The ‘triple-play’ war heats up

Two weeks ago, Verizon began its public offering of FiOS-based IPTV near Larry’s local community in Virginia. Within two days, Cox Communications (the local cable operator) launched a regional media blitz offering bundled voice services for a $2.50-per-month promotional rate; the $2.50 is good for six months to new Cox Digital Voice subscribers who also subscribe to the Cox video services. A mere coincidence, some friendly market competition or a down-right war for the triple-play market? 

While local phone companies have been offering triple play that includes a satellite-based video component for years, this year Verizon launched IPTV in two regional markets, and SBC appears to be closely behind with its regional IPTV offer. Now that the “phone companies” are actually beginning to compete for the “cable companies’ ” core business (with consumer video), it looks like the cable companies are quite prepared to strike back against the phone companies’ core consumer product with their own aggressive voice offers.

As one of the early cable operators to offer voice services bundled with video and broadband, Cox has proven to be an aggressive competitor, capturing majority market share in some local consumer markets and displacing the local phone company. 

But we also find noteworthy some real shifts in the way voice is positioned as part of the triple play. First, when cable operators make the “sale” of voice, that service is “just another part” of the bundle – almost like an HBO or Showtime subscription. In fact, it is cheaper to buy standard voice service from Cox (a la carte) than to buy both HBO and Showtime “unbundled.”

Second, Cox and others are willing to offer nearly-free voice for a six-month period, then raise the price to near-parity with the local phone company. Its strategy suggests that it plans to win the customer on price and keep the customer (after the promotional period) with service and features. 

Third, given the rapidly changing price and market conditions we contend that maybe it’s time to throw away the traditional tariff structure for local phone service. While some may be concerned that “universal service” will disappear if tariffs go away, we contend that between wireless services and the overwhelming penetration rate of two “local loop” providers, maybe it’s time to let the market decide the price for and feature sets for local voice services. 

Is it time for tariffs to go away or are they still needed to keep pricing in check and guarantee universal service?  What do you think?