With so much blurring of the lines among communications service today, it's almost hard to believe there were once hard and fast rules about who could provide what service and where. That all started to change with the breakup of AT&T over 25 years ago, but it's really been since the Telecommunications Act of 1996 that we have seen the explosion of different services being offered by different providers.
For example, cable companies have been offering voice over IP and broadband services to customers and traditional phone companies are delivering video services. It's gotten to the point where, at least from consumers' standpoint, the providers are interchangeable since the services look largely the same within the home or business. Sure, your modem or set-top box may look different depending on your provider, but as long as the customer has access, dial tone, and "TV" signal, it really didn't matter who the bill was coming from. It appears that Over-the-Top (OTT) services and wireless broadband services could contribute to additional confusion on the role of a "service provider".
But if you're on the technical side of things, you know that while cable today may look like a telecom service provider on the surface, things really are quite different behind the scenes. Cable started out from the beginning as a business model that was designed to get a profitable percentage of the homes in a given market, not necessarily ALL the homes. With the franchise model, local communities give operators exclusive rights in return for a percentage of the revenue. These franchises were operated as decentralized profit centers. Compared to telcos, which were designed and regulated to operate as a universal service, you can already start to see the diverging business models.
From a business perspective, telcos have always been a regulated rate of return business, while cable has been a lightly regulated free cash flow business. To a large degree this difference in legacy business models has resulted in cable companies exhibiting the ability to be a lot more responsive to changes in their situation, which explains to some degree why the industry has been relatively recession-resistant during the past couple of years of tough economic times when some customers have discontinued cable service to help make ends meet.
In fact, cable has enjoyed a decade of high ARPU growth in the Americas as well as Europe and Japan and Korea as it's moved very successfully from being just a distributor of video to supplying high-speed data, VoIP and more.
What's Next for Cable?
With the cable market continuing to do well despite the recession, MSOs are definitely not taking their success for granted and are looking ahead to the next things coming over the horizon. One big area is the ability to deliver content to multiple screens, so you can seamlessly watch your favorite programming from your TV set, your laptop or your mobile device of choice. This concept of ‘TV Everywhere' is a serious play to counter services like Hulu and Netflix that allow you to stream content on multiple devices.
Cable has always been a two-sided business model, where operators buy content on one side and sell it to consumers on the other in a sort of quasi-walled garden model. So TV Everywhere is a natural next step--however, this will require robust authentication and other "back office" capability. Clearly the legacy, decentralized, franchised (Local P&L) operations model is challenged by an "everywhere" model.
Another extremely large growth area for cable operators is in "Business Class" commercial services. In the U.S., Cox Communications recently announced it hit $1 billion in non-residential sales, and all of the major MSOs are seeing double-digit growth in business service. But rather than getting these sales through capturing Wall Street accounts and displacing AT&T, they are doing it by building up their small and medium business market. This is also happening in Europe. The challenge in many MSOs is developing a business front and back office suite of systems that can support the demand and business requirements that were not supported in a classic residential back office environment.
The Role of Standards
With all of this success, you might wonder why cable companies are showing greater and greater interest in standards which have their roots in the telco world--namely TM Forum's Frameworx. Over the past decade, TM Forum's flagship standard--which is collaboratively developed by the organization's 750-strong corporate membership--has been evolving to provide a standardized set of frameworks that offer a blueprint for all types of service provider business, not just telco. Frameworx provides a set of common information, business process, application and integration frameworks to simplify the complex task of running a service provider's business.
Consider all the changes facing cable operators: A new focus is the cable back office (OSS/BSS), operations, standardization, and the ability to improve Customer Experience. The same challenges telcos face on a daily basis.
Going back a bit to the concept of cable not being designed to penetrate 100 percent of a given market, operators had much different cost structures in providing video to the home as part of a decentralized franchise operating environment. But as MSOs added OSS/BSS silos in the back office, they saw costs start to go up. CableLabs, the R&D arm for cable companies came up with innovations at the network layer to allow operators to do "more with less" and has been very successful in leveraging the network to create more opportunity and value.
However, the gap between the network opportunity and the OSS/BSS reality has become a major challenge. TM Forum represents a resource of expertise on the management side of communications services. CableLabs and TM Forum are now working together with the aim of leveraging TM Forum's standards--such as Frameworx--for the cable industry. For example, our Business Process Framework (eTOM) and Information Framework (SID) are already in used by MSOs; going forward we are working together to ensure these standards and others are fully optimized for use by cable operators.
Our overall goal is to create value in working with CableLabs, the MSOs, other industry groups, and suppliers in leveraging and extending Frameworx to meet the needs of the cable industry for the next ten years. So far, we have some big names on board such as Cox Communications, Rogers Communications, Time Warner Cable, Charter Communications, British Sky Broadcasting, ComHem, UPC and Cablevision SA in Argentina.
MSOs seek to remain agile, opportunistic, and profitable and as the cable market changes and moves with the demands of today and tomorrow, we hope to be able to work with the operators to make their transition to new markets and new services as smooth as possible.
Craig Bachmann is head of the Cable Market Support Center for the TM Forum.