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Cable is Cornering the Broadband Market

by: Larry Dignan August 11, 2008 | about stocks: CHTR / CMCSA / DISH / DTV / T / TWC / VZ    

Larry Dignan

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The second quarter results are out and it appears that the cable industry is winning share in broadband, phone and TV connections and handily thwarting encroachment by the likes of Verizon (VZ) and AT&T (T). In fact, TV and broadband service is meant to be a monopoly and cable appears to be the winner.

That’s the big conclusion by a Bernstein Research note penned by Craig Moffett.

Moffett writes:

In the harsh glare of second quarter seasonality, the telcos’ wired  businesses  suddenly  look  not  only  like  they  are  weakening…  they  look  like  they  are  positively  collapsing. Access line losses have accelerated to an almost 10% annual  rate  at  AT&T,  and  to  an  almost  12%  rate  at  Verizon.  Broadband  growth  has  virtually  stopped,  with  DSL  customers  abandoning  the TelCos  for  cable’s  higher  speeds and bundled prices.  Cost reduction efforts are beginning to meaningfully lag volume declines, pressuring margins. The second quarter has been unkind, too, to the satellite TV operators.   Dish Network’s (DISH) 2Q  subscriber  loss was  the  first  ever for a major U.S. satellite operator.  And while DirecTV (DTV)  made  its number, overall  subscriber growth  for  the  satellite category is down 65% year on year.   Gross additions were down 5.9% YoY for the two companies combined.  DirecTV is  holding  its own,  but  it  is  doing  so by gaining  share  of  a shrinking pie.  Suddenly, the satellite category looks… well,  wobbly.

Bottom line: Cable is grabbing 80 percent of new broadband connections. Here’s the tally:

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Moffett notes that cable’s broadband connections have been on the rise since the end of 2005 and appears to be a natural monopoly in the making. The biggest surprise is that cable has been taking its time becoming a monopoly. He notes:

The telecommunications  market  is,  after  all,  a  true  natural monopoly market  –  that  is,  the  capital  required  to  build  a network  is  simply  too  great  to  support  more  than  one operator (just like the railroad business before it).  And more than  ever,  it  appears  that  Cable  is  poised  to  be  that  one network.

Moffett then goes into a little history (that we all know by know). Once upon a time there was a monopoly telephone provider–Ma Bell. Ma Bell was regulated and then broken up. Then there was the Telecommunications Act of 1996 and cable and Ma Bell’s telecom offspring went at each other. Then Ma Bell began merging again with two main providers–AT&T and Verizon. However, cable–an uber network for video–kept gaining. Today, you can reasonably argue that AT&T and Verizon are primarily wireless phone companies. In the end, it’s monopoly time. After all the shuffling in the broadband industry the market characteristics, which favor a natural monopoly, remain.

Moffett’s take is most likely on target, but it’s quite a buzzkill for those of us that would like a little more competition in the broadband marketplace. I’m fortunate in that I have Verizon’s FiOS and Comcast (CMCSA) going at it, but that’s not the norm in many regions. Meanwhile, if that natural order for telecom/video/broadband service is monopoly that hints at more regulation in the future and puts the FCC’s Comcast ruling in a different light as a precedent.

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This article has 9 comments:

  •  
    Aug 11 01:25 PM
    What on earth was the point of the last para. Is Seeking Alpha a portal for investment or political opinion.
    Reply
  •  
    Aug 11 06:56 PM
    I'm not sure you should count the telcos out just yet. I have a feeling that many areas of the country are like my local area. I have TW cable because I have no choice...yet. Cable's infrastructure is old and showing it. The relays fail almost daily as the temperature rises to 100+ and the signal weakens as people come home requiring volume levels of 50+ or pixelation of the picture. Add in the delivered line speed of Internet bouncing like a yo-yo causing packet crashes and really if'y telephone service.
    On the other hand, VZ (my local telco) has installed new fiber along the right-of way and hooked up to existing voice line boxes. This makes my phone service on VZ by far my preference. The problem with VZ is that they are dead set against running FIOS into apartment complexes, preferring to service the upper middle class housing developments. Then they complain to the local news outlets that it is having a hard time signing enough subscribers. Some day they'll figure out that real people live in those apartment blocks. I've been waiting over 1 1/2 years. It's like the telcos are run by GM management trained people.
    Reply
  •  
    Aug 11 09:01 PM
    also think your jumping the gun! att iptv just in its infancy, let's see what happens after its completely rolled out! penetration by att isn't even probably but 30-40 per cent built! they have stopped their dsl build to concentrate on their video!!!!
    Reply
  •  
    Aug 12 12:20 PM
    Talk about being blinded by statistics. Cable posts high gains in broadband sign ups and you seek to bolt to the conclusion that Cable wins and VZ/T loses. I've been watching this contest for many years and I don't think anyone has been able to call a winner definitely. There have been times where it looked as though cable was going to pull out ahead, but there have been times when the opposite held true. Telecom/network engineers have held long ended debates about the strengths and weaknesses of each contender ... the variables are extensive and are only getting more numerous, industry leaders puzzle over who will own the "master pipe" in the end ..., yet you in your wisdom have concluded that cable will now step forth a winner; simply because they managed to sign up a large number of broadband users in a quarter.

    I suppose you missed the fact that most of those new sign ups came from current cable users. In fact, Comcast had a reduction in new users this last quarter. VZ and T had higher numbers in new user sign ups for video. Cable is likely to enjoy a period of migration to broadband as long as they still hold the most overall customers for video. Naturally we should expect them to sign up existing customers to broadband since most of those customers don't even have access to dsl let along FiOS or U-Verse. I have cable, but if I could get FiOS .. I would switch in a minute. In fact, I would switch to dsl in a second as well because it is a superior service (cable has distributed bandwidth speeds, I never recieve the bandwidth that was advertised). As more and more video is distributed via on-net, people will begin the see the necessity of 'sustained rates' of bandwidth and cable will either need to upgrade their infrastructure, or sit by and watch as telecom carriers begin to erode their customer base in similair fashion to the way wireless and VoIP are eroding traditional POTS lines.
    Reply
  •  
    Aug 13 11:25 AM
    I left Qwest not for faster speeds but because of the shady cell phone deal they pulled.
    Reply
  •  
    Aug 14 02:58 PM
    Comcast is frightened to death of Verizon and they post childish, deceptive and assinine commercials against Verizon on TV.
    I have Verizon's DSL, it works superbly and have no desire to switch to Comcast's service which is in my area pretty poor.
    Verizon's FIOS is the victor and the last word. Of course the average person is reluctant to change from the devil he knows to the devil he does not know, but if the average Comcast customer saw a FIOS demonstration he would ditch Comcast in a New York minute.
    Go Verizon !!!
    Reply
  •  
    Aug 15 12:34 PM
    It looks to me that NormP is a Verizon employee, probably even management. It's true that Verizon's FiOS will be a good product and a formidible foe in the broadband game, but with technoligy changes happening quickly, cable and the phone companies will soon be on a pretty level playing field. Customer service will win this game, and in my area that's Comcast.
    It's true there have been customer service problems, but against the pure number of customers and transactions, the number of bad experiences are relitively small. In my opinion, the customers that do have problems speak the loudest, and that seems to be all you hear. I've had outstanding customer service with Comcast and everyone I know has as well.
    Go Comcast!
    Reply
  •  
    Aug 16 03:47 AM
    Excuse me Golfman, but it sure looks like you are the one shilling for a company. Your comment about 'cable and phone companies soon being on a pretty level playing field' shows you don't really know much about network/telecom infrastructure. The facts are that cable will have to spend an incredible amount of money upgrading their networks before they would be able to offer anything similiar to FiOS. Don't believe me .. .do a little research.
    Reply
  •  
    Aug 18 12:10 PM
    Excuse me fanfare, but research is my business. The FiOS product with fiber to the home will certainly generate unlimited bandwidth. That though, isn't the only technoligy that generates bandwidth. DOCISS 3.0 for the cable world will generate the necessary bandwidth to compete with out the huge capital outlay needed to rebuild their infrastructure. True, new cable modems will be required, but thy can be purchased with normal operating capital. The way technoligy changes, who knows what's coming down the pipe next, but I wouldn't count the cable companies out just yet.
    Reply
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