In a move that probably surprises nobody, CenturyLink said that they are going to start trials of data caps later this year. This was mentioned by Stewart Ewing, the company’s chief financial officer, during the last quarterly investor call.
I have to say that I am disappointed by the announcement because I guess part of me hoped that CenturyLink was somehow different than the rest of the giant ISPs. After all, they started out as a regional independent telephone company that did the right thing for customers far more often than not.
But this announcement clearly shows that they now think like a duopolist, and that they really won’t fully compete against the big cable companies. CenturyLink is in the process of building a significant amount of last mile fiber and they say they will pass over 700,000 homes by the end of this year. I was just in Tacoma where CenturyLink has already overbuilt fiber to a large portion of the city and it looks like they are doing just what they promised.
CenturyLink (and formerly Qwest) has fared extremely poorly with their DSL product in major markets. The cable companies have largely won the broadband battles in the cities and have the lion’s share of broadband customers. And now that the cable companies like Comcast are really stepping up the speeds they offer, one has to think that urban DSL has to be in its dying days. It’s hard to imagine customers that will pay for a DSL connection that can get 15 Mbps or a lot less when for the same price they can get something far faster from the cable company.
So now CenturyLink is building fiber and this puts them back in the game and ahead of the cable companies again. One would think that CenturyLink would take advantage of Comcast’s data caps and advertise against them as a way to win quick market share. After all, once they have sunk money into a new fiber network, profitability becomes all about gaining as many customers as possible.
But instead CenturyLink is acting like a duopolist and will probably match Comcast’s data caps. I know that they will claim that this is only a trial of data caps, which is the same thing that Comcast is saying. But the lure of the extra revenues from data caps is just too attractive to all the big carriers.
Unfortunately, the big telcos and cable companies are almost all publicly traded companies. As such they are under tremendous pressure from Wall Street to show increased revenues and increased earnings year after year and quarter after quarter. This is getting harder and harder for these companies to do. For the last decade the big carriers have thrived from the ever-growing number of broadband customers. But it appears that overall growth of broadband customers is nearing an end. Several recent polls suggest that everybody that can afford broadband now has it. There is only a small percentage of households that don’t want broadband, but everybody else either has it or can’t afford it at the big company prices.
And so if broadband customers aren’t going to keep growing, and if cable TV and telephone customers are falling, then a big ISP only has a few places to go for revenue to continue to please Wall Street. Comcast is exploring a few new areas such as selling security, home automation and even cellular service. But it’s hard to think that those revenues will be enough to replace the torrid historical pace of broadband revenues and margins gained over the last decade. This means that the only realistic place for future revenue growth has to be from broadband.
That means raising the broadband rates every year, but it also means implementing tight data caps to be able to penalize people who actually use the broadband they buy. It’s clear that this is where Comcast is headed. A part of me hoped that companies like CenturyLink would not drink the same kool-aid and that they might just be happy taking the many disgruntled customers from the cable companies. But I guess that any duopolist has a hard time not doing what comes naturally. I fear we will have cities that finally have what everybody has always hoped for – a fast cable network competing against a fiber network – and yet there still will not be any real price competition.