U.S. Cable and Telco Businesses Will be Tougher, Soon. The Only Issue is How Much Tougher

If you have followed U.S. communications policy for any period of time, you know that regulatory policies blow hot and cold, for industries and segments within industries subject to regulation, from time to time.

Not often in recent decades have U.S. communications providers faced such strong negative headwinds as they do at the moment.

The U.S. Federal Communications Commission  says it might consider regulating high speed access as a common carrier service. Most observers argue that would immediately decrease investment by telcos or cable companies, as the expected financial return would drop, while operating costs might well rise.

Then there is the impact of new network neutrality rules on mobile and fixed Internet service providers, generally expected to reduce revenue opportunities for the affected firms.

Add also the growing demand for government-owned or run access networks, as well as FCC arguments that it has the authority to overrule any state-passed laws concerning government networks.

Connecticut, for example, appears to be among the U.S. states that wants to encourage more public entities within the state to pursue building of new gigabit access networks.  

On September 2, 2014, the City Council of North Kansas City approved a 10-year agreement with local company DataShack for the operation and maintenance of the city's fiberoptic network, known as liNKCity.

DataShack will operate and maintain the fiber network, but the city will continue to own the network.

Under the agreement, DataShack will collect revenue for broadband services sold to businesses.

But as of January 1, 2015, DataShack will provide existing and new residential broadband customers with gigabit service for an installation fee of $300 (or $100 for 100Mbit/s service, or $50 for 50Mbit/s service).

Residents in the city of about 4,000 people won't pay any more for service for the duration of the 10-year deal. In other words, gigabit access will be free for 10 years.

As part of the agreement, North Kansas City will share profits and losses equally with DataShack, with any potential losses for the city capped at $150,000, including capital investment.

DataShack will assume all costs associated with providing free gigabit services, reports indicate.

Some might welcome such a development, in the hope it will reduce access provider “power” within the communications ecosystem. That arguably could happen. But so could a massive “capital strike” by investors that would cripple service provider efforts to rapidly upgrade access infrastructure.

It’s a giant game of chicken with the U.S. Internet access infrastructure at stake.

Some will simply quip that if the telcos and cable companies refuse to invest, let them go bankrupt. Others will take up the challenge. Maybe. But fixed access networks remain hugely expensive undertakings with a growing amount of risk.

In the end, it is likely ISPs will operate in a more-constrained regulatory environment and a more-competitive business environment.

There won’t be much alternative but to take whatever measures are necessary to restructure business plans so incumbent providers remain competitive with attackers. You know the story well enough to predict what will happen to the incumbents.

Profit margins will fall. Revenue growth will slow. Operating costs will have to be reduced.

A tougher environment is coming. The only issue is how much tougher it will be.
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