My 2 Cents

By Dom Serafini

"Digital content and discontent", was the title the Financial Times gave to a story about the war between the telephone companies (Telcos) and cable TV MSOs. Italy's daily Corriere della Sera broached the same topic with a story by Pier Luigi Celli, a former president of RAI, Italy's state broadcaster.

It is becoming clear that the telephone companies will challenge the television companies. Why? Because the technology is there and there is money to be made too!

The Telcos are big, padded with cash mammoths and eager to enter a new consumer market. They don't know this yet, but they're going to overpay to buy content in order to bury all the traditional transport vehicles such as broadcasters and cable systems. Right? Wrong!

Telcos are too big, too bureaucratic and too slow to work and live in this town. I clearly remember my visit to the offices of Telefonica in Madrid, Spain, when this mammoth started taking over broadcasting stations and content providers everywhere.

Their executive offices were sparse, clean, uniformly without identity and with Formica-style furniture. Nothing was on the floor or piled up on the desks. There were no papers lying around; it was a really strange, eerie place. The first thought that crossed my mind was "how the heck will these guys be able to communicate with the flamboyant, egotistical, money-hungry and fiercely individual types that form the production-distribution community?" Another factor that will hurt Telcos is the fact that vertical integration doesn't work, even though they may think is a natural for them.

To me the pattern is set: Content providers (who also own the broadcast TV networks) will charge Telcos through the nose for content, will make them bleed red ink, make their boards sorry to have entered a business that isn't as clear cut as lying copper wire around, and, just before they crack, the content providers will buy them on the cheap. Look around Italy and Spain for some indication. Telefonica is now trying to unload Endemol, A3 and Telefe; and in Italy, Silvio Berlusconi's Fininvest is reported to be eyeing Telecom Italia. Plus, in the United States, according to the Supreme Court, cable broadband is an "information service," not a telephone service; and, while Telcos are required to open their networks to competitors, MSOs are not.

So, in effect, Telcos will be bleeding in two ways: First by investing in upgrading their networks with fiber-to-the-home technology, and, second, by licensing premium content: movies, sports and reality. This not even considering the fact that they are entering into a mature TV market and will have the regulators breathing down their necks.

Under the current circumstances, in a war between Telcos -- which are old monopolists -- against content providers -- who are the new monopolists -- the latter will win: Content providers will takeover Telcos (as they did with the now obsolete broadcast TV networks, when, originally, these transport systems were looking to buy content providers) or simply will push regulators to, once again, divide transport and content providers roles.

It is possible, though, that Telcos may change their ways, exchanging their short-sleeved dress shirts with pocket protects for their screwdrivers, for Armani suits. Even though, I doubt it will happen, the Telcos will have to push themselves to change. First, because the so-called "triple play" (voice, data and video) is for them as natural as Badoit bottled water is for patrons of the Carlton Restaurant during MIPCOM. Also, Mobile TV is an area of great growth for them. Plus, they really have no other choice but change: VoIP (voice over Internet) is ruining their traditional business.

This Telco lion could be as meek as the MGM mascot parading at the MGM Grand in Las Vegas, but never underestimate animalistic instincts, even in a somnolent, overweight mammoth.

Dom Serafini