Summary
1) Indeed, networks that are scattered across a local geography result in significant operational inefficiency. In Europe, we have seen significant consolidation.
2) However, the basis of the original article focuses on Charter’s success with VoIP. In the UK, the quadruple-play of Virgin Media would be hard-pressed to follow this given cannibalisation of existing telephony revenues.
3) And so, there are fundamental differences in the US market which should be noted when applying US experience to the UK market.
4) The UK cable and quadruple play operator, Virgin Media needs to differentiate by further increasing broadband speeds and by bundling relevant value added services; whilst incumbent telephony operators and DSL providers (facing revenue squeeze and customer loss) are launching triple play propositions.
Analysis
Indeed, networks that are scattered across a local geography result in significant operational inefficiency. In Europe, we have seen significant consolidation. In the UK, the Thatcher government of the 1980’s granting of local licences led to an explosion in the number of cable providers. Consolidation happened as many of the small operators were unable to generate a commercial return (especially given the strength of the incumbent telephony provider British Telecom and dominant pay-TV provider, BSkyB). We now have one major cable entity: ntl:Telewest that has just re-branded to Virgin Media (as it acquired Virgin Mobile and now offers quadruple-play services). However, given all the consolidation cable is beset by problems of multiple billing systems, poor management systems, different organisational cultures which primarily manifest itself in poor customer service.
Across the rest of Europe, UPC Broadband (part of John Malone’s Liberty Media) has been acquisitive and lead much consolidation in the emerging European markets (for instance Ireland and the Eastern Block).
However, the basis of the original article focuses on Charter’s success with VoIP. In the UK, the quadruple-play of Virgin Media would be hard-pressed to follow this. This is due to the fact that the majority of Virgin Media’s gross margin is derived from fixed-line telephony services.
In the US, Regional Bell Operating Companies (RBOCs) and Cablecos have come from different growth base positions and, in pursuit of triple play, are straying into each others territory – threatening a price war. The move by the Cablecos to provide a voice service (via VoIP) is further threat to the RBOCs who have been losing customers on their core product line (i.e. telephony lines) and losing revenue. This has pushed the RBOCs into taking a more offensive stance re. VoIP and broadband growth. In addition, they are extending their services to include video over DSL - taking the fight to the Cableco’s heart land of pay-TV.
US Cable has been able to maintain it’s ARPU despite aggressive DSL pricing. Cable has achieved this by: the US consumers’ desire for greater bandwidth which Cable is best placed to deliver. The US broadband market is more advanced than the UK as Internet penetration indexes higher than the UK and US users spend more time online than their UK counter parts. US Cable has been able to take an offensive stance on VoIP as a key broadband value added service: without having to be overtly concerned about cannibalising other existing telephony revenue.
And so, there are fundamental differences in the US market which should be noted when applying US experience to the UK market. Virgin Media’s broadband position is closer to the US RBOCs than the US Cablecos, since the UK market is primarily competing on speed and price given consumer preference and that the UK DSL operators have been able to match Virgin Media on speed to date. Virgin Media needs to differentiate by further increasing speeds and by bundling relevant value added services; whilst incumbent telephony operators and DSL providers (facing revenue squeeze and customer loss) are launching triple play propositions.
