US Telcos Teeter Toward Bankruptcy As Comcast's Broadband Monopoly Grows

from the dysfunction-junction dept

We've noted time and time again how the US broadband industry's biggest problem is a lack of healthy competition. In countless markets consumers either have the choice of a terrible phone company or a cable giant. The nation's phone companies have spent the last decade refusing to upgrade (or in some cases even repair) their aging DSL lines, because they don't see residential broadband as worth their while. That in turn is giving giants like Comcast and Spectrum an ever greater monopoly in many markets, reducing the already muted incentive to compete on price or shore up historically terrible customer service.

It's a weird problem that's widely ignored by both parties, and it just keeps getting worse. This week, US telco Windstream filed for bankruptcy protection, partially thanks to a dispute with one of the company's creditors, netting a $310 million settlement Windstream couldn't swallow. More specifically, hedge fund Aurelius Capital Management had argued that a two-year-old spinoff of the company's fiber-optic cable network violated the covenants on one of its bonds, prohibiting "sale-leaseback transactions." The court agreed.

Windstream, for its part, issued a statement insisting that none of this was the company's fault, and that the bankruptcy protection wouldn't impact customers:

"Windstream did not arrive in Chapter 11 due to operational failures and currently does not anticipate the need to restructure material operations,” Thomas said. “While it is unfortunate that Aurelius engaged in these tactics to advance its returns at the expense of Windstream, we look forward to working through the financial restructuring process to secure a sustainable capital structure so we can maintain our strong operational performance and continue serving our customers for many years to come."

But Windstream's inability to swallow the court ruling comes directly from the company's already shaky footing.

Windstream was already $5.6 billion in debt and, like many US telcos, stuck in a cycle of dysfunction. Customers continue to flee to cable competitors at an alarming rate, because the telco often refuses to seriously upgrade its DSL lines to fiber at any real scale. And it can't upgrade its DSL lines to fiber at any scale because customers are leaving at an alarming rate, draining their coffers. Watching these companies (and a few oddly bullish investors) pretend this ends well for anybody involved has often been a comedy of errors.

Windstream isn't alone; telco giant Frontier has also been perched precariously on this cliff for the last few years. Our collective bipartisan reaction to this has been to throw a few million in subsidies at the problem and hope the regulatory capture and other obvious sector problems just magically fix themselves. The problem is so bad, many towns and cities have been forced to build their own broadband networks, something that's immediately vilified as "socialistic" by the same industry whose greed, apathy, and incompetence caused the problem in the first place.

None of this stuff sees much interest in the broader tech sector, but it should.

As vertically-integrated cable giants like Comcast and Spectrum enjoy even greater monopolies over internet access at modern speeds, it has a trickle down impact on the internet ecosystem as a whole, especially in the wake of the death of net neutrality. Comcast's growing power opens the door to broader anti-competitive behavior unchecked by neither regulatory oversight nor healthy competition, impacting all of the smaller businesses hoping to compete for mindshare. Some like to claim that 5G will be some magical panacea that comes in and provides a competitive counterbalance to this dysfunction, but we've noted how that's not likely for a wide variety of reasons.

Natural monopolies dominating the on ramp to the internet and much of the content doesn't end well for anybody in the ecosystem, especially given America's comic inability to enforce antitrust. The broadband industry's issues are a problem that exponentially impacts everything on the internet, yet it's a problem we continue to turn a blind eye to in the hopes it will all just magically sort itself out.

Filed Under: bankruptcy, broadband, cable, competition, dsl
Companies: comcast, windstream

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  1. identicon
    Melvin Chudwaters, 4 Mar 2019 @ 9:02am

    Once a company becomes accustomed to the strategy of rent-seeking, whether they intended to do so or not, they are never able to return to more wholesome business models.

    AT&T, Verizon, the others... they just want to reap profits. Copper lines could or would not do that. While a saner company would take this as a hint to start selling something people actually wanted (fiber to the curb), they were too lazy to do this. "It's too hard, it costs too much, people won't want it!" they shrieked. Then decided to milk their FCC licenses for all they're worth.

    Their plan (as much as any company has a plan beyond the immediate next quarter) is to do this for the coming decades. They'll roll out a fake fiber deployment here or there when a local politician gets antsy, but that's it.

    It's much the same in cable-land. They will milk their not-really-fiber network for all it's worth for the coming decades (even if they don't have decades). This is complicated because their little monopoly has so many drawbacks, licensing fees for content providers being one of those.

    They don't want to become simple telecom companies... very little profit in that, and people will become accustomed to having more bandwidth, necessitating infrastructure upgrades that will cost even more for less profit. It would be much better if millennials just learned to love 500 channels of infomercials and reality tv show reruns for $200/month.

    The sort of business catastrophe that it would take to hollow out the management at these companies enough that they'd wake up and start behaving correctly is also the sort that they'd never survive. And certainly not survive with the resources to catch up on all the infrastructure upgrades that they've procrastinated on.

    We need a corporate death sentence penalty. The corporation is dissolved, material assets sold off at auction, intellectual property reverts to the public domain, and C-level management and BoD are banned-for-life from ever holding such positions at any company again.

    With AT&T, Verizon, and Comcast gone from the world, things wouldn't automatically/instantly be better, but maybe we'd get something half-decent in the next 10 or 20 years. Nothing else will save us from becoming a technology backwater.

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