Rising Broadband Prices and Lack of Competition, Bad for US Consumers
Robert C. Kenny | November 5, 2015
Forget television, it’s all about high-speed broadband service, according to your local cable company.
Why? Because 90 percent of your broadband bill is pure profit for cable companies.
Don’t be fooled by big cable’s Washington lobbying machine and their contentions that retransmission consent reforms will keep costs down for consumers.
It has never been about keeping costs down for consumers, rather it has always been about pay TV companies doing what is necessary to increase their already hefty profit margins. For the average consumer, the $5 paid monthly to pay TV companies to access their local news, weather updates, network entertainment programming and live sports, pales in comparison to the $19.5 billion in excessive equipment rental fees and the $47 billion in skyrocketing cable channel programming costs they fork over annually to their cable company.
Growing the business is one thing, but gouging customers at every turn and then asking for government intervention in the marketplace to help cut corporate costs is the epitome of greed. The FCC clearly acknowledges that that the retransmission consent reforms requested by big cable companies may have no benefit to consumers. A September 2015 FCC Notice states:
“We acknowledge that MVPDs are not required to pass through any savings derived from lower retransmission consent fees and that any reductions in those fees thus might not translate to lower consumer prices for video programming service.”
If this is the case, then how do these proposed reforms help consumers?
Why aren’t cable companies fighting harder for their customers and cutting monthly charges where they have the power to do so? Instead, they’re capitalizing on consumer demand for high-speed broadband and beginning to charge extra for unlimited data, even as monthly pay TV bills continue to rise at three times the rate of inflation and network outages are common occurrences.
Financial analysts have long indicated that broadband growth is “much more profitable” than cable-TV growth. Why is this? It can’t simply be because programming costs on the video side of the business ledger eat into sizeable cable-TV profits, can it? No, absolutely not.
The primary reason why broadband profits are more lucrative is because all data, video and voice services are delivered to consumers over a single network. That’s right, cable companies are raking in profits for all services over a single network, with minimal overhead expenses… Alas, the great cable heist!
So which part of the business is paying for company network maintenance and upgrades? This is an important question in a marketplace where there’s been no new competitive entrant that’s built out the kind of fiber network that’s competitive with cable TV/broadband in the majority of local US markets.
Earlier this year the FCC found that 55 million Americans lack access to high-speed broadband in the home. And, through their own admission, many cable companies contend that building out high-speed wireline broadband service deeper into America is cost-prohibitive. This claim, however, appears to ring hollow given the record profits the industry is generating from Internet service.
In an industry that’s experiencing unprecedented consolidation, where the top five pay TV companies could soon control more than 85 percent of the video subscribers nationwide, the potential for increased video competition, broadband overbuild in local markets and lower prices for consumers is fading fast. Longterm, it is cheaper to gain new customers through mergers than it is to build a bigger network.
If anything, the current industry landscape lends itself to more costly monthly bills for consumers for all communications and video services. It makes one wonder just how big federal regulators will allow cable profit margins to grow before it’s seen as a form of price gouging.
Some cable companies are moving toward new broadband pricing plans that will allow customers to access unlimited data as part of their high-speed Internet service, all for a lucrative “extra” monthly billing fee of $30 or more. Should that kind of pricing plan go unchecked by regulators?
What will it mean for consumers looking for alternatives to the traditional pay TV business model? Their access to the video of their choice could be considerably inhibited. This will become especially true for those who cannot afford to purchase the unlimited data plan and would be subject to reduced Internet download speeds or expensive overage fees if they went over their data cap.
This is all taking shape as monthly pay-TV bills continue to increase at nearly three times the rate of inflation – not because of rising broadcast TV fees, but because of the billions of dollars in other costs consumers pay to cable companies for services provided over the same network. There’s definitely something wrong with this picture.
If regulators are serious about enabling innovation to flourish, while helping increase competition and expand consumer choice in the communications ecosystem, then they’ll need to more thoroughly scrutinize the business and billing practices of U.S. cable and broadband service providers.
The timing couldn’t be better.
Kenny is director of public affairs for TVfreedom.org, a coalition of local broadcasters, community advocates, network TV affiliate associations and others advocating for preserving the retransmission consent regime. He is a former press secretary at the FCC.
