Comcast Loses Just $5.50 Per Month When You Cut The Cord Thanks To Its Growing Broadband Monopoly
from the insulated-from-competitive-harm dept
We’ve noted several times that the cable industry is somewhat shielded from the rise of cord cutting because of its growing monopoly over broadband. You see, as AT&T and Verizon give up on unwanted DSL customers they don’t want to upgrade (as part of a pivot into content and ads), there are now huge swaths of the country where users really only have one option for broadband above 25 Mbps: cable. Users fleeing neglected DSL lines sign up for cable, and because TV bundled with broadband is cheaper than broadband alone, users sign up for TV service they may not even want.
As this cable monopoly grows, these cable companies have less incentive than ever to compete on price across more than half of their footprint. And with ISPs literally writing state laws preventing public/private or community broadband, no market forces exist to prevent them from expanding the application of entirely unnecessary usage caps and overage fees. Most analyses overlook this, instead focusing on the scattered rise of Google Fiber and other gigabit deployments in highly-select areas.
One Wall Street analyst this week highlighted just how cushioned a company like Comcast really is when it comes to cord cutting. MoffettNathanson analyst Craig Moffett crunched the numbers and found that once you account for the higher costs you’ll have to pay for buying broadband standalone, Comcast only really loses about $5.50 per month when a user cuts the TV cord:
“When a Comcast customer drops video, the MSO loses about $38 in contribution margin, Moffett estimates. But that customer ends up paying an extra $25 a month more for broadband when their bundling discount goes away. “Now, further suppose that half of those customers opt to upgrade to a higher speed tier at an average premium of $15 per month (implying a probability-weighted $7.50 benefit per cord-cutter).” The difference comes to $5.50.
Moffett’s analysis isn’t perfect and Comcast’s losses are likely higher. He comes to that $5.50 number by assuming the departing customer upgrades to a faster speed, which really isn’t necessary just for streaming Netflix. And it’s not clear he’s included the revenues Comcast makes on households paying rental fees for numerous cable boxes, or the fees Comcast hides below the line (like the broadcast TV fee). Still, the point remains that Comcast is arguably shielded from cord cutting because of the high prices it charges for broadband — only made possible by limited broadband competition.
And Moffett doesn’t even touch on the fact that Comcast can further recoup any cord cutting losses via usage caps and overage fees, something Moffett and other investors have long embraced given it lets an ISP charge significantly more money for the exact same service. Nor does Moffett highlight how Comcast further benefits by counting all competitor streaming traffic against the cap, while it’s own streaming video service remains cap exempt.
All told, cable providers are now adding 99% of the quarterly net additions for new broadband subcribers each quarter, at the same time that the sector is consolidating at an incredible rate. And these companies continue to have almost comical control over state legislatures, often allowing them to literally write wish-list legislation further insulating them from competitive harm. And time and time again the industry, and the policy folks it employs en masse to pollute public discourse, intentionally conflate enabling this protectionist dysfunction as the “deregulation of free markets” (often with no penalty from an unskeptical press).
So yes, if you live in a major, relatively-affluent city or upscale broadband development your broadband options may be improving, if you’re lucky. But across more than half of the country, users are actually seeing less broadband competition than ever before. And with Trump listening to telecom advisors that don’t believe monopolies exist and are keen on gutting net neutrality and all regulatory oversight of said non-existing monopolies, you’re potentially talking about millions of consumers looking at higher prices and worse customer service than ever before.
The solution, again, is fighting for better broadband on the local level. If you want better broadband, you need to get behind the push to eliminate protectionist state laws that restrict towns and cities from making local broadband infrastructure decisions for themselves. These laws, passed in roughly 20 states, not only prohibit towns and cities from building their own networks (even in cases where nobody else will), but they often hinder the kind of public/private partnerships that are becoming necessary to shore up competitive gaps caused by the broadband market failure the industry will tell you doesn’t exist.