The original cable companies were community antenna television (CATV) providers. They would find high ground with good signal reception, or make it with antenna masts, and send an amplified signal to their subscribers. The service was relatively cheap and very desirable in areas where putting up your own antenna wasn't useful. Towns easily granted licenses to their local companies to put up wire on the telephone poles.
The first added services were satellite channel reception and local channel insertion. These cost little to add.
Then pay channels were invented - HBO among the first. In order to differentiate non-subscribers from subscribers, the cable companies came up with a clever idea: they would add a transmission to each pay channel that would interfere with the signal. Subscribers would get a notch filter that would cut out the interference.
It was easy when you only had one channel to block or allow, but handling several meant multiple filters. It was much cheaper to maintain a few sets of multiple-filter enabling devices than to customize them for every subscriber, and that's where tiers of channels originally came from.
All of these things were handled by more or less local companies, and towns and cities didn't have a problem handing them pole access. But the companies consolidated into larger franchises, 800 becoming 20 or so companies covering populations of a million or more subscribers each and 82 much smaller businesses. The top five have about 235 million people in their coverage zones. The next five cover 43 million. And the next ten have about 15.
Now, once you have wired infrastructure covering that number of people, coupled with a tradition of granting local monopoly access to the wires, you get to hire lawyers and lobbyists who convince legislatures to make your traditional de factor monopoly a de jure monopoly.
So that's how we got here.
What can we do? Mostly what we have to do is to make net neutrality and infrastructure reform a priority for our state legislators and congressional reps and senators. Talk to them about your concerns. With Republicans, concentrate on arguments about enabling small business innovation and improving the economy. With Democrats, use arguments about freedom and consumer rights. Talk to your neighbors. Nobody wants a high cable bill, and the only way to lower it is to break the monopoly.
Excellent historical summary. I wonder, in your opinion, how do you envision new VHF/UHF technology impacting wired monopolies? Do you see it shaking up the local wired monopolies or do you expect airwave frequencies to be snatched up by the big guys in order to maintain status quo (ie limited choices)?
There's a major difference between wireless and wired communications: one of them requires a wire.
You have to pay a lot to get those wires to the places where you want them to go, but they don't interfere with each other. You can double capacity along a link by doubling the number of wires. (Or fibers, or continuous waveguide metamaterials, or whatever.)
When you need to double capacity along a wireless link, you need to either come up with a 2x better coding regime -- and those don't happen all that conveniently -- or you need to have access to twice the frequency range that you had before. Since the FCC hasn't given up on that part of their regulation, it's going to cost you quite a bit to have that license.
Now, the next time you need to double, you have the same choice...
Absent a major regulatory change not likely before 2020, I expect a fire-sale or give-away of licensed frequencies, all going to major incumbent players.
That's generally how telecom works. You can always try to compete against the big guys, at least for a while, but in the long run they will own you one way or another. It's not an accident that the two biggest wireless companies are also the two biggest wireline telecom companies (and both former parts of Ma Bell).
Why? To build a telecom, you need billions in capital. To raise that much capital, you need shareholders with deep pockets. If you do very well with those investments and threaten the big telecoms, they'll just buy you out. Those investors with deep pockets will be happy to sell for a profit.
Eventually, the scale advantages when it comes to things like network upgrades will plow you under.
Let's compare Comcast (30 million subscribers) with a local cable operator (and let's say it's a co-op with 50,000 subscribers):
If Comcast wants to upgrade from DOCSIS3 to DOCSIS3.1, they have to come up with an upgrade / migration plan for probably 3 or 4 different configurations of their CMTS platform. Let's say this costs $10 million per platform, so $40 million overall. Spread across 30 million customers, that works out to about $1.25 per customer.
If the local co-op wants to upgrade from DOCSIS3 to DOCSIS3.1, they have to come up with one migration plan for their single CMTS platform (this includes things like lab equipment, etc because you absolutely have to test and tweak this stuff). But the local co-op probably doesn't have a bunch of on-staff CMTS integration experts, so they have to hire an integrator at probably 1.5x the cost Comcast would pay. $15 million across 50,000 subscribers is $300 per subscriber.
Tell a co-op board that they have a choice: a one-time $300 fee across all the customers to cover the upgrade, raise prices by $10/mo, or accept a buyout offer from Comcast who will perform the upgrade for free. And this is just for one component of the system. Costs are simply higher across the board, and that has to get passed along to customers.
Scale matters in telecom. A lot. A lot of the investment is in non-variable costs, or at least costs that scale logarithmically to number of customers rather than linearly. Comcast/AT&T/Verizon can afford to undercut any smaller competitors because their scale enables a cost structure with much lower overhead maintenance costs.
The original cable companies were community antenna television (CATV) providers. They would find high ground with good signal reception, or make it with antenna masts, and send an amplified signal to their subscribers. The service was relatively cheap and very desirable in areas where putting up your own antenna wasn't useful. Towns easily granted licenses to their local companies to put up wire on the telephone poles.
The first added services were satellite channel reception and local channel insertion. These cost little to add.
Then pay channels were invented - HBO among the first. In order to differentiate non-subscribers from subscribers, the cable companies came up with a clever idea: they would add a transmission to each pay channel that would interfere with the signal. Subscribers would get a notch filter that would cut out the interference.
It was easy when you only had one channel to block or allow, but handling several meant multiple filters. It was much cheaper to maintain a few sets of multiple-filter enabling devices than to customize them for every subscriber, and that's where tiers of channels originally came from.
All of these things were handled by more or less local companies, and towns and cities didn't have a problem handing them pole access. But the companies consolidated into larger franchises, 800 becoming 20 or so companies covering populations of a million or more subscribers each and 82 much smaller businesses. The top five have about 235 million people in their coverage zones. The next five cover 43 million. And the next ten have about 15.
Now, once you have wired infrastructure covering that number of people, coupled with a tradition of granting local monopoly access to the wires, you get to hire lawyers and lobbyists who convince legislatures to make your traditional de factor monopoly a de jure monopoly.
So that's how we got here.
What can we do? Mostly what we have to do is to make net neutrality and infrastructure reform a priority for our state legislators and congressional reps and senators. Talk to them about your concerns. With Republicans, concentrate on arguments about enabling small business innovation and improving the economy. With Democrats, use arguments about freedom and consumer rights. Talk to your neighbors. Nobody wants a high cable bill, and the only way to lower it is to break the monopoly.