Monday, November 12, 2007

FCC to strangle Cable Operators. Advantage unfair to Verizon and AT&T.

The dominance of cable operators in video services market suddenly got limelight after NYTimes ran a story speculating that Federal Communication Commission may strangle the existing cable companies by opening up the market to rival video services and independent programs. Even worse, Mr. Kevin J. Martin, the chairman of Commission, hopes to complete this controversial decision before this year ends.

The commission will announce the state of video services as part of its annual report and may restrict the cable operators from growing if they fall under the so called 70/70 rule of the Cable Communications Act of 1984. The 70/70 rule means that cable television is available to at least 70 percent of American households, and at least 70 percent of those households actually subscribe to a cable service. Once the commission gets convinced that such a state has reached, the commission will open the market to promote the diversification of information sources.

As claimed by 24/7 wallst, this can very well be the death of cable operators, which are already facing strong competition by satellite TV and telecom operators. The new rule will put the independent video services such as NFL Network and Hallmark Channel to great advantage, which do not have a business affiliation with either of the three channels to reach end-user. It will also provide a great relief to Verizon and AT&T telecom operators who are trying to tap in the already saturated market. In recent past, when the mergers and acquisitions started and the idea of double and triple play got picked up, cable operators took advantage of their already established network and offered broadband and video services to the consumers much ahead of telecom operators.

The new regulations will restrict any company from holding more than 30% of the market share. Also, the regulations will prevent already established cable operators such as Comcast and Time Warner from acquiring smaller companies or increasing their market share in other ways.

The dominance of cable operators in video services market has been a matter of dispute. Most of the cable operators argue that the market is already set on a downward path and there are no proofs that such a condition has actually reached. The officials from cable industry have criticized the proposal and raised question marks on the authenticity of the results produced. On the other hand, one of the reasoning used by FCC is the high rise in price of video services in last few years compared to inflation. FCC suggests that such a price increase is a clear indication of monopolized market.

While the regulations has been welcomed by the consumers group asserting that this will reduce the prices and increase the options for consumers, the cable operators have argued that independent studies and the commission’s own analysis from last year concluded that cable television, while available to far more than 70 percent of American households, is actually used by far less than 70 percent of those households, and it cannot increase to more than 70 percent of households in less than a year when the market is not on the rise for some time.

While the new regulations will certainly nurture more competition and offer more choices and lower prices to consumers, their is also a possibility that the cable operators might get completely wiped out of the video services market in long run. Although it is certainly a great plan to open up the video services market, making the rules for only cable operators will be an overkill to cable operators and will be a huge unfair advantages to the competitors.

Wednesday, November 7, 2007

Googlization of Telecom Industry

Finally, the announcement (login required) of Android and Open Handset Alliance has put an end to all the speculations and rumors around the Google phone. Mr. Andy Robin, Director for Google Mobile Operations, quoted on Google official blog that this launch is more significant and ambitious than that of Google phone. As for now, his claim seems to be very right.

For the last ten years, Google has dictated the internet search market on its own terms, used non-traditional ways to do the business and stayed very successful. However, the arena of telecom market is much different than that of internet market. In internet market, the cost to reach the end user is negligible, thus the quality of content and service becomes the bottom line. However, the games in telecom market are still played by the old rules. The carriers and device manufacturers, which connect the end user with the content, play a huge role in shaping, guiding and leading the industry. These companies, in their own monopolized world, have been using the traditional methods of licensing and corporate alliances, in turn, discouraging innovation and creativity.

The Open Handset Alliance (OHA) and Android, provided things fall in place, have the potential to change the way telecom industry works. More than 30 companies such as Motorola, Texas Instruments, HTC and T-Mobile, which represent carriers, device manufacturers and developers, will take different roles to sustain the life cycle of a mobile phone. This whole approach brings a real hope to the whole telecom industry from the controlled business dealings of device manufacturers and mobile carriers. It also poses a strong competition to established players such as AT&T, Verizon, Nokia, and Symbian, which currently have more than 60% of the telecom market in their subsequent domains.

In the telecom industry, the entry of Apple and Google has received much fanfare. Although both the companies have been very focused in their strategy and future goals, their approach to these future goals and business strategy are completely different. Apple, as I see it, is a designers approach to an electronic device. It has been known to create things which are appealing and innovative. Thus, the launch of iPhone from Apple is not that big a surprise. This is what Apple is known to be doing for the past 20 years. Google, on the other hand, is an internet based software company and search is what they provide best. After making its mark globally in the internet search market, Google plans to expand its search from desktop to mobile world. After all, there are much more mobile phones in this world than PCs. But, to achieve that, Google needs to convince the device manufacturers and carriers to use Google as a default search engine. Further, similar to IP market, it wants to generate the revenues from the clicks on sponsored links, which on a mobile becomes Mobile Advertising. In a traditional telecom world, where Mobile Advertising is still miles away from being an established business, the idea of using revenue from mobile advertising on search based results to reduce the cell phone cost would have been very difficult for the bigger players to digest. In addition, companies like Nokia, which plan to launch its own internet mobile services (Ovi) will not like the new competition from Google. The idea of sharing revenue to the search company will not leave the telecom carriers in a comfortable position either.

All these reasons force Google to build its own mobile phone and create business completely from scratch rather than fit in the existing model. As Mr. Andy Rubin said, “It's important to recognize that the Open Handset Alliance and Android have the potential to be major changes from the status quo -- one which will take patience and much investment by the various players before you'll see the first benefits.” It will not be surprising to see the alliance falling weak if the first Android release does not prove to be a successful one and a lot of future investment and growth will depend upon the initial few months feedback after Android is launched in mid 2008. So far, the telecom carriers have waited long in hope of a killer application which will make data services publicly accepted but have avoided taking any solid steps in that direction. More than anything else, the OHA and Google are doing the best thing to make data services click on mobile phone - by making it cheaper so that more people will take these services and thus breaking the status quo.