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A Flip o' the Cable Cap

1:35 PM -- The U.S. Court of Appeals for the District of Columbia Circuit has struck down a ruling by the Federal Communications Commission (FCC) that capped the growth of domestic MSOs like Comcast Corp. (Nasdaq: CMCSA, CMCSK) to a 30 percent share of the multichannel video universe. (See Court Scraps Cable Ownership Cap .)

The court described the FCC rule as “arbitrary and capricious” and seemed to single out major cable operators. As readers may recall, Comcast had sued the FCC for relief under those earlier conditions, claiming the Commission had arbitrarily signed off on telco mergers while restricting Comcast. (See FCC Caps Cable .)

When the FCC adopted the Cable Act of 1992, consumers were demanding justice in what was deemed a “runaway train” of price increases levied by cable operators in the presence of little or no real competition… and those complaints ended up on the desks of the FCC and Congress.

Since that time, competitors like DirecTV Group Inc. (NYSE: DTV), Dish Network LLC (Nasdaq: DISH), AT&T Inc. (NYSE: T) (U-verse), and Verizon Communications Inc. (NYSE: VZ) (FiOS), have cut cable TV penetrations to below 50 percent nationwide. But the problem is that rates have not dropped significantly. Instead, they have continued to rise even in the midst of growing competition.

There are significant reasons that those prices have not dropped:

  • Building and upgrading infrastructure is expensive.

  • Paying for burgeoning amounts of programming is expensive.

  • Complying with Federal regulations is expensive.

  • General overhead costs are expensive. [Ed. note: Is there something, anything that's inexpensive for cable MSOs these days?]


Unlike the computer industry where prices have continued to fall, due to development of less expensive and smaller components making production less expensive, the cable TV industry seems to demand higher prices to keep up with innovation, programming costs, and continual upgrades to infrastructure.

The demand for more programming delivered faster, easier, and with more bells and whistles does not come cheap. So there is a price to pay for demand.

However, there are changes on the horizon, with the current video package delivery system (becoming outdated and being perceived as over-priced) shifting to a more IP-based platform that will combine content viewing and information gathering. The question remains whether continued competition, innovation, and a change in consumer viewing habits can reduce consumer rates.

— Leonard Grace, a cable industry vet, is a telecom strategist and blogger. He can be reached at [email protected]. Special to Cable Digital News.

LeonardGrace 12/5/2012 | 3:57:27 PM
re: A Flip o' the Cable Cap

Now that the courts have eliminated the 30% Cap Rule, initiated and held firm by the FCC, what does this mean for mergers, and what companies will end up being targets? How will this ruling eventually effect consumer pricing?


 

paolo.franzoi 12/5/2012 | 3:57:26 PM
re: A Flip o' the Cable Cap

Another thing I think to ponder is whether only cable companies would bid.  If I look at Verizon and I thought I might want to compete out of region - maybe it might bid on some assets. 


seven


 

LeonardGrace 12/5/2012 | 3:57:25 PM
re: A Flip o' the Cable Cap

Seven, interesting thought!


While Verizon is now concentrated within a Northeast footprint, it might be possible that they would look elsewhere for growth.


Their (game plan) of getting out in front on the FTTP deployment requires a concentration of capital in markets currently being served, and with substantial Cable competition.


It will be interesting to see how the FTTP plan will hold up both in the short-term, and in the long-haul. It does give the ability to have unlimited services going forward, and is a "gamble" on consumer preferences for the immediate and foreseeable future.


I think an acquisition would have to be something that fit geographly into their current business plan.  What I do not see is a Verizon going after a Cable operator, which was a diaster for AT&T in the 90's.

paolo.franzoi 12/5/2012 | 3:57:22 PM
re: A Flip o' the Cable Cap

I would understand the concern about the past, but FiOS is in essence a very high end cable buildout.  I am just thinking it might be easier to upgrade an HFC plant to PON to match FiOS than construct all new PON plant.  On top of that, you already have customers to sell to that are buying the service.


seven


 

LeonardGrace 12/5/2012 | 3:57:20 PM
re: A Flip o' the Cable Cap

Seven,


That's true, it could be done. They do have "deep pockets" and are probably comtemplating such a move. However, I think they would want to try something small, at least in the beginning, to get their feet wet in a Hybrid Coxial environment. There is much to absorb in doing this including, company culture, price of purchase, pay-back issues, conformity to current business plans, not to mention the fact that they are in an agressive overbuild of many operators within their own foot print.


So, it is a lot to ponder from a Verizon standpoint.

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