Chapter I

The purpose of this report is to quantify the number of subscribers by carrier for various telecommunications and media services. This report contains a section on each of the following categories:

                 · Wireless
                 · CLEC
                 · Dominant Carriers
                 · Regional Carriers
                 · Cable Companies

INSIGHT’s forecasts of the future number of subscribers to the various telecommunications services presented in this report were developed using a model. On the demand side of the model, we assume that six customer clusters or segments drive the telecommunications market:

                  Wireless Business
                  Wireless Residential
                  Landline Business
                  Landline Residential
                  Residential High Speed Internet
                  Residential Video

The traffic loads generated by these six segments and their evolution from one technology to the next has been fairly consistent and therefore predictable over the intermediate term. On the supply side of our model, however, we assume that five types of telecommunications providers noted above will compete for the business among these segments.

The model and resulting forecasts cover the major players in each segment, which account for at least 80 percent of the subscribers within that segment. The moves that these players make will drive the segment. Our model can also be run assuming each major player in a provider group follows a different strategy, although that level of detail was not used for this analysis. The model can handle any number of industry players.

The underlying premise is that once a certain standard has been achieved, the industry behaves much like a commodity market with changes in share driven by differences in price. In the past, customers churned between IXC and RBOC for long distance service and a bundle of local and LD. Today customers churn between DSL and cable, and in the future the churn will be between video service from the cable company versus telco versus satellite provider. Similarly, market shares between ILEC and cable companies will change as they compete for the same customer. Distribution of revenue among industry groups will also be affected; for example, wireless substitution shifts revenue from wireline to wireless.

Furthermore, the model assumes that these industry groups will behave in a manner that will increase their revenue stream over time. Telco’s may offer triple play service at a lower price point than the cable companies, but only to the point that it drives incremental revenue and margin. The cable company response to this may be to increase their share among business customers or to partner with a wireless provider to offer the quadruple play.

Another premise of the model is substitution. In addition to changing vendors, customers can change services such as migrating from a fixed line to wireless or DSL to wireless data. The model is set up to allow each provider group to offer different services, and depending on the growth rate of these services, the player may be a winner or loser. This model can also be used to estimate how changes in price will impact the overall industry. Questions arise along the lines of the following: “How far can your competitor reduce price before it will cause deterioration in their financial condition?”


1.2 Subscriber Growth Summary

Consolidation of the telecommunications industry, combined with new technologies, and some regulatory rulings have created a number of winners and losers among the categories mentioned above.

Wireless is perhaps the clearest winner, with 15 percent annual growth in subscribers over the past two and one half years. Although subscriber growth may slow in the coming years, revenues from data services will likely drive overall revenue at a healthy pace.

The D.C. Circuit Court ruling and the FCC Triennial Remand order effectively....

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