Broadband Cable Association of Pennsylvania


May 8, 2013

It has been almost two decades since @Home Network offered perhaps the first broadband plan in the country. It was right after the 1996 Telecommunications Act allowed cable companies to get into the business. Milo Medin, one of @Home's co-founders, still recalls the price of the pioneering service, offered to residents of Fremont, Calif.: $34.95 a month - $51.85 in today's money - for a maximum speed of 10 megabits per second. The memory inspires not a little frustration about the Internet's progress since then: 17 years after @Home plugged in its first customer, the residents of Kansas City pay Time Warner, their local cable company, $46.90 for a 3 Mbps connection and $55.40 for a top speed of 15 Mbps. "At that time the United States was a leader in broadband," Mr. Medin recalled. Today, he lamented, "I don't see anybody arguing that the U.S. is anything but mediocre." These days, Mr. Medin leads Google's effort to deploy superspeedy 1 gigabit-per-second networks - 100 times faster than the 10 Mbps plans @Home introduced long ago - in several cities around the country, starting in Kansas City last fall.

Most of the nation's innovation today relies on a broadband connection. Yet broadband seems to be the one area of the information economy that has not followed Moore's law, named after the proposition by Intel's co-founder Gordon Moore that the power of digital devices would roughly double every couple of years, radically expanding their capability and driving down their cost. "Internet access is constraining what people can do," Mr. Medin said. "This puts American companies at a disadvantage. It puts Google in a place where we can't innovate as well as we could." President Obama has made much of this deficit. In 2010 his administration introduced a National Broadband Plan that promised a path of rapid deployment of high-speed networks, offering 100 million households affordable access to connections of 100 Mbps or more. "We will not succeed by standing still, or even moving at our current pace," Julius Genachowski, Mr. Obama's first chairman of the Federal Communications Commission, told Congress at the time. Yet most Americans are still stuck in the Internet slow lane, far from the frontier of our possibilities. And the main roadblock remains much the same as it has been for years: a lack of competition.

Last week, President Obama nominated Tom Wheeler, a veteran lobbyist for the telecommunications industry, to succeed Mr. Genachowski. He has his job cut out for him: achieving fast universal broadband requires figuring out how to shake up the oligopolies that run the nation's high-speed Internet. There has been progress lately. The F.C.C. points out that more fiber-optic cable has been laid in the United States than in Europe in the last two years. According to Akamai, the nation's average broadband download speed is about 7.4 Mbps per second, about twice as fast as it was two years ago. This puts the nation in eighth place in the world, up from 22nd in 2009.

Still, speeds in the United States remain behind those in the world's most connected countries, like South Korea, Japan and Switzerland. Equally importantly, American broadband, at an average price of $6.14 per Mbps, is more expensive than in most other developed nations. This has little to do with the actual cost of moving bits. The price of transporting data wholesale across the Internet has fallen to about $1.57 per Mbps, down from $1,200 when Mr. Medin was helping start @Home. And high prices discourage Americans from opting for higher speeds. Though 10 Mbps broadband is available in 90 percent of homes around the country, and four out of five homes have access to 100 Mbps service, last year only 28 percent of homes that had access to broadband at a speed above 6 Mbps actually bought it. What's most worrying is that the handful of companies offering high-speed broadband to American consumers may have little incentive to expand their networks, increase their speeds and lower their prices.

According to the F.C.C.'s latest calculation, under one-third of American homes are in areas where at least two wireline companies offer broadband speeds of 10 Mbps or higher. Even including the spottier service offered by wireless providers, which tends to come with strict data caps limiting use, the share is less than half. That means that in most American neighborhoods, consumers are stuck with a broadband monopoly. And monopolies don't strive to offer the best, cheapest service. Rather, they use speed as a tool to discriminate by price - coaxing consumers who are willing to pay for high-speed broadband into more costly and profitable tiers.

Blair Levin, who headed the F.C.C.'s broadband initiative until three years ago and is now at the Aspen Institute, traces the roots of broadband's limits to telephone companies' decision, back in the 1990s, not to match cable's costly investments in fiber, trusting that their DSL service would be an adequate competitor. But DSL couldn't follow cable past 3 Mbps. Verizon did eventually get on the ball - investing in its FiOS fiber network, which is expected to reach 17 million homes when it is completed. But that's the exception.

"Given cable's lead and its ability to counterstrike if the telcos upgrade, the telcos don't have a winning strategy that involves a better network," Mr. Levin said, suggesting that the industries will focus on drawing profit from existing networks rather than investing much in expanding them. "Both cable and the telcos are better off with a harvest strategy, and both sides would lose if one starts an upgrade cycle." The preferred strategy seems to involve more cooperation than competition. In 2011, Verizon tried to cobble together agreements with the nation's major cable firms to jointly market each others' services - offering itself as the wireless complement to cable's wireline plans. It was foiled only because the Justice Department slapped the deals down as anticompetitive.

Mr. Genachowski contends that broadband deployment is on the right track. He points, for instance, to AT&T's announcement that it will expand the footprint of its U-verse network to some 33 million homes out of the 100 million it now serves. This uses fiber part of the way and, AT&T claims, can attain up to 75 Mbps. But it probably will take an outsider like Google to transform the industry. Its assertion that it can turn a profit selling 1 Gbps service for $70 ($120 with a TV plan) offers an entirely new horizon for broadband development. It has plans under way to take the service to Austin, Tex., and Provo, Utah. And it is spurring a domino chain of investments. "As someone who is stuck with 1 Mbps broadband at one house due to where it is located, it's a huge inhibitor," said Brad Feld, a longtime investor in digital start-ups from Boulder, Colo., who bought a residence in Kansas City's first plugged-in neighborhood to house inspired entrepreneurs free. "At this point I have no idea what the breakthrough applications will be, but I look forward to experimenting with some stuff and figuring it out."

Several cities, including Chattanooga, Tenn., and Seattle, are starting their own gigabit plans, potentially forcing the dominant cable and phone companies to respond. Shortly after Google's fiber started operating in Kansas City, Time Warner increased speeds across the city, offering its first 100 Mbps service in the country. After Google said last month it would build a 1 Gbps network in Austin, AT&T said it would build one too. Yet the challenge remains: monopolies have a high instinct for self-preservation. And more than half a dozen states have passed legislation limiting municipalities from building public broadband networks in competition with private businesses. South Carolina passed its version last year. A similar bill narrowly failed in Georgia. Supporting these bills, of course, are the nation's cable and telephone companies. New York Times

Turner Broadcasting System Inc.'s TBS cable network next year will begin showing later rounds of the U.S. men's college basketball tournament, including the semifinals known as the "Final Four," as part of a new arrangement with CBS Corp. to divide up coverage in coming years.

Time Warner Inc.'s Turner and CBS have been jointly telecasting the 67-game National Collegiate Athletic Association tournament since 2011. Turner, whose networks have shown only games from the first three rounds thus far, will show half of the quarterfinal games and both Final Four games on TBS in 2014 and 2015; CBS will continue to broadcast the National Championship game in those years. After that the companies will start a rotation that will last through 2024: TBS will telecast the Final Four and the Championship in all even years, starting with 2016, while CBS will show those games in odd years. Major sporting events such as the NCAA men's basketball tournament are hugely valuable to networks and advertisers because they command big live audiences at a time when viewers increasingly watch other programs on-demand or on DVRs that can skip over ads. Tournament games, especially later rounds, are routinely among the highest rated TV programs. This year, tournament games attracted an average of 10.7 million viewers, the highest level in 19 years. David Levy, president of sales, distribution and sports at Turner Broadcasting System, praised the "seamless collaboration" between CBS and Turner. CBS Sports Chairman Sean McManus called the new deal a "win-win arrangement." For CBS, the cost-sharing in the Turner deal has turned what was once a money-losing franchise for the network into a profitable one.

Turner's greater role in televising late-round tournament games continues a trend of large sporting events moving from broadcast TV to cable. In recent years "Monday Night Football," college football's Bowl Championship Series and golf's British Open were among the other big events that have made the shift to cable. Some analysts say there is a risk that viewers accustomed to watching the NCAA Final Four and Championship on broadcast TV won't all switch over to cable, lowering the ratings. That would hurt both Turner and CBS, since they split advertising revenue regardless of who is televising those games. But other analysts say it is more likely that fans will find the later round games on cable easily. Turner and CBS say they are encouraged by the strong viewership thus far of earlier-round games on the Turner networks including TBS, TNT and truTV. Time Warner is banking on Turner's suite of cable networks to help propel double-digit increases in coming years in the fees it charges pay-TV distributors. Carrying more highly watched sports content will put Turner in a stronger position as it enters negotiations with cable and satellite operators, analysts say. Wall Street Journal