Get the Facts About Business Data Services

Setting the Record Straight: The Cable Data Unveiled

The data from the most comprehensive data collection in the Federal Communications Commission’s (FCC) history demonstrates without question that the majority of business data services (BDS) across America are controlled and operated by monopolies or, at best, duopolies.

The recent assertions that the FCC is pressing forward on BDS reform without accounting for data on cable competition are incorrect. Analysis of the FCC’s data — even when including data submitted by the cable industry — demonstrate without a doubt that competition is lacking. Although some will try to spin the facts, we’ll let the data speak for itself.

What does the data submitted from cable operators really show about the presence of cable networks?

1. After the FCC incorporated the new data into their assessment of the BDS market, the FCC’s staff, an outside economist, and peer reviewers all concluded that the new cable data had “no appreciable effect on the previously estimated effects of [BDS] competition.”
2. Even when analyzing the market with the assumption that cable is everywhere, outside economists concluded that the presence of cable “do[es] not materially alter” their previous assessments of BDS competition.
3. Even with cable data, effective competition in the BDS market is scarce. The vast majority of location (96%) and census blocks (91%) is controlled by one — and sometimes two — providers. In fact, fewer than 1.4% of locations are served by at least four providers.

The bleak numbers dramatically overstate the competitive impact of the newly reported cable data, because they assume that cable companies can deliver BDS quickly, efficiently, and to scale using their hybrid fiber coax (HFC) networks.

1. This however, is not the reality. Even the cable industry itself has acknowledged this assumption ignores the barriers of building networks and the limitations of their own networks.
2. Cable networks that can only provision Ethernet over a HFC networks (“Ethernet over HFC”) are incapable of delivering BDS services above 10 Mbps. You can’t deliver high-bandwidth broadband services with those speeds.
3. Even at lower capacities, many cable networks cannot support key business applications.
4. Cable networks cannot support BDS at scale because of capacity constraints.

Cable companies have conceded that even their Ethernet services delivered over HFC have significant limitations.

1. Cox Communications told the FCC that Ethernet over HFC “is not viewed by Cox’s customers as a viable alternative to fiber (or legacy services) for many business applications or for cell site backhaul…”
2. Comcast has explained that its Ethernet over HFC services are “gap-fillers for customers with hard-to-reach, off-network locations,” and confirmed that the “vast majority of businesses seeking Ethernet services demand full carrier-grade performance [that Ethernet over HFC] cannot provide.”
3. If the capabilities of cable networks improve dramatically, the FCC can periodically re-run its competitive market test to account for those developments.

Some incumbent providers, namely CenturyLink, are making some suspect claims about the skyrocketing cost of providing BDS services.

1. CenturyLink’s claim about increases in operating expenses relies on some funny accounting. According to Communications Daily, even their Chief Financial Officer appeared to miss the memo, who when asked on the company’s 1Q16 earnings call said it was “wholesale revenue basically, and it’s high margin.” He went on to say “there’s some maintenance costs, but it’s probably pretty minimal.”
2. For instance, CenturyLink’s 2Q16 earnings report discloses that its “operating expenses increased $18 million or 2.8% compared to the same period a year ago due to higher prism TV costs, commissions and marketing expenses,” not from increased BDS operating expenses.
3. CenturyLink also cherry picks data to exclude years before 2011, in which the company boasted $1.025 billion in synergies from its acquisitions of Embarq and Qwest in 2008 and 2010. A closer comparison of Centurylink’s 2015 financial statements with its 2005 statements (the year the FCC shut off the X factor) demonstrates that on a per subscriber basis, CenturyLink’s revenues are 18% higher, its expenses are 17% higher, its margins are 32% higher, and its shareholder payouts are 416% higher.

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