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March 7, 2013

The Call for Government to Make Cable a Captive Audience

 

The history of the cable industry is one filled with constant innovation to stay ahead of the demand curve and competition by investing heavily. Calls for government “stimulus” of the “cable monopoly” by those who ignore or are ignorant of the facts are laughable.

In the early 1990’s, the industry leaped well ahead of the demand curve and tore out its previous network which was not suited for broadband, replacing it with a new system to the tune of $210 billion, accepting a “bet the industry level” that it is still paying off today. At the same time, so that the various cable systems across the country would be interoperable, the DOCSIS standard was adopted and along came speeds of 500 Kbps.

The focus of the effort--the reason to make such a bet? Delivering broadband to neighborhoods across the country, not just to businesses.

Today, because of continued innovation, and $13 billion in recurring annual improvements, speeds of current products near 1 Gbps. That’s fast enough that the speeds are multiples of throughput needed for today’s applications. In a mere two or three years multi-gigabit per second speeds will be common.

To succeed the industry must make a profit; that is, they must pay back what they spent plus a return on that investment, and a higher return than that money would have made parked in a money market fund for all of those years to compensate the private investors for taking the risk. The investment was made over many years with the belief that the investment, plus a return and current program and operational costs could be recouped. But today there are those who would suddenly and without foundation change the rules and demand that cable services should cost no more than the current expenses for programming. They are woefully ignorant of basic finance.

Getting back to breakeven is a tougher climb today than ever before as satellite, former telcos and now wireless all compete against the cable industry. All of them innovating, all of them competing to attract and retain customers, all of them fighting for a profitable future.

In the end, the reward for all of the investment, the innovation, and the rigorous competition is a call by some for massive regulation. Such calls are nothing more than opinions. The proper reward for all the risk is best left to the marketplace. As Senator Daniel Patrick Moynihan famously said “Everyone is entitled to his own opinion, but not his own facts.”


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