There has been a lot of discussion about convergence lately. Based on some recent interest in this information, I present a primer on this trend and what it means to all of us; not just in the telecommunications business, but in all facets of the business world.
First, we need to define the term. According to Wikipedia, Technological convergence refers to a trend where some technologies having distinct functionalities evolve to technologies that overlap, i.e. multiple products come together to form one product, with the advantages of each initial component. As it applies here, convergence is the merging of different services that once traveled separate networks. By delivering them over fewer networks, economies of scale are achieved. The best example of this is the current merging of Internet, telephone and television over one IP-based network. Every telephone company worldwide is either doing this now in one form or another or at a minimum, in the exploration phase knowing they are late to the party.
More interestingly, in this effort to save money by converging services, telephone companies have found new competition as they enter the television business. Not surprisingly, the companies that supply these services (cable, primarily) have entered the telco’s markets for the very same reason. For example, Verizon very much wants to sell television service to Internet customers over their brand-new FIOS network. Their plan is to get a fiber-optic line into customer’s homes (FTTH) to provide these services. By delivering fiber, Verizon hopes to not only provide Internet, telephone and television (also known as the “Triple Play”), but to shut out the possibility of a competitor entering their market. The competitor they are most concerned with, at least in the northeast US, is Comcast. Comcast and other cable companies are looking to bundle the same three services and shut out anyone else. They all believe that whomever can get to the customer first will own them forever. That is why they are willing to spend great sums of money to install these networks. Its been reported that it costs Verizon upwards of $800 per subscriber to install FIOS (that figure is an improvement over the original $1,200 or so it originally cost). This does not include the door-to-door, mailing and other marketing costs that VZ must bear as well
NEXT WEEK: prior attempts at convergence and why they failed