services is tied to the mobile device, which means that if cable companies don’t secure some form of MVNO offering that can give them some latitude in pricing video streaming, they are going to lose market share again, and probably very quickly.  Some on the Street think cable companies will romp wild and free for as much as five or six years, but I think they could end up losing share even in 2017.

All of this frames infrastructure planning too.  For telcos, it means that there is a renewed reason to look at streaming video to the home, but in the form of a pure on-demand service.  Things like sporting events and news could remain “magnetic” enough to justify channelized video, but you’d be better off using your streaming bandwidth to support on-demand streaming consumption.  Five or six people aren’t going to watch the same show at the same time on individual phones or tablets, after all.  For cable companies, it means you need to have WiFi-centric MVNO or you’re dead.

This could all frame some of the 5G issues.  One of the applications of 5G that operators want to see is enhanced mobile speed—which would make video delivery easier and lower the operator cost to support a given number of streaming consumers in a cell.  Another is the Fixed Wireless Access (FWA), which would use 5G radio technology at the end of an FTTN connection to make the last jump to homes and businesses.  These drive, in a sense, wireless and wireline convergence.  They also make network slicing more valuable, because all of a sudden, we could see a lot of new MVNO candidates.  Operators like Sprint and T-Mobile would almost surely be candidate partners for the cable companies because they’re not wireline competitors.  These two, by the way, are partners with Google in Fi.

The net here in my view is that there is no winner or no truly meaningful trend in wireline broadband or video at all, there is only a set of mobile-driven trends.  The people who can be players in the mobile space can pick their features and battles like the telcos did a decade ago in channelized video.  Those who can’t plan in mobile are now going to face major problems, and if 5G or 5G-like convergence emerges by 2020, they’ll have a serious problem creating a survivable business model by 2022.