For decades, cable companies have been in an extremely comfortable position. They were — and still are — generating piles of cash and their market positions were untouchable. But something is changing: their once dominant market position is slowly falling apart. It is falling apart to the point that they risk become irrelevant. As any industry, their natural reaction is to fight back to recover their control and it is this reaction that ties directly into the discussion around net neutrality.
Historically, cable companies have de facto monopolies or duopolies in the areas they serve. It gave them significant market power on consumers & broadcasters alike. There was little choice than to just deal with them. They priced themselves to consumers in such a way that alternatives were just not competitive enough to consider while maximizing pricing to generate as much money as possible for themselves. While at the same time, cable operators receive fees from broadcasters — and in some cases cable companies negotiated part ownership — for the “honor” to be carried.
Though, the market is slowly changing. Phone services are not as important as they once were since consumers start to rely solely on their mobile phones. At the same time is television moving towards the internet. This leaves the cable companies with only a dumb data pipe towards the internet.
They are loosing the iron grip, they once had on their markets. And here comes in net neutrality. Now what if the cable companies could pull the same trick they did with broadcasters, and apply it to internet companies as well? Let’s say, they appeal to Netflix to fork up a fee per subscriber for the ‘privilege’ to be available to their customers. If Netflix does not want to pay, they just slow Netflix to crawl so it is barely working during the evening hours. I am sure it will impact the number of subscribers Netflix has in the area serviced by the cable company.
But at the same time there is another battle front emerging for cable companies and that could potentially make them completely irrelevant to consumers. Their worst nightmare can become true, and that is that internet access will go completely wireless. Verizon, AT&T, T-Mobile and Sprint are investing huge amounts of capital into building out and improving their 4G LTE networks. In 5–10 years, we will not need a cable company anymore. Our phones, tablets and computers will just connect to LTE.
Cable companies must have realized this as well. So how do you compete against that? Simple, build your own mobile network. The problem is that all usable spectrum for mobile phone services is unavailable. Their next best option is to use unlicensed spectrum and bet on existing technology to access that spectrum. Here comes wifi. Wifi is ubiquitous and every device has it. The challenge though is that the reach of wifi is limited and you need countless wifi cell sites to get some kind of continuous coverage in an area. Fortunately the cable companies can rely on their existing customers to turn their homes into their own little private cell sites.
So with cable companies going wireless and their willingness to try to squeeze every dollar they can get their hands on out of their customers and suppliers, it is only a matter of time net neutrality will make the jump to wireless as well.
Now, this begs the question of net neutrality is really that important. How bad is it that Netflix pays a fee per subscriber? They can just increase their monthly fees to their subscribers and be done with it. While this is true, it will put back market power back into the hands of large cooperations with exclusive access to specific markets. These companies do not necessarily have the best interests of their consumers in mind with delivering their service. Bottomline companies only answer to their shareholders who want to see maximization of profits. Any industry with great market power bordering to a monopoly begs for regulation by governments. Typically these are only reserved for markets with lack of competition due to huge capital investments to service these markets. You see that with utilities and cable companies in the past. Their last mile investments were huge and it was not conceivable a positive return on investment with competition was possible. But this statement does not hold true anymore. Cables which went into homes and the ground are still going strong 30–40 years after they have been put in. Cable companies are moving or have moved part of the network to fiber which realistically will last them again 30–40 years. There is ample time for cable companies to recuperate their investments. At the same time, I do not expect that multiple cables go into every home. This begs for regulation for now. Consumers simply do not have a choice and there is a significant lack of competition in the internet access market today. Net neutrality offers that regulation. It is fair, easy to implement and — actually — increases competition on the internet itself.
Now all of this will change when wireless becomes an alternative for cable internet. Net neutrality can go when that point is reached. There is enough competition on the wireless market with 5 major carriers and possible a 6th in the form of cable companies going wireless.
This is why net neutrality is so important today.