Are Cable TV Companies Natural Monopolies?

In the US, cable service providers do not have legitimate monopolies but it may look like that in some scenarios, organically. The FCC (Federal Communications Commission) has adopted and enforced a 30 percent horizontal ownership cap at various times to prevent cable franchise consolidation under a bunch of multi-system operators (MSOs). Comcast has had a history with the FCC regarding this activity. And there is cable over builders (competing against established telcos, MSOs, and the rest) such as WOW and RCN but not every municipality is prepared to limit homeowners to have their yards dredged up so that a second cable provider can provide the same indistinct facilities (assuming one has enough ROI to charge for that in the initial position).

Here is one example, where Charter Communication acquired the rights of TWC (Time Warner Cable) and Bright House Network (BHN) and merged to become Spectrum in 2016. The merger enabled them to expand their footmarks in 44 states, now spectrum cable packages are available wherever TWC and Bright House Network were serviceable and still are. Their old customers are now Spectrum’s customers. Yet again, reestablishes the fact that it is not a monopoly but some notable ISPs and cable services providers are leading all charts because of their footprint, the number of loyal customers over the years and that is predominantly because of their quality services.

In order to accommodate both, all cable providers began selling one commodity-cable TV-and layered on the Internet and (in several cases) voice services such as Packet Cable and DOCSIS standards, though the latter two largely rely on low-latency fiber connectivity with considerable capital expenses to be implemented. These field-deployed resources (‘outside plant’) are quite costly to build obstacles to market entry, though only if an ISP intends to supplying facilities in precisely the same manner. With this approach, much more realistic capital investments are needed, fixed wireless ISPs will also contend for the market share of the same households.

An ILEC (Incumbent Local Exchange Carrier) providing DSL, fixed wireless, or fiber-based broadband will be the primary rival to cable companies in many markets between suppliers to residential internet connectivity and wireline pay-tv services. ILECs have been collecting the Connect America fund and Universal Service fund for decades to boost the facilities and services in remote areas, as well as collecting toll-style payments through long-distance telephone networks for stuff like switching between exchanges. Besides that, to decide whether to deploy or improve networks, cable providers did not earn these discounts and consequently relied on consumer demand and expected return on investment.

Some ILECs were not encouraged by market forces to innovate in service delivery as a consequence of the USF/CAF projects and other regulation compensation. In reality, most of the existing Comcast cable systems were sold by AT&T Broadband which offered internet cable modems. Comcast is not a monopoly, however. Comcast is largely an urban cable provider and is typically faced with ILEC competition in its markets. In past years, both the ILECs and Comcast have been steadily contesting fiber over builders and other emerging industry entrants to attract and retain customers to their Internet networks.

By paying off state or local lawmakers, Comcast and ILECs will erect certain regulatory hurdles, either to establish ‘Manchurian candidates’ or to acquire (through campaign contributions) certain regulations that prohibit or significantly complicate access to utility poles by new business entrants, etc. These are the rules that allow rivalry to be deterred by ILECs and Comcast. As a largely unregulated, for-profit organization, however, Comcast is a perfect example of how much a well-funded new market entrant can reach existing competitors to steal market share through their sheer performance and winning masses with their quality services.

Conclusive Notes

As we discussed in the abovementioned piece, cable TV companies may appear as if they have a monopoly and some cable providers are serviceable in a certain region. This is not without context but we cannot overlook the fact that America is one of the largest countries in the world. However, providers like Spectrum and Xfinity have their reach in over 40 states which depicts that the rest will also grow with time and a competitive market will emerge gradually. But that is one aspect of the story if you see a couple of providers ruling the industry that signifies they are one of the best and have something exclusive to offer to their customers.

Nathaniel Villa
Nathaniel Villa