New challenges, new thinking

Video entertainment bounces back. No question about it: So far, 1996 has been the year of the Internet in the telecommunications industry. Network operators and their technology developers have focused their 1996 efforts on accommodating the surge in Internet traffic.

The Internet excitement is not misplaced. The Internet already is revolutionizing network usage. While generating new interest in telecom services, it is putting new and unexpected pressures on existing networks. And the Internet is still in its earliest stages.

But the industry's focus on the Internet obscured the potential importance of another, slightly older enthusiasm of network operators. The hot topic of 1994 and early 1995-video entertainment-has been pushed into the background by the Internet. In fact, by early 1996, it seemed to have disappeared. Bell Atlantic alone among the large network operators remained bullish about video entertainment.

The recent $1 billion contract Americast signed with Zenith Electronics powerfully moves video entertainment back to center stage, where it belongs (Telephony, Aug. 26, page 7). The problem with video entertainment has always been concern over scale. The necessary network upgrades seemed too massive. Taking the first step-making a real commitment-was too daunting.

But if $1 billion and 3 million boxes isn't a real commitment, what is?

*** Are you in or not? The Americast/Zenith deal poses a challenge for the cable sector. The cable industry seemed poised for major strategic progress this year. But it hasn't happened yet.

If cable's competition plays in video entertainment, cable has to play in switched voice and data services. For a while, it looked like the cable companies as a group would get their investment programs rolling faster than their competition. The cable companies still may beat the telcos to the punch. Cable modem technology, in particular, is promising and may drive the demand the cable companies need to see.

But time is slipping away. Time seemed to be the cable industry's ally because of their vaunted marketing prowess, speedy decisionmaking and strategic vision. Now wouldn't be a bad time for the cable guys to start demonstrating how focused and fast they are and stop just talking about it. Time won't be their ally forever.

*** Branding orthodoxy challenged. Most telecom marketing types believe branding will be the key to success in the future competitive market.

Their thinking goes like this: The day is coming when the franchise protections, primarily in the local access markets, that still characterize the industry today will no longer have any meaning. Competitors will offer similar (or identical) integrated service suites, constructed around a contemporary form of local access. In that environment, the consumer ultimately will be moved by brand identification.

Therefore, the role of marketing will be to create a series of positive associations around the service suite to motivate consumers to structure long-term relationships with the supplier. These associations will constitute a premium brand. The telecom service provider will seek to brand its products in exactly the same way companies such as Ford and Nike try to brand theirs and for exactly the same reasons.

If the effort to create a premium brand fails, the service provider will fail, too, because there won't be any other way to differentiate its service. However good its network and its service might be, the service provider of the future ultimately will be a hostage to brand competition.Or so the theory goes.

I find the premium brand theory convincing myself. If I think a theory has merit, it's a good idea to challenge that theory. And in a conversation I had last week with Tekelec's savvy president, Philip Alford, he did.

Alford offered an alternate theory. He pointed to the tremendous boom he expects in bandwidth capability (Telephony, Aug. 26, page 64). Assuming rough equivalency in the quality of service, particularly in reliability, Alford believes it is at least as likely that some service providers will compete successfully on price differentiators alone and not on brand qualities. He cites the relationship between the Big Three premium brand suppliers in the long-distance market and their numerous hearty competitors who compete largely or solely on price.

I know some people in the advertising industry who hope that Alford's ideas remain the views of the minority.