Wall Street analysts predicted several years ago that cable companies would have first mover advantage with triple play bundles, but within a few years telcos would battle back. It looks like a pretty accurate prediction. Cable companies like Cox, Comcast and Cablevision have executed their triple play strategy quite well and amassed a solid triple play subscriber base. As a result they have higher ARPU rates and have managed to continue double digit revenue growth over the past few years, despite the fact that cable penetration in the U.S. is reaching maximum penetration. The tide may be shifting. As predicted, telcos are now flexing their triple play muscle, and companies like Verizon and AT&T are stemming the loss of revenue associated with wireline losses with their own triple play bundles. Businessweek features an article written by Richard Siderman of Standard and Poors which sheds light on how Wall Street views this pitched competitive battle.
Wall Street is both a blessing and a curse for telecom competition. On the one hand, it is an obvious source for the “financial engineering” needed for any industry to thrive. But conversely, it has the capacity to over reach and “meddle,” causing good strategies to be derailed for the sake of short to mid term ROI concerns. The triple play game is a capital intensive activity – one that will impact short and mid term returns, and not positively. Meeting the expectations of Wall Street while executing an effective triple play strategy is tough. I’m sure these issues contributed to Cox Communications taking itself private recently and Cablevision contemplating the same. It appears that these same expectations may now impact Sprint’s WiMAX strategy. The blogosphere is humming with stories about how Sprint’s WiMAX strategy is in real danger because investors fear the CAPEX for Xohm is too high, and will negatively impact their investment returns. Of course, they are right. But are those short term concerns overlooking the long term benefits of a nationwide Sprint WiMAX network? Sprint investors have a right to be frustrated. The Nextel acquisition has not gone well. But you have to wonder if Xohm is becoming the “sacrificial lamb” for a bad merger execution. Ivan Seidenberg of Verizon took a lot of heat for FiOS from Verizon investors and Wall Street, and weathered it. While its too early to make a firm prediction, it appears as if the FiOS strategy is working, and even Wall Street may be taking notice. Perhaps Verizon should just go ahead and rescue Sprint by buying it. Seidenberg can then work on making it two for two – FiOS and WiMAX. What a legacy that would be.
