June 21, 2004 5:14 PM PDT

Rumble in the 'triple play' jungle

Cable operators and local phone companies are squaring off over customers who want to buy a triple pack of services--television, broadband and telephone--from a single provider.

On Monday, Cablevision Systems introduced an aggressively priced bundle of services, offering high-speed Internet access, Internet-based phone calls and digital cable for $90 a month.

The same day, local telephone carrier BellSouth announced that it would begin trials of a new video service over its DSL (digital subscriber line) network in certain markets within the next 12 months.

Service bundles are becoming more important in the cable and telephony markets as people look for more convenience, said Mike Paxton, a senior analyst for In-Stat/MDR. Bundling often helps companies retain customers who don't want to deal with the hassle of several bills and separate customer service groups.

Most cable operators already package their regular television service with Internet access, and phone companies often put their voice services together with DSL connectivity. But the crucial bundle is the "triple play"--a combination of television, Internet access and telephone service.

Cable companies have an advantage in that they can use a single network to deliver all three services. In the past, phone companies have had to partner with satellite companies, such as DirecTV and EchoStar Satellite's Dish Network, to provide the triple play.

"A cable company is one of the only service providers that can offer a robust suite of voice, video and data services," Paxton said. "The best the phone company can do is offer a patchwork of other companies' services. But customers don't seem to want that. They want services from one provider."

BellSouth, which already has a reseller relationship with DirecTV, is a pioneer in testing video services over a DSL network. But analysts say that phone companies will have a tough time matching cable rivals.

"It's much easier for a cable company to offer a commoditized service like telephony than it is for phone companies to offer video services," said Jim Penhune, an analyst at Strategy Analytics. "It's also harder for phone companies to offer voice over IP (Internet phone service), because it cannibalizes their existing voice business."

Cablevision, which has about 3 million cable subscribers in the suburban New York City area, said it will offer its triple play bundle for around $90 per month for the next 12 months as part of a promotion to win market share. Under Cablevision's current pricing, these services sold separately would cost about $130 to $135 per month.

Cablevision's offer is one of the most aggressive packages on the market. At $90 a month, customers are virtually getting Cablevision's VoIP calling for free. The bundle should put pressure on Verizon Communications, which sells competing telephone and high-speed Internet services in the region. (Verizon also offers satellite TV through its partner DirecTV in certain markets.)

Other cable companies are also introducing Internet phone service. Time Warner Cable is considering following Cablevision's lead and offering a deeply discounted plan to compete with local phone companies in its region. Cox Communications and Comcast have traditionally not been fans of VoIP, but recently have said they plan to lean more heavily on the technology.

Cablevision's promotion might also prompt the Baby Bells--BellSouth, Verizon, Qwest Communications International and SBC Communications--to abandon plans to untie DSL from local phone service. Last week saw the expiration of regulations that forced Baby Bells in certain regions to share access to their local telephone lines with competitors. The change could allow Verizon and Qwest to retract promises to offer DSL and voice calls separately. BellSouth has already pulled back on its plans.

Paxton said that unbundling is a slippery slope for the Baby Bells, who need to balance between protecting their packages and signing up as many new customers as they can.

"In order to compete with the cable bundle, the Baby Bells will need to be flexible," he said. "If that means selling high-speed data into an account that doesn't use their local phone service, than that's what they will have to do. The cable operators have historically done very well winning customers with one service and then up-selling other services into those accounts."

Cable companies have long used service bundling as part of their strategy to keep customers from defecting to satellite competitors. Now, with VoIP technology, cable operators are adding telephony into the bundle to compete against local and long-distance telephone companies.

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ZoomLink (www.zoom-link.com) has a great triple play program available in 21 states. Check them out at www.zoom-link.com
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