Big cable companies are losing broadband customers. This started in earnest in the middle of last year, and the companies blamed the initial drops on the end of ACP. But the customer drops are real and likely permanent. Over the last four quarters, Comcast lost 545,000 broadband customers and Charter lost 496,000. Big cable companies are being besieged by FWA cellular wireless being sold by AT&T, T-Mobile, and Verizon, and by fiber overbuilders. Wall Street is punishing cable company stock prices for the losses, and it’s only going to get worse.
I have a potential solution for the cable companies that could reverse the customer losses, at least for a few years. The solution has the side benefit of also being very good for the country.
We are in the process of spending a lot of money to solve the rural broadband gap. The federal government threw a lot of money at the issue with multiple grant programs that are culminating in the $42.5 billion BEAD program. However, the government has not been willing to tackle the urban broadband gap, where an even larger number of residents don’t have home broadband. Part of the reason for this was from heavy lobbying from cable companies that didn’t want to see a penny of federal funding going to their competitors.
It’s a little hard to quantify the urban digital divide. According to the Pew Charitable Trusts, 43% of households earning less than $30,000 annually have no broadband access. 49% of those making less than $50,000 find it challenging to afford a broadband connection. Many of those who don’t have good broadband live in apartments. According to HUD, over 4.5 million families live in subsidized apartment units. Anybody who thinks broadband is complicated ought to look at the labyrinth of rules that govern the way the government subsidizes housing. This includes public housing, the Housing Choice Voucher Program (Section 8) and the Low-Income Housing Tax Credit program (LIHTC).
A lot of subsidized housing doesn’t have adequate or affordable broadband. Many landlords have settled for WiFi in the halls – the same poor broadband solution that every business traveler hates in hotels.
The poor broadband in many apartment complexes can be blamed in part on out-of-date housing rules that compensate landlords for electricity and water but don’t consider broadband as a necessary utility. Landlords aren’t encouraged or rewarded for providing good broadband, although there is huge evidence that broadband is a necessity for people to participate in our digital society. Students without good broadband are particularly harmed, and studies show that those without home broadband fall significantly behind their peers in mastering the digital skills needed to work and thrive in our economy.
My challenge to cable companies is to tackle the urban digital divide, and to do so by starting with affordable housing apartment complexes. Bringing broadband to apartments would solve the problem of falling customer counts by replacing lost customers with millions of apartment units.
This will require a new way of thinking for a cable company. Broadband rates for affordable housing probably need to be between $10 and $20 dollars per month. While that may not sound like a lot of revenue, a cable company could pay for the upgrade costs to bring faster broadband to an apartment complex and could lock the landlord into a ten or twenty-year contract for service. Such contracts are lucrative over the long run because the income is guaranteed and there is no churn. This solution also doesn’t involve a subsidy that can disappear like happened with ACP.
Cable companies will also benefit from mountains of good local press. The federal government has turned its back on the urban digital divide, including the recent cancellation of the Digital Equity Act, and cable companies can make great hay by coming to the rescue.
Cable companies have always had it within their power to solve the urban digital divide. But now, with a falling customer base, I think they finally have an incentive to do so. It’s obvious in listening to the first quarter earnings announcements that cable companies are starting to quietly panic. Tackling the urban digital divide will require some creativity from the big cable companies, but tackling the urban digital divide is the right thing to do – for themselves and for urban America.
It’s a great idea and I’m impressed with what an optimist you are, Doug.
Personally, I think it’s more likely the ISPs will grit their teeth and wait. I believe is that poor people are out of favor in the current administration. Poor people probably have roughly the same cost of acquisition / cost of retention as less poor people, with a whole lot less chance of upsell.
So, the ISP’s smart choice is either to compete on price to attract them naturally (very unpopular) or to wait for an administration change where they can go back to being bribed to take poor people as customers.
And, landlords — I think I’ve mentioned my stint as a landlord offering ISP service which was not appreciated by the tenants and a moderate PITA for me. And those were middle class people. For the vast majority of clients, it’s a cheap, poorly differentiated service. Upping the quality or selling it in volume isn’t probably going to make it any better of a business.
Landlords who service poor people do _not_ include a lot of fancy upgrade expenses in their profit calculations, so I expect (a) there would be tons of resistance, (b) tons of non compliance, and (c) some amount of defection to more other businesses as housing poor people gets even less profitable (worsening the housing profile for poor people).
I think what’s really needed is to break up the ISP near-monopolies so that lower cost ISPs could naturally arise to service a different market segment. I’m sure Commissioner Carr will get right on thatt.
Thank you, Doug, for proving my longstanding point…
When in doubt, providing good customer service will almost always work to the betterment of vendors and clients.
I don’t actually think ACP was the catalyst, I think it’s cord-cutting and hear me out.
traditionally, ‘internet’ was an add-on service for the cablecos, and it was practically subsidized by the TV service like the home phone for triple play packages to keep customers sticky. Most people’s internet use was very low because their video streams came over the dedicated channels on the coax. ie, margins on internet were HUGE. Market and deliver very high speeds for people that would pull in a couple MB from a website and a very rare heavy user.
Streaming hits, and at a moderate pace eats away at the ‘TV’ part of the package and cablecos just became ISPs with trad cable as an addon. TV no longer subsidizes the internet so the margins evaporate and worse, the TV migrated to the internet dramatically increasing the use. The formerly low-data users just became as heavy as the previous rare power user.
The price on the internet really MUST go up for cableco’s to retain profits because of all the TV cancelaltions, opening the door for any lower cost provider to come in and offer pricing similar to the old tv subsidized packages. Not to mention the home phone cancellations…
The cell companies figure out that they can restrict types of data like streaming to lower bitrates and at the former ‘standard’ internet price points and steal customers, so they do. ACP exists, but that was in theory only for low income folks, but a LOT of people want ~$50 internet service.
The drive to get very very fast services everywhere drives up the price. Government money tempers that a bit but it’s still selling people a greyhouse bus when they need a prius.
Cablecos are in a tight spot, they can’t just drop prices from $85 to $50 without dire consequences. They’re in a position to ride out the low cost cell stuff and see if that system fails before the government gifts the cell industry more spectrum and/or the cablecos can transition into being cellcos etc.
Also note that streaming stole away the exclusive content cablecos had. They had city/state sponsored ‘franchise’ monopolies and exclusive content and that vanished over the course of a decade.
IMO, this all comes down to the ‘natural’ price for basic internet service being 50-75 and the premium being 100-120 and the cablecos have a really hard time supporting all that infrastructure and staffing for a 90% basic and 10% premium customer. Consumers having ANY $50 option means certain death for a cableco. You do 2-4 alternatives with $50 plans and it’s a bad day. Price trumps performance so long as the performance is ‘good enough’ and for most, it actually is.
Also worth noting that consumers have some sense of what their ‘TV’ experience costs and the streamers are sort of dictating internet pricing. ie, you get a hulu live and a netflix, that puts a $75 ceiling on the price of internet service in the typical consumer’s mind. ‘cord cutting’ is supposed to save them money…