New competitors stake claims: Private cable operators eye MDU voice market

Though most telcos have not faced competition in the residential market, a new breed of competitor could be lurking around the corner.

Currently providing mostly basic video service, private cable operators (PCOs) are beginning to venture into the voice and high-speed data markets. In particular, the environment and timing is right for those operators to begin bundling multiple services.

"By going with a full bundle of service, there are very few providers specializing in the residential market that you'll run up against," said D. Kelly Daniels, vice president of network development for Novus Telecom Group. Novus is a Canadian PCO that will offer bundled service to 16 multiple dwelling units (MDUs) in British Columbia by November. "If you're going into the residential market, it has to be with multiple services," Daniels said.

Indeed, the reality of battling against a large RBOC makes competing on price almost impossible. The equation gets even more difficult when other high-speed Internet options begin gaining consumer attention. However, one PCO already is preparing to compete against DSL and cable modems.

I3S, which has built a nationwide backbone with 20 points of presence and has signed a deal with GTE Media Ventures, is providing three levels of high-speed Internet access to MDU dwellers in several markets. So far, the company's Broadband Now service has yet to face direct competition from DSL or cable modems, but the company is preparing for that day.

"We always have a tiered service, and depending on the market, we can be flexible with price points at all three levels," said Paul Buss, vice president of marketing. Additionally, DSL and cable modems have big barriers to entry in the MDU market where residents may be staying for only 12 months, he added.

"If you're renting, you may not want to commit to buying a $300 modem," Buss said.

Ironically, part of the reason the MDU market is ripe for competition stems from the regulatory and marketing legwork done by competitive local exchange carriers serving the business market, Daniels said. "We're two to three years into this and there are a lot of battle scars."

PCOs also have the advantages of incumbency and brand recognition from having provided cable service for many years.

"The companies that have a customer base in place are in a much better position than those starting off from scratch," said Valerie Wimer, director of business development for consulting group John Staurulakis.

Moreover, many PCOs have existing relationships with property owners that they can use to gain entry into buildings to provide voice and data.

"More and more of the property owners want a piece of the pie," said Steve Curran, president of consulting group Curran Communications.