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Telco enthusiasm for triple play - the bundling of telephony, broadband Internet and TV/Video-on-Demand - is rapidly growing. Already numerous upstarts and incumbent telcos have moved into the sector that was once dominated by cable companies; more plan to do so over the next few months. According to an upcoming report from Pyramid Research, "Demystifying Triple Play," the business case for traditional triple play may not, however, be as profitable as perceived. Nonetheless, it still presents an opportunity for telcos to increase overall revenue, brand awareness and market positioning.
The report argues that offering triple play is not a proven means of increasing broadband penetration. Key triple play carriers like FastWeb in Italy and NTL in the UK have actually seen their broadband market shares decline. There are two key reasons for this. Firstly, companies that offer triple play are usually constrained by the size of their networks, which tend not to be nationwide. Secondly, many in the addressable market are not interested in taking three services from a triple play provider. That the price advantage embedded in a triple play bundle is not usually replicated in single and double play packages can lead end-users to opt for alternative providers.
Margins may also face downward pressure with a triple play offering. Market estimates indicate margins of 75% for triple play versus double and triple play margins of 70%. Continued margin erosion is likely to occur as telcos bid for premium content.
On the flip side, the report argues that for all its shortcomings, triple play is still a must for most telcos for competitive and strategic reasons. Not least, triple play increases average revenue per user (ARPU) and is a key factor in reducing churn. The report states that it is particularly important for incumbent telcos to offer triple play. They cannot let upstart telcos seize the higher ground, and have to protect themselves against excessive loss of voice and broadband revenue to cable operators and CLECs. Triple play also provides additional sources of revenue at a time when their core service - voice - is essentially becoming commoditized.
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