How One Little Cable Company Exposed Telecom’s Achilles’ Heel
Susan Crawford
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A lot of folks have forgotten that back in the 1970s and 1980s, people coveted cable TV about as much as they covet Google Fiber today. Cable companies approached each town and city and sought an exclusive franchise agreement as a condition of doing business in that location, and town and cities took their piece with franchise fees and a host of goodies for themselves like public access TV, free service in community buildings and schools, and whatever else they dreamed up.

The financial model of cable as far as the bankers were concerned was assuring a revenue stream to pay off the loans, so exclusive monopolies were important to them, especially when towns required near-complete coverage even in areas where profits were questionable.

Some towns were easy to deal with, others (especially city governments) were usually not and the result in our area was a multi-year gap between cable service in some towns versus others.

Then deregulation hit during the mid-1980s with the promise of greater competition and better, more nimble service. Exclusive franchises were dead, but it hardly mattered because incumbent providers were by then established. Instead of competitive nirvana, prices soared and consolidation narrowed the number of cable companies down a handful of huge conglomerates like Warner Communications, TCI, Media General, Jones Intercable, ATC, Cox, Adelphia, Comcast and a few others. TCI was especially a nasty piece of work under the leadership of John Malone (now back as the shadow man pulling strings at Charter Communications). That company threatened cities, city councils, and thumbed their nose at regulators as they raised cable prices several hundred percent over a short few years in the mid-to-late 1980s. They were the Comcast of their day. Mom and pop cable companies couldn’t get the same deals TCI could and eventually sold out to the larger players.

This should all sound very familiar because it is still going on today. TCI sold to AT&T and later Comcast, ATC/Adelphia/Warner largely because Time Warner Cable -> Charter, and the rest, like Cablevision, sold their distant cable properties and created regional fiefdoms that companies like Altice are now picking off one by one for themselves. Cox and perhaps Mediacom are probably the only privately-owned cable companies that remains basically intact. All of the publicly-traded ones were passed around and consolidated.

Looking at this industry as I have over the last 30 years, it’s pretty easy to understand what is happening here. Wall Street and bankers are uninterested in financing hugely expensive infrastructure overbuilds that deliver wired competition to incumbent cable and telco providers. They argue that the market share split between all players is good for consumers but bad for business because it limits potential return. That is why multiple companies are not eager to throw lines up on utility poles and compete. Further deregulation has created a paradigm where Wall Street urges each company to find their own niche and profit the hell out of it. Therefore, AT&T/Verizon are downplaying their wireline networks while selling wireless service for fat profits, the cable industry is not building cell towers, and independent telcos like Frontier get a lot of investor hostility over fiber upgrades when many of these companies serve areas that face little or no cable competition.

Inside each business, the product mix may change but the competitive situation is so anemic it doesn’t really threaten anyone. Cable has discovered video is becoming a commodity (and it sure wasn’t before for a long time) so pricing power is fading there. But broadband is a must-have and they will do to broadband pricing what they used to do with cable TV — rate hikes galore. Telephone companies are depending on their wireless networks, not wireline to fund their businesses. Much of the fiber going into the ground these days is backhaul to cell towers and for future 5G, not primarily to expand FiOS or U-verse.

Overbuilders and municipal providers are discovering making money on video is becoming impossible because of volume pricing and many are broadband-only endeavors that point customers to OTT options like DirecTV Now or Hulu. The challenge for both is covering the infrastructure expenses. The truth is, until there is a regulatory policy that promotes competitive infrastructure, the best we’re likely to do is either heavy-handed price regulation or mandated open access where multiple companies can buy access on existing networks to resell services. For the latter to be successful, there will need to be oversight to ensure prices are fair and non-discriminatory. Canada is doing this today with moderate results.

Remember, one fiber network policy initiatives have been undertaken in countries like Australia, but they are often demagogued to the point where a new government with different views can scrap years of progress. It can be difficult to complete a network build while detractors (often funded by incumbents) are spreading propaganda and astroturf campaigns to kill these networks off.

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