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Opening the Floodgates
You can trace the current dynamics of the telecom industry to the passage of the Telecommunications Act of 1996. With the act, single-service cable, phone and direct broadcast satellite (DBS) providers were set loose to enter into competition with one another. Cable providers could now offer phone service; local and long-distance operators could enter each other's markets; and DBS providers could establish a footprint in video. "It became apparent," says Paul Shryock, VP of IT at Toledo, Ohio-based Buckeye Cablevision Inc., "that they would play in our yard, and we would play in theirs."
What a difference an act makes. Today, service providers are scrambling for customer share even in their traditional markets. Fifteen years ago, cable commanded 95% of the multichannel TV market; today it holds 68%. Conversely, satellite providers have grown from 4 million subscribers in 1996 to more than 29 million today, according to the NCTA. And for midmarket telecom providers, the specter of the giants looms large: together, Comcast and Time Warner serve 57% of cable subscribers.
Consumers' increasing demand for bundled services -- which offer convenience and potential cost savings -- has made competition in the $923-billion telecom industry only more cutthroat. Consider the narrowing gap between cable and phone providers in Internet services, which research firm Knowledge Networks Inc. says is the greatest driver for bundling: Cable modems lead (51%), but DSL modem subscribers reached 45% last year, according to the 2007 Telecommunications Market Review and Forecast from theTelecommunications Industry Association. The stakes for capturing customer share are high: According to Yankee Research Group Inc., bundling two or more services reduces customer churn by about 25%.
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