Phone, cable firms eye same customers

In five or 10 years, there no longer will be cable or telephone service providers. Rather, there will be telecommunications companies offering phone, television, Internet and wireless services across the board, competing with one another to provide consumers all of their communications needs.

That’s the prediction of telecommunications industry analysts, as the two sides – phone and cable companies – increasingly reach into one another’s traditional turf for customers in Central Oregon.

”Today, consumers tend to have one provider for phone and one provider for television,” said Jeff Kagan, a telecommunications analyst based in Atlanta. ”Tomorrow, consumers can basically say goodbye to one of them and receive both services from the other. It’s not completely there yet, but it is moving in that direction.”

The market landscape could change dramatically in the next few years, Kagan said. He noted that most phone companies currently hold a strong majority of phone customers in a given market, and cable companies hold similar advantages with television and Internet consumers.

With the two sides increasingly reaching into each other’s turf, that likely will change – to a point where each company holds roughly 40 percent of a combined phone-television-Internet market, Kagan said.

”It could mean that (the companies) will each have fewer overall customers, but those customers will buy more products from whomever they’re doing business with,” he said. ”It becomes a case of you either having that customer, or you don’t.”

The players

In Central Oregon, the blurring of the line between phone and cable service providers reached a new high 15 months ago, when cable television and Internet service provider BendBroadband launched its phone service. The product uses BendBroadband’s cable network to carry voice signals instead of using conventional phone lines.

”(The company) has competition in every sector of our business,” said Amy Tykeson, president and CEO of BendBroadband. ”In the video realm, we compete with two formidable satellite video companies. In the area of high-speed Internet, over a dozen companies provide such service to businesses and residents. Competition is robust in our business, and it works to provide more options and values to our customers.”

Since then, the pressures been on Qwest Communications International Inc., Central Oregons main phone service provider, which had about 1 million phone customers in the state as of April. In response, the company fought back by going after what traditionally has been cable companies turf by bundling satellite television service with its phone and Internet packages last spring.

Qwest also is planning to put a retail store in Bend by late 2007 or early 2008, officials said. It has run locally targeted advertising in recent months.

Its such a fast-growing market, Judy Peppler, Qwests Oregon president, said of Central Oregon. But there is increasing competition from primarily cable and wireless (cellular phone) providers, and that forces every one of us to be more competitive, or well lose our customers.

Central Oregon also is served by smaller cable providers such as Chambers Cable in Sunriver and Crest-view Cable Communications in Prineville, Madras and La Pine, but recent moves by BendBroadband and Qwest have put the two in direct competition for Internet, phone and television services in Bend, Redmond and Sisters.

The two companies do differ from each other in a variety of ways.

For example, BendBroadband can provide access to local television stations, whereas Qwests satellite service operated by DirecTV does not carry those channels in Deschutes County.

Eric Magidson, founder of local information technology firm Ordinal Associates, follows the telecommunications industry closely. Having local channels is a huge asset, he said.

Consumers want local channels, Magidson said. In order to be truly competitive, the satellite companies will have to find a way to provide that service, and that hasnt happened yet.

For Qwest, one of its advantages comes from the cellular phone field the company offers such a service. BendBroadband does not, although officials say it will sometime in the future.

Basically, you have a choice of different bundles, said analyst Kagan. If you want to have wireless, youll go with Qwest. If you want to do business with cable companies, youll go with (BendBroadband). Were seeing a split in the road, and its interesting to see where consumers will go.

Phone companies own video networks?

A potential wildcard in the race for Central Oregons telecommunications consumers may be the fact that phone providers around the country are starting to develop their own television programming delivery networks, which would allow their customers to watch TV without having to install satellite dishes.

Kagan said companies like Verizon and AT&T are already building those networks in bigger cities, and Qwests Peppler said her company is planning to test a similar system in Portland sometime in 2008.

Were obviously focused on the larger markets to start, she said. But well look at the situation in other markets to determine how fast well roll that out. But were not going to bring to market a system until it is either the same or superior to what we have right now (with DirecTV).

In the meantime, Qwest is negotiating with the satellite service provider to add Bends television stations, although no final decision has been made, Peppler said.

Until Qwest rolls out such a system in Central Oregon, however, the advantage will remain on BendBroadbands side, said Ordinals Magidson.

He who hit the market first captures that market, he said. If I can establish relationships with consumers first, Ive got that market. The local cable companies have the next two years or so (or until Qwests system is up) to develop brand loyalty.

BendBroadbands Tykeson said her company isnt worried.

As I said before, BendBroadband faces formidable competition in all lines of our business, she said. Were not afraid of competition. Our investment in technology and people will help ensure that as a small, local company that we focus where it matters most– on our customers.

The local factor

The word local also brings up another key point of contention.

Industry analysts like Kagan and Magidson agreed that Qwest, which is based in Denver and has service areas stretching from Iowa to Washington state, cant dedicate as much of its overall attention on the Central Oregon market as a local company can.

Qwest will invest where the threat is, Kagan said, noting that the company also is facing cable giants like Comcast in cities like Portland. If theres an opportunity to gain a certain market, theyll invest. The reality is, they cant invest in all of their markets at the same time.

For me as a consumer, it means my dollar is going back into the local economy, Magidson said.

BendBroadbands Tykeson said her company recognizes the local factor, but added that it would matter little if the products arent what consumers want.

We think that our local advantage is a key differentiator, she said. But the bottom line is, the products have to be not only good, but great. Thats fundamental.

Qwests Peppler disagreed with the assessment that Qwest cant focus on Central Oregon because its based elsewhere.

Were local as well, she said. We have a number of employees in Bend who have been there for a number of years. Certain segments of customers do prefer local, but ultimately, it comes down to what theyre looking for in a service and at what price they can get it at.

Analyst Kagan said that, in the end, the trend of service convergence will likely continue as new technology comes online, and it may be the quickest adapter who wins the hearts of consumers.

The industry is changing in the service they offer, and the market is changing in terms of what it wants, he said. Its going to be very interesting to see who wins and who loses. But we as consumers have to hope that they both do well, because when competition increases, prices drop.