Dave Neville asked:
The decline in the usage of cable TV is slow but continuous. In a market of a constant size, an increase in the *********** of one product inevitably means a loss of market share in another. In the case of the TV market, the increase in market share of satellite TV means there’s a decline in cable TV.
Cable TV was originally seen as a means for isolated country areas to experience the television benefits then being enjoyed by city dwellers. From a slow beginning in the late 1940s it developed into a huge industry by the 1990s influencing the lives of many people. By the end of the 1990s, it was estimated that approximately 70% of American homes had access to cable TV.
However, the 90s saw the introduction of satellite TV and the start of the decline of cable TV. The satellite TV providers made a very aggressive assault on the TV industry and very quickly had gained a large slice of the market. Since then the position of the satellite companies has got stronger at the expense of the cable companies.
While cable delivered a signal to each home via an underground cable, the signal for this new innovation came from satellites located over the Caribbean Sea. Reception at each subscriber was through a small circular dish usually affixed to the roof of a building. As long as the dish had an uninterrupted view of the southern sky, a TV set would be able to display a perfect picture and sound.
Like cable TV, the satellite TV providers’ packages are available through a monthly subscription and a 1 year contract. Most of the channels shown on cable are also available with the satellite companies, so a family switching over to satellite TV from a cable TV provider will still be able to enjoy their favorite programs.
The rise and rise of the *********** of satellite TV into American homes has come at the expense of cable TV. Cable TV is on the decline at an ever increasing rate, and although its demise may be some time away, it will eventually happen. Not only is this an example of superior technology replacing inferior technology, the downfall of cable TV is being accelerated by the overtly aggressive promotion policies of the satellite TV providers.
So what are the problems facing the cable TV industry? These can be divided into two – firstly the technological problems, and secondly the threats from assertive satellite competitors.
Technological Issues confronting Cable TV
1) As the TV signal is delivered to subscribers via cable, then bad weather conditions may affect these cables. Cable TV is not as reliable as satellite on this score.
2) Cables cannot deliver the much larger number of channels that satellite transmission can. Cable therefore cannot match satellite when it comes to variety of channels on offer.
3) Picture and sound quality with cable is inferior to that of satellite – satellite TV signals are 100% digital something that the cable companies cannot easily provide.
4) The nature of satellite TV means its more easier to incorporate new technologies into the system.
Threats from Aggressive Competitors
1) As the satellite companies are chasing market share, they are keeping their subscription fees as low as possible. The cable companies’ fees have been increasing at a greater rate than those of their satellite competitors.
2) Both the major players in the satellite TV industry offer new subscribers free equipment and installation, such as a satellite dish, set-top equipment etc.
3) The installers of the satellite systems offer a range of free gifts, with the satellite companies offering special deals and prices for new customers.
4) The satellite signal enables the delivery of a larger number of channels. This factor alone is encouraging large numbers of families to dump cable TV.
5) Numerous industry surveys point to satellite TV companies placing greater emphasis on customer service than the cable operators.
6) The ever-increasing number of subscribers to satellite TV is in itself encouraging families to switch over.
In the past, cable TV has been at the forefront in providing the American public with a wide range of viewing options. Unfortunately the advent of satellite TV has had an adverse impact on cable TV. Unless the cable TV companies can match or better the technological advantages enjoyed by their satellite competitors, then their demise will be final.
The decline in the usage of cable TV is slow but continuous. In a market of a constant size, an increase in the *********** of one product inevitably means a loss of market share in another. In the case of the TV market, the increase in market share of satellite TV means there’s a decline in cable TV.
Cable TV was originally seen as a means for isolated country areas to experience the television benefits then being enjoyed by city dwellers. From a slow beginning in the late 1940s it developed into a huge industry by the 1990s influencing the lives of many people. By the end of the 1990s, it was estimated that approximately 70% of American homes had access to cable TV.
However, the 90s saw the introduction of satellite TV and the start of the decline of cable TV. The satellite TV providers made a very aggressive assault on the TV industry and very quickly had gained a large slice of the market. Since then the position of the satellite companies has got stronger at the expense of the cable companies.
While cable delivered a signal to each home via an underground cable, the signal for this new innovation came from satellites located over the Caribbean Sea. Reception at each subscriber was through a small circular dish usually affixed to the roof of a building. As long as the dish had an uninterrupted view of the southern sky, a TV set would be able to display a perfect picture and sound.
Like cable TV, the satellite TV providers’ packages are available through a monthly subscription and a 1 year contract. Most of the channels shown on cable are also available with the satellite companies, so a family switching over to satellite TV from a cable TV provider will still be able to enjoy their favorite programs.
The rise and rise of the *********** of satellite TV into American homes has come at the expense of cable TV. Cable TV is on the decline at an ever increasing rate, and although its demise may be some time away, it will eventually happen. Not only is this an example of superior technology replacing inferior technology, the downfall of cable TV is being accelerated by the overtly aggressive promotion policies of the satellite TV providers.
So what are the problems facing the cable TV industry? These can be divided into two – firstly the technological problems, and secondly the threats from assertive satellite competitors.
Technological Issues confronting Cable TV
1) As the TV signal is delivered to subscribers via cable, then bad weather conditions may affect these cables. Cable TV is not as reliable as satellite on this score.
2) Cables cannot deliver the much larger number of channels that satellite transmission can. Cable therefore cannot match satellite when it comes to variety of channels on offer.
3) Picture and sound quality with cable is inferior to that of satellite – satellite TV signals are 100% digital something that the cable companies cannot easily provide.
4) The nature of satellite TV means its more easier to incorporate new technologies into the system.
Threats from Aggressive Competitors
1) As the satellite companies are chasing market share, they are keeping their subscription fees as low as possible. The cable companies’ fees have been increasing at a greater rate than those of their satellite competitors.
2) Both the major players in the satellite TV industry offer new subscribers free equipment and installation, such as a satellite dish, set-top equipment etc.
3) The installers of the satellite systems offer a range of free gifts, with the satellite companies offering special deals and prices for new customers.
4) The satellite signal enables the delivery of a larger number of channels. This factor alone is encouraging large numbers of families to dump cable TV.
5) Numerous industry surveys point to satellite TV companies placing greater emphasis on customer service than the cable operators.
6) The ever-increasing number of subscribers to satellite TV is in itself encouraging families to switch over.
In the past, cable TV has been at the forefront in providing the American public with a wide range of viewing options. Unfortunately the advent of satellite TV has had an adverse impact on cable TV. Unless the cable TV companies can match or better the technological advantages enjoyed by their satellite competitors, then their demise will be final.
Craig Thornburrow asked:
High speed internet services have come a long way in a short amount of time. In fact you can get this internet service almost anywhere in the country so even those that live outside of town or in more rural areas can now also enjoy the benefits of a high speed connection. The other great thing is that there are several places that you can purchase your high speed access so you can shop it around to get the best deal.
One place that you may want to consider especially if you live in a rural area is high speed via a satellite dish. There are a few companies that offer this type of service. What you do is purchase a small satellite dish and their receiver box. It works just the same way that satellite television works. You can find free installation and many rebates on the satellite dish itself. The only down fall with this type of service is it runs best when the weather is clear. This is because thick clouds can block some of the satellite feed however this is a great alternative to dial up when you live outside the service area of other service providers.
Many phone companies are also offering a high speed internet connection through DSL. So if you can get phone service you can also get a high speed connection. This gives you a good option because many of the DSL providers also provide phone service and they give a discount if you combine both services. This savings can put extra cash back in your pocket.
Cable companies have also gotten in on the demand for internet high speed connections. Just as the phone companies have combined their services so have the cable companies. So you can bundle your services and save yourself some cash. However there are even bigger savings to be found in the internet service providers. As the bigger companies begin to work together to save their selves money you will find this works in your benefit and you can find a great deal on high speed service.
The larger companies are teaming up and sharing resources and it is the consumers that are really getting price breaks. For example in many areas in the country you can find service that combines your telephone service, your cell phone service, your cable or satellite, and your high speed access to the internet. When you get this type of combination you will surely save money versus purchasing each service individually. This is because the companies are sharing resources such as wiring, customer service, and even being able to send out one invoice saves these companies millions every year.
So when you are looking to have a high speed connection for your internet service, call some of your other service providers. Oftentimes you will find that if you bundle your services you will not only save money on your high speed internet but also on your other utilities such as cable or phone service.
High speed internet services have come a long way in a short amount of time. In fact you can get this internet service almost anywhere in the country so even those that live outside of town or in more rural areas can now also enjoy the benefits of a high speed connection. The other great thing is that there are several places that you can purchase your high speed access so you can shop it around to get the best deal.
One place that you may want to consider especially if you live in a rural area is high speed via a satellite dish. There are a few companies that offer this type of service. What you do is purchase a small satellite dish and their receiver box. It works just the same way that satellite television works. You can find free installation and many rebates on the satellite dish itself. The only down fall with this type of service is it runs best when the weather is clear. This is because thick clouds can block some of the satellite feed however this is a great alternative to dial up when you live outside the service area of other service providers.
Many phone companies are also offering a high speed internet connection through DSL. So if you can get phone service you can also get a high speed connection. This gives you a good option because many of the DSL providers also provide phone service and they give a discount if you combine both services. This savings can put extra cash back in your pocket.
Cable companies have also gotten in on the demand for internet high speed connections. Just as the phone companies have combined their services so have the cable companies. So you can bundle your services and save yourself some cash. However there are even bigger savings to be found in the internet service providers. As the bigger companies begin to work together to save their selves money you will find this works in your benefit and you can find a great deal on high speed service.
The larger companies are teaming up and sharing resources and it is the consumers that are really getting price breaks. For example in many areas in the country you can find service that combines your telephone service, your cell phone service, your cable or satellite, and your high speed access to the internet. When you get this type of combination you will surely save money versus purchasing each service individually. This is because the companies are sharing resources such as wiring, customer service, and even being able to send out one invoice saves these companies millions every year.
So when you are looking to have a high speed connection for your internet service, call some of your other service providers. Oftentimes you will find that if you bundle your services you will not only save money on your high speed internet but also on your other utilities such as cable or phone service.
There is a lot of buzz about VoIP Internet phone service. On the consumer side everyone is getting a lot of exposure to Vonage commercials as well as triple play offers from Cable Companies. From a technology standpoint, VoIP is now much more mature than in its nascent days when Internet telephony meant a scratchy voice conversation over two computers. Whereas VoIP has been used by Telcos to carry voice traffic over long portions of their networks for years, it is now positioned to become the standard technology used to carry voice traffic over the last mile from every consumer’s home. Increased broadband *********** and advances in VoIP technology make this possible, and now there is a long line of VoIP providers out there looking for a piece of the action. They range from giants like Verizon and Comcast to relatively small unknowns. For the first time in the history of telecommunications it is possible to be a telephony provider without the huge barriers of capital needed for switches and network operation centers (NOCS).) nor the regulatory barrier of being a Local Exchange Carrier. So will the industry be marked by many small nimble players? What is the likelihood of survival for small consumer VoIP service providers?
The Cable TV companies have a strong position in the telephony market. They already have a large embedded base of customers. They also have a local presence, with field installers regularly driving around neighborhoods and customer service locations in every town in which they have a franchise. Having the field installers is a major advantage since they can install VoIP service and also hook up inside wiring so the service experience is no different than before. Therefore a person doesn’t have to be the least bit technically inclined to adopt the service, thereby opening the market to the masses. The pure-plays like Vonage just can’t reach the mass market like this.
Cable companies also have huge brand awareness in their markets. What is also potentially important is that they are perceived as a utility company and people are used to getting phone service from this type of entity. There is a familiarity and comfort level of going to a utility company for phone service.
They also have tremendous strength in both billing and customer service. While some may **** the cable company because they have lengthy time windows for showing up for an installation, may show up late, and may keep you on hold at the call center, the Cable companies are in actuality very good at managing the complexities of their operations. For example, RCN entered some markets years ago as an alternate cable provider thinking they could leverage people’s dislike of the cable companies’ service record and do it better; instead they ended up realizing how very complex it is and ended up doing it worse. If a company wants to scale as a major VoIP provider, they will have to manage the complexities of billing and customer service. The cable companies have been down this road already.
Here is what could be the biggest factor to why the Cable companies will be most successful at VoIP and ruin the chances of other smaller entrants – They provide a broadband connection. Since this is required for VoIP, the incumbent provider has the first dibs on providing voice service. Also, since broadband connections have high margins and VoIP has low margins, broadband providers could treat voice service as a loss leader to get and keep customers on their high-speed connections. NetZero, for instance, is giving away free telephone numbers and low priced VoIP service presumably with the hopes of signing on users for their ISP. Voice service could in fact become so commoditized that it will be given away with broadband service the same way email is today. If this becomes a reality, there would be very little market opportunity and a bleak survival outlook for smaller pure-play VoIP service providers unless they could offer a differentiated value proposition.
The Local Phone Company also shares many of the same advantages as Cable in that they have strong brands, ability to bill effectively, established customer service, and field technicians. They also should provide the greatest comfort level to people for providing a phone service. However, the Phone Companies have dismal showing compared to the Cable companies who have the greatest number of VoIP subscribers. Verizon VoiceWing and AT&T CallVantage each have only 5.5% of the 2.9 million pure-play VoIP subscribers (Telephia Q2 2006). Those 320k subs are dwarfed by the Cable Companies like Time Warner Cable who alone had 1.6 million VoIP customers as of October 2006. Why have the Phone Companies had such a dismal result? Internal confliction between POTS and VoIP is one reason. They can not put emphasis on a low margin VoIP product in their core offer and have struggled to create an effective bundled product strategy with advanced services. They are also expending more resources and internal focus on better broadband offerings than DSL and trying to break into video services. Nonetheless, they still hold second and third positions for share of pure-play VoIP subscribers and have deep pockets, which will allow them to far outspend a small VoIP provider to get mindshare.
Vonage, with 53.9% of the 2.9 million pure-play VoIP subscribers, is spending a ton of money to get mindshare and customers. This is good in that it raises awareness of the product category, which helps a smaller pure-play. However, it also presents a huge challenge for smaller providers to compete head to head for customers when a single provider has such a dominant voice.
There are a number of challenges facing a smaller VoIP provider. Small providers have to compete for share of voice against companies that are spending a lot of money. As far as the business case goes, VoIP has relatively small margins and the ROI for marketing campaigns and generating brand awareness is a challenge. Yet without spending money on marketing, it is difficult to capture customers.
Then there is the challenge of the market size. Pure-play providers don’t have local installers and technicians, which limit the market to those who have the technical savvy to set up the service or the willingness to do so. If the target market is defined as people who have the technical savvy to set up VoIP on a home network, then this market is comprised largely of younger people. This group is increasing mobile based and has little use for a landline phone. Also, consider how the overall telephony market will change over the years. People in college now that will be graduating over the next couple of years and getting apartments are 100% mobile based and have never had a landline phone. Thus the market for pure-play VoIP will be shrinking as fast as it grows.
However, there is still an opportunity for small VoIP providers in this challenging market. The opportunity is to focus on niche markets and leverage specific advantages of VoIP that are particularly important to specific customers segments. In such segments, word of mouth advertising is a viable strategy if the service can meet a strong need. This solves the dilemma of investing in media to build a strong brand and maintains better profitability.
ReVoS Internet phone service is an example of a small VoIP provider taking just this strategy. They are focusing on a niche segment of people who make a lot of international calls. ReVoS offers VoIP service, which includes unlimited international calling to over 40 countries including the standard VoIP product offering for $24.95 per month. They have also developed a VoIP product that works over a mobile phone that doesn’t require a broadband connection. This is geared to people of international origin who, by the way, have the greatest propensity to use cell phones of any demographic in the U.S. This niche makes sense since carrying long distance call traffic is an inherent strength of the VoIP networks. Also these customer groups are better reached through a niche strategy and would be missed by mass-market strategies. This market is comprised largely of people living in the U.S. who have moved here from other countries. These are tight communities where word of mouth can flourish and the value proposition is strong when saving people money on high cost international calls. This is an example of how a small VoIP provider can successfully compete against much more formidable competitors such as the Cable Companies and Vonage.
However, the future of the telephony industry and the role that VoIP takes still needs to be fully defined and there are many uncertainties. There is a long list of unknowns, which include such things as Google getting into Voice and whether Microsoft includes a softphone and VoIP service as a standard part of their operating systems. Fixed Mobile Convergence (FMC) is another technology wildcard that could change the shape of the competitive landscape. The overwhelming *********** of mobile phone service and mobile carriers’ ability to steal the show with a FMC offer is very real. This may be the competing technology that upsets the MSOs stronghold on VoIP. The question then becomes which bundled product offer is greater 1) Broadband and VoIP or 2) Mobile phone and VoIP. Another thing to consider is how Wireless VoIP (wVoIP) could change the competitive landscape and underlying telephony ecosystem if municipal hotspots and/or WiMax take off.
Whatever the future the holds, the economies of the telephony industry are likely to place a few large carriers in control of the majority of the market. People want simplicity in their lives and the winners will be those who provide the most seamless solutions to people’s basic communications needs. For smaller VoIP providers to survive and make profit, they will need to meet strong niche needs that get overlooked by the mass adoption strategy, have a well defined and differentiated value proposition (Recall ESPN Mobile’s problem), efficient operations to control cost and low margins, low churn in order to compensate for limited total average revenue per subscriber (ARPU) absent a larger bundled product strategy, and the ability to benefit from viral marketing within the target markets. With all of this in place, there is a chance of survival for small VoIP providers.
By: Scott White
About the Author:
The Cable TV companies have a strong position in the telephony market. They already have a large embedded base of customers. They also have a local presence, with field installers regularly driving around neighborhoods and customer service locations in every town in which they have a franchise. Having the field installers is a major advantage since they can install VoIP service and also hook up inside wiring so the service experience is no different than before. Therefore a person doesn’t have to be the least bit technically inclined to adopt the service, thereby opening the market to the masses. The pure-plays like Vonage just can’t reach the mass market like this.
Cable companies also have huge brand awareness in their markets. What is also potentially important is that they are perceived as a utility company and people are used to getting phone service from this type of entity. There is a familiarity and comfort level of going to a utility company for phone service.
They also have tremendous strength in both billing and customer service. While some may **** the cable company because they have lengthy time windows for showing up for an installation, may show up late, and may keep you on hold at the call center, the Cable companies are in actuality very good at managing the complexities of their operations. For example, RCN entered some markets years ago as an alternate cable provider thinking they could leverage people’s dislike of the cable companies’ service record and do it better; instead they ended up realizing how very complex it is and ended up doing it worse. If a company wants to scale as a major VoIP provider, they will have to manage the complexities of billing and customer service. The cable companies have been down this road already.
Here is what could be the biggest factor to why the Cable companies will be most successful at VoIP and ruin the chances of other smaller entrants – They provide a broadband connection. Since this is required for VoIP, the incumbent provider has the first dibs on providing voice service. Also, since broadband connections have high margins and VoIP has low margins, broadband providers could treat voice service as a loss leader to get and keep customers on their high-speed connections. NetZero, for instance, is giving away free telephone numbers and low priced VoIP service presumably with the hopes of signing on users for their ISP. Voice service could in fact become so commoditized that it will be given away with broadband service the same way email is today. If this becomes a reality, there would be very little market opportunity and a bleak survival outlook for smaller pure-play VoIP service providers unless they could offer a differentiated value proposition.
The Local Phone Company also shares many of the same advantages as Cable in that they have strong brands, ability to bill effectively, established customer service, and field technicians. They also should provide the greatest comfort level to people for providing a phone service. However, the Phone Companies have dismal showing compared to the Cable companies who have the greatest number of VoIP subscribers. Verizon VoiceWing and AT&T CallVantage each have only 5.5% of the 2.9 million pure-play VoIP subscribers (Telephia Q2 2006). Those 320k subs are dwarfed by the Cable Companies like Time Warner Cable who alone had 1.6 million VoIP customers as of October 2006. Why have the Phone Companies had such a dismal result? Internal confliction between POTS and VoIP is one reason. They can not put emphasis on a low margin VoIP product in their core offer and have struggled to create an effective bundled product strategy with advanced services. They are also expending more resources and internal focus on better broadband offerings than DSL and trying to break into video services. Nonetheless, they still hold second and third positions for share of pure-play VoIP subscribers and have deep pockets, which will allow them to far outspend a small VoIP provider to get mindshare.
Vonage, with 53.9% of the 2.9 million pure-play VoIP subscribers, is spending a ton of money to get mindshare and customers. This is good in that it raises awareness of the product category, which helps a smaller pure-play. However, it also presents a huge challenge for smaller providers to compete head to head for customers when a single provider has such a dominant voice.
There are a number of challenges facing a smaller VoIP provider. Small providers have to compete for share of voice against companies that are spending a lot of money. As far as the business case goes, VoIP has relatively small margins and the ROI for marketing campaigns and generating brand awareness is a challenge. Yet without spending money on marketing, it is difficult to capture customers.
Then there is the challenge of the market size. Pure-play providers don’t have local installers and technicians, which limit the market to those who have the technical savvy to set up the service or the willingness to do so. If the target market is defined as people who have the technical savvy to set up VoIP on a home network, then this market is comprised largely of younger people. This group is increasing mobile based and has little use for a landline phone. Also, consider how the overall telephony market will change over the years. People in college now that will be graduating over the next couple of years and getting apartments are 100% mobile based and have never had a landline phone. Thus the market for pure-play VoIP will be shrinking as fast as it grows.
However, there is still an opportunity for small VoIP providers in this challenging market. The opportunity is to focus on niche markets and leverage specific advantages of VoIP that are particularly important to specific customers segments. In such segments, word of mouth advertising is a viable strategy if the service can meet a strong need. This solves the dilemma of investing in media to build a strong brand and maintains better profitability.
ReVoS Internet phone service is an example of a small VoIP provider taking just this strategy. They are focusing on a niche segment of people who make a lot of international calls. ReVoS offers VoIP service, which includes unlimited international calling to over 40 countries including the standard VoIP product offering for $24.95 per month. They have also developed a VoIP product that works over a mobile phone that doesn’t require a broadband connection. This is geared to people of international origin who, by the way, have the greatest propensity to use cell phones of any demographic in the U.S. This niche makes sense since carrying long distance call traffic is an inherent strength of the VoIP networks. Also these customer groups are better reached through a niche strategy and would be missed by mass-market strategies. This market is comprised largely of people living in the U.S. who have moved here from other countries. These are tight communities where word of mouth can flourish and the value proposition is strong when saving people money on high cost international calls. This is an example of how a small VoIP provider can successfully compete against much more formidable competitors such as the Cable Companies and Vonage.
However, the future of the telephony industry and the role that VoIP takes still needs to be fully defined and there are many uncertainties. There is a long list of unknowns, which include such things as Google getting into Voice and whether Microsoft includes a softphone and VoIP service as a standard part of their operating systems. Fixed Mobile Convergence (FMC) is another technology wildcard that could change the shape of the competitive landscape. The overwhelming *********** of mobile phone service and mobile carriers’ ability to steal the show with a FMC offer is very real. This may be the competing technology that upsets the MSOs stronghold on VoIP. The question then becomes which bundled product offer is greater 1) Broadband and VoIP or 2) Mobile phone and VoIP. Another thing to consider is how Wireless VoIP (wVoIP) could change the competitive landscape and underlying telephony ecosystem if municipal hotspots and/or WiMax take off.
Whatever the future the holds, the economies of the telephony industry are likely to place a few large carriers in control of the majority of the market. People want simplicity in their lives and the winners will be those who provide the most seamless solutions to people’s basic communications needs. For smaller VoIP providers to survive and make profit, they will need to meet strong niche needs that get overlooked by the mass adoption strategy, have a well defined and differentiated value proposition (Recall ESPN Mobile’s problem), efficient operations to control cost and low margins, low churn in order to compensate for limited total average revenue per subscriber (ARPU) absent a larger bundled product strategy, and the ability to benefit from viral marketing within the target markets. With all of this in place, there is a chance of survival for small VoIP providers.
By: Scott White
About the Author:
RNK Telecom is a privately held phone company offering wholesale and
residential telecommunications services including VOIP Services. They market ReVoS, an Internet telephony product which offers superior International Calling.
residential telecommunications services including VOIP Services. They market ReVoS, an Internet telephony product which offers superior International Calling.