Is it Consolidation or Cooperation for North American Cable Companies?

Implications: Other than Insight, Bresnan and MediaCom, there are few consolidation opportunities. The economics of cable advanced services (VOD, Telephony and Data) does not play well for the smaller providers.

Analysis: While the aforementioned article implies that their may be significant consolidation in the North American Cable industry, this conclusion may be misleading.  For the most part, the majority of the prime cable markets have been consolidated.  The article mentioned that there were 15 significant players in the U.S., I count four.  Ask any equipment or software vendor to the industry, and if they are being honest, they will tell you that their product roadmaps are dictated by four vendors, period.

Cable advanced services: Video-on-Demand; High Speed Data; or Digital Voice Service, are all what is known as narrowcast services.  That is, these services are customized to a small number of nodes (or subscribers).  As such, the equipment that supports these services is moving to more and more dense solutions.  In fact, a number of products (CMTS, RF QAMs) are so dense, that a single product would be overkill for a number of small to mid-size operators.  Hence, we are not seeing large deployments of VOD and Telephony to these markets.  In addition, VOD libraries are growing to reach 10,000 hours of content.   Generally, the equipment to support 10,000 hours of content, supports 1000's of VOD streams, overkill (and expensive) for the small to mid-size operators.

So what is in store for the North American Cable Market, especially with the threat of the Teleco's offering Advanced Service?  More than likely, you could see the large cable operators working more cooperative in deploying advanced services.  Comcast, for instance, has a substantial fiber optic backbone.  Most all cable operators have very significant metropolitan/regional transport, i.e. large pipes.  As the penetration of telephony services increases, it makes sense that the cable operators will work cooperative on interconnecting their voice services.   I would expect that in the next 18 months, voice calls between Comcast and TimeWarner Cable customers will remain completely on these operators networks.

Also, another area of cooperation will be system swaps.  I don't think the system swaps that occurred between TimeWarner and Comcast as a result of the Adelphia purchase are over.  Look for continued activity in this area with the likes of Cox and Charter .