1. Captive Audience
Yale University Press
2. It’s the Baby Boomers’ Fault
• They got bored
• We got libertarianism
• Now the stakes are really high
• because the phone system is going away
• [think banking]
3. Right now
• a third of Americans don’t have landlines
• industry doesn’t want to sell phone service
• four states have already removed requirement
to provide residential landlines – six more
• water, electricity, and telecommunications
4. What’s basic?
• Imagine the upsides of the phone system
– new ways of making a living
– increasing positive returns to scale
– a globally-standard communications system
– personal and commercial freedom
– free flow of information (low transaction costs)
– (plus limited liability for the carriers)
• Imagine giving up on that very successful +100yrs
– now the basic network is fiber Internet access
5. What’s the social contract?
• Everything has a cost, nothing has value
• “I’d never take the subway”
• Imagine America without the interstate
• Imagine America without clean water
• Imagine America without a reliable
commodity banking system
6. The Looming Cable Monopoly and the
• Advantages of scale and scope – “pricing power”
• ARPU up, revenue up, all arrows pointing the
right direction, no competition
• And now VZ and TWC/Comcast collaborating:
– “you take wired, I’ll take wireless”
• Meanwhile, 1/3 of Americans don’t have high-
speed Internet access
• My interview with David Cohen
1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12
Comcast Avg. Revenue Per Video (Includes HSI) Customer
Comcast – Ongoing Increases in
Bundle Penetration as Costs Go Down
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12
Quarterly Percent Change in Broadband Subscribers
Comcast Time Warner Cable
AT&T Total AT&T DSL
Verizon Total Verizon DSL
Steady gains for cable
Steady and steep losses for DSL
9. AT&T DSL and VZ DSL shares going to
cable - 1Q10 to 1Q12
• Comcast: 16.3M to 18.5M – up 14%
• TWC: 9.2M to 10.7M – up 10%
• AT&T DSL: 13.6M to 10.6M – down 22%
• VZ DSL: 4.7M to 3.7M – down 21%
• FiOS 1Q12: 5M
• U-Verse 1Q12: 5.9M
10. It’s Good To Be Comcast
• Comcast 1Q12 high-speed Internet revenue
up 10.3% from prior quarter. ARPU up 4%
from prior quarter.
• 86% of AT&T DSL customers have speeds
slower than 6Mbps
• At year end 2011, 38% of AT&T DSL customers
had speeds slower than 3 Mbps
11. Goldman Sachs Asks a Question
Q1 2012 Comcast Earnings Call
• Jason Armstrong – Goldman Sachs & Co.: “Just a question on broadband,
there’s a fear more broadly that we’re nearing saturation from an industry
perspective. Your results obviously don’t suggest that. You’re accelerating
growth in net adds in the business. Maybe just help us think through the
outlook and how you think about balancing volume growth versus the
pricing power that you probably could exercise to a greater extent here.
• Neil Smit – Comcast Cable Communications LLC: “Hi, Jason. I think that we
were very pleased with the quarter at 439,000 net adds. And as you said,
we continue to drive strong growth quarter after quarter. I think it’s
fundamentally because we feel we have a better product where we
continue to increase speeds on top of our DOCSIS platform. I think there’s
always a balance between rate and volume. We think we’ve met that
balance pretty well. We increased ARPU 4% this quarter in HSD and drove
that sort of growth. So we feel there’s still some pricing power as long as
we’re continuing to improve the product and meet the customer
12. Margins: The Two Monopolies Do Well
• Operating cash flow margins for Comcast and
wireless units of VZ and AT&T are high 30s to
low 40s as a percent of revenue
• Subtract capex from operating cash flow –
Free Cash Flow – Comcast’s FCF margin is 30%,
as is VZ Wireless
• Wireline margins for VZ and AT&T are low 30s
AT&T and low 20s VZ
13. VZ doing slightly better on wireline
than AT&T because
• VZ sold off much of its least-competitive copper
plant, so a lower percentage of those lines in its
– watch those Tier 2 providers!
• VZ: All you need is an iPad and 4G
• FiOS is a better service than DOCSIS 3.0 – much
more competitive than U-Verse FTTN
– but only in 15% of Comcast territory, 11% of TWC
– 50% of Cablevision
– and not expanding
14. Where’s the Money Going?
• Subtract capex from operating cash flow – Free Cash
Flow – Comcast’s FCF margin is 30%, as is VZ Wireless
• Comcast is spending more than 30% of FCF on “return
of capital to shareholders” (dividends and buybacks).
Telcos spend 40%.
• Dividends as percentage of revenues: Comcast 11%
1Q12; AT&T 8.2% 1Q12; VZ 5% (full year 2011).
• Rather than expand, they’re propping up share prices
and extracting more money from consumers.
• where consolidation is possible, competition is
15. • High margins being plowed into supporting
share prices (dividends, buybacks)
• What about the 99%?
• What happened to commercial and personal
freedom? affordable basic services for
16. Five Big Myths
• 5. Unleashing wireless solves everything.
• 4. Look at all these cool new devices and apps!
• 3. You’re a socialist/Marxist/radical/crazy
• 2. No one really needs a gig.
• 1. It’s too expensive – we can’t do anything.
17. Consumer Top 10)
• 10. I just got back from Amsterdam/Tokyo/Seoul..
• 9. I feel like no one cares about us out here in the
country/in this city.
• 8. The service on my landline phone is awful and
it doesn’t feel worth it. But if I cancel what will
take its place?
• 7. I can only afford cell service. How do I apply for
• 6. The library is so crowded it’s awful.
18. Consumer Top 10 (cont.)
• 5. I can’t tell what these guys are charging me
for but it keeps getting more expensive.
• 4. Why can’t I watch sports without paying
• 3. Why can’t I use my new 4G iPad?
• 2. What happened to basic services in
• 1. Why is our country so unequal?
19. What needs to happen (without
• Public outrage
• Support for muni networks
• Reclassification of high-speed Internet access
• Changed perspective: It’s not the magic of
technology that wins out. It’s policy that
ensures that technology lives at all. Rules
made the Internet possible in the first place.
20. Just three steps
• treat access like a utility, require last miles to
• subsidize big fiber pipes where there are
inadequate links to internet exchange points
• support municipal networks
21. Attention Must Be Paid
• Better graphics
• Better news coverage
• Better numbers
• Better consumer stories
• More movies
• Phalanx of credible economists
• An election issue in each Congressional district
• Australia becomes relevant
• Cheap fiber access will transform our economy, drive future growth
and productivity, lead to new innovative health services and help
our children get the best education in the world.
22. favorite quotes
• Cable exec: “That would be so disruptive.”
• Ivan Seidenberg: “America has a very good
broadband story; someone just has to be
willing to tell it.”
23. Brian Roberts, Comcast CEO
March 3, 2011
• “So if you think about Comcast, I believe that the best business we may
well be in is our broadband business. And so one of the strategies the last
several years was to be -- to invest in DOCSIS 3.0, and to make our
broadband business the best on the planet. And we're going to continue
• “And so each of the last two years, we have had modest increases in the
cost of the broadband service, and yet we've had tremendous sales.
We're 33%, 31% penetrated. We hope someday all of America has
broadband. So the goal would be 100 or 90. We have one competitor.”
• “And as more and more applications require bandwidth, as the bits per
home go up, the bet we're making and the bet you're making, if you own
us, is that over the next 10 years, people will want more bits in their house
over a wire than ever before. And whether that is called Xbox Live,
whether that is Skype, whether that is Netflix, whether that is Comcast,
Xfinity, streaming, whether that is some kid in the garage inventing an
application that we all wish we'd thought of, Facebook Junior, next Google
-- I like that position.”
24. in sum
• like the private firefighter
• it’s “not excludable” – such large spillovers to
• the market won’t provide – and the market
won’t function without it
• end of landline phones ...