by Abhijit S. Pandya; Ercan Sen CRC Press, CRC Press LLC
ISBN: 0849331390 Pub Date: 110198
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A. Residential Market
The key market dominance battle in this segment is between the cable operators and the telephone operators. Each camp has a similar strategy: trying to protect its own market while attempting to enter
another’s market. For example, the cable operators are trying to offer telephony and Internet service besides their original TV service using their cable infrastructure. On the other hand, the telephone
operators are trying to offer video service using their telephone infrastructure. The two competitive factors involved here are the sense of survival instinct to protect one’s own market and the lure of
additional profit to be made by entering a new market segment.
At the present time, there is no evidence of any major gain by either side. The telephone companies are currently carrying the majority of the Internet traffic as well as the traditional telephone traffic. The
second analog line or N-ISDN line demand for Internet access has been a major growth and revenue source for the telephone companies. However, the increased Internet traffic is putting pressure on the
current telephone network. The telephone companies are forced to add additional capacity without the possibility of recovering the cost of additional equipment due to regulatory restriction on basic
residential telephone service. Until the telephone companies find a way to impose higher access fees for Internet access, their dilemma will continue.
Some major telephone companies such as Bell Atlantic and U.S. West acquired cable companies to get into the cable-TV business. However, the telephone companies are prohibited from offering cable-TV
service in their own telephone market. Therefore, they are not able to achieve economies of scale by combining the telephone and TV broadcast service on the same infrastructure.
Following the passage of the 1996 Telecom Act, there was a flurry of merger and acquisition activity among the cable-TV operators and the telephone operators. However, recently, the cable-TV industry
has been under significant pressure from the Direct Satellite Broadcast DBS industry. Hence, the cable- TV operators have not been able to spend large amounts of capital due to price pressure. As a result,
some merger initiatives fell through and some acquisitions by the telephone operators are faltering. For example, U.S. West recently announced separating its cable operation from its telephone operation.
Looking at the near-term prospects, the cable-TV operators are poised to gain some customers from the telephone operators for the Internet service by offering high-bandwidth Internet access at a 10 to 30
B. Business Market
