Comcast vs. the Cord Cutters

Comcast vs. the Cord Cutters


The typical American household pays about $90 a month for cable television service, according to the NPD Group, the market research firm. But according to the research firm of You and Pretty Much Everyone You Know, when you click on your TV and browse the guide, what you often find hardly seems worth $90 a month.

This is the battle hymn of the cord cutter: You are paying too much for television, and you aren’t watching most of what you’re paying for. Over the last couple of years, millions of Americans have ditched their cable plans in favor of online streaming services like Netflix and iTunes. Perhaps intoxicated by the money they think they’re saving, cord cutters tend to be evangelical about their lifestyle, feeding a viral phenomenon that is altering the economics of the cable business.

But can cord cutters truly escape the cord? And are they, in fact, saving much money at all?

Comcast’s deal this week to acquire Time Warner Cable highlights the pickle that cord cutters may soon find themselves in. The acquisition rests on the assumption that as people cut back on their monthly TV plans, the cable lines coming into their homes won’t lose their value. Instead, the more we imbibe of all the glories available on streaming services, the more we’ll need to shell out for high-speed broadband service.

In most American households, the cable cord is the fastest conduit for broadband service. This suggests the canny strategy by which those once-inescapable cable providers might combat the rise of cord cutters: The cable giants will simply become even-more-inescapable Internet giants.

If the big providers can do that, cord cutters’ gleeful self-satisfaction may prove short-lived. Critics of the Comcast-Time Warner deal argue that it will eventually give Comcast the power to raise prices for its broadband and cable TV services and especially to hold its Internet-only subscription prices so close to its TV-and-Internet prices that few people will see much use in declaring their cable independence.

“Comcast and the new, giant Comcast are going to do as much as they can to stop you from unbundling,” said Craig Aaron, president of Free Press, a consumer advocacy group. “In order for you to get content you like, you’re going to be pushed to pay the cable bill, too.”

You can get a hint of such a future in Comcast’s current price structure. Today, its cheapest Internet service — a plan that a cord-cutting household might select — goes for $40 a month for the first year. It offers download speeds of up to 25 Mbps, which means it’s fast enough to stream two or three videos simultaneously — say, a FaceTime video chat in the teenager’s room, an episode of “Scandal” in the living room and “Adult Swim” in the man cave.

Here’s the twist: Comcast’s cheapest TV-and-Internet plan goes for $50 a month for the first year, or just $10 a month more than the cord cutter’s plan. Subscribers to the bundle get the same streaming speed as the Internet-only plan, as well as basic TV service that offers a handful of local channels. Comcast also throws in its service for watching TV shows on your mobile devices. More enticingly, the plan includes access to HBO and its streaming service, HBO Go, which — unlike Netflix and Hulu — isn’t available to cord cutters who lack a cable TV subscription.

None of the prices quoted here include taxes and fees for extra equipment. Comcast also notes that prices may vary by location. Considering these caveats, it’s likely that your bill for these plans will be higher than the quoted prices. Still, it’s instructive to note the very small price difference between the cord-cutting plan and the TV-and-Internet plan.

Cutting the cord, in Comcast’s universe, just doesn’t save you very much money. Comcast has carefully set up pricing to get you whether you watch shows the old-fashioned way, on a boob-tube fed with a cable, or whether you prefer to veg out with Netflix on your iPad. Either way, you’re probably paying hundreds of dollars a year to maintain your vital hook to the outside world. And if you consider the added costs of Netflix and streaming rentals, it’s possible that the cord cutter may be paying more, over all, than someone who subscribes to cable.

Whether and how Comcast’s bid for Time Warner Cable will further shape pricing will be a matter of fierce debate before regulators sitting in judgment of the deal. In its presentation announcing the bid, Comcast argued that because it doesn’t currently offer service in markets served by Time Warner Cable, acquiring it won’t reduce competition in those markets.

The company also points out that it is now bound by consumer-protection conditions that the Federal Communications Commission applied as part of Comcast’s acquisition of NBC Universal in 2011 — protections that Comcast is willing to extend to Time Warner Cable’s customers. Among these protections are “open access” rules, also known as network-neutrality provisions, which prevent Comcast from favoring certain content over its network.

For instance, the rules would prohibit Comcast from slowing Netflix streaming unless Netflix paid Comcast an extra fee, a model that has been floated by some in the television industry. Because a federal court struck down a more widely applicable set of open-access rules in January, Time Warner Cable is not bound by any similar provisions. Comcast’s acquisition, then, would technically extend the rules to cover more Americans.

Critics note that the F.C.C.’s neutrality conditions expire in 2018, after which Comcast would be free to start new, network-neutrality-violating business models for its services — perhaps, for example, charging Netflix a fee to get a faster network speed.

More immediately, they point out that while Time Warner Cable imposes no limit on how much data its Internet subscribers can download, Comcast would probably impose its data cap of 250 gigabytes a month on Time Warner’s customers. That number is enough to stream dozens of high-definition movies a month, so it shouldn’t be a problem for most customers. But a few of Time Warner Cable’s most active cord cutters might feel the pinch.

There is also the matter of network performance. According to data published by Netflix, subscribers who use Time Warner Cable experience streaming speeds that are about a third faster than those on Comcast. When those Time Warner users are switched to Comcast’s infrastructure, they may find that “House of Cards” takes a little bit longer to start playing.

Which is not to say that striking down the merger would lead to some kind of cord cutters’ nirvana. Americans pay far more for broadband and TV service than people in most other industrialized nations. According to data collected by the New America Foundation, in Los Angeles, the cheapest monthly television, phone and Internet service costs about $80. In Paris, a similar bundle sells for $32, and in Seoul, it goes for $15.

Broadband markets in most other countries generally operate under tighter rules than those in the United States. Nonetheless, the F.C.C. has attributed those high prices to a lack of competition in local broadband markets. Most American households are served by only two high-speed Internet providers, and some have only one or none. Even in markets with two providers — usually a phone company and a cable company — prices tend to rise.

According to a report by the research firm SNL Kagan, Comcast’s price for its basic Internet tier in Philadelphia and Atlanta rose more than 50 percent from 2009 to 2013. In each of these markets, Comcast faced competition from phone companies — but those high-speed providers raised their prices more than 30 percent over the same period.

The steady price increases in broadband rates cast a pall over any cord cutter’s dreams. It’s possible that you might still save money now by cutting off your cable. But if you plan to watch a lot of TV over the Internet, don’t expect to save money forever.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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