"Before you jump to any conclusions about these companies, though, remember that the turn of the millennium was precisely when a lot of modern Internet cabling was being rolled out."
I feel like this is a very important point that is getting lost.
Of course costs are going to be higher and profits lower (or even negative!) when you're laying lots of new fiber and deploying new equipment. Maintaining that equipment in subsequent years will cost much less and you'll make more money those years selling service on it. There's nothing inherently wrong here.
Yes, costs naturally will be lower after the initial large capital expenditure.
No, this so called modern cabling has not resulted in cheaper and faster access fees. Americans pay some of the highest fees for comparable speeds. [1]
Lastly, the flip side of the coin is that if the ISPs figure out they can still make $$$ from not having to invest in upgrading infrastructure, then there is very incentive to do so.
The graph I would like to see here is "integrated expense" and "integrated income" over the years. That would indicate when the point-of-break-even happened (or will happen).
My guess is they were barely loosing any money in the years they upgraded their network and have recovered their investment within a few years while raising prices even more under the false pretense of needing/wanting to upgrading their network even further.
It would be interesting to have a line on that graph showing when ISP's weren't required to abide by FCC rules because they were not classified under title 2.
Yet with all this purported modern fiber, only like 5% of the US population at most have access to speeds over 100MB/s, and only at exorbitant prices that do not reflect the current low cost of maintenance of that infrastructure deployed a decade ago (when these companies were, note, still profitable).
This felt like the main point of the article for me. Geographically it is very relevant to me (and fellow Australians, even if they are too stupid to see through our government's crap).
I don't see anything too surprising here. The big problem is the lack of disruption and innovation due to the government sponsored monopolies of internet/cable/network carriers over geographic regions.
However, it's normal to spend a lot of money on CAPEX and make higher profits on the services after the financing for capital expenditures used to expand the services has paid off. The only people who might find this less than obvious are probably solely from the lean internet business space, and haven't had any real experience in manufacturing or other capital-heavy businesses.
This is the saddest part about it. Cable companies and broadband were once the tip of the spear of innovation in terms of internet speed.
In '95 in Chandler, AZ I went from a 56k to a broadband connection up to 6 Mbps broadband connection (with so few on the nodes then) in one day. It was amazing innovation and almost magical.
The sad part is that the same companies that brought that are the same companies keeping us from leaps like that now, no longer disrupting or innovating, bean counting instead while the US broadband and subsequent innovation possibilities / new markets burn.
The best way to make more money and be more liked as a company if you are in broadband is to jump up a level and put your competitors on their heels by giving more speed/bandwidth, but there are no competitors worthy yet to challenge and shake up internet connections like cable companies did back when phone companies were lethargic.
"jump up a level and put your competitors on their heels by giving more speed/bandwidth, but there are no competitors worthy yet to challenge and shake up internet connections like cable companies did back when phone companies were lethargic."
That's not going to happen as long as you have a government-aided cartel. There is simply no way a competitor can come up and "shake up" the landscape because there are so many regulations and red-tape. Those regulations increase the cost and barrier to entry. So unless you have a few billion to throw at the problem, address the source of the problem, regulations.
Yep, welcome to capitalism. When you need to raise your profits to justify high prices for shareholders, it is a race to the bottom to see with how little you can spend for market competitive pricing.
Having been in the position of living in a city of over 1 million residents and therefore being able to choose my broadband provider from a generous selection of one option, I would really like to be welcomed to capitalism. Capitalism sounds lovely. Even if it doesn't promote higher quality service, market competitive pricing alone would be a huge improvement over what I'm used to.
We have 20 states here that passed laws banning the choice for cities, counties, etc.
And I'm not talking about National Broadband. I'm talking about city-level investment. I don't think we should have a whole Nationwide network built out. We already have that with plenty of competition. Its the FTTH that is the issue and that is something a city can do or ignore, at their option.
Quite the opposite. Monopolies and oligopolies are the first two kinds of market failure they'll teach you about when you're learning basic capitalist economic theory in school.
It's what every company thrives to have, regardless of the economic system. Capitalism's key innovation over its predecessor, mercantilism, was to recognize that allowing them to happen is generally detrimental to society as a whole.
It's a tough one though. It takes a lot of resources to bring the service to you, regardless of how much it sucks. Imagine if it did not suck. We would have to pay more for that.
Tax dollars paid for a lot of the work done to install the basic infrastructure. The telecoms still have a lot of skin in the game, but they've had lots of help along the way.
Consumers are getting screwed in both ends, regardless.
Yes, it was a joint project. Without those dollars, the project would not have gotten done. It's a JV. Everybody knew the terms going in, and changing them after the fact is like changing rules "after you are losing."
Everyone did know the terms going in. The premise of the 1996 deregulation was that the telcos would lose their legal monopolies, and competition would lead to higher investment and better service. The states torpedoed it, using universal service requirements to make competing with the incumbents unattractive in the very places (dense cities) where it would make the most sense.
Who is changing the terms after the fact? The deal was that these networks would be built with private money and privately owned. There is very little public money in there, particularly in the cable network. Since deregulation in 1996 the cable companies have built massive fiber-coax networks mostly at their own expense. Its changing the terms to come in after the fact and try to treat it as public infrastructure.
To be fair, rural areas are insanely cheaper to service with fiber actually. You have cities like SF where NIMBYs are demanding all fiber equipment boxes be buried underground out of sight, and all cabling has to be tunneled. In rural areas you just string fiber on power poles or trench in the ditch.
As well, almost every successful muni fiber out there has been in an area with a muni electric provider, and little to no fiber providers outside of the muni, providing them an almost monopoly for commercial business. In major cities, commercial service is well served by multiple fiber providers, so the investment is mostly residential with no subsidizing by commercial. Many of these rural areas also have some of the cheapest electrical rates in the country as commercial user subsidize those.
Source: I grew up in Dalton GA that has muni fiber/elec 30 mins from Chattanooga who also has muni fiber/elec. I can't see this working in a major city like Atlanta.
Historically, these rural areas have been overlooked by the major private utility companies, and communities have had to DIY if they wanted electricity, telephones, etc. One thing people miss is the reason these areas have municipal electric companies in the first place is it was the only option to get electricity by the communities. There's a history of locally owned utilities working well. Besides electricity, locally owned telephone companies are also popular around the region.
Another big thing is that the interests of the business community and the residents are aligned in rural areas. There was no carrier hotel or POPs by any other providers in Dalton. Before muni fiber in both Dalton and Chattanooga if you wanted high speed internet you'd have to get a private loop backhaul all the way to Atlanta and then also pay for the internet access. No national or local providers had IP routers with gig-e or above ports locally that I'm aware of. Not like in Atlanta where you can get a local loop (from multiple national providers) to a carrier hotel and have your pick of 50+ IP transit providers.
Muni fiber was the only option for affordable internet access for both businesses and residents in these areas, and the utility was guaranteed an almost instant monopoly on high speed internet for business users. They electric cos also had all the rights of way and customer billing infrastructure, pre-built client base, and were running fiber anyway for their own use in managing the power network.
I think there's a reason why almost every successful muni fiber ISP is in a rural area with a muni electric company, and that's that local governments probably shouldn't be in the ISP game, but in some cases it's the only option by communities to obtain high speed internet, and in those cases necessity is the mother of invention.
In larger cities, I think the model would have to be different, and a muni fiber network would be a transport loop only service and you'd get to pick which ISP to connect to on the other end, like DSL in the CLEC days.
This isn't capitalism, it's the opposite of capitalism. It's regulatory capture and government corruption. Most major ISPs are cable companies, and most ISPs/cable companies have a cozy legal arrangement with municipal areas to lock out competition. The free market is not in operation here.
No, actually that's roughly the original definition of the word. But then word definitions change over time, and it's now come to be equated with free market capitalism where the capital is privately held. So you're not entirely mistaken in pointed that out.
Then again if we go by the common usage, communism is an entirely useless word, as it has come to mean "whatever china is doing".
My state has a single state wide franchise agreement system, no negotiations between individual cities required. They also voided all the exclusivity provisions.
Been years now, no one's running a second set of lines, let alone third or fourth, even in the city core. It's capital intensive with a long time horizon to payoff.
People who keep blaming this on the government are fooling themselves.
Tell that to people of Eastern Europe, where 10 years ago it was a free-for-all build-your-network without any regulation or state intervention.
At one time I had half a dozen ISPs at my door to choose from, from companies with 100 subscribers to corporations with half a million household customers. Thank you, Capitalism, for offering me a gigabit connection for $16.8 per month (btw, my ISP just reduced their price from $18 per month a couple of months ago).
Seriously, how the hell do some people think that local authorities imposing restrictions/roadblocks on building of new last-mile alternatives is "capitalism"?
The local authorities don't really provide roadblocks in many, many cities. Its FUD. I linked to a tiny ISP lower that provides gigabit to like 200 city blocks.
The problem is lack of desire to invest because its expensive and incumbents exist.
Which would be fine so long as there's a reasonable amount of competition. Too little competition means price gouging. Too much competition means everyone focuses on cheating rather than creating value. It would be more productive to focus on figuring out how to enact regulation/deregulation to tune the level of competition rather than bashing capitalism.
The underlying problem is the market economics of laying fiber basically means it doesn't make sense for more than 1-2 companies to do it in a given geographical area. :/
We need municipal public fiber that is leased to anyone who wants to operate an ISP.
But, once the municipality is done with the fiber, then running the service is "relatively easy." Since the primary asset you are selling is bandwidth, what would be left to let more than one competitor compete for/differentiate? Service? Possibly, maybe faster setup times, etc. But those are "one time" things only.
I think bandwidth is becoming a necessity and local government can deliver it (for the record, I did not vote for Obama last time! ;-)
If multiple providers were leasing the fiber, they could compete on how they handle the data on the other side of the last mile: how they're connected to other networks (peering and transit), price, oversubscription rates, acceptable use policy, willingness to install caching boxes provided by content providers, what services are included and their quality (dns/mail/vpn/homepage/news/shell).
The ISPs would still need to pay for the interconnects b/t the municipal ISP and, say, Level 3. So performance, etc. as well.
The way I envision it working is:
FTTH is the municipal and they hook it up to a single interchange. From there, someone has to pay for the routing to the rest of the internet, etc. Its the FTTH that is screwed up.
ISPs here (the UK) primarily use the same physical last mile (along with their own hardware in the exchanges), and often the same backbone infrastructure, but differentiate on pricing and service.
There's also enough money caught up in the retail ISP business that if the infrastructure maintainers failed to do their jobs, the retail ISPs could reasonably compete with them, at least in key markets. This, combined with a strong telecoms regulator pressuring them into developing and maintaining infrastructure, generally works out reasonably well; much of the country, including a lot of small towns, now have 50-70Mbps unlimited unshapedc FTTC for a reasonable price.
Nope, in urban areas it definitely makes sense for 4, 5 or more companies to offer broadband in a single apartment building; in countries where this isn't artificially restricted this is the natural result of market competition. Suburbs are different, but USA lacks competition even in cities that have extremely dense population and huge demand.
I don't think you can "tune the level" because the thing is not algorithmic. Every town / situation is unique. That's why every project is managed at the local and state levels, gets political, some interest group wants discounts, etc. In the meantime, all a company wants to do is to recoup its billions.
Maybe this is a problem where over time the government takes over and gives ok service for a while, then it sucks again (as many government initiatives do), then it gets privatized again, etc., all over a few decades (so irrelevant for today's consumers).
Software patents aren't what created Microsoft or its monopoly. Apple, Linux both survived just fine. They just didn't control a ridiculous percentage of the market.
It's a little disingenuous to claim that Apple and Linux 'survived just fine'. During Microsoft's height, Linux was in its infancy, and Apple would have likely died were it not for Microsoft's $150M investment in Apple mere weeks before it was to file bankruptcy.
Though, I'll agree that software patents weren't what created the MS monopoly (though they are certainly using them now to try and hold on to their current market). There were many factors that led to MS's monopoly, some of which the government (and/or its negligence) was party to.
MS Office is a government imposed monopoly on several places. But even where it's not government imposed, it's imposed by society, a real problem that should be fixed by governments.
How do you propose governments should fix the "society-imposed monopoly"? Why would society be interested in having governments that grow their role to such tasks?
the government very easily could have imposed an academic rich-text file format that was available for all platforms... and bypassing the whole .doc/.pdf closed fiasco... :/
The problem is these companies try to act as utilities, not technology companies. They borrow large sums of money (look at dept of AT&T or VZ), invest some of it in their network, but use big chunks to pass on to shareholders as dividends. They are financial companies, not technology companies. They are far more concerned with paying a few cents more in dividend per share than delivering a few more Mbps. I guess that it capitalism, but it is short sighted. I think the days may be numbered. It would require a good investment of capital, but Google fiber for example shows that from the technology side it would be trivial to disrupt them.
The upsetting thing to me is not that the networks make money. That's fine. It is that they have stymied growth of our economy in favor of milking as much money as they can.
Think about the tremendous power unleashed when MP3 sharing, YouTube video, and Netflix streaming all became possible thanks to sufficient bandwidth. Now think about what would happen if we ramped up speeds instead of letting them trickle.
I don't know why people get PO'd that companies make money. That's the way capitalism works. It's not like anybody can just invest billions of dollars in infrastructure and hope to make money on it.
Then again, the town of Chattanooga TN may be on to something:
There's a huge difference between "companies exist only to pay (short term) shareholder dividends" and "shareholders are one of the ways companies raise capital to accomplish its mission"
It's two different cultural perceptions that have a big outcome on how companies are managed.
I think it's OK for people to be PO'ed when companies are managed by the first mindset. Because healthy capitalism is as much about culture as it is the concrete laws and regulations. Unfortunately I think the US is struggling with a bad culture here, as evidenced by "corruption" being relabeled as "lobbying", which has become culturally accepted.
I'd be more interested to see how more regional expenditures on infrastructure do (or possibly don't) change in response to new, viable competition, such as Google Fiber.
This is anecdotal and not the hard figures you're asking for, but I know in Austin both Grande and AT&T (two of the three ISPs in town) started offering gigabit packages. In almost all neighborhoods AT&T beat Google in getting fiber to people's doors. This went from being something they weren't even hinting at to being a reality within a year of Google announcing their intentions to provide fiber in Austin. And while Grande is still only offering fiber in high end neighborhoods, AT&T has pretty good coverage with it.
I feel like this is a very important point that is getting lost.
Of course costs are going to be higher and profits lower (or even negative!) when you're laying lots of new fiber and deploying new equipment. Maintaining that equipment in subsequent years will cost much less and you'll make more money those years selling service on it. There's nothing inherently wrong here.