The triple play has historically been defined as a bundle of voice, video, and broadband. And of late, the cable industry seems to be executing a triple play strategy quite well. For example, Comcast’s triple play strategy execution has helped vault them to the fourth largest phone company in the U.S. (by access line count) – all within three years. How many decades did it take Embarq/Sprint to be the fourth largest traditional phone company? If you look at recent quarterly reports, cable companies seem to be executing the triple play better than their telco competitors. Take a look at each industry’s core product. Comcast lost 132K of its core product (basic video subs) last quarter. AT&T and Verizon’s losses in core product (switched access lines) are now being measured in millions each quarter. Current indications suggest that a triple play bundle of voice, video, and broadband favors cable companies.

But what if the future of triple play really involves wireless? Whenever wireless is injected into a bundle discussion, it’s seems to be as a part of a “quad play” – voice, video, broadband, and wireless. But what if we redefined triple play as wireless, broadband, and video. If the future of wireline voice service lies with IP, then there really is no reason to delineate voice and broadband separately. The two should be combined into “broadband,” since voice will simply be one of many broadband applications (you could conceivably say the same for video, but that’s the subject of another post). In this regard, future triple play strategies may shift to wireless, broadband, and video. If so, than despite the short term troubles of telcos relative to their cable competitors, the long term looks quite bright for the telcos who are fortunate to have wireless assets. Consider that in 2Q08, AT&T’s ($12 billion) and Verizon’s ($12.1 billion) individual revenue from wireless alone dwarfs Comcast’s total revenue of $8.5 billion. So while telcos may be licking their wounds over switched access line losses in the short term, they may well be positioning themselves for long term triple play dominance, with wireless at the center of their strategy.

Recent quarterly reports from the likes of AT&T and Verizon paint an ugly picture for DSL. AT&T’s DSL growth rate slowed significantly last quarter, adding only 47K net new subscribers. Verizon fared much worse, losing 133K DSL subs. It’s true that Verizon’s marketing attention is FiOS right now, which certainly contributes to their DSL losses, but are those losses a reason for concern? Maybe. In their last quarterly report (1Q08), Comcast reported that 66% of their new cable modem customers defected from DSL. On the surface, one could argue that DSL is losing the broadband war. Perhaps this issue is apropos to Verizon and AT&T alone. Both of them are somewhat distracted. As mentioned earlier, FiOS has all the attention at Verizon and AT&T is in the midst of iPhone mania. It might not be fair to generalize DSL’s woes based on those two alone. As other telcos release their quarterly numbers, we may see a more general trend that either supports or detracts from this potential DSL growth hypothesis.

We all know that broadband growth is slowing. And the U.S. economy and the uncertainty it creates doesn’t foster great conditions for growth in any sector. These factors may be impacting DSL’s apparent slowing momentum. But what’s troublesome for DSL carriers per the economy, is that DSL has historically been the broadband “value play” (across a national average – this “value” price advantage is not present in every market). Logically speaking, in this economy, DSL should be holding up well relative to other more expensive broadband options. To get a true picture of DSL’s potential trouble, we’ll have to closely examine upcoming cable modem numbers. If cable modem additions are not slowing at relatively the same pace, DSL may indeed have a problem. It may signal telecom carriers will have to increase their efforts to make their bundle more attractive and their value proposition more relevant with subscribers. As their quarterly numbers reveal, AT&T and Verizon have less to worry about on this issue, because wireless revenue comes in to save the day for them. DSL carriers who don’t have that luxury may indeed need to ask what’s wrong with DSL. What is your DSL experience revealing for you?

AT&T released their latest quarterly numbers, revealing the progress of U-Verse and their other business lines. Depending on your point of view, U-Verse is either progressing nicely or is woefully inadequate. AT&T’s PR spin indicates the former, but the real view is only available to AT&T insiders, analysts, and the “flies on the boardroom wall.” If you place U-Verse’s video subscriber additions (170K net adds for 2Q08) in the context of its cable competitors progress in taking voice lines (Comcast has averaged 646K net phone adds the past three quarters), you walk away very underwhelmed. Even if AT&T hits its target of 1 million video subs by the end of the year, it still pales in comparison to the momentum of cable taking voice subscribers. But if you subscribe to the opinion that voice lines are becoming less and less important in today’s world of wireless and broadband, than any video progress for AT&T could conceivably be considered “gravy.” That opinion suggests that massive numbers of wireline customers are going to give up traditional voice service anyway, so if I can continue to replace that fleeting revenue with a triple play of broadband, video, and wireless, maybe I’m all the better for the future.

Time will tell whether the billions of dollars of U-Verse investment will ultimately be worth it. The reality for AT&T is they didn’t really have a choice. Their traditional cash cow, local access lines, is dying on the vine because of wireless substitution and IP voice competition. They are executing quite well on their wireless strategy (at least from a quarterly financials point of view), which is the ultimate equalizer for declining access line counts. Consider that in 2Q08, AT&T added 1.3 million net new wireless subscribers and lost 1.5 million switched access lines, and you can begin to accept the “writing is on the wall” cliché. U-Verse will play an ever increasing role in AT&T’s evolving future, ensuring those local access loops still have a reason to exist and still generate a healthy revenue stream. But before they get too ahead of themselves with glorious quarterly reports that toot more horns than a steam locomotive, they would do well to prepare for a more level future competitive playing field. A more intense competitive picture will emerge when and if their cable competitors gain a wireless opportunity of their own. Who ultimately wins in that scenario?

AT&T notified DISH Networks that it will sever their existing resale arrangement at the end of this year. AT&T has been reselling DISH’s video services since 2003 and expanded the relationship further after their Bellsouth acquisition. It’s widely believed that through this move, AT&T is forcing DISH’s hand into a bidding war with DirecTV for a long term resale arrangement with them. AT&T will need a DBS resale partner, just like every major telco in the U.S. currently has. Despite all the hype surrounding U-Verse, AT&T will need a DBS partner to field a competitive triple play bundle for years to come. Even after the current billions of dollars that are committed to U-Verse have been spent, it will still only reach a large minority of AT&T customers. The mid to long term strategy for AT&T and other telcos is to use DBS to fill the gaps. Of course, AT&T may have something else up its sleeve as well – a possible acquisition of DirecTV. Is this DISH development a pre-emptive merger move, with DirecTV being the acquisition prize?

DISH Networks reported disappointing results for the first quarter 2008 in a SEC filing. DISH indicated competition from cable and telecom carriers are main factors in their 89% decline in subscriber growth, which netted only 35K net subscribers. In the 10-Q filing DISH says, “We believe that this declining subscriber growth has been driven in part by competitive factors including the expansion of fiber-based pay TV providers, the effectiveness of certain competitors’ promotional offers, the number of markets in which competitors offer local HD channels, and their aggressive marketing of these differences.” This report offers a strikingly different result from DirecTV’s recent results which reported 275K net new subscribers, a 17% increase. DISH will officially report their quarterly results on Tuesday.

DISH appears to be falling victim to both telco and cable triple play success, and to DirecTV’s continued HD superiority. DirecTV is maximizing its HD lead over all competitors, and in DISH’s case, their advantage appears to be widening. Add telco and cable’s triple play competitive advantage, and DISH looks like it is in for a rough few quarters. They’ll have a difficult time reversing the trend, because their historical value play of low cost is vulnerable to the savings perception of the triple play bundle. Adding insult to injury, they have no trump card like DirecTV does with HD and high end sports programming. They even face a HD setback, whose timing couldn’t be worse, caused by a recent satellite launch mishap. It all adds up to an ugly situation from a DISH investor point of view. Their competitors are salivating at the prospects of luring DISH’s 13.8 million subscribers.

The march to video distribution over the Internet that rivals traditional subscription pay television continues. TiVo announced an agreement with YouTube that will bring YouTube content directly to the television through a TiVo DVR Series 3 set-top-box or better. In addition to viewing YouTube content, YouTube users will also be able to log on to their account through a TiVo box. The YouTube agreement expands TiVo’s Internet video content strategy, which also includes Amazon Unbox movie downloads and a variety of other content from various sources. TiVo is trying to position its solution as a gateway to web based content, in addition to a leading DVR solution for traditional linear television content. “Being able to make available YouTube videos to the TiVo subscriber base using one device, one remote and one user interface is another major step in our commitment to combine all of your television and web video viewing options in one easy to use service,” said Tara Maitra, Vice President and GM of Content Services at TiVo Inc.

One trend that is worth observing over the coming months and years is applying the “cut the chord” mentality to cable or IPTV services, where consumers decide they don’t need cable anymore because web distributed content is enough. As more and more compelling web based content makes it to the TV in acceptable formats and viewing experiences, many consumers will surely decide that their monthly video subscription bill may not be worth it. It’s definitely having an impact on the roll out of IPTV. I’ve personally spoken with several telephone company executives who have decided to stand on the sideline and observe these trends a little more closely before deciding to pull the trigger on IPTV and triple play. This is a complicated issue, and a variety of factors come into play that will impact these decisions, including HDTV availability, sports programming, etc. It's hard to imagine Internet video distribution completely replacing the subscription pay TV model. But it is pretty clear that any converged entertainment strategy needs to address web based video. In my humble opinion, “the genie is out of the bottle” with web based video and service providers and the vendors who serve them need to find a way to weave web video options into their entertainment packages. The experience that ultimately wins will probably offer a compelling mix of both traditional and Internet delivered content. At least until the day when it will be impossible to tell the difference. That day is coming too, we just don't know how far off it is. Any guesses?

Comcast Media Center and Motorola are teaming up to offer smaller cable systems a consolidated digital platform which allows for the deployment of advanced services including HDTV, DVR, VOD, and tru2way applications. The new platform will allow smaller cable operators with as little as a “330 MHz system [to] expand its service offering to customers by converting some of its analog channels to digital, utilizing programming on the HITS platform, and then using that reclaimed bandwidth to offer hundreds of additional linear HDTV and SD channels and a library of VOD programming with over 2,000 titles also available through the HITS platform.” It’s somewhat analogous to what Avail Media and IP Prime provide small telcos for IPTV.

This development could have implications on the competitive landscape. Smaller and rural cable companies have had a more difficult time upgrading their older plant to provide competitive triple play offerings than their larger MSO brethren. Small telcos have seized on that, and are launching IPTV powered triple play platforms to win over customers wanting a more robust video experience. In theory, this new Comcast/Motorola platform will allow smaller cable companies, who normally couldn’t afford to upgrade their plant, to now get in the two way digital, triple play game. If it gains traction, and quickly, the competitive landscape in smaller markets across the U.S. may begin to look very different.

Cox announced that 62% of their customers subscribe to at least two bundled services, and 30% subscribe to at least three services. Compare that with AT&T, who by our estimation, has about a 45% penetration for at least two bundled services. Verizon is a little more difficult to compare with because they really have two classes of residential subscribers – those with FiOS access and those without. Here are Cox’s reported subscriber counts with corresponding year over year growth rates:

• 5.96 million total residential customer relationships; 1.6% growth
• 3.7 million bundled customers; 9.0% growth
• 2.38 million telephone subscribers; 17.7% growth
• 3.7 million high-speed Internet subscribers; 11.3% growth
• 3.1 million digital cable subscribers; 10.8% growth
• 557,000 “non-video” residential customers; 24.5% growth

Cox has always been seen as a leader in the MSO industry for bundling. They were bundling voice service using traditional circuit switched service (as opposed to today’s cable VoIP service) long before other cable companies got in on the act. Part of the reason they can brag about these impressive bundling penetration figures is because they have been at it longer than probably any other national MSO or telecom carrier. Cox is projecting over 4 million bundled customers in 2008.

AT&T announced the launch of AT&T U-verse Voice, a VoIP powered primary line service for their U-Verse triple play bundle. The service was launched formally today in the Detroit market after trials began in December. The voice service is priced at $40/month for unlimited calling or $20/month for 1,000 long distance minutes, or can be bundled for lesser rates. By using VoIP, AT&T is integrating several convergence features into their triple play package, including an online call manager portal, unified messaging, click to call from the TV, and the simultaneous ring of up to four separate telephone numbers. Interestingly enough, there is no mention of the AT&T CallVantage VoIP service, which appears to be on its way out (or at least relegated to an unmarketed service).

This is an interesting development on a couple of fronts. One is the positioning of this voice product, which clearly is designed to meet cable voice products head on. AT&T is trying to create a “next generation” voice product with next generation features to counter the successful positioning of cable “digital voice” products. Cable’s strategy has been to create voice products with better features and unlimited calling that trump the “stodgy, old” local phone company’s boring POTS service. Secondly, AT&T is testing the concept of an all IP network, which has been the subject of many a PowerPoint presentation, but has seen little traction with incumbent telephone companies. By leveraging an all IP infrastructure, AT&T hopes to lower operational costs and leverage innovation for a more “digital” experience with their products. Convergence is easier with an all IP network and AT&T is testing the waters with this launch and with launches to come. Stay tuned.

In-Stat, an Arizona based market research firm, reports that its most recent cable MSO survey reveals 54% of cable operators face competition from telecom operators in the form of telcoTV. TelcoTV doesn’t always equate to IPTV. Verizon FiOS uses the same technology as cable companies for the video portion of their triple play, but delivers it over FTTH architecture. In-Stat postulates that this increased competition is driving cable companies to invest more in their networks and offer more competitive features. For example, In-Stat says that 90% of the cable companies participating in the survey report offering HDTV.