Tuesday, August 28, 2012

Mobile, Cable Markets Destined to be Concentrated

There's a good reason antitrust regulation exists in principle, though we might disagree about when and how to apply it. The reason is that a robustly competitive communications market will resolve itself into a stable pattern over time, with few leaders.

If you think about it even casually, there is a reason for that pattern. Over time, people gravitate to products and providers they prefer. That's why Apple consistently gets 60 percent to 70 percent of tablet sales. 

In the fixed network communications or video business, there are slightly different dynamics, since the market originally was a highly-regulated monopoly business, with one authorized provider. Only since 1985 has the U.S. market been "competitive" in a legal framework sense,  to growing degrees. 

That highly unequal outcomes have been seen would not be surprising to anybody who studies market structure. In a highly capital intensive and competitive market, few entities really can risk the amount of capital required to compete. In a roughly $1.8 trillion global telecom business, annual capital spending of about $345 billion is typical. 

The U.S. cable industry alone invests about $13 billion a year in a business generating about $98 billion annually, or about 13 percent percent of revenue. 

AT&T and Verizon in recent years have been plowing about 14 percent to 16 percent of revenues back into capital investment. 

The point is that "not so many" contestants can afford to spend that amount of money, every year, on capital investment. There are genuine economies of scale in the telecom and cable TV businesses and those advantages manifest themselves over time. 

So whether you look at the India mobile communications business or the U.S. cable TV business, there are a few firms leading each industry. At some important level, that will "always" raise antitrust issues. 

It has been clear for a couple of decades that no U.S. cable TV company would be allowed to gain more than 30 percent installed base of video customers. Thinking roughly along those lines seems also to have driven antitrust thinking about the proposed AT&T purchase of T-Mobile USA, as well. 

At some point, at least in the U.S. markets, the leaders in mobile, video or fixed network services will be forced to diversify into other lines of business simply because they have reached the limits of success in their original businesses. 







RankMSOBasicVideoSubscribers
1Comcast Corporation22,294,000
2DirecTV19,966,000
3Dish Network Corporation14,071,000
4Time Warner Cable, Inc.12,653,000
5Cox Communications, Inc.14,756,000
6Verizon Communications, Inc.4,353,000
7Charter Communications, Inc.4,341,000
8AT&T, Inc.3,991,000
9Cablevision Systems Corporation3,257,000
10Bright House Networks LLC12,079,000
11Suddenlink Communications11,250,000
12Mediacom Communications Corporation1,059,000
13CableOne, Inc.622,000
14WideOpenWest Networks, LLC1460,000
15RCN Corp.1333,000
16Knology Holdings256,000
17Atlantic Broadband Group, LLC254,000
18Armstrong Cable Services239,000
19Midcontinent Communications229,000
20Service Electric Cable TV Incorporated1217,000
21MetroCast Cablevision169,000
22Blue Ridge Communications1168,000
23WaveDivision Holdings, LLC1159,000
24General Communications142,000
25Buckeye CableSystem1133,000

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