Pyramid Research has released a report that indicates that cable companies enjoy more synergy in triple- and quad-play services and as a result, telcos are losing margin in their multi-tiered services. While we agree with some of this, we think it misses some key points. First, the best competitive strategy is to be moving from a low-margin, low-growth area to one of higher margins and growth. That’s what the telcos are doing with their video offerings. Second, cable companies started with high-capacity delivery in video, o it was logical that their infrastructure was able to manage lower-bandwidth service needs. However, the telco modernization of their plant threatens the cable companies’ ability to match data bandwidth and video, particularly VoD and FTTH broadband, and the recapitalization of the cable plant would be (as CableLabs itself has noted) very expensive. Finally, the internal rate of return for telcos is historically very low, making it easier for them to embark on low-ROI projects, while the cable guys have higher IRRs and less tolerance for poor returns. It is also interesting that cable is not a strong competitor elsewhere in the world. There are too many issues not covered here for us to be fully comfortable with the results.