Telecom experts hesitate to declare loser in increasing competition
Sunday, Nov 26, 2006

from: Arkansas News Bureau [1]

By Jason Wiest

LITTLE ROCK - The difference between the vehicles on the information superhighway today is slight.

Besides providing the Internet service needed to travel online, cable and telephone companies both increasingly offer each other's services.

The most recent example: AT&T's quest to deliver television to Arkansas customers. Maumelle, Sherwood, North Little Rock, Little Rock and Benton all approved allowing the state's largest telecom provider to independently deliver video programming to their cities using Internet technology, called Internet protocol television.

"That's great because that gives people a greater number of choices and it forces those guys to compete on service quality," says Wayne Brough, the vice president of research and chief economist for FreedomWorks, a national group based in Washington, D.C. that fights for more economic freedom and is led by former U.S. House Majority Leader Dick Armey.

Tabbed "convergence" or "bundling" by industry insiders, the intertwining of telecom services is something all experts agree will increase competition among providers and lower prices, simplify billing and add cooler features for consumers.

But the experts can't seem to concur on who, cable or phone, will win that competition. And with so many opinions, it's easy to get your wires crossed, making predicting the winner on your own even more daunting.

Because both already provide voice service, the two sides are slugging it out over video service, which is regulated locally by franchise laws. Some experts say if phone companies aren't allowed into the video market, in time, they'll be broadcasting dead-air, stuck with the dying landline service. Other experts say even if phone companies offer video, they're too far behind cable companies to make up the ground. Phone companies say offering video levels the playing field. But cable companies say if that happens, they're at a disadvantage.

The cable industry holds firm that the agreements between AT&T and the five - so far - Arkansas cities allows AT&T a competitive advantage over the cable industry.

"You are seeing AT&T asking to enter the market under terms that favor one neighborhood over another," executive director of the Arkansas Cable Telecommunications Association Len Pitcock said this summer.

Under most local franchise regulations, cable companies must offer service to an entire city if they want to offer it there at all, Pitcock said.

But cable and television companies never have been treated the same way, said AT&T spokesman Ted Wagnon.

"There's absolutely no such thing as every company and every technology and every service being regulated exactly the same way," Wagnon said.

And Brough says that local franchise laws aren't necessary for phone companies because federal and state governments already provide the oversight.

According to Wagnon, AT&T will pay the same percentage of revenues that cable does, offer the same number of public access channels and pay video franchise fees.

"We're coming close to making a level playing field on the video side of the service," he said.

But Brough says phone companies don't just want into the video service to make things even - they need into it to stay alive.

"If you look at the telephone companies in general, the basic wireline service is a dying service," Brough said. "They do see a danger of stagnation or even shrinking if all they do is provide the plain, old telephone service," he said, adding that consumers increasingly forego wireline phone service for wireless.

"They're trying to break out of this box and go from being a phone company to a broadband company that provides a whole suite of services," Brough said.

But phone companies are doing it the wrong way, and that's why cable companies will win, says Rory Jones, a strategy consultant for San Francisco-based management consultancy Business Intelligence Associates.

"It's all about the last mile," Jones said. There is an "inherent strategic advantage" to whomever has the higher bandwidth.

In a nutshell, phone companies generally lay high-speed cable in a neighborhood, then branch off into homes with smaller-capacity lines, unlike cable companies, which typically run high-speed wire into each home, he said.

As technology advances, phone companies won't be able to keep up with the load, Jones said.

And phone companies have a history and culture that's working against them, Jones said.

"The problem is management," he said. "They grew up in an environment where there was no competition."

While the telecom tug-of-war might be too close to designate a loser, all experts agree that it's easy to pick a winner.

"The real winner will be the consumer," said Edna Flynn, a solution partner with BusinessEdge Solutions Inc., a national business technology and consulting firm head-quartered in New Jersey.

"Competition drives prices and features."