Can Triple Play Pay?

Saturday, Jan. 07, 2006 By ANDREA GERLIN
ILLUSTRATION for TIME by PAUL SHORROCK
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Dave Tuttle keeps the telecommunications industry on its toes. The 44-year-old computer programmer takes both telephone and broadband service from provider NTL at his home in Cheam, England, and gets a 40% discount on the broadband. He used to subscribe to NTL cable television for an additional $70 a month — until he discovered he could install a set-top box that allows British residents to receive digital channels without paying a monthly subscription. Recently he called a friend who was visiting India on a Voice over Internet Protocol (VoIP) service that allows users to make toll-free calls to each other via their computers' online connection. Now he plans to call friends in the U.S. the same way — instead of dialing his NTL fixed-line telephone. "I'm just trying to find a way to keep down the costs," says Tuttle.

His life could obviously be simplified if all his communications came through a single pipe, and that's what tomorrow's telecom companies are hoping to offer. As digital technology enables more customers to bypass traditional paid services, telecoms are scrambling to introduce services that combine telephone, broadband and subscription television into a single package that can be piped into every home — and eventually to mobile devices. So far only 5% of Europeans have "triple-play" services — voice, video and data — in their home, but 35% say they are interested, according to technology consultants Forrester Research. That's a huge potential market. "There's a race now among all the operators to arrive first," says Luigi Pugliese, a telecom consultant at Booz Allen Hamilton in Milan. "The world of triple play will soon close. It's growing rapidly and the first to get a customer will not lose him."

Most European communications companies are not equipped to offer all three services easily — hence a wave of strategic mergers. Late last year NTL, a U.K.-based telephone, cable and broadband company that emerged from bankruptcy just three years ago, proposed to buy Virgin Mobile for $1.4 billion so it could add mobile-phone service to its mix in a "quadruple play." Virgin Mobile's board rejected the initial offer but analysts now expect NTL to increase its bid by around 10%. "The market is telling us that it's still expecting this deal to go through," says Laura Mills of Merrill Lynch in London. Pay-TV operator British Sky Broadcasting is buying the British broadband network Easynet for $367 million. Deutsche Telekom is trying to buy back the outstanding shares of T-Online, the Internet services arm it spun off at the height of the dotcom boom. And Italy's Tiscali and Fastweb are reported to be seeking investors to help them take on Telecom Italia in that country's race for triple-play market share.

The wave of wheeling and dealing clearly has risks. NTL, for example, is still hashing out the terms of its $6.6 billion merger with broadband firm Telewest — so how can it now absorb another major company so quickly? And anyone who witnessed the "synergy" mergers in technology and media in the late 1990s has good cause to be skeptical about the current surge in activity. But the traditional phone companies feel they have little choice. The loss of fixed-line revenues to mobile networks and VoIP has left them with bleak prospects, and they seem genuinely bullish about pushing any and all services through high-speed lines. "The operators have understood that it is necessary to offer as many services as possible because once you have acquired a client with an adsl [high-speed] modem, you can try to sell as much as possible in that house," says Pugliese. "If you could sell food through the modem, you would." The companies are also looking to save money by consolidating their networks, reducing administration with a single bill and discouraging customers from changing service providers.