Wednesday, January 2, 2013

When will the cable industry realize that its main business is in the provision of high speed internet access-not cable television?

Speedier Internet Rivals Push Past Cable - WSJ.com

Very, very important article: the substance of which is that the cable television industry feels no urgency to upgrade its distribution networks despite a clear threat from credible competitors.

What? The dismissal of demand for high-speed access makes no sense at all. Glenn Britt, President of Time Warner Cable, who I know and like very much, sounded foolish when he said there was no demand for higher-speed access. He's not alone. By 4 o'clock on a weekday afternoon Time Warner's Internet service slows to Manhattan like traffic speeds. Who does not want more bandwidth? More speed? Quicker access to social network sites, cloud storage, and video and audio services? While a 1 GB high-speed access service that Google provides in some markets seems like too much for most internet usage, it really reflects a huge threat to the bloated and over priced subscription based business model of the cable television industry.

Consumers are going to choose the highest possible Internet speed that is available-everything else being equal. Choice is better than no choice. Responsiveness is better than not. Consumers do not want to limit themselves to what is currently available. They will always want more. I understand why the industry does not want to be only a land-line high-speed access provider. The threat of becoming a common carrier exists. But the future lies in providing land-line ultra high speed digital service. It is really simple. So build it cable industry and clients will come.

The cable industry fears, rightly so, that the upgrade to their systems will cost billions. But what is involved in that upgrade? With fiber to the home already installed, systems can be upgraded by installing electronic encoders and decoders at required nodes (nodes are the points at which light pulses are converted to electrical signals). I am not saying that this will not cost money. It will, but not as much pulling out existing copper based coaxial cable. This type of cable is limited to handling 450 MHZ or .45 gigahertz signals.

At the same time, the cable industry is overpricing it's television service. The subscription model which requires basic subscribers to take many channels which they do not want at $70 per month or more is broken. My guess is that the many channels under the ESPN brand probably account for $30 per month in most cable bills. That's crazy. Similarly, for the MTV networks, the per month subscription fees buried in consumer bills are also larger than many know or would want. Many consumers would drop the "bundles" of services-especially those driven by sports rights costs-if they had the choice.

The best way to think about it it is to ask yourself what services do I use regularly? I use the news (take your pick), PBS once or twice a week, TCM a couple of nights a week and rarely HBO. I was interested in Homeland (Showtime) but my wife can't sleep after watching--ex asst district attorney. I will watch the NFL every couple of weeks during the regular season and some of the play-offs. But I also use networks, watch old series on DVD and occasionally, sleep. Also, I am on the internet all day long. In one form or another. I want ultra high speed now, but my two providers are Verizon and Optimum forcing me to spend over $100 a month on television services to get the fastest level of internet service. The notion that ESPN should be included in so called "basic" is insanely outmoded. Now is the time for, at minimum, broadly based a la carte programming offerings. The hit to the cable company and to the programmers might be significant, but a day will come when subscribers say enough. A day will come when Google has the muscle to go to the sports leagues and demand exclusivity and get it. When will it come? My guess within the decade.

The implications of vast expansion in internet access speed are enormous. It seems as if Google has already made a decision to become a major player in broadband, or at least, to so deeply scare existing operators into spending billions to upgrade to ultra high speed cable. Cable television companies, (Time Warner: TWX, Time Warner Cable: (TWC), Cablevision (CVC), Charter (CHTR), Comcast (CMCSA) face the decision to upgrade or to be over built by new competitors like Google. Netflix (NFLX) will try to stay in the game but very likely will need to sell itself to some larger entity. Vast new amounts of capital need to be spent. Vast new amounts to be raised. Hardware suppliers will compete for huge new contracts. Investment banks will exploit a renewed revenue stream from Cable industries upgrade or competitor fiber overbuilds. Cities will demand upgrades or revoke franchises and charge higher franchise fees. Satelitte providers will lose customers--certainly at the high end. It's disruptive--very disruptive.

Here's the article.
Speedier Internet Rivals Push Past Cable - WSJ.com:

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