Cablevision Has Defended Against Verizon Attack Well; MSO Uses Fiber to the Home

Implications: 1. Two years ago, some industry observers believed that Cablevision was in big trouble. 2. Verizon was just rolling out FTTH in earnest and prime targets in its sites were areas with expensive housing within the MSO’s footprint. 3. Cablevision has arguably protected its turf and retaliated better than any of the large CATV companies, which are directly competing with Verizon.

Analysis:  

At first glance, it did not necessarily seem that Cablevision was a real competitor as Verizon attacked the MSO in lucrative areas such as the Hamptons on Long Island as well as in places such as Poughkeepsie and White Plains, New York. Actually, Cablevision turned out to be a shining star among the large cable TV companies, which were going up against the RBOC. Before Verizon signed its first customer, Cablevision was aggressive in upgrading its network, in offering triple play services, and in going after small and medium-sized business customers.

One critical move for Cablevision was in quietly transitioning to FTTH. While the MSO has not placed huge amounts of it in any particular sector, certainly any time there was damage to, or problems with, the coaxial, it would be swapped out for fiber. In some situations, the CATV firm has been proactive in replacing coax, especially in the business areas.

Of course, Cablevision was helped by Verizon’s sense of arrogance. When the RBOC first started out, it thought it could just pull the fiber to the community and its name alone would sell the product. There were hardly any sales. Ironically, Verizon has had better take rates for video services in Tampa, Dallas, and Los Angeles than in Virginia and New York. Outside of the legacy footprint, there is a lack of the negative, historical bias against the traditional telco.

Eventually, Verizon started sending out letters, which again resulted in little attention. Then this past winter, the RBOC sent out teams knocking on doors. While many of these customers (that tended to be highly educated) actually did consider Verizon’s proposal, a lot of them have been cautious. In a number of cases, it is thought that there is little rationale to warrant a switch of all services. They would not be really be getting any new programs or higher-speed Internet (the rate is totally controlled by rates of the ISP itself). They already have reliable phone service. Only tech geeks will tend to be swayed by getting a little bit better picture quality on their HDTV channels.

In fairness, a small percentage of customers have been swayed in saving about $40 for a triple play service (with unlimited bandwidth) in comparison to Cablevision, which apparently only comes close to matching Verizon’s fees for new accounts. In addition, if the cable companies in general fail to do an adequate job in keeping up with upgrades – such as the possibility of increasing delays with even flipping standard channels – then Verizon would have a better shot. As has been talked about in previous articles, the RBOC also needs to offer much more diversified programming.

Still, projections by one or more analysts that Verizon has the potential to take well over half of Cablevision’s residential customers is as insane as the prospect of the MSO grabbing that much share of the telco’s voice and data subscribers. For one thing, Verizon is only planning to deploy fiber in 30 or 40 percent of its residential market – and that is after it finishes selling off more territory. Even when it comes to new developments, the RBOC will be going after houses with fiber optics more in the $400,000 and higher range compared with, let’s say, a $199,000 starter home – simply because the higher end of the market will be more inclined to want sophisticated services.

Although it is probably safe to assume that Verizon will remain in the video business indefinitely, there is still a chance that it will look to get out in the future.