Somewhere on Wall Street, the the ivy league spreadsheet kids are having a hissy fit. The big dumb pipe they have warned the telcos and cable guys to avoid has become the only growth business outside of wireless. The difference is that fixed line broadband is infinitely more profitable than wireless and very modest investments can yield even more profitable service tiers. As stand alone services on a captive network, voice and cable TV are dying.
Whether it’s needed for Wi-Fi for your iPhone ( s aapl) or you simply like to watch streaming Netflix, the demand for broadband connections was on an upswing according to research firm the Leichtman Group. During the third quarter of 2010, top U.S. cable and phone companies added about 818,000 new connections, up sharply from a mere 350,000 connections added during the second quarter of 2010. (Gigaom)
Look for one of the spreadsheet kids to discover shareholder value can be advanced by spinning off duopoly content and voice services into separate operating entities. The same case could easily be made for spinning off wireless. The dumb pipe needs to get bigger with a larger range of bandwidth options. By focusing only on bandwidth, profit potential is enormous when unencumbered by the programming, content and legacy voice businesses. Spun off programming would be more free to undertake a TVoIP transformation, and possibly even recapture revenue growth when not confined to a single access providers network. Regardless, the parts are very likely to be worth much more than the conglomerate. When there is a single core business in management’s focus consumers are much more likely to see new technology, get better service, and maybe even a lower price.
First, yeah, dumb pipe is the thing. But I am going to diverge from you a bit. I know with one major carrier their optical broadband service would never have seen the light of day had it not been for getting at least a third of the households to accept a triple play (broadband, tv, phone). Any single service would have protracted the payback ratio so long that the carrier would not have been able to get the funding from the banks on the deal. So to a certain extent it was a catch-22.
Now having said all that, yes, getting a split out of the various services at ‘good rates’ should be a goal. The content bundling is fighting a tide of single vendor services that will be coming from the content providers.
Were I a cable operator I would spin off the whole portal thing as a separate service and charge for it. It will soon die of natural causes. I don’t know that many people that use portals these days. A bookmark tree and most people are set. Move your billing to third party service provider. They can do it cheaper than you can. That also means you too AT&T and Verizon.
The one black swan in all this is wireless operations – wimax, LTE or some future. The cost per household mile is still very high and is an impediment to burying cables. Wireless is not free, you still have to put up the tower and maintain it. But you have a considerable embedded base cost advantage. The key here is that a near term 100mb service arrive. When it does, cable is dead.
Maybe so for telco twisty pair, but the cable guys have 100MBPS capability with a $30 per subscriber upgrade (backhaul not withstanding, but hey light up another stand). Outside of dedicated bandwitdh services like Towerstream, wireless isn’t even competitive with DSL so far, and no one seems to be interested in competing with fixed line from the woreless space except for business class providers. Anyway, with to FCC firmly in place as the sole grantor of the right to use the public airwaves, I’m not hopeful very much will change.