THE CABLE PIPELINE

If you believe Cable Operators are not thinking about Mobile Networks and what kind of synergies could bring them increased cash-flow in the future, then you’ve probably missed the obvious signs laid out since 2008.

Strategic Partnerships

Starting with their investment in Clearwire in 2008, companies like Comcast, Time Warner Cable and Bright House have upped their ante in wireless and mobile strategies. Other companies with investments in Clearwire include Sprint, Intel and Google. This is not an idle investment by the cable community; it is a strategy to combat the increasing competition in Northeast markets by telecom providers like Verizon and AT&T with Quad-Play capabilities. This competition will eventually spread to other regions as increased investment opportunities present themselves.

With the Quad-Play on the table as an option for customer superiority within the most profitable and populated markets as the Northeast, not having a 4-play strategy just doesn’t make good business sense. Fast forward to today and one can see these scenarios’ playing out as Verizon’s FIOS and Verizon Wireless bundle along with AT&T’s U-Verse and AT&T Wireless services are nipping at cable’s heels for supremacy.

Mobile Strategy

The mobile strategy for cable operators may simply involve current economics. It is quite obvious that creating strategic partnerships with companies like Clearwire and Sprint is a quick and easy way to deliver the mobile market on a selective basis while not having to invest needed capital in a start-up entry. In point, if a partnership gets the job done and allows you to stave off your competitors, and only where there is Quad-Play competition; it relates to both cheaper and faster to market economics. See (Reality Check: Now is the Time for Cable Quad Play)

Mobile Back-Haul Revenue

An additional revenue generator for cable operators is the mobile back-haul market. As mobile operators continue to upgrade their networks to 4G, the need to replace existing infrastructure in middle mile and the edge to the cell tower becomes critical, especially with video, apps and increased voice minutes becoming a major players on mobile networks. It is estimated that by 2015 this could become a $3billion per year revenue windfall. “Cable operators like Microwave, fiber and copper vendors will benefit from this concern”. See (Cable Operators will find Success in Mobile Wireless Backhaul a New Visant Strategies Study Finds)

The advent of these partnerships between cable operators, Comcast, Time Warner Cable, and Bright House with Clearwire and Sprint involves the limited, deliberate, and measured investment into the mobile community while only launching where they need to compete. They are enjoying great cash-flow from video operations, including Digital Cable, VOD, HDTV and DVR’s while bundling Internet and IP Telephone for the Triple-Play, in markets with limited competition. Currently it seems partnerships are the best way to enter the mobile market in a limited way, and at least in the short-term. However, cable should consider expanding those markets for a Quad-Play, or it could lose being first to market and face a catch-up game with potential competitors and find that winning back customers is much harder than being the incumbent.

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The mobile phone market is growing exponentially and will continue to evolve for years to come. Why has the Cable Industry not moved into the lucrative mobile phone market? It could definitely be a revenue bonanza, as it currently is for telecom companies. See (The cable company will likely use WiMax to bring television shows to cell phones and smart phones.)

Verizon and AT&T’s revenues, as a percentage of stock price by division, attributes mobile phone service up to 40-42% of total revenues. This being a logical assumption as landline phone demand has forced incumbent Telco’s to rethink their business models to include cable, broadband, and cell phone. The mobile market has exploded with smart phone technology and related applications for consumers continually on the go while wanting the latest gadgets to keep up with friends, business, and news. Why has this not attracted at least, some interest from the major cable players like a Comcast, Time Warner Cable, Cox and others? See (TREFIS-Division as a % of Stock Price)

If you look at trending where the future of a Triple Play seems to be relegated to a future 2^nd grade status behind the Quad Play , while seemingly logical that to compete in the telecommunications market for consumer dollars, a one-stop shopping model needs to be in place; one would think some indication of cable companies launching or acquiring mobile service would be on the immediate horizon.

Let’s think this through. The Telecom Industry saw the “writing on the wall” when landline phone service began to decline, and hence forth began to diversify into other markets such as mobile phones, broadband, and cable TV service. It is logical that their upside in both the mobile phone, broadband, and cable TV markets is solid. With cable operators now looking at a possible paradigm shift from traditional cable to other venues, would it not make good economics to put your business on the same playing field with competitors? It would seem logical to me. There is a definite upside in getting into the mobile market for incumbent MSO’s; as in “keeping up with the Joneses’”, or if you prefer, your close competitors. See (From Triple Play to Home Run: Why Your Cable Company Should Offer Cell phone Service)

The Cable Industry has positioned itself to offer a myriad of services within the cell-phone market to other providers, but unfortunately it does not include its own. However having a competitive cell-phone service is more true to a solid success. If businesses fail to see trends that will impact their bottom line, they are doomed to failure. That is why companies must always be looking for a competitive advantage or keep up with existing competitor offerings, while making the best decisions to affect stockholder equity in a positive manner. Yes, revenues and profits may be good in the short term, but a long term strategy is what really matters, and it seems this is too good of an opportunity not to indulge.

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Cable Industry stocks, like all tech stocks, have seen their ups and downs when it comes to performance. The industry has been through periods of high infrastructure spending, acquisitions and divestitures, increased programming costs, higher retransmission costs, and competitive pressures, each playing its own role in keeping values lower.

How do industry revenue streams effect stock prices today with increasing changes within the marketplace becoming more common, and how will these market shifts impact those revenues and subsequently stock prices? If revenue trending is any indicator of stock performance, then look at division breakdowns as a contribution to stock prices. Where will revenue shifts take place and how these help will or hurt company performance going forward.

From analyzing trends in revenue generation, seeing the move from linear programming dominance can clearly be seen as a migration to High Speed Broadband, and Digital Phone. Digital Cable continues to be a strong performer as companies reclaim bandwidth to offer High Definition products. However Cable continues to shed subscribers on a quarterly basis as evidenced by Time Warner Cable ’s predicted 30,000 customer lose for the 4^th quarter 2009. Comcast, on the other hand, is expected to lose 150,000 customers during the period.

These are not huge numbers in the scheme of things referring to current Cable Company balance sheets, but do signify that portions of market segments are susceptible to continued churn for various reasons, whether those might be shifting demographics, economic pressures, disillusionment in price, etc…  Without good trending information and significant data mining, corrective actions may continue to elusive.

The Triple Play bundle  is by far the most dependable asset the industry has at its deposal to both retain and gain new customers, as referenced by the Comcast Triple Play. Consumers no longer want just Digital Cable without Broadband, and why not throw in Digital Phone to entice even more. After all the phone companies have stated they want out of the landline business. So, create a great price package that wins loyalty and reduces churn.

And while we are at the one-stop-shop counter; do not overlook the Quad Play . Both Verizon and AT&T have their sights set on offering Mobile Phone to complete a Quad Play bundle as well, throwing a true Superfecta into the mix.

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Now that the broadband experience is reaching a milestone in bridging the gap between digital content and consumers, we all may soon be accessing our Home Gateways to maximize the experience of downloading and viewing relevant content on TV’s, PC’s, Laptop’s, DVR’s, and Mobile Devices. 

The term Residential Gateway is not new and has been used in VoIP, and DSL applications by the Telecoms. Corporations have long been using Gateways for application connections. So, it makes plenty of sense to have one (in-home device) to act as a digital storage system, server, modem, and router to connect consumers with all of the broadband related devices, and content becoming widely available from a multitude of Internet sources.

Comcast (Nasdaq: CMCSA, CMCSK), Time Warner Cable (NYSE: TWC), and Cox Communications are partnering with The Digital Living Network Alliance (DLNA Certified device), to bring consumers a more integrated home network device to play back premium content HD/digital shows, photo slideshows, and music offerings for their customers. This Home Gateway device would work seamlessly with all consumer devices within the home to connect content to the TV.

NetGear (Nasdaqgm: NTGR), is introducing such devices at the Consumer Electronics Show with its award winning NETGEAR Stora , putting music, video, and photos at your fingertips, and the NETGEAR Wireless-N Router with DSL Modem – Mobile Broadband Edition, to connect wireless devices with content.  

Home Gateways are the next generation of devices to offer universal access and in-home-networking to speed along the delivery of broadband seamlessly within the home. Having a Broadband Pipeline which is Hybrid/Fiber/Docsis3 enabled, or a Fiber-To-the-Home connection, via your ISP to the Home Gateway will be the critical to the adoption process. This all-in-one device would be able to handle all the functions universally which are now separated like modems, Set-Top-Boxes, WIFI, routers, home networking, Blu-Ray Players, gaming, etc…

In essence, the Home Gateway will be the device that will connect families to entertainment, education, healthcare, security, communications, and a global world of information. This scenario may not be quite here yet, but the Consumer Electronics Industry and Cable-Telecom companies are certainly moving in that direction. The bottom line will be consumer costs of these devices and the deciding factor in its proliferation for a near-term broadband solution, rather than a long-term one.

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Two giants in the telecommunications industry battle publicly over Retransmission Consent. Both Fox and Time Warner Cable have let cooler heads prevail in their war over money to be doled out in fees to Fox by extending their negotiations beyond the Dec 31, 2009 deadline.

 At issue, the Fox owned broadcast networks carried by the Time Warner Cable pipelines. Under Retransmission Consent  broadcasters can choose (Must-Carry), where cable operators agree to carry stations throughout the consent period for free, or negotiate for (Advertising) or (Fee-Based) arrangements to solidify carriage. Obviously, Fox has chosen the latter with a proposed $1.00 per month charge per Time Warner Cable subscriber.

Keep in mind that local Fox Affiliates have agreed to terms with Time Warner Cable, which is significantly lower in compensation than the $1.00 fee proposed by Fox owned stations. Evidently Fox views its owned stations in larger markets to be worth much more than its affiliates in smaller DMA’s.

A $1.00 per sub fee to Time Warner Cable for Fox broadcast stations would mean millions of additional expense added to their bottom lines on a per month basis. How will the cost be absorbed? Traditionally, these costs are passed on to customers in increased monthly fees, and with linear programming configurations taking the heat from consumers, as paying for more than they want, Time Warner Cable does not want to take that inevitable backlash. This is evidenced by Time Warner Cable’s website asking customers where they should draw the line.

With broadcasting revenues on a continuing decline, Retransmission Consent negotiations have become a target for broadcasters like Fox to recoup falling revenues. While content is worth money, where do cable companies draw the line on preventing the rising costs? It would seem monetary negotiations should reflect program ratings on a per market basis, i.e. American Idol, and NFL Giants Games and local programming? What is market demand for this type programming?

Unfortunately, this saga has moved to the public arena with both sides trying to sway public opinion. It has become so public that both Senator John Kerry and FCC Chairman Julian Genachowski have stepped in to cool the situation, which serves to highlight the fight over revenue and costs, and consumers disdain for being caught in the middle. So much for public relations!

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Why memorable quotes from Cable Industry executives in 2009 seemed either disconnected or a predictor of the future. Judge for yourself whether these quotes have merit or are they seriously off-track with the mainstream. Only time will tell whether these executives have done their homework, or they are just [in-the-moment] statements. As an Industry executive, should these leaders be better prepared before they speak?

Disney CEO, Robert Iger on Comcast/Time Warner Authentication for TV Everywhere – April 2009

“May be an “interesting” opportunity for consumers. On the other hand, preventing people from watching any shows online unless they were cable subscribers would engender a backlash. Important not to take away online video programming that’s already out there, and not to throttle access.”

NCTA Chief, Kyle McSlarrow: on the Cable Industry’s role in the economy – April 2009

“Fortunately, we have every reason to believe that our industry will continue to be resilient and grow. And I would go further…and say that we have a central role to play in our economic recovery as well.”

Comcast CEO, Brian Roberts: on working with programmers – April 2009

“I don’t think we should put our head in the sand,” he said. “We should allow customers to get video wherever they want. We have to have really thoughtful conversations with our partners in content and make it a win-win outcome for customers and programmers, and I think we can do that.”

Time Warner Cable CEO, Glen Britt: on Tiering Broadband Access – April 2009

“If you’re downloading a movie every day, you’ll spend more per month than someone who uses the internet just to check his or her e-mail. People could end up liking it: some will end up paying less, while those people paying more may get faster service.”

Time Warner Cable CEO, Glen Britt: on TWC subscription growth – December 2009

“Time Warner Cable increasingly hears from customers who would like to buy smaller packages of channels. As an industry, cable operators “need to listen” to those kinds of concerns.”

Time Warner Cable CEO, Glen Britt on Comcast-NBC Universal Merger: – December 2009

“What we found over the years was that there were very few synergies in being vertically integrated — in fact, the rules and regulations that control how this industry behaves are such that anything people might be tempted to do in a vertically integrated company is pretty much prohibited.”

How will these quotes hold up historically in 2010? Will they be on track with the market, or will they be (in-the-moment) statements that seem to be irrelevant for the future? Vote for the best and worst quote of the year; leave a comment.

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There are two compelling sides to the Net Neutrality issue before the Federal Communications Commission that can be solved by cutting through the rhetoric and making a few common sense and objective decisions about what is at the crux of the problem.

First, Internet Service Providers are at the center of the debate, and rightfully so, since without the ISP’s providing the gateway for Internet usage, there is no issue. The power of discrimination lays solely in the hands of the Comcast’s, AT&T’s, Time Warner Cable’s, Verizon’s, and other providers of the ISP pipelines.

This is a huge social responsibility for private sector companies, who do not necessarily compete with each other in every market, in controlling the complexities of sharing access to all who ask. The Internet has evolved into more than just picking which provider will allow individuals or companies to link through to others; it has evolved into a massive highway of commerce and social connection. And this is where the problem with competing interests and two sides of the coin begins to emerge.

To solve the issue the FCC can take either of two paths in ensuring openness and fairness to all concerned, with both large and small stakes, in both getting where they need to go and receiving what needs to receive, via broadband. One path is to let the market sort itself out; in that encouraging competition within the marketplace between ISP providers will create less of a reason for providers to favor one entity over another or risk losing customers to the competition.

This would work well if it was easy and inexpensive to get into the ISP business while building an infrastructure to support a broadband pipe sufficient enough handle the range of users, content, and applications needed to ensure true competition. Only Verizon, to my knowledge, is able say that it welcomes all comers with its FTTH-FIOS infrastructure and with bandwidth to spare.

An alternative path would be to mandate all ISP providers open their networks to competitors and set standards for download and upload speeds, thereby ensuring everyone is treated equal. And yes, creating tiers of service for unusual traffic needs. While this could be considered a heavy-handed approach, it does take somewhat of a burden off the private sector in choosing whether to upgrade their networks for increased bandwidth, or which entity it will prefer when having to choose between conflicts of interest, protection polices, or Wall Street demands.

But a common sense approach is fraught with political mine fields. Lobbying is alive and well on Capitol Hill and the larger companies have the lawyers, insiders, and money to back up those efforts. However, in my opinion, there needs to be a compromise between public and private sectors that are willing to support an (Internet Super-Highway) which fosters innovation, competition, new businesses, and robust commerce that spreads success to all corners of our country. It is only common sense!

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Tupelo Public School District - Student/Teacher Laptops

Affordability of service

Affordability of hardware

Insufficient digital and technical literacy levels

Unawareness of personal relevance and utility of broadband technology and online content

Inability to use existing technology and applications due to physical or mental disabilities

According to the PEW Internet and American Life Project the top reason the internet was not adopted by non-users was (no interest in getting online), representing 33% of those surveyed. The second most stated reason indicated a (lack of access to the internet), representing 13% of the group.

The Broadband Stimulus Plan will go a long way in helping both the public and private sectors build out the infrastructure to help accommodate the plan, of at least, giving the access to both metropolitan and rural areas. However, what seems to be just as important on an adoption level is the relevance of education in the literacy of (relevance, utility, digital, and technical skills) in using this technology. This should be the next core strategy of the FCC.

Why not have the FCC, and yes, the private sector like Comcast, Time Warner Cable, AT&T and Verizon get seriously involved in the education of our student population in learning the technology and its advantages for future adoption across a broad spectrum of users? I’m not asking for an FCC mandate to the private sector, but a partnership between both public and private entities to ensure a lasting model of proficiency which will help these sectors in the long-term, while positioning the U.S for a strong competitive edge in the global economy.

 An interesting point to this end is the announcement of our local school district’s (adoption plan) within the classroom. The plan is a partnership with Tupelo Public School District and Apple, see (Apple Laptop Computers for TPSD 6-12 Graders and all Teachers) to provide every student and teacher in grades 6-12 access to an Apple laptop computer at the beginning of the 2010-11 school year. Instead of providing textbooks and photocopies to all students, the District will provide text books loaded on to computers and photocopy PDF’s via e-mail for instruction.  

We all understand the importance of the role education plays in the adoption of any significant initiative rather it be technology, business, economics, math, history, language, writing, reading, i.e..in teaching these fundamental skills to be successful in life, creating a true contributor to society, and not just a drain on societal resources. Sufficed to say, my vote is to adopt a broadband technology literacy program from a public and private association with schools to help fund these initiatives for the future workers in our economic model. The future of the U.S economy depends on it.

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Apple TV is in the news again, this time with a proposed subscription service that takes aim directly at the Cable Industry, see (Apple Pitching Subscription TV to Content Owners). Apple TV would work directly with Apple iTunes to bring consumers the highly regarded brand of Apple along with a TV Subscription Service for about $30.00 per month, a substantial discount on what Cable Operators are charging for their Digital bundled services which start around $60.00.

Significantly, if Apple is hoping to target their service as one that provides individual channels to consumers without the mass bundling that cable offers, their hurdle will begin with securing the programming rights from a content industry which has largely been successful due to its relationship with Cable Industry giants like Comcast and Time Warner Cable.

This is a tricky proposition for Apple since programmers have lucrative contracts with operators that support both subscription and advertising revenue allowing for all that great content to be produced and distributed over the pipelines. Comcast and Time Warner Cable have huge infrastructures that require packaged bundles, which offer overall cheaper rates for customers, while supporting the enormous costs of the pipelines. Also many programmers have contracts with cable that stipulate carriage of multi-channels which they do not want to jeopardize.

On the other side, just look at iTunes and what has been accomplished with music when Apple began charging for downloads on iPods and now iPhones, which turned out to be wildly successful when the Music Industry failed to realize that consumers were willing to pay for their favorite tunes, of their choosing. This is a key statement that may be behind Apple’s foray into a cable’s multi-billion dollar industry built on broad sweeping content packages.

If consumers are willing to pay $30.00 per month for securing content of their choosing, channel by channel, the aim may be popular, via A La-Carte. But does Apple see a significant market here, quite obviously they do? However the hurdles of securing those key contracts with programmers will be a (make or break scenario), which brings me to the point, that it will be difficult in my opinion, to change the current market in any meaningful way, at least in the short-term. 

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