The Great Market Battle Part 1

All over the world one of the greatest battles in the history of economic activity progresses day after day, month after month and year after year. The battle for market supremacy among telecommunications companies of all types and firms that we might not normally think of as telecom companies continues. This battle will ultimately determine which companies survive the bear market that now grips the telecom industry on a global basis.

Let there be no doubt that the period from the late 1970’s/early 1980’s to the present day has marked one of the greatest transformations of an industry in the history of the world. Hundreds of billions of dollars, pounds, yen, euros and other currencies have been invested to completely transform the manner in which the world population transmits and receives information of all types. Communication that historically has been voice based now is better served by a myriad of data communications services. New services and lower cost options for services appear daily in markets around the world. But investors in the companies participating in this battle are demanding a return on their investment that is competitive with other investment alternatives. The winners of the market battle will be the companies that can meet the investment return challenge.

Since the details of this broad subject area are not easily captured in a single article, I believe we should approach the subject in digestible segments. A good place to start the process is to analyze the situation with a detailed market analysis of a very small market, the TPM Telecom+Media market.

Let us review the history of the market segment. In the mid to late 1960’s, when the author was going to high school in the Washington, DC metro area, the family Telecom+Media expense consisted of one wire line telephone access service, with touchtone added at a now forgotten time. The phone service consisted of local and long distance calling from the same company. Television was a free service offered over the airwaves from a few local broadcast stations, if one had a good TV set with an antenna that worked. There were no cell phones, no pagers, no Internet and no cable TV in this market.

By the early 1980’s not much had changed. There was still one wire line telephone access service in the household of the thirtyish engineer and his family. Cable TV had not yet arrived in this market and mobile phones were for a few rich people that could afford them.

The defining moment for telecom came in 1983 when AT&T was restructured, the Regional Bell Operating Companies were created, one company become eight unique companies and the competitive telecom world was forever changed. This event combined with the continuing development of low cost fiber optic cables, the development of the cable TV industry, lower cost cellular phone technology, more advanced and lower cost satellite communications technologies, continuing advances in personal computer hardware and software technologies, the establishment of the internet protocol and world wide web and many other technical innovations, spurred the long term global expansion of telecom services and set the stage for the market battle that exists today.

Many of these changes in the overall market place directly impacted the TPM's Home Telecom+Media services market. Two of the major issues in any market battle are market share and market position. Let us examine the current participants in the TPM's Telecom+Media services market. All figures are actual or estimated monthly recurring revenues for the market participants effective February 2007.

1) Cable TV Provider - $118 - Cable TV, Broadband Internet, Cable Modem lease

2) Satellite TV Provider - $87 - Satellite TV service including premium channels

3) Telco - $53 – Two local access lines

4) Cellular Provider - $89 – Three cell phones

5) Long Distance Company - $10 – Long Distance Voice Services
6) Satellite Radio- $12 - One vehicle

The total market size is approximately $369 per month. Let us examine the competitive nature of this market. The last major change in the market size was the addition of broadband internet services and the cable modem lease from cable operator. My telco did not address this market segment until several years after the cable operator offered the service for reasons known only to the telco . When I looked at a telco web site screen that said DSL service was not available to my home I was an unhappy consumer. My telco made a business decision to give up all market share growth to the cable operator so they could pursue other market opportunities. Now they are spending money to build a new network to serve my market but it is unlikely that they will every get more business from me without a major incentive package. Some satellite providers also address the Internet market but the cable operator offering which included a nonrecurring cost of only $125 (several years ago), an order to install period of two to three days and a short onsite installation period of less than 30 minutes (with highly optimized access to the service point demark) and the potential incompatibility of a satellite service with my network expansion plans, made the satellite option a non factor from my perspective. Dial up services were no longer acceptable as a primary service option in this market once broadband became available.

About 18 months ago I bought a car that had a satellite radio installed and three months of programming included in the purchase price. After using the service for a couple of months I elected to keep the service. I spend my time listening to programming that is not available in my local terrestrial radio marketplace. The service quality is pretty good with only mountains and very large buildings blocking the signal occasionally. I would like to be able to access the programming of both satellite radio companies, not just my provider. If the service was not available it would not be a big loss.

What changes could be next in this market? It is unlikely that the total market size will increase significantly in the near future. It is likely that cost reduction and service optimization are the next steps in this market environment. Will the telco be able to continue to provide two local access lines or will one be sufficient? During the past year I have come close to canceling my second telco line but as of today I continue to keep it connected to my fax machine and use it for voice services periodically.

Will the cable operator's service capability eventually grow in quality and cost effectiveness so that both the telco and long distance operator's services could be consolidated at lower cost? Will I trust my cable operator with my primary voice service and use my cell phone as the emergency back-up.? Many people are doing this today. I have not made that decision yet. The long distance services could be provided by many different providers and are irrelevant from a total market perspective. I can make all the long distance calls I need to make from my cell phone but the quality of cell phone service just isn't good enough from my perspective to fully displace landline long distance services.

The cellular provider services are stable within this market.. I changed service providers and increased my monthly spending about a year ago and I now have a far better network and the services I need available to me at a fair price. I currently don't need some of the advanced services that are available but maybe I will need them in the future.

Why does this market have two TV programming suppliers? A few years ago my satellite service provider's service quality was far superior to my cable operator. The cable operator has upgraded their system and now offers comparable quality. My cable operator also carries local programming including the channel that tells sleepy parents if school is opening one or two hours late or is closed during ice and snow emergencies. Also, cable is far easier and less costly to implement to multiple nodes in the market. The next big decision is the high definition services upgrade. How much money should be spent to replace and upgrade existing TV sets? All of my current sets are working fine. When I make the high definition upgrade I won't continue to have two TV programming suppliers. I expect my cable operator to win the market battle in my house and my satellite operator will lose a customer with virtually no chance of getting him back.

Obviously the buying decisions and market environment of one small market segment do not foretell the result of the global battle. But they do illustrate that the battle for market share and customer control is far from over. As the consumer, whether business or residential, evolves their applications and looks to optimize cost, the competitive pressure continues unabated.

Investors continue to seek the answer to the fundamental question of how to obtain a satisfactory return on their investment in the telecom world that exists today and will exist in the future. Bandwidth and value added services are not free. Consumers, both business and residential, from every country in the world must pay enough to their service providers so that investors can obtain a competitive return on their investment in these companies. The great market share battle continues.