We recently covered in the post Extracting Value from Digital Content knowledge@wharton's perspective on the effect of digital content and new technology on the entertainment and media industries as:
a) a devastating body blow;
b) a profit-spewing bonanza;
c) the creation of a promising market in its infancy.
depending on whether you are talking about the beleaguered music industry, the fortunate movie industry or the cable business's hopes for digital cable.As the convergence and changing technology are making sweeping changes, Businessweek writes,with AT&T and MCI going, the Bells will compete with cable and tech companies.
The takeovers of AT&T and MCI officially usher in the long-heralded Internet era.The old phone companies are artifacts, and the new telecoms will look more like their counterparts in cable and computers. Consumers and business will increasingly have their pick of new services from a bunch of providers that are fighting hard to win their business.But as that era fades,another is dawning. "This is the end of World War I - the Bells vs. AT&T and MCI," says Scott C. Cleland, a telecom analyst at Precursor Group in Washington. "Now, World War II, among the phone, cable, and tech companies, is about to begin." As the SBC-AT&T and Verizon-MCI takeovers go forward, they will be just the beginning of a massive transformation sweeping the telecom industry as the shift to digital technology gains speed. That's rapidly eroding the barriers between phone companies, cable providers, and other tech companies. The Bells are moving from the residential phone market they've dominated into a new set of digital ventures in wireless, data, video, and corporate services. Phone calls delivered over wires are becoming a commodity service that is under assault from wireless calling, e-mail, and Internet phoning over cable operators' wiresforcing the Bells to seek fresh markets.
Verizon and SBC have already announced ambitious plans to offer TV service over superfast fiber networks in residential neighborhoods. Now the purchases of AT&T and MCI help them accelerate selling phone and data services to corporations - beyond their traditional consumer market. Selling to corporations, which are less likely to change providers than fickle consumers, is seen as a source of potential growth and a hedge against the high-stakes play for residential video and other services via fiber. As Verizon CEO Ivan G. Seidenberg told Wall Street analysts on Feb. 14: "If we don't change, we'll be caught repricing old products."
The Bells are still building the fiber networks over which their TV services will run and lack the programming expertise that is part of cable execs' DNA. Verizon, which spent $1 billion to serve 1 million homes last year, plans to cover an additional 2 million homes this year. And SBC is spending $5 billion to reach 18 million homes in major markets within its 13-state territory by 2007. The cable industry,already has the ability to deliver TV, broadband, and phone service to 99 million households. Indeed, some smart money is getting behind cable. Over the past six months, Warren Buffett's Berkshire Hathaway Inc. has doubled its stake in Comcast, to 10 million shares, now valued at $328 million. And late last year, George Soros made an initial investment of $51 million in Time Warner, according to government filings.
Competition in residential broadband will become even more vital as the telecoms and cable operators plan to sell more services on top of that basic fast Web link. Both want to move up the food chain to reap more revenues per subscriber, potentially putting them in conflict with others that need access to the same broadband pipes. Vonage Holdings Corp., for instance, is selling voice-over-Internet phone service over cable just as cable operators are entering that business, too. Regulators will need to provide safeguards so the phone and cable giants that control the broadband networks don't discriminate against service providers that they compete with.