A new term being passed around the industry is the ‘convergence apocalypse’. This refers to the big cable companies and big telcos finally competing, to the mutual detriment of both. We haven’t had widespread competition in the broadband industry since the period from 2000-2005 when DSL and cable modems had comparable speeds. Cable companies and telcos battled it out to gain customers during the period of explosive growth of landline broadband. But even then, it appeared that duopoly cooperation was in place since the telcos and cable companies decided not to seriously compete on price. The cable companies eventually came out on top as cable modem speeds surpassed DSL, and the cable companies have been winning over DSL customers ever since.
But a competitive future might be back on the table. The telcos are building millions of lines of fiber every year. In 2022 the big telcos collectively have announced plans to build fiber past seven million homes and businesses. As fiber overbuilding continues, it seems likely that the telcos are going to begin clawing back customers from the cable companies. The tables have turned, and the public now views fiber as the superior technology. AT&T recently said that within three years of building fiber in a neighborhood that the company achieves a 37% market share and is hoping to achieve 50% within five years.
The stock prices of the big cable companies have thrived for the last decade due to non-stop growth in broadband customers. That growth was fueled by the combination of households deciding that broadband is a necessity and the ability for the cable companies to lure away DSL customers year after year.
If the telcos achieve the kind of penetration rates anticipated by AT&T, then we’re not too far away from seeing cable company broadband customer growth level off and start dropping. But the biggest factor still going for the cable companies is that, even with the aggressive growth of fiber, most cable markets will still have no real competition.
The cable companies are fighting back in an interesting way. NathanMoffetsen recently reported that the cable companies now have over 3 million cellular customers. That’s still a small drop in the giant universe of cellular customers, but the cable companies are winning customers through lower prices. I recently watched Monday Night Football, and every other ad was from Charter pushing an unlimited cellular plan for $29.99 per line for customers buying two lines. Perhaps one of the most interesting ways to fight back against AT&T and Verizon is by putting price pressure on cellular pricing.
The big cable companies are in an interesting position in the cellular market since Comcast and Charter own networks that cover a majority of major metropolitan areas. Both companies have also invested significantly in WiFi that can be used to affordably backhaul cellular traffic using the last-mile network.
Where some folks see a convergence apocalypse, I just see some real competition on the horizon. If the telcos and cable companies seriously go after each other, then the winner will be the public. Competition will lower the prices and profits of the big companies, but none of these companies will face any serious financial problems from competition. What is more likely to happen is that the cable companies will likely see lower stock prices – so maybe a better phrase to describe real competition between the big ISPs is a Stock Apocalypse.