Is Altice Really Bringing FTTP?

suddenlink-truckLate last week Altice released a press announcement that said they are going to bring fiber-to-the-home to all of their newly acquired US properties within five years. For those not familiar with Altice, the company is now the fourth biggest cable company in the US and was created through the recent acquisitions of Suddenlink Communications for $9.1 billion and of Cablevision for $17.7 billion. These acquisitions bring the company about 4.6 million customers.

But there are parts of the press release that have me scratching my head. The headlines announce ‘A full-scale fiber-to-the-home network investment plan’ which will bring ‘large scale fiber-to-the-home deployment across its footprint.’ That sure sounds like the company will give everybody FTTP.

But deeper in the press release are several statements that have me wondering what the company is really planning to do. For example, they say they will ‘drive fiber deeper into our infrastructure.’ Deeper into the infrastructure is not necessarily the same as providing fiber the whole way to the home. That is the same kind of language that Comcast used when they announced their mostly-imaginary 2 gigabit broadband product.

Even more puzzling is the statement that “the new architecture will result in a more efficient and robust network with a significant reduction in energy consumption. Altice expects to reinvest efficiency savings to support the buildout without a material change in its overall capital budget.’ If Altice has 4.6 million customers then they must have around 6 million passings. They will be able to build a lot of the needed network by overlashing fiber onto existing coaxial cable. But even that will probably cost in the range of $500 per passing, meaning an outlay of $3 billion. And to bring fiber into the home costs in the range of $600 to $800 per customer. Add to that the core FTTP electronics of at least $200 per customer and the cost to converting existing customers to the fiber could cost another $3.7 to $4.6 billion, for a total outlay of at least $6.7 billion to $7.6 billion.

The energy savings they are talking about would be due to shutting down the existing hybrid fiber-coaxial cable network. To achieve that savings they would have to convert every customer to fiber – since it take as much electricity to run a network for a handful of customers as it does to run it for everybody. But I have a hard time believing they can save enough in power costs to pay for an expensive new fiber network without having to increase capital budgets. I have a number of clients operating HFC networks and they do not have gigantic power bills of anywhere the magnitude needed to produce that kind of savings.

This FTTP plan also has to be compared back to Altice’s promises to their shareholders. They promised to bring significant cost savings after the acquisition of Suddenlink and Cablevision and it’s already hard to see how they are going to do that. For example, their largest property is in New York and they promised the PUC there not to eliminate any customer-facing jobs (technicians and customers service reps) for five years.

They also talk about their fiber rollouts in Portugal and France. In Portugal fiber is being deployed mostly due to heavy subsidies from the government which is hoping that fiber will boost a poor economy. And in France their business plan is different than the US and Altice benefits greatly from a quad play that includes cellular service. My quick analysis of their financial performance shows that wireless drives a big piece of their profitability there, and it’s unlikely they are going to figure out a profitable wireless play here in the US.

Finally, the company seems to have spent heavily this past year on upgrading existing HFC cable networks. I’ve read a dozen local press releases in Suddenlink markets that talk about completing digital conversions and upping data speeds to as much as a gigabit using DOCSIS 3.0. It’s curious they would pour that much money into their HFC networks if they are getting ready to abandon them for fiber.

I hope I am wrong about this and I hope they bring fiber everywhere. That would certainly highlight Comcast and Charter’s decision to milk their HFC networks for decades to come. But the press-release as a whole sets off my radar and is reminiscent of similar press releases in recent years from AT&T and Comcast talking about gigabit deployments. There are just too many parts of this press release that don’t add up.

Cable TV Rates

eyeballTrying to get your arms around industry trends for cable TV isn’t easy. There are a number of different entities that track various cable statistics and they are often not in synch. This week I saw a new press release from Leichtman Research that said that the average rate increase in cable rates this year has been around 4%.

I keep an eye on these kinds of statistics because most of my clients compete against the bigger cable companies. Leichtman says that the average monthly spending on pay-cable TV is now $103.10, which is 4% higher than 2015. This is an eye opener because household spending on cable increased from $73.63 in 2011, or an average increase since then of 7.7% per year. For the increases to finally drop to 4% is big news.

But like anything in the cable industry, there are a lot of moving parts in trying to see the future trend of cable rates. Consider all of the following, which have some bearing on current average nationwide cable spending:

  • There was a press release in January where Comcast said that their average cable bills would go up by 3.9% this year, right in line with this latest report. But in addition to raising cable rates the company also had a $2 increase in its ‘broadcast TV fee’ of $2 which affected every cable customer. All of the big cable companies now have these fees, which are just another piece of the cable rate, but which are not often counted as such. These fees let companies like Comcast hold down their advertised rates which increases overall cable rates.
  • Charter and Time Warner seem to have had a much lower annual increase than average due to the merger that was pending during the normal January rate-increase period. But one would have to think that now that the merger is over that these companies will make up lost ground. I’ve seen predictions that Time Warner customers could see a jump in their 2017 bills as large as $10.
  • Both satellite companies had one of the largest rate increases we’ve seen from them in years. DirecTV raised package rates from $1 – $9 and DISH Networks raised rates from $2 – $8.
  • Cablevision didn’t raise their rates at all at the beginning of the year due to their expected merger with Altice.
  • We know that there is a lot of cord-shaving going on, which would have a downward pressure on average cable bills. The large cable companies don’t report customers by size of package, but we have a lot of evidence of cord shaving due to networks like ESPN losing millions of customers since 2015. If the industry is not losing as many customers as ESPN then only cord shaving – people moving to a smaller package – can explain their customer losses. If lots of people buy smaller cable packages the average bill will drop.
  • Finally, with the big cable companies it’s getting really hard to distinguish cable increases from other price increases. I’ve seen estimates that most of the large cable companies have around 70% of customers in some kind of a bundle. Most people with bundles don’t know what they pay for any specific component of the bundle. But this also means that the cable companies can be arbitrary when separating the bundles into the component cable, data and telephone revenues. This means the reported ‘cable’ revenues from the big cable companies can be fudged to meet reporting goals or any other purpose.
  • In this last year we are starting to see increases in broadband rates from many of the cable companies. For example, Cox just recently increased various data rates from $2 to $7 per month. But for customers in a bundle these revenues fall into the same muddy bundled price along with the cable rates. Do customer in a bundle really care which piece of their bundle increased?

One thing I see external to these big industry statistics is that my smaller clients are not seeing any drop-off in increasing programming and other cable expenses. If anything, because of the continuing big increases in retransmission costs they are seeing as large or larger increases in underlying cable costs as ever. Smaller cable providers will really feel the squeeze if they compete with somebody like Time Warner that barely raised rates in 2015.

While it’s not really good news, it appears that it’s likely that the ‘smaller’ rate increases from the bigger cables for 2015 are probably an anomaly and that these companies will be back to larger increases in 2016. But it’s anybody’s guess going forward if the annual increases are going to be in cable rates, broadband rates or something else. Like everything in our industry it’s getting a little muddier to predict.

Raising Cable Rates

comcast-truck-cmcsa-cmcsk_largeIt’s that time of the year when the large cable companies all raise their rates. In a time with increasing programming costs every cable provider needs to raise rates annually. I know that a lot of small cable providers are loath to raise rates, but if you have to do it then it’s worthwhile to look first at what the big companies are doing. Following is a summary of the rate increases that have been announced so far this year:

Comcast as usual looks to have one of the largest rate increases. They announced an overall increase of 4%, but the details seem to show something larger. The company is raising the rate on double-play packages by $3 to $4 per month. They are also raising the ‘broadcast TV fee’ from $3 to $5. This is a fee that really ought to be included in cable rates which they have broken out as a separate charge to supposedly cover the cost of paying for local network retransmission fees. That makes their overall increases to be between $5 and $6, which is hard to reconcile with the 4% increase statement. But perhaps some of the increase is being counted as broadband increases. It’s really hard to know how these big companies think about the components of their bundles, and all that really matters to customers is how much their bill goes up.

Comcast did cut the cost of HBO from $21.95 to $15 to match the price for HBO’s direct online product. This is an interesting cut that some other large companies are matching. Perhaps this was one of HBO’s reasons for putting their network directly online. You would think that lower prices at the cable companies ought to increase HBO customers.

Time Warner Cable looks to also have a sizable rate increase. They raised the prices of cable packages between $2 and $4 per month. They also increased their broadcast TV fee by $1. Time Warner has broken out a sports programming fee as a separate billing item – something that also ought to be included in the cable prices – and raised this rate by $2.25 per month, up to $5. There are also small increases on settop boxes.

Cablevision says their average increase will be $3 per customer. That includes a $0.85 increase in the settop box rental fee. Their sports surcharge is going up $1 to $5.98.

AT&T is increasing the cost of all bundles by $2 per month. Several Spanish packages are going up between $3 and $4. The company increased its ‘broadcast surcharge’ by $1. While not TV, the company is increasing its voice product that includes 250 long-distance minutes by $2 to $27. I haven’t seen an increase in voice prices for a while. I also find it interesting that the company with the largest voice network is charging more for a package with 250 long distance minutes than most companies charge for unlimited LD.

DirecTV increased rates across the board. Their lowest tiers are increasing by $2 per month. Their ‘Choice’ and ‘Xtra’ bundles will go up by $4 and their largest package will increase by $8. They are also increasing the broadcast TV fee by $0.50, up to $6.50.

Dish Networks is increasing rates significantly. Most packages including ‘America’s Top 120’, ‘America’s Top 120 Plus’, ‘America’s top 200’ and ‘America’s Top 250’ are going up by $5 per month. This will be a relief to rural systems that compete against them. Their smallest package is going up $2 per month while their ‘Everything’ package is going up $8 to $140 per month.

Charter hasn’t announced any rate increases and may not do so until the expected merger with Time Warner Cable.

Verizon also hasn’t announced increases yet for its FiOS TV products, although increases are expected.

A Business Case for WiFi Hotspots

Wi-FiLately I have been asked a number of times if there is a business case to be made for providing a large outdoor WiFi hotspot network. Today I will look at the two issues that answer that question:  1) the hardware available today and;  2) the revenue opportunities.

Hardware Issues. The WiFi industry is currently in a state of what I call ‘between’. This often happens when a new standard is being introduced. There have been existing hotspots on the market for many years. But the whole industry is moving towards implementing Hotspot 2.0, which is a standard that allows for roaming between hotspots the same way that cellphones roam between cell towers. But since the coverage distance of a hotspot is far less – around 250 feet at most from a hotspot – roaming is even more of an issue for WiFi.

With Hotspot 2.0 fully implemented, a customer can automatically log in when walking within range of a hotspot. But more importantly they will maintain whatever they are doing  (such as a web session or IP phone call) without interruption as they move to a new hotspot (as long as they don’t hit a dead area). But the units on the market today can best be characterized as pre-Hotspot 2.0 and they do not yet include all of the features needed to fully support roaming. This means any units you buy today are going to need an upgrade eventually to a standard that is not yet fully defined.

The units on the market today are also very expensive compared to older hotspots. The manufacturers are concentrating on high-capacity hotspots that can handle as many as 500 simultaneous users. These are complicated hotspots with multiple antennae and cost as much as ten times as the old simple hotspots. But these are what are selling and they are made for stadiums, event centers, busy shopping districts or places where there will to be a lot people. But a citywide deployment doesn’t need many hotspots with that huge capacity, but rather much cheaper and lower capacity units that also do Hotspot 2.0.

Revenue Opportunities. The revenue opportunities for an outdoor WiFi network are not clear. I don’t know of any hotspot networks that have been able to pay for themselves. But there may be new revenue opportunities coming that could improve the picture.

There are two traditional WiFi revenue opportunities. One is to sell access to the WiFi network by the hour, by the day or by the month – traditional ISP services. There are customers in any town who would prefer WiFi to more expensive cellular data if you can create good enough coverage. You can sell this to individuals or in bulk to large employers in a town that have employees who work outside. The other traditional revenue opportunity it to sell dedicated hotspots to restaurants and other businesses that want to offer a branded hotspot for their customers. This will require that you (or somebody) provide a broadband connection to that customer to feed the hotspot.

There are two revenue opportunities on the horizon today. The first is to offer WiFi phones. These phones are being offered today in two ways. First, there is the WiFi-only phone like Cablevision is offering and that only works on WiFi. Cablevision prices this at $9.95 per month for an existing cable customer and it’s nearly all margin. But there are several wireless resellers (and now also Google) who sell WiFi phones that will roam to cellular when WiFi is not available.

The primary issue with copying this business plan is that the companies doing it have all created a proprietary system that works only on a specific phone. That is not something easy for a smaller company to work out. There are some cheap Chinese WiFi-only phones available, but if you choose them you are competing against people’s preferences to use an iPhone or a Samsung Galaxy by forcing them to your handset choice. This is not likely to be very popular until it becomes an app that will work on any phone.

The other new revenue opportunity is to sell wholesale WiFi access to others. I know Cisco has been touting this opportunity for several years. But I have yet to hear of anybody who has been able to monetize the idea. The cellular companies love it when customers use their phones on WiFi, but that’s a far cry from them being willing to buy time on your network on their customer’s behalf.

My conclusion of all of this is that it looks a tough business case today to build a citywide WiFi network. Right now the network hotspots are too expensive for a mass deployment. But there are vendors working on lower-cost hotspots. It also makes sense to wait until Hotspot 2.0 is fully fleshed-out and functional rather than buy a network with undefined future upgrade costs. And on the revenue side, while it sounds interesting to sell bulk WiFi, I have a hard time recommending this as a business plan unless you have presold some large customers like a utility or other carrier to buy bulk access to your new network. I have always been leery of ‘build-it-and-they-will-come’ business plans and I could recommend this only if there is a clear path to monetize it.

Should You Have a Cord Cutter Package?

rabbit earsIf you are in the cable business is it time to consider a ‘cord-cutter’ product? Obviously Cablevision thinks it’s a good idea as they became the first cable TV company to offer a standalone version of HBO Now to its line-up.

Cablevision has also adding two specific cord-cutter products as well. For $34.90 per month they will provide a 5 Mbps download cable modem, a Mohu Leaf 50 digital antenna to watch network television without a cable subscription, and their Freewheel unlimited text and voice WiFi phone service (more on this below).

For a promotional price of $44.90 per month they will provide a 50 Mbps down/25 Mbps up cable modem and the same free digital antenna. There is no description of what the price will rise to at the end of the promotional period. Both products have an option to add HBO Now for $15 per month.

The Cablevision Freewheel WiFi phone is an interesting product also. It provides unlimited voice and text as long as the customer is on WiFi and inside of the Cablevision service footprint. As long as you buy another Cablevision product it’s priced at $9.95 per month and you have to buy a Motorola Moto G phone for $99.95. The phone does not work on traditional cellular, so it’s only going to be attractive to those who are always around WiFi.

Cablevision says these packages are meant to go after cord cutters or cord nevers and are to provide an alternative for those who don’t want to pay for a traditional cable programming package. This begs the question: should other providers consider the same sort of cord cutter packages? A few weeks ago, the FCC officially announced that cord cutting is real (a little late to the game) since I don’t know that I have any clients that are not losing cable customers in a given footprint.

The Cablevision options are somewhat odd, though. While Freewheel WiFi phones will be attractive to those who stay around WiFi all day, it’s a product that doesn’t work in moving vehicles and which doesn’t revert to traditional cellular when you are out of reach of WiFi. For around $15 per month you can buy a better version of this product from several cellular resellers that partner with traditional cellphone service so that the phone will work anywhere in the US. And the more expensive cord cutter package is basically a naked cable modem with a free digital antenna thrown in.

There are two questions to ask if you want to consider a cord cutting product. What do cord cutters really want? Can you put together such a package?

Cablevision seems to think that people want a naked standalone data product, but most of my clients have offered that for years. They have come to the conclusion that they should never turn away anybody willing to pay for their highest margin data product, especially since most small companies are losing money on cable TV anyway. You can often get standalone cable from the larger cable companies if you fight hard enough for it, but they will spend a lot of effort getting you to buy a bundle of some sort instead.

Companies like Sling TV seem to think that cord cutters want smaller packages of programming, and I am sure some of them do. But recent surveys show that customers are extremely loyal to the few networks they most want, and so a smaller package is only going to be attractive to that tiny sliver of your customers who only want exactly what is in the smaller package you offer. I think what people really want is a la carte programming and the ability to buy only what they want and nothing more. But that is not going to be on the table soon, if ever.

If Verizon is able to wade through the lawsuits and offer their smaller packages, I think they are going to get limited response as well, because their proposed pricing for smaller packages is not much cheaper than normal cable packages. And this highlights the second thing cord cutters want – they want to save money. Unfortunately, as many have warned, when you pull channels out of the bigger line-ups and sell them in smaller piles, the programmers are going to charge a lot more for you to carry them. They still want to be paid as if you are taking their larger line-ups.

I would be shocked if Cablevision sells very many of their smaller package – it’s just too quirky in forcing both a WiFi phone and a slow cable modem together. The number of households who are going to think that is the perfect product can’t be very large. But Cablevision might address this over time by offering a wide array of different cord cutter options. But then they will have violated something that cable companies have learned the hard way – which is to keep the options simple.

I’m not sure that there is any real cord cutter package that will be a killer product to keep your cord cutter customers happy. But perhaps there is a suite of different products that will be attractive to different segments of cord cutters and which will each get a little piece of the market.

WiFi to Challenge Cellular?

Wi-FiIt’s a rather new phenomenon, but we are seeing the beginning of a shift to making more voice calls on WiFi networks than on cellular networks. As Americans have become more conscious about making data connections on WiFi they have opened the door to using WiFi for their voice usage.

The trend of using WiFi for voice, as it matures, could really shake up the cellular industry. The AT&T and Verizon cellphone plans are among the most profitable products sold by any corporation and that makes them a target for competitors, and a place for consumers to save money.

It’s funny how the industry has changed so much. I remember twenty years ago going to state commissions and asking, and being rejected, for $2 rate increases in local telephone rates because the regulators feared that people couldn’t afford to pay it. And yet a decade later families went from having a $30 home phone to paying three and four times that much for cell phone plans.

There are several companies that have been selling WiFi calling for the last few years. FreedomPop, which started in 2012, offers a product that uses a network of over 10 million hot spots in places like McDonald’s or Starbucks. FreedomPop’s phones will automatically join WiFi networks much like a normal cellphone automatically connects to a cell tower. Their rates are really low and for $5 a month a customer can have a WiFi-only plan that connects to the network of WiFi hot spots. There are other slightly more expensive plans that use a combination of WiFi hot spots and Sprint’s cellular network when WiFi isn’t available.

Republic Wireless has a similar set of products. For $5 a month, customers can make calls or connect to the Internet solely over WiFi. For $10 a month, they can use both WiFi and Sprint’s cellular network. Republic Wireless has developed a technique that lets customers roam between hot spots (but this roaming is more suited to walking than driving in a car).

Scratch Wireless has an even more aggressive plan and using their WiFi network for voice, text, and data is free as long as you buy their $99 Motorola Photon Q phone. They then sell pay-as-you-go access to voice on Sprint’s cellular network starting as low as $1.99 per month.

These companies are growing rapidly. FreedomPop says it is doubling its customer base roughly every four to six months; Republic Wireless says its customer base is growing 13 percent a month. But both companies are still really tiny compared to the big carriers and are mostly catering to those who live mostly around WiFi and who are cost conscious. From what I can see, both companies get rave reviews from their customers.

Cablevision recently announced a WiFi-only plan for $30 a month for non-cable customers but only $10 for bundled customers. I don’t understand their pricing, which obviously is not going to be very attractive to non-Cablevision customers. Cablevision operates an extensive network of hot spots in New York, New Jersey, and Connecticut.

The real disruptor might be Google. They announced that they are going to be offering cellular phone plans and the industry seems to think that they will be WiFi-based. Certainly in the markets where they have fiber networks they could saturate the market with outdoor WiFi hotspots and offer a true competitor to cellular. Google has always said that they think bandwidth ought to be ubiquitous, and since they don’t own cellular spectrum, they are going to have to go the WiFi route and also make a deal for off-network minutes from Sprint or T-Mobile.

One also has to think that Comcast has their eye on this. They certainly are rolling out a huge WiFi network as they turn customer routers into public hot spots.

And so the phenomenon is starting to grow. The large cellular companies say they aren’t worried about this, but one has to think that in the Boardrooms they are keeping an eye on this trend. For now there are issues with using these products. One is data security as it’s fairly well known that public WiFi hot spots are loaded with danger for users. This has to be the case whether you are hitting a hot spot with a PC or a cellphone.

I know that personally I will probably stick to a bigger company plan. When I travel it is more often to out-of-the-way places than to big cities. And those kind of places generally have coverage of some sort by the big carriers, but are often uncovered by smaller carriers like Sprint and T-Mobile. I would not like to find myself in a small town for a few days with no cellphone coverage. Other than that travel, I work at home and could easily use my own WiFi rather than pay for cellular.

For the product to be competitive, it’s also going to have to be usable on the major phones being sold. Not having this product for the iPhone or Samsung Galaxy limits the target audience. For now the small carriers like Republic load their own proprietary software on the phones they sell to users. But as that turns into a downloadable app I could see this product picking up a lot of traction in cities.

AT&T and Verizon are right to not be worried about this today. But if you look forward a few years this could grow into a significant competitor to cellular. Which, even if it doesn’t mean a loss of a lot of customers for the big companies, will mean overall lower prices for cellphone plans. That is something they ought to be worried about.

 

Cable Banking on WiFI

Wi-FiI’ve been reading a lot lately about the massive effort that cable companies are putting into expanding their WiFi networks. It’s estimated that Comcast and Cablevision together now have almost 9 million public hotspots, most of which come from dual routers in subscribers homes that provide a hotspot link along with the subscriber’s link. There are about another 1.5 million hotspots deployed by Cox, Time Warner and Bright House.

At this point nobody is quite sure how the cable companies are going to monetize this business. Several years ago some standards were developed by the Wi-Fi Alliance to create interoperability between WiFi networks and cellular networks. The idea was to allow cellular companies to offload overflow cellular traffic onto commercial WiFi networks when their cell sites get too busy.

But there are still changes needed in the industry for this to take place. First, a lot more phones need to be enabled to make calls on WiFi, a feature that is now included on the IPhone, but which few people have enabled. Probably the most important thing still lacking is the brains in the networks that will allow easy WiFi roaming so that a call or data transmission can be handed from one WiFi hotspot to another without needing a new verification and login and without restarting a given transmission. Until WiFi roams smoothly you won’t be able to continue a WiFi voice call without being cut off every time you change to a new hotspot. This might not be solved until the whole cellular network moves into the cloud using software defined networking so that the brains that are behind the handoffs of cellular calls can be applied to other types of connections.

But in high traffic areas where there is a lot of foot traffic, WiFi certainly can relieve the data traffic on cellular networks. But are the cellular companies really willing to pay for this? Already today WiFi is carrying a lot of data for cellular-enabled devices for free (to the cellular companies). Adobe published statistics recently that show that 93% of data on tablets and 43% of data on smartphones is carried by WiFi. But one would have to think that the vast majority of this is done in people’s homes and offices where they spend most of their time.

There is no doubt that having somebody else carry their data traffic is a benefit to cellular companies, but that doesn’t mean that they are going to be willing to write checks to WiFi hotspot owners for carrying cellular data. There has been no news of Comcast or the other cable companies making such deals with cellular companies, and so one would think this application is mostly speculation.

One also has to wonder about the efficacy of the current cable hotspots. The majority of Comcast hotspots are going to come from home routers that have been equipped to provide a public WiFi connection as well as the in-home connection for customers. But how useful are these connections? If you’ve ever walked around outside your house looking to connect to your own WiFi network I think you understand that reception outside of your home is sketchy. There are places where the signal is clear, areas where it is poor and areas where it doesn’t exist.

I look at my own house and wonder how valuable it is for Comcast to enable my hotspot. I get joggers and dog walkers by here on the front sidewalk, but otherwise this is not a neighborhood with much foot traffic. The only circumstances where my WiFi might have value is if workmen at my house use it, or if one of my immediate neighbors obtains a Comcast password from somebody and uses my WiFi for free. Otherwise, somebody would need to sit on my front porch or park in my driveway to get WiFi, something I would frown greatly upon.

There are a few ways that Comcast can monetize WiFi. One is to sell roaming WiFi as a service, much like you get in an airport. But to sell that service requires large areas of good coverage. And there are places like that. For example, it’s been reported that Comcast has blanketed the Jersey shore with coverage, and so selling a data connection to non-Comcast customers in these kinds of areas is a possibility.

I think the best business opportunity is for Comcast to get into the cellular business using WiFi enabled phones. They could sell cellular plans that either use only WiFi, or that use WiFi first and use cellular as the back-up. A lot of people mostly use their cellphones in homes and offices and such callers could save a lot of money if Comcast prices it right. Assuming that they could strike a deal with one of the four major spectrum holders they ought to be able to undercut the major carrier’s prices and still be profitable with such products.

But nobody knows for sure why Comcast and the other cable companies are doing this because they haven’t said. They must have something in mind, because they are spending a lot of money on public hotspots. One would certainly hope that Comcast has something in mind since they are antagonizing their cable modem customers yet again by turning them into public hotspots without their permission.

How’s Cable Doing?

Cord cuttingWith all of the talk of cord cutting, cord-shaving and the general demise of the cable industry I thought it would be useful to take a snapshot of the cable industry at the end of the third quarter of 2014 to see how the industry is doing. Here are some key facts for a numbers of major cable providers:

Comcast. For the quarter they lost 81,000 TV subscribers compared to losing 127,000 in the 3rd quarter of 2013. Meanwhile they gained 315,000 data customers compared to 297,000 customer a year before. Overall profits were up 4% over the year before. Comcast now has 22.4 million video customers and 21.6 million data customers.

Time Warner Cable. The company lost 184,000 cable subscribers in the third quarter compared to 122,000 in the previous year. But the company did add 92,000 residential data customers for the quarter. Earnings were up 3.6%, driven by cable rate increases and growth in the business services group. The company saw a 9.6% increase in programming costs, driven by a bad deal they made for the programming rights to the LA Dodgers.

Charter Communications. Charter lost 22,000 video customers for the quarter compared to 27,000 a year earlier. They saw data customers increase by 68,000 compared to 46,000 a year ago. Overall profits were up 8% driven by rate increases and data customer gains. Charter finished the quarter with 4.15 million cable customers.

CableVision. The company saw significant loss of 56,000 cable customers, Profits for the company dropped to $71.5 million for the quarter down from $294.6 million a year earlier.

Cable One. The company lost 14,000 video subs and ended with 476,000 at the end of the quarter. The company has not renewed programming from Viacom starting in April of this year

Suddenlink. The company added 2,200 video customers for the quarter compared to a loss the previous year of 3.200 subs even though they have dropped Viacom programming. Revenues increased by 6.6% compared to a year ago.

AT&T. U-verse added 216,000 cable customers for the quarter and added 601,000 data customers. The company now has more than 6 million video customers and 12 million data customers. U-verse profits were up 23.8% compared to a year earlier.

Verizon. The company added 114,000 new video customers and 162,000 new data customers for the quarter. The company now has 5.5 million video customers and 6.5 million data customers.

DirectTV. The company saw a decrease of 28,000 customers for the quarter while revenues grew by 6% due to rate increases. The average satellite bill is up to $107.27 per customer per month.

Netflix. Netflix added 1 milllion US subscribers and 2 million international subscribers for the quarter. They now have 37 million US customers and almost 16 million international ones. But these growth rates were less than their predictions and their stock tumbled 25% on the news.

Amazon Prime. The company does not report number of customers. But their earnings release says they gained significant customers even while increasing their annual fee from $79 to $99.

What does all of this mean? As can be seen by looking at all of the major players who make quarterly releases (companies like Cox do not), one can see that total video subs are down by maybe a net of 100,000 for the quarter. But cord cutting is growing when you consider that the industry used to routinely grow by 250,000 customers per quarter for now households being built. So it looks like cord cutting is growing by perhaps 1.5 million per year.

Within these numbers one can’t see the effects of cord shaving. It’s been widely reported that customers are downsizing their cable package as a way to save money. None of these companies report on their mix of types of customers.

Netflix and Amazon Prime continue to grow significantly along with other on-line content providers. It’s been reported that over half of the households in the country pay for at least one of the on-line services and many others watch free content available at Hulu and other sites.

One thing that is obvious is that broadband is still growing for all of the service providers. In fact, Comcast and other traditional cable providers are starting to refer to themselves more as ISPs than as cable companies.

The Story of the Numbers

I ran across some interesting statistics from the Leichtman Research Group. They track a lot of basic industry statistics and the ones I found most interesting are summaries showing the number of cable and data customers at all of the largest carriers in the industry. Consider the following table that I have created from their statistics:

Data Customers 2013 2012 2011
Comcast 20,662,000 19,366,000 18,143,000
Time Warner 11,606,000 11,395,000 10,909,000
Charter 4,640,000 4,269,000 3,946,000
Cablevision 2,740,000 2,723,000 2,633,000
Suddenlink 1,059,500 1,002,100 948,700
MediaCom 965,000 915,000 851,000
Cable One 472,631 459,235 451,082
Major Cable 42,145,131 40,129,335 37,881,782
AT&T 16,425,000 16,390,000 16,427,000
Verizon 9,015,000 8,795,000 8,670,000
CenturyLink 5,991,000 5,851,000 5,659,000
Frontier 1,836,000 1,724,000 1,702,000
Windstream 1,170,900 1,214,500 1,207,800
FairPoint 329,766 324,977 312,745
Cincinatti Bell 268,400 259,400 257,300
Major Telco 35,036,066 34,558,877 34,235,845
Major Carriers 77,181,197 74,688,212 72,117,627
Cable Customers 2013 2012 2011
Comcast 21,690,000 21,995,000 22,331,000
Time Warner 11,393,000 12,218,000 12,743,000
Charter 4,342,000 4,158,000 4,314,000
Cablevision 2,813,000 3,197,000 3,250,000
Suddenlink 1,177,400 1,211,200 1,249,000
Mediaom 945,000 1,000,000 1,069,000
Cable One 538,894 593,615 621,423
Major Cable 42,899,294 44,372,815 45,577,423
DirecTV 20,253,000 20,084,000 19,885,000
Dish 14,057,000 14,056,000 13,967,000
DBS 34,310,000 34,140,000 33,852,000
AT&T 5,460,000 4,536,000 3,983,000
Verizon 5,262,000 4,726,000 3,981,000
Major Telco 10,722,000 9,262,000 7,964,000
Major Carriers 87,931,294 87,775,815 87,394,423

This table only looks at the major carriers, but in this country that is almost everybody. For example, missing from the table of cable customers are all of the other providers, who altogether only have 7% of the total cable market.

There are some interesting things to notice about these statistics:

  • The number of high-speed data customers continues to grow and the major providers added 2.5 million more customers in both 2012 and 2013.
  • The major cable companies either have or soon will have more data customers than cable customers. This explains why they now view themselves as ISPs who happen to sell cable.
  • The cable companies lost 2.7 million cable customers from 2011 to 2013. This may have more to do with service and competition than anything else since AT&T and Verizon picked up 2.7 million cable customers during that same time period.
  • The Comcast / Time Warner proposed merger is gigantic since those two firms are two of the top three data providers today and two of the top four cable providers.
  • As much effort as the satellite companies expend in advertising they are barely growing. Dish Networks, for example added a net 1,000 customers in 2013.
  • A few companies are really bleeding cable customers and Cablevision and Cable One both lost 14% of their cable subscribers over a two year period. Even Time Warner lost 11%.
  • As well as AT&T and Verizon have done in cable, together they have only grown to be 12% of the cable market.
  • The fastest growing ISPs over the two-year period are Charter (17%), Comcast (13%) and MediaCom (13%).

Time to End the Cable Card Rules?

no-cable-tv

no-cable-tv (Photo credit: hjl)

This week the National Cable Television Association (NCTA) published a document called The Integration Ban – A Rule Past its Prime. So what is the integration ban and why are they so upset about it?

When the cable industry uses the phrase integration ban, they are referring to the various rules that require cable companies to offer settop boxes that include a cable card. There is no actual FCC order called the integration ban and that is a ‘marketing’ phrase the industry came up with to talk about the cable card rules.

NCTA has a lot of really valid points and there probably is no other set of rules administered by the FCC that is as much of a mess as the cable card rules. These rules came into place in 1998 and were due to multiple requests from the public to be able to use their own settop boxes rather than use the ones supplied by the cable company (and for which the cable company charges). And so the FCC came up with some complicated rules that required cable companies to use boxes that included a cable card.

A cable card is a little device that is about the size of a credit card and that fits into a slot in settop boxes. Its function is to decrypt the television signal from the cable company in order to watch the programming. Different cable companies use different encryption techniques, and so a consumer must acquire a cable card from their own cable company, and then they can use the card in a settop box they buy on their own.

This sounds like a good idea. Cable companies have historically charged around $5 per month forever to ‘rent’ the settop box and the FCC clearly envisioned that a lot of people would buy their own settop boxes to avoid these fees. But they haven’t, and so from a practical aspect this order has been a dismal failure. According to the NCTA there are only 600,000 cable cards in use today compared to 40 million cable card-ready settop boxes. And there are a huge number of settop boxes that don’t include the cable card technology, so less than 1% of consumers have taken the opportunity to avoid the settop box charges. From a market perspective that is a failure.

But that is not the only reason that the cable card order is a mess today. The FCC has granted numerous waivers over the years and so some companies do not have to use cable cards. AT&T and the telcos who use DSL do not have to use cable cards because nobody has really figured out a way to make them work with the way that DSL is used to deliver TV signal. One of the functions of a cable card is to act as a tuner, meaning it changes channels, and these technologies change the channel back at the headend rather than at the customer location. Many of the smaller fiber providers cannot buy settop boxes that will allow cable cards, although Verizon must offer them. The satellite providers also do not have to use cable cards for similar reasons.

But the FCC has also granted conditional waivers to some traditional cable companies like Charter and Cablevision. These providers have been working with a new technology that would allow customers to download software that would allow external devices to act as settop boxes on their systems.

But there is even a bigger reason why the cable card rules are a mess. In January of this year the D.C Circuit Court of Appeals entirely vacated what is known as the ‘Plug and Play rules’ that were issued by the FCC in 2003. These rules made changes to the cable card rules along with other cable-related issues. Further, the FCC amended the cable card rules again in 2010, largely based upon the 2003 order, and yet those rules were not vacated by the Court. We now have a regulatory puzzle that I am not sure anybody can solve (but many lawyers will be glad to charge to try).

Finally, and probably most important of all, settop boxes are quickly going to lose relevance in the marketplace. The FCC needs to look into people’s living rooms to see how people are watching video today. (I don’t mean that literally since that seems to be the NSA’s job). People want to be able to watch video on a wide array of devices, not just their television sets. They are connecting a plethora of new devices to their TVs and wireless networks to let them do this on their own. And many cable companies are now helping them by offering some form of what they are calling ‘TV Everywhere”. There are also cable providers who are actively allowing boxes like Hulu, Playstation and Apple TV to act as their settop box.

So we have cable card rules that are a failure in the marketplace. Further, the cable card rules have been eviscerated by a Court order and almost nobody understands what is or is not required any more. And technology is getting ready to quickly bypass the traditional settop box. The FCC needs to admit that this is an order past its prime and should stop requiring new cable cards. It might make some sense for some period of time to allow existing cable cards to be used, but it’s time to face the reality of the market and the technology and get out of the way of innovation