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The Truth About Ala Carte Cable

Oxymoron of the day: AT&T backs a-la-carte cable.

No Kidding…. This Is Surprising?

MSNBC/Motley Fool has this op-ed about how FCC is looking out for consumers. News flash guys …. no. Its looking out for the phone companies. It is using the consumer as a “bulletproof vest” on this thorny issue. (Don’t get me wrong…. I love the idea of not having to pay for say FX or some other crappy channel, when all I want is HBO and ESPN!)

Isn’t it in the Bell operators’ best interest to disrupt the money making part of cable operators’ business. Isn’t it in their best interest to retrofit the regulation to meet their limited, some day it might be possible Microsoft-based IPTV service? Of course it is! Hence the support from company-formerly-known-as-SBC!

Here is why: Over past few years cable operators have managed to grow their top-line and EBITDA, while the Bell operators have been slowly sliding south. Since cable operators have finished their major network upgrades, for next couple of years they can afford to spend money only on projects that can directly generate revenue. They can also be much more aggressive in new service offerings such as premium tier broadband, or VoIP services. Those two offerings can give phone companies a serious migraine.

Some analysts estimate that cable companies get about $82 a month per user, of which $42 comes from high-speed Internet, and rest from video. (Anyone have better data than that?) Add to the mix, phone service, and well things become downright scary for phone companies. Bells at present cannot compete on speed in broadband, and have no video. So disrupt the video-part of the equation where cable guys have a lot of expertise, and you can inflict some serious damage. Five years from now if cable companies even get 10% of the fixed line market, they would come out ahead. (Getting 10% of the video market is going to cost phone companies a pretty penny!) There are already 2.4 million VoIP-over-cable customers and Comcast hasn’t even launched. Crisis time…. who are you gonna call …. of course the regulators!

Hence the push for ala carte cable! Looking beyond the recent fiscal performance, one wonders who the Bells refuse to practice what they preach.

“We support giving customers flexibility and options,” AT&T said in a statement prepared for USA TODAY.

Isn’t that lovely! If that was the case, where is the the long awaited, much promised the mythical broadband big-foot – Naked DSL? Didn’t I read this morning that the very same old-SBC-posing-as-new AT&T is now trying to bundle Cingular Wireless and its fixed line service?

Ala Carte Cable, is almost like un-bundling the television. Which is not such a bad idea, as long as we unbundle the phone network as well. Oh wait, we did that… and then FCC changed its mind!

(Joseph Weisenthal compares ala carte cable to portobello mushrooms… seriously!)

13 Responses to “The Truth About Ala Carte Cable”

  1. telcos never were forced to sell unbundled elements of their network at below cost. any analyst who wasn’t working for the telcos who broke down their costs said otherwise.

    interesting thought about the cablecos getting teamed up on by the fcc/telco coalition. since the fcc doesn’t really regulate the cablecos in the end, it probably is reasonable to believe they’d be closer to the telcos – which is obvious anyway.

    i always find it perverse that the regulators who are supposed to protect the consumer usually end up on the side of the very companies they are to regulate. happens in both energy and telecom at both the state and federal level. there needs to be a change made in the system to create incentives for this not to happen. are their good examples of this that aren’t from centrally planned/regulated telco economies like singapore, japan and korea?

  2. I think this is a difficult issue, as it would appear the only way to make this seem at all fair to the consumer would be to hold cost-per-channel near what it is now, but if that were regulated, programmers would cry foul, claiming that would restrict their ability to produce content.
    If cost-per-channel goes up, though, people will buy less channels, which will hurt the advertising base of many networks. So the programmers will either lose their advertising base, or be stuck with a limited cost per channel.

    FWIW, I think the phone companies should be able to sell video channels in packages or ala carte, whatever they want. BUT – in exchange, they should be forced to continue the “common carrier” concept, and allow anyone who wants to pay a reasonable fee to lease a channel on either a nationwide or regional basis on the telco-TV systems. These channels could then be made available to consumers for an extra fee or free of charge (if ad supported or noncommercial). There should be a reserved percentage of channels set aside to be leased to non-com outfits below cost (just like the DBS public interest channels), and beyond that, non-coms should also be allowed to pay the regular commercial rate.

  3. Jesse Kopelman

    moo said, “Bells were forced to sell their lines to competition at below market prices as a result of unbundling.”

    How can you have “market price” when there is only one possible seller? The truth is that selling wholesale is actually quite profitable (since you don’t have the huge marketing and retention costs) and that is why Verizon and others do so agressively now that they aren’t forced to. These companies are like spoiled children who have to have there own way in all things whether it’s good for them or not.

  4. Cable companies are monopolies? Last time I checked DISH and DIRECTV had 27m subscribers (30% of the market) and are available to about 99.9% of the country.

    This whole debate is so inane in makes my head spin. Cable prices packages the way they do because it would be an absolute nightmare to price channels individually (refer to the economic literature on pricing bundles of information goods), rearchitect the network, give the 50% of subs who are analog a digital box, build the backend systems to manage everyone having a different package and renegotiate every programming contract. For all of that the end result would be you and your wife choose your 10 favorite channels that would end up costing you about the same you are paying now. Every study ever done has concluded this.

    Martin’s motive is to extract a family tier from the cable industry.

  5. Whether it’s in the Bell’s interest or not is really besides the point. Customers have been clamoring for a la carte cable channels FOR YEARS. I’m one of them. I can’t get cable where I live except for $50/month or more. Would I love to pay $15 or $20 and get just the channels I like? Of course! And do I really think that the cable companies will go out of business if they allow customers to choose what channels to watch? Not for a second. That would be a “premium” service and they’d make even more money. Stop the insanity, man!

  6. Marc Respass

    The cables companies have a monopoly. I live in Boston and the only choice I have is Comcast. I get basic cable at $8. The next step up is $48 just so that I can get Comedy Central and Sci Fi which are advertiser paid channels. So I have to pay to get the channel then watch commercials too? It all feels like a conspiracy. The technology exists to enable people to pay for what they want and get that but the cable companies force you to buy things you don’t want in order to get what you do and it’s all over priced. I am not losing any sleep over this. DSL sucks compared to my cable modem and Comcast offers VoIP too so the idea that the phone company is working against the cable company is silly. The very idea that the cable companies will go out of business if they offer a la carte programming is ridiculous. Fight the man, power to the people!

  7. Cableguy, it is well-known that cable co’s are in the process of executing a strategy to transition everyone to digital cable and they are doing it with a bit of carrot (discounts, multiple packages to select from, free VOD content) and a bit of stick (moving popular channels like SciFi and Comedy Central to digital only). I think it is perfectly reasonable for the consumer to fight back (they are pitted against monopolies, remember) with something like an a la carte requirement. And, it could apply only to digital tiers, of course.

  8. cableguy

    Om, as usual, on target. It seems to me that Kevin Martin is at the top of the Phone guys best friends list right now. He’s almost a straight out shill for their agenda.

    One thing that everyone forgets about the whole a la carte thing – arguments about programming cost aside – the vast majority of customers (60-70%) buy ‘standard’ cable service, which is an analog service – you know, the type that plugs into your cable-ready tv without a box…well, the only way to control who gets what signals in an analog system is to install a filter on the wire before it comes into your home. Its simply not practical to have a filter on the network for every possible channel at every home. And most people don’t want to have a box on every TV…but policy debates are never bounded by the practical :)
    Disclaimer: I work in the cable industry

  9. Om, how do you compare a la carte cable with telephone unbundling? Bells were forced to sell their lines to competition at below market prices as a result of unbundling. No one is forcing the cable guys to do the same for video now. I do agree with you that the Bells (given their history) will do anything to protect their turf and this is probably only the beginning of their fightback.