Think Like an Underdog


Not so many years ago, the cable industry was a spunky upstart trying to get a toehold in the mercurial telecommunications world.

After 60 years of innovation, cable is poised to reign supreme against all comers with offerings of voice, video and data. The telephone industry’s main business has been commoditized. Cable’s other big competitor, satellite TV providers, can’t physically offer the same services. The battle in many ways is won. It’s also cable’s business to lose.

In our cover story this week, Todd Spangler gives readers a comprehensive threat analysis of what many in the industry privately concede is their most dangerous competitor, Verizon’s FiOS TV — dangerous because it is willing to spend so much on crushing cable.

Engineers will attest that the only thing more robust than the cable’s hybrid fiber-coaxial network, the fruit of years of back-breaking upgrades by the industry’s early pioneers, is a pure fiber network. Signals ride on light, and Verizon CEO Ivan Seidenberg has committed, quite literally, to the “if-you-can’t-beat-’em-join-’em” philosophy, by building a cable operation rivaling the largest operators in the cable industry.

It would be prudent for cable operators to be concerned. Not so much because FiOS’s line has — gasp! — more capacity, but because the telco can cause very localized pain to big companies with marketing and price wars. And the new cable upstart isn’t thinking like a phone company — in many ways it’s copying cable’s infrastructure.

To dance with the giants of cable, Verizon must pay the fiddler a steep price. Some analysts point out that the $23 billion investment is the fuel for a Quixotic quest that will never show a return for investors. That may be true but it doesn’t really matter. FiOS already has — and will — cause certain agita for local and regional cable chiefs.

For customers, FiOS has drawn glowing reviews so far. Consumer Reports gave it the top rating and said “FiOS users were more satisfied with the service’s speed than were users of cable” and “they were more satisfied with FiOS’s cost than were users of DSL, which remains the least expensive type of broadband. FiOS also got higher marks for both reliability and technical support than did cable or DSL.”

Cable operators have historically had a hard time explaining their story to most investors because it’s an intricate business to understand from the outside looking in, with tentacles in programming, technology and regulation. Cable has also built a dominance now that must be more fiercely guarded than ever. To do that, it must offer better customer service and products that make entertainment more satisfying.

The hallmarks of good business — innovation, better pricing, return on investment — can rally by healthy competition, or the threat of it. FiOS is now offered in 13 states and is a relative pipsqueak to Comcast. But Comcast and others should compete as if they’re under siege. They should think like underdogs.