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Monday, October 02, 2006

Cable Versus The Phone Company: Only Winners?

Stocks: (CMCSA)(T)(VZ)(Q)

Investors would think that as the telephone companies begin to use their DSL and new fiber-to-the-home systems to deliver broadband and TV to consumers that the big cable company stocks would start to come under attack. Someone has to win here. And, someone has to lose. Consumers are not going to pay to have both a telephone line and a cable line to their homes when the services each delivers are identical.

But, third quarter stock price numbers don't show Wall St. making bets against any of the largest telecoms or cable operators. For the quarter ending September 29, AT&T was up 11.9% to $32.56, fairly near its 52-week high. Verizon rose 11.5% to $37.13. And, Comcast was up 13% to $36.70.

At some level, the fact that all three stocks rose about the same amount makes no sense. Verizon's fiber grid is already being built and the company claims it will have millions of subsribers by 2010. AT&T is in trial with TV services in places like California. And, of course, Comcast is offer voice over IP to compete with the core business at phone companies. The big cable operator has targeted one million new VoIP subscriptions in 2006.

Despite the stock market's neutrality, it would appear that the cable guys have the edge. Their high speed networks are largely built. The fiber networks from the phone companies may offer faster service, but the home customer may not even need that. And, the cost to the phone companies for building new networks is very high. Verizon expects to spend almost $23 billion building out its fiber grid, although there should be some saving in maintenance.

The cable companies also have a lead in delivering the deadly "triple play" phone company killer of TV, broadband, and voice service. Every major cable company already has the service and has been marketing it aggressively for over a year. The phone companies will not be able to widely market their competing service for a year or two. In the case of AT&T, this may take longer. Qwest may simply not have the capital to build a fiber-to-the-home network at all.

A lead of a year or two is very large in competing with similar services for tens of millions of consumers. The stocks in the cable companies and telephone operators will not keep going the same direction forever.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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