The Latest Government Bailout: Cable Providers

Due to not having a great product for some time, and failing to innovate, the cable and internet providers received an indirect bailout from the government earlier last week. The FCC (Federal Communications Commission) just struck down a net neutrality bill that would have treated all data retrieved via the internet the same. Now, there is a “toll booth” on the highway of data you and I use every day. And at the “toll booth” are providers like Verizon, Comcast, Charter, Time Warner Cable, etc., etc.

I personally think there were heavy lobbyists from the cable industry present in these talks. The stats have shown that a growing number of consumers are “cutting the cord” with their cable and moving to an all internet-based data/program-viewing consumption. Now what the shut down of this bill allows for is internet service providers (ISPs) to charge companies who use lots of their bandwidth/traffic (i.e. Netflix, Hulu, etc. etc.). And the companies who pay this fee/royalty to the ISPs would allow their data to be uncapped, in other words, treated like it has always been.

Quick example of what I think could play out. Netflix pays cable/ISP Company A to have all of the data/bandwidth used for their streaming service to be treated like all other data/bandwidth. Company A makes money from the fees paid by Netflix and the consumer sees no disruption in service relative to today, but possibly an increase in their Netflix subscription (because Netflix passes the cost to the consumer). Or what could happen is Netflix decides NOT to pay Company A to treat the streaming Netflix data like any other. Then what Company A could do is charge the consumer for using a large amount of streaming services. This is where cable providers and ISPs could tier internet bandwidth, capping certain bandwidth (say only 50GB of streaming video services) and charging for it accordingly. This would help them gain money back from the consumers that are “cutting the cords” with cable and only using streaming services.

In other words, the executives at Comcast just got bailed out for their lack of innovative cable product. They probably celebrated much like AIG did when they got bailed out.

The worst part about all of this is I believe it creates a “pay to play” model, probably pricing start-ups out of participation. If start-up company ABC has a new app, but doesn’t pay Verizon to have their users’ experience in their app not be docked from its monthly data cap, it could be harder to get traction at its most critical phases in its company growth.

Any way you cut it, there will be more losers than winners when the cards are finally dealt.


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