August 8, 2008 3:01PM
The Cable-Telecom Wars
By Elizabeth MacDonald
There are plenty of fights grabbing headlines these days.
The Microsoft fight over Yahoo, the internal battles at Lehman, the fights in Congress over the fiscal recklessness of Fannie Mae and Freddie Mac, as well as the debates over the Federal Reserve’s ad hoc orchestration of the JPMorgan and Bear Stearns shotgun wedding.
But another battle of a potentially larger sort has been looming that should not go unnoticed.
This one is the fight between the cable industry and the telecoms over who will dominate the pipelines into American homes, and whether competition suffices to help consumers’ wallets.
This is a fight over a massive amount of money.
Revenue from consumer telecoms network services will hit $2tn globally by 2012, Instat, a market watcher, predicts. In-Stat says the strongest growth will be in the broadband and pay-TV sectors, though 60% of total revenue will be derived from consumer mobile services, the research firm notes in a report.
And this fight is a hot one, because it involves a potentially hyperactive federal government regulator making unfair moves against one of these players.
It’s a fight that affects Comcast (CMCSA), Time Warner Cable (TWC), News Corp. (NWS) (parent of the Fox Business network), Cablevision Systems (CVC) and Charter Communications (CHTR). Walt Disney (DIS) and Viacom (VIA) would also be affected.
On the other side of the aisle sit the telecoms, AT&T (T), Verizon Communications (VZ), Sprint Nextel (S) and Alcatel-Lucent (ALU).
The telecoms have been steadily encroaching on the cable companies’ turf in providing cable services to their telecom customers. AT&T and the cable industry are spending fast and furiously in their lobbying and public relations war not just at the federal level, but in states across the country as they try to grab cable licensing deals.
Why the Fight Matters to You
In 2001, only 30m households worldwide had access to broadband internet connections. By the end of last year that figure had grown about ten times.
The world’s biggest telecoms and cable companies are rushing to add capacity to keep up with exploding demand fueled by consumers increasingly downloading bandwidth-chewing video content from YouTube, iTunes and other sites.
But the fight matters to you because competition lowers prices. The big news for most consumers isn’t just access to broadband, but prices. If you can bundle your home phone, cable TV and broadband for less than the cost of even one of these services from your own cable TV company, you’d do it, right? You could save nearly half your bill if you do it right.
The Battle is Waged Locally
The cable guys know this, so does the telecom crowd. And that’s why they are taking the battle to the streets. For instance, Time Warner Cable (TWC) and Verizon (VZ) are beginning a battle for TV viewers in New York City.
And despite being outspent in a lobbying war by the cable guys by about $2 mn in Tennessee, telecommunications giant AT&T finally won its legislative goal in bypassing local government cable franchise rules, even though AT&T apparently did not get everything it wanted.
So Who’s Really the Big Gun?
Thanks to its acquisitions, AT&T is now larger by market capitalization than the entire cable industry, notes Leo Hindery, a cable industry top executive. AT&T and Verizon now have market caps that are 2.4 to 4.4 times larger than any big cable player. Each serves 36% and 24%, respectively, of the country’s homes and businesses.
Is the Government Interfering?
Despite the fact that the government has approved a wave of telecom mergers, Hindery says that the Federal Communications Commission has been wrecking competitive forces that may bring cable prices down by unfairly hamstringing the cable companies with discriminatory ownership caps that stop a cable company from covering more than 30% of a potential marketplace and in turn from sufficiently competing against the Bells.
Meanwhile, AT&T and Verizon are not handicapped by any federal ownership limitations.
Hindery is someone the cable and telecom market listens to. Before he became managing partner of InterMedia Partners, a New York media industry private equity fund, he was chairman and chief executive of the YES Network, which he founded as the television home of the New York Yankees.
Prior to that post, he ran Telecommunications (TCI) before it was merged into AT&T in 1999, and he became CEO of AT&T Broadband. Hindery also served briefly as interim CEO of Global Crossing, a company that belly-up due to a corporate accounting scandal.
Hindery was also presidential candidate Sen. John Edwards senior economic policy advisor for from December 2006 until February 2008 and is now an economic advisor to Democratic presidential nominee Barack Obama, the senator from Illinois.
Hindery fears this arbitrary federal cap on competition could cause less service and higher prices.
The US is Losing Out
Hindery notes that the US has dropped from its position as a global leader in per capita broadband use, now ranking 15th out of the 30 Organization for Economic Cooperation and Development countries, with less than half of US households subscribing to broadband services.
Hindery says it’s time for the federal government to stop this craziness and level the playing field between the cable and telecoms to unlock potential economic growth.
Hindery says that independent estimates show that universal broadband adoption would generate $500 bn in economic growth and more than 1.2 mn new high-wage jobs. Broadband technology, he says, makes all sorts of industries more productive, connecting people to information and services on a revolutionary scale.
Despite Government Help, Telecoms Need to Catch Up
Comcast and Cablevision have both shown growth in new voice lines, as well as digital, video and broadband lines.
The telcos though are hurting.
Verizon in its last quarter lost 1.7 mn access lines and 171,000 DSL lines, leading Bernstein Research analyst Craig Moffett to note that this was the first time a major U.S. telco reported a quarterly decline in DSL lines, although it did add 176,000 video subs for its FiOS service and 187,000 FiOS broadband lines, though growth was slower than in the first quarter.
Also new net customer subscribers for Verizon’s FiOS broadband were a teensy 6% higher versus a year ago, even though Verizon expanded its territory by a third.
Meanwhile, AT&T lost 993,000 residential primary access lines in the quarter, while adding 170,000 U-verse video customers.
So who is really in the catbird seat?
Comment by chuck
Aug 8th, 2008 at 4:39 pm
Liz rhis reminds me of a local media battle that happened here almost ten years ago.
Well the long standing local cable Company Vicksburg Video faced a a dangerous new competitior. Now a firm out of Arkansas owns Vicksburg Video now. Yet the battle dinosaur cable Vicksburg Video faced was with satellite. All through out the Vicksburg market sat dishes large and small popped up. And the local cable company waged an advertising battle with Direct TV and Dish TV. Who lost in this battle? Real simple: Vicksburg Video. It lost out with the local customers for a number of reasons. VV had limited its cable channels.
Direct TV and Dish had more choices. In fact the real switch happened when a new Fox station and NFL network came on online andn die hard Saint fans didn’t want to miss out on thier favorite team. Now every neighborhood,surburia down here now has small digital dish with Direct TV or Dish TV with channel choices they can make.
The reason Vicksburg Video lost the battle was they wage poor advertising campaign against satellite networks. They eventually caved in to the new technologies but now without losing a large customer base to Direct TV and other satellite dishes.
Word is now AT&T wants to get the telecom biz downhere. Gradually Vickbsurg Video is becoming an antique of the past. Now Direct TV has waged a successful campaign agains cable with thier tv adds. Becouse they come and offer more choices.
Comment by Sig
Aug 8th, 2008 at 4:56 pm
Speaking from personal experience, ATT and Verizon are the worst companies on the planet. If they would cut their extensive political contributions and spend more to upgrade their excuse for customer service everybody would be better off.
Let us all hope for deregulation.
Great article EMAC.
Comment by Greedom
Aug 9th, 2008 at 3:30 am
Liz, this content doesn’t add up to any excitement my perspective.
Content however - media - over focussing on medium in the case of the eeeenternet ?
Will far outweigh any landfall profits or investment returns in the long run of what probably benefits humanity, which is ? after all ? the carrot ? !
Comment by Greedom
Aug 9th, 2008 at 3:40 am
It’s rather fragile, that part of us which decides what to assign meaning to, how, why, how not, and why not.
no ?
yes ?
Odd how you can ask no, OR yes and derive the same meaning in english
I find this article a blowout - I think May 2000 would be better fitting - and it would be valid, if you recall - these very same issues have come across our plate before.
If Comcast is to be in any sentence, the news of the day is that strange ruling from soon to be gone Kevin Martin (He’ll be left out to dry, Bush won’t be around to pardon or commute, no gag order here, Fox News will certainly be taking some serious damage trickle down from FCC rulings against Murdoch come 2009/2010), which acted pro-media interchange.
Poor Kevin, I really don’t think he knows or understands where he sold out.
Then again, I recall some 80 year old guy on TV, months ago, had some underground ‘room’ for some girl for - god - how many years ? Atlanta area I think ? That guy just talked to the reporter as if he was doing her a favor.
I wager Martin feels the same regarding the FCC, Murdocha and some girl named ‘America’ - last seen having the life blood sucked out on the commodities exchange.
Oh well
I hope you are reading some good books there Liz MacDonald.
Comment by Greedom
Aug 9th, 2008 at 3:42 am
Deregulation could have been the secondary title option for
“Lord of the Flies”
Comment by joey45
Aug 9th, 2008 at 12:58 pm
I have some questions for you:
1. How much of the lag in adoption of broadband is due to decreased real wages, inflation, or loss of employment?
2. Why does our direct TV box, when we try to tune in a local sports event, bring up a message saying “Not available in your area”? I know it’s not blocked, since I can still get all the local stations on another TV which isn’t even connected to the dish system, but to an external antenna. Are they trying to keep us from seeing our local news?
Your article doesn’t even mention the local TV stations, who are among the bigger losers in all these telecom wars. The biggest loser is the general public. Local access is slowly dying.
And HD? — There is a great number of older viewers, that, at any reasonable viewing distance from the TV, can’t see any difference between HD and NTSC, on similar sized screens. Why not get a big screen? Simple. Many of us in the retired population, are living on fixed incomes, have downsized our houses, and have very limited indoor real estate to devote to such large monsters. With the average population growing older every year–with diabetes (and retinal neuropathy) becoming more and more a problem–with the onset of cataracts affecting more and more of an aging population, how many big screen, HD televisions do they think we’re going to buy? Wouldn’t it be frightening to many, if they suddenly realised that HD may be something of a “nitch” product?
I guess I’m making a case for saying that the FCC has seriously blundered in their quest to adopt new things, follow the latest technology, and create new markets and profits. At some point, we’ll be unplugging the cable, and watching our old video on our antiquated TVs. I think the telecom/satelite/cable zybots we’re allowing to form are in for a rude awakening.
Comment by Liz R
Aug 9th, 2008 at 10:57 pm
And then there’s Frontier, the telco that provides DSL in many mostly rural areas of more than 20 states. They popped a 5GB cap into their terms of use for erstwhile “unlimited access” DSL customers, on July 23. The policy was merely updated on the website, which is legal but to customers might seem a little sneaky. So why lay on a cap in that manner? To see what would happen if anyone noticed it one day? One may well wonder, but of course someone did notice.
Anyway their phones have apparently lit up pretty good on this thing since the wait time for a service rep has gotten long. The prospect of going from no limit to 5GB a month is, well, breathtaking to anyone who ever rented a 3-hour movie and downloaded its 2GB heft onto a computer to view it.
Do the math: rent 3 of those long features like Gandhi or Lawrence of Arabia or whatever in August and you’re over the cap without having read your email or paid any online bills or checked to see if the Yanks are still breathing, and with a week or so to go before your quota refreshes. Try a bunch of more average 1.2GB movies and you could get four into a month if you also don’t read websites with a lot of flash ads on them or have much email that month.
Frontier has started saying well look, really it’s a guideline for now, we are not enforcing it at the moment, and we might sell an overrun option later, just use the service the way you have been for now and don’t worry.
The policy does not say the cap is a guideline. The policy, which was revised on July 23 and still stands there with that date on it, says it is a cap. So of course some people are trying to opt out and get a waiver, or opt out and cancel without penalty for early termination. Frontier is trying to buck this by saying since they are not enforcing it yet, then there are really no new terms to be waived out of, eh, so no waiver. Plan B is opt out and cancel inside the 30-day window for doing that. Plan C is take a chance and stay in the contract and just wait for Frontier to say when a cap is a cap and no longer a guideline. Plan D is the one most Frontier DSL customers are probably still on at the moment: surf the net on their Frontier DSL in blissful ignorance of the waning days of their “unlimited” bandwidth usage. I wish I were still in Plan D myself. I’m sorry I bumped into the policy revision information.
I’m not big on Plan C but I’m trying to take a few days of my remaining opt-out time to think this through. I like DSL and don’t want to leave Frontier and I can live with some sort of cap (not 5GB for God’s sake, I can pass that mark buying a season of TV shows I never saw when first aired). But I’m going to get some legal advice before I decide.
Apparently Frontier now plans to issue some kind of letter to customers about the new cap in the September billings. September?? How about full page ads in local newspapers next week, with previews of the 2009 tier prices to try to regularize this chaotic “cap launch” while they still have anyone left to bill in September!?
Comment by Brian Casey
Aug 10th, 2008 at 7:49 am
Like most consumers I don’t know which way to go. Should I go with the Telcom (Verizon) bundle with its bad service and potential rate increases or with cable (Comcast) who have slowly decreased their content on basic service packages and don’t have a competive (dsl) service. We get screwed either way most people just don’t know it, because there are really no good choices. Nice smile EMAC!
Comment by Bobby
Aug 10th, 2008 at 10:11 am
I’m a service technician, with 28 1/2 yrs with ATT (SBC). I’ve seen numerous changes in the communication industries. Since devestiture with ATT in the early eighties, the baby Bell’s has had to fight for their market share, with government restrictions, example the Communications Act of 1996. We have come a long way in 30 yrs from 4 & 8 party lines, to DSL & Celluar Phones & Text Messaging and Uverse Services. All these services required investments and hard work. A note: Some of the lost of Local Access lines is due to competition, but a lot is due to todays younger consumer homes using both DSL services and celluar service packaging in their homes dropping dialtone.
Comment by Martin Heatherman
Aug 10th, 2008 at 11:38 am
Here in Libertyville Il. we have only ComCast the worst cable provider onthe planet, my second experience with this companythe prior being in So. Fla. for many years. AT&T was my phone provider but could not provide cable service so it was not economically smart to pay two different bills and at least $50/mo. extra to subscribe with two different companies. With the state of Ill.politics I can’t believe that any change in franchise rules in local government favoring consumers are likely to be enacted.