First it was the "Triple Play," now it's gone quad, but regardless of the title, cable providers are beefing up service offerings to zero in on capturing a bigger piece of the consumer's wallet. Cable companies are betting big that consumers will choose an integrated solution that combines voice, data, and video. This compilation of services now being offered by cable TV operators is fostering increased competition with one another, as well as the fixed telephony operators. So, sit back and tune in because the digital wave is sweeping across the nation and is likely to end up right in your living room. From the Why to the How So how does it work? Instead of using fiber and copper,
the cable companies, while using a similar architecture, use
the current hybrid copper facilities into subscribers'
homes. Simply put, streaming content travels across cable
lines until it reaches its end destination, the set-top-box
(STB), which controls the content. DVRs, or digital video
recorders, are the next generation of STB allowing
subscribers to manipulate and control programming, such as
pausing live TV or utilizing the imbedded hard disk to save
programming for future viewing. Digital cable subscribers grew by 149,000, data subs
increased 234,000, and VoIP subs grew by 240,000. This was
the single best third quarter increase since 1992, according
to the company. Digital penetration of basic cable
subscribers reached 48% at quarter's end. Additionally, Time
Warner Cable reported digital video recorder (DVRs) net adds
of 134,000. This compares to 132,000 in the June quarter and
136,000 in March. Overall, digital penetration grew 2%
sequentially to 24% - nearing critical mass. Triple Play Goes Wireless The next step in this evolution is the convergence of wireless with broadband fixed networks. Tack on wireless service to high speed Internet, local telephony, and television service and we get the "Quadruple Play." In early November, Comcast (CMCSA; see chart 3 below), Time Warner Cable, Cox Communications, and Sprint Nextel Corp (S; see chart 4 below), another active portfolio recommendation, announced they will form a joint venture that will accelerate the next generation of products and services for consumers by taking "the best of cable's core product and interactive features with the vast potential of wireless technology."The convergence of cable and wireless makes complete sense, as it enables a seamless, wireless interface between programs. Consumers will be able to interface between email, home and mobile voicemail, DVRs, and the Internet. In the first half of 2006, the new cable/Sprint venture plans to offer consumers a quadruple play to include video, wireless voice, data, high speed Internet, and cable phone service. The aim is to serve consumer demand for a "third screen" beyond their TVs and desktop PCs. They will develop co-branded wireless handsets that will integrate cable and wireless services on a single device. Cable companies are hoping by offering a bundled suite service they will help tip the scales in their favor as competition in the industry intensifies. Verizon is knocking on the door, rolling out its EV-DO networks in several states. The goal for the cable companies is to create a compelling service for which consumers will be willing to pay. The question remains...will they? There are many ways to play these emerging trends,
from the equipment companies like Motorola and Alcatel
(ALA)
to the cable providers. The cable providers have been long
underperformers and there is considerable pressure to unlock
value. We feel a more diversified approach is warranted
given the competitive and regulatory landscape for the cable
providers and would focus on the media conglomerates,
including Time Warner and Viacom (VIA; see chart 5 below).
We feel the timing is right given increasing visibility,
renewed focus on shareholder returns, and growth prospects
for the industry, which typically outperforms this time of
year. ---Kimberly DuBord, Briefing.com
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