S&P Report: Telcos Could Win Round Two


Cable operators’ success in selling voice-over-Internet Protocol telephony services has cut into the phone business of the regional Bell operating companies, but a recent report predicts momentum could swing back to favor the Bells, at least briefly, as they begin to roll out video services.

Standard & Poor’s credit analyst Richard Siderman, while claiming no winners yet in the RBOC-cable battle, has written in a report that competition between the two could “mimic a pendulum with the early momentum going to cable and then perhaps swinging back, at least partially, to the RBOCs.”


Cable telephony has been a huge success — S&P credit analyst Eric Geil estimated in a separate report that nearly 6 million customers subscribe to circuit-switched or VoIP cable phone.

But Siderman pointed out that success — coming at the expense of incumbent telephone companies — is motivating recent countermoves by two large RBOCs, Verizon Communications Inc. and AT&T Inc., to offer a triple play of video, voice and high-speed data services.

To win back that customer base, the Bells will have to offer an incentive for customers to switch, most likely lower prices, Siderman opined. “So round one to cable, but as telephone companies do market and sell video, the pendulum could begin to swing back in their favor. As noted, aggressive pricing from the RBOCs for their video services may be their hook to dislodge customers from cable. And cable companies may need to get more aggressive on their pricing, either by possibly cutting prices or extending promotional prices to retain customers.”

Verizon has been hit hardest by cable’s telephone forays, according to Geil’s report. It faces competition from the two leaders in cable telephony — Time Warner Cable and Cablevision Systems Corp.

According to Geil, Verizon’s New York residential access line losses nearly doubled to 13.2% in 2005 from 7.6% in 2004. Overall, Verizon’s access line losses increased from 1.27% in 2004 to 8.37% in 2005.

Line losses at Verizon rose again in the first quarter of 2006, to 9%, according to Geil’s report.

“We believe that this pattern could repeat now that Comcast [Corp.], a relative latecomer to the VoIP business, and other major cable operators ramp up voice deployment,” Geil wrote. He also said, “Solid evidence on the long-term competitive impact from cable VoIP on wireline carriers should emerge in the next two years.”

Separately, in its latest five-year forecast PriceWaterhouseCoopers estimated the global entertainment and media industry collectively should experience 6.6% compound annual growth rates, rising to $1.8 trillion in 2010.


Broadband Internet and mobile distribution vehicles are increasingly lining the pockets of entertainment providers. The $19 billion spent in 2005 globally online and via wireless phones on items like movies, music downloads and video games should rise to $67 billion by 2010, according to PWC’s Global Entertainment and Media Outlook 2006-2010, released on June 19.

PWC sees the number of broadband households rising to 433 million around the world in 2010, from 187 million last year and only 30 million five years ago. Wireless phone subscriptions are seen rising to 2.8 billion in 2010 from 1.8 billion globally in 2005.

Global advertising revenue is forecast to grow at a 6.2% compound annual rate, to $521 billion in 2010 from $385 billion in 2005. Internet spending will rise fastest, at an 18.1% compound annual rate, to $52 billion in 2010. That would represent 10% of total ad spending, up from less than 3% in 2002, according to PWC.

The biggest market for entertainment and media, the United States, should experience 5.6% compound annual growth, hitting $726 billion in revenue in 2010.