All for one: traditional telephone companies and cable TV operators are competing for the same customers. Only one can win.

Data such as Internet, voice calls and television signals are converging into one pipe, something the telecom industry is marketing as "triple play" service, and the changes are deeply affecting both old-line fixed telephone providers and cable-television companies. Regulators across the region are working to clarify the rules for a service that hasn't yet rolled out across most of Latin America and likely won't during 2006, thanks to elections in many major countries.

Yet between 2006 and 2007, the first phase of television via Internet technology, known as TVIR will begin broadcasting in the region. Eventually, the service will revolutionize TV watching, bringing viewers rapidly into a future in which each individual can, for instance, do things like change camera angles during a soccer game.

For both telecoms and cable companies, triple play is a chance to sell products never before available to their customers. "Until now telephone companies in practically none of the countries in our region and the world have been able to provide services to the home for which you could bill as much as they can with triple play," says Jose Antonio Rios, international president of Global Crossing, which owns one of the largest undersea and land-based fiber-optic cable systems in Latin America.

In addition, Rios says, once all of the services soon available on a traditional fixed-line telephone--like television signals--transfer to wireless phones, the triple play will become a "quadruple" play. "This will take longer in arriving in Latin America, between five and 10 years, depending on investors and regulators," Rios says.

Traditional phone companies have long enjoyed wide coverage, but often by serving clients with limited incomes, a brake on profitability. For them, the coming changes are a big opportunity to serve a smaller number of customers with a greater number of offerings by using their existing infrastructure and systems--such as their already-built billing networks. In addition, fixed-line telecoms have long been cash cows and often have the money necessary to make big investments in new technology.

Triple play is an opportunity, too, for cable operators since it lets them offer more services to the same customers, normally among the higher-income segments of the population, and thus become more profitable. Latin American subscribers to so-called digital subscriber lines (DSL) for high-speed Internet offered by phone companies are rising by 25% annually, while Internet subscribers by cable are rising by just 13% annually (in 2005, there were 6 million DSL users and 1.5 million cable Internet users), according to consultancy Pyramid Research.

The problem for fixed-line telecoms is that they don't have much experience nor understanding of matters like content. According to Rios, Latin American consumers will choose the triple-play version, be it telephone or cable, that offers them the best content at the best price. Broadband will he a big factor for the consumer but, in the end, he says, content will be the determining factor, a clear advantage for the cable companies. "Content is king," says Rios.

Telecom executives recognize content as their main weakness in the coming battle. "We have lots of cash but no experience in content," says Eugenio Pimenta, product and services director for Brasil Telecom, which has 1 million DSL users, close to 90% of the total broadband base in the areas of Brazil in which it operates. Growth among those subscribers for the past two years has been 100% annually.

Another problem for fixed-line carriers is that DSL technology is not the best for providing triple-play service since it doesn't have the same bandwidth that cable can offer. "The technological battle is being won by cable," says David Leach, a researcher at U.K. consultancy Tele-Geography. "It's the better technology."

Until regulators get some teeth, Leach says, traditional phone carriers will not necessarily have to invest in triple play. "The biggest incentive for the carriers should be the decline in fixed lines and the fact that their wireless customer base is growing," he says. This will doubtlessly help offset decreasing revenues for carriers, which in the case of Brasil Telecom slid almost 10% in 2005.

Another advantage the cable companies have is marketing muscle. They have been more flexible, historically, and have had to battle block by block, house by house for customers. Telephone companies in general are not accustomed to competing so aggressively. It should be noted, though, that cable is extensively pirated throughout Latin America, a problem the cable companies have yet to overcome. "Nobody knows exactly how big the problem is, but it is believed that one in three don't pay for the service," says Hicham Bisbis, operations manager for LAPTV, a cable programming provider to Latin American markets in Atlanta, Georgia.

Despite all this, traditional carriers have several significant advantages. Besides the fact that most have the financial heft to invest massively in technology, they also have a wide, existing network in the countries in which they operate.

Which of the two types of companies is better positioned? That depends on for what reason the customer might choose triple play in the first place. Carriers have the advantage of market presence in every home that gets a phone bill, and they have been providing that service for years. Nevertheless, that strength is also a weakness, since they have never done much more than offer voice calls. Cable providers, in places where they are not dominant--which is often the case in much of Latin America--have to do much more aggressive marketing campaigns.

According to TeleGeography, for a cable operator it is more expensive to become bidirectional. In Mexico, for instance, the two main cable providers, Megacable and Cablevisi6n, invested US$500 million in 2004 to update their networks. Nevertheless, according to the consultant, they'll have to spend another $1 billion to update the entire system.

The situation will begin to become clearer by the end of 2006 and the beginning of 2007, and the expectation is that Mexican phone giant Telmex will be able to compete head-to-head with cable. "Telmex will be a strong player and will not push the technology too hard, since it doesn't have to," says Pyramid Analyst Thomas Abreu. "Fixed-line operators will be motivated to offer television via DSL when cable operators begin to offer voice. Telmex is so dominant that it won't happen quickly."

Pyramid also notes that the telecoms ultimately have the competitive advantage because their technology is more scalable and bidirectional. That is, providing triple-play service for a small number of homes will be easier for cable providers, but at the largest scale the more viable companies will be the telephone carriers.

Fixed carriers also have an advantage in places where cable is not well established. In Argentina, the Latin American country where cable television has the greatest penetration, the scene is different. According to Pyramid, Grupo Clarin, which has cable subsidiaries, broadband and voice Wi-Fi (a wireless broadband Internet service with voice capabilities), is perhaps the best positioned to take advantage of technological convergence.

In Chile there's VTR, perhaps the company that has best implemented convergence technologies in the region. By the end of 2006, according to Pyramid, VTR should have 200,000 subscribers to its triple-play offering.

DSL penetration in Brazil, meanwhile, is much greater, which favors fixed-line carriers. The problem is that it has not yet been decided if carriers will be allowed to offer television. "Cable operators are lobbying for this not to happen," says Abreu.

The Brazilian pay-television market is not very well developed, nor is it in countries like Colombia. The South American giant's richer households have already been well penetrated, and it will be hard to drag these customers away from the phone companies. Nevertheless, Brazilian phone companies have a broad network of DSL subscribers. "The situation for these companies is not as dire as it will be for them in Argentina;' says Abreu.

Darwinism. The consolidation already long under way in the United States--cable operators, content providers and telephone carriers have been buying each other or merging--is a clear example of I what could happen in the rest of the world. In 2006, mergers and acquisitions are definitely possible among the region's cable companies, Abreu says.

The process of mergers and acquisitions is, however, drastically limited by the region's regulatory bodies. Each country has different rules and structures regarding how phone and cable companies can transmit video. Eloy Vidal, regional coordinator for Latin America and the Caribbean for regulatory policy for the World Bank, says that in some countries there are two regulators: one for television and another for telecommunications. "There should also be a convergence of regulators," he says.

Once the companies begin to merge, there should be benefits. One clear example is what Telmex in Brazil has done, positioning itself not only as a mobile telecom under the Claro brand and as a traditional carrier as Embratel, but also as a cable company, with its purchase of Net Brasil. The Mexican giant is clearly betting that in the coming years there will be a technological revolution that will allow these investments to work together.

Due to regulatory issues, the purchase of cable companies by fixed-line carriers could be one way that consolidation in the sector begins. One need only witness the enormous investments made by Spain's Telefonica, Portugal Telecom and Telecom Italia, as well as Chinese manufacturers of telecom equipment, to grasp the region's potential, according to TeleGeography.

Fixed-line operators have gone from being a natural monopoly to living through the sector's opening to investment, then privatization and, in the last 10 years, they've had to lead on technology advances like cellular telephones and the Internet--so they've had to make the most changes. Despite still holding the dominant position and the money to keep that lead, for the first time the giants of the traditional phone business have had to behave more like aggressive start-ups than bureaucracies with a guaranteed future.

In January, U.S. credit-ratings agency Standard & Poors downgraded or placed on watch $100 billion in debt held by U.S. fixed-line carriers Verizon, AT&T and BellSouth, among others. The reason: Cable companies are expected to plunge into offering telephone during 2006 and 2007, cutting in the traditional phone companies' cash flows. The ability of cable companies to offer phone service now, Standard & Poors' analysts wrote, far exceeds the ability of wireline phone providers to suddenly begin selling video.