Cable TV: The Monopoly That Keeps On Taking

Everything eventually will flow through your Internet connection. That's why we need more fiber optic competition.

Wake up any tech CEO in the middle of the night and ask what his or her fondest wish would be, and the answer would be "a monopoly." For the longest time, IBM, Microsoft, Intel, Oracle, and Cisco had near monopolies, and their CEOs slept well at night. The greatest advantage: You can make mistakes, be late to market, have quality problems, and still own your market.

For the longest time, no one had a monopoly as strong as either the telephone industry's or the cable television industry's, so it's been with a little humor that I've watched Comcast's bid for Time Warner Cable.

The cable industry has never really had competition. Once the franchises were let by US cities and towns, each of their owners would trade properties like so many baseball cards, often to build systems contiguous to each other to keep costs down. Because they didn't really compete with each other, they could raise prices pretty much as they chose. DirecTV was seen as Darth Vader, but otherwise they had little to worry about.

[Why isn't everyone already using alternative apps for voice calls? Read Is Mobile VoIP A Telco Killer? ]

What's your cable bill this month -- $120? More? I have foolishly let Comcast sell me cable, Internet, and telephone service, and my monthly bill is higher than the GNP of France. It's hard to believe that in the industry's early days, cable TV was more like $7 a month… and maybe another $7 for HBO. Cable providers never really understood the Internet and had to be dragged, kicking and screaming, into this new revenue source. But once there, they got it.

Sheer dumb luckOne of the advantages of teaching at MIT is that I'm never worried about being the brightest kid in the classroom. In fact, when I walk out of a classroom, the average IQ there increases. What my very smart students do today, the rest of us will do tomorrow.

My students cut their landlines five years ago and 100% of them use Skype. If they want any programming, it's House of Cards on Netflix, but they want all the episodes at once. Why wait? What happens when the rest of America, the homeowners, start to cut their cables just as they have already cut their landlines? What happens when Netflix is clogging up the Internet at night, rivaling even YouTube in the amount of one-way video it sends down the pipe? Here's where things get interesting.

By sheer dumb luck, the cable guys have lapped both cellular carriers and telephone carriers. The future belongs to high-speed fiber, and the cable guys are there first. I live in Boston, and Verizon has been talking up fiber for five years, but I'm still a third-world citizen as far as they're concerned. Their idea of high speed and mine are worlds apart. Just upgrading its network to a minimally acceptable level is costing Verizon $13 billion, and it still will be far behind. No, if I want high-speed fiber, it's going to have to be Comcast. Or is it? Is there another alternative?

Comcast already has swallowed NBC Universal and a gaggle of cable companies. It owns both the customer and the content. Now, if the Time Warner deal goes through, Comcast will sit on not only 33 million households, but also the right households, in the right areas, all coveted by the biggest advertisers.

Comcast got started when Ralph Roberts, its founder, allegedly won his first cable franchise in a poker game in Tupelo, Miss., in the early 1960s. He then decided that this was one great business. His son Brian has continued that thrust, buying other cable companies, buying content companies, and forcing other media companies to bow to Comcast's clout.

That clout isn't just in market size. Today, Comcast has real political clout, one advantage of being close to Washington. (Insert Philadelphia joke here -- I won't be offended.) Comcast has clout with the content it doesn't own. Imagine negotiating with ESPN or Fox -- having 33 million households makes you King Kong.

Furthermore, it can charge more for "expedited service," which is what it will be getting from Netflix under a recent deal. Although the courts have said that cable systems shouldn't penalize bandwidth hogs, the smart guys know that there are too many ways to game the system. If paying for expedited service gets Netflix faster downloads, it will do it.

I spent too many years telling the telephone companies how to get into cable and then telling the cable honchos how to get into telephony. The cable guys will have it both ways. If you choose to avoid their cable offerings and reject their bundled services, you can. But then you will pay up for expensive high-speed lines so you can access Netflix or HBO directly. "You can pay me now or you can pay me later -- but trust me, you're going to pay me."

Rock and a hard placeFCC chairman Tom Wheeler is an old friend of mine. He ran the National Cable Television Association in the early 1980s and later ran the Cellular Telecommunications & Internet Association for more than a decade. Now, in the big chair at the FCC, he's caught between a rock and a hard place. If he lets the Comcast-Time Warner deal go through, he'll be seen as the lap dog to the cable industry. Should he encourage other companies to enter the market? Google, which is already making noises, comes to mind, as does Facebook, or even a band of high-speed Internet entrepreneurs who could stitch together meaningful competition.

Bottom line: We need more competition in fiber, and that costs real dollars. About $1,000 per household. No single company, not even Google, can afford that build-out by itself. But I can see a number of regional players around major cities coming up with solutions.

Is broadband fiber a right or a privilege? I don't think it's a right. Some areas will not have fiber within your lifetime. But the major urban areas will, and the FCC must encourage new competition.

Engage with Oracle president Mark Hurd, NFL CIO Michelle McKenna-Doyle, General Motors CIO Randy Mott, Box founder Aaron Levie, UPMC CIO Dan Drawbaugh, GE Power CIO Jim Fowler, and other leaders of the Digital Business movement at the InformationWeek Conference and Elite 100 Awards Ceremony, to be held in conjunction with Interop in Las Vegas, March 31 to April 1, 2014. See the full agenda here.

Howard Anderson was the founder of The Yankee Group, a high-tech analysis firm which he ran from 1970 to 2000 and which was sold to a Fortune 500 company. He is also the co-founder of Battery Ventures, which has raised $4.5 billion and invested in more than 300 high-tech

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