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Old 01-02-2013   #1
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Post Speedier Internet Rivals Push Past Cable

From The Wall Street Journal - Wednesday January 02, 2013

By SHALINI RAMACHANDRAN

Steady growth in broadband revenue has helped cable operators offset a stagnant pay-TV market in recent years. But now, the industry is resisting pressure from local governments, businesses and universities to offer ultrafast Internet service, opening the door to new competitors.

Google Inc. GOOG +1.93% and a host of smaller companies working in partnership with cities like Seattle and Urbana, Ill., are building fiber-optic networks that offer speeds of a gigabit per second. That's more than three times as fast as the maximum speeds available to residential subscribers of major cable or phone companies.

Other Internet services, such as Verizon Communications Inc.'s VZ +1.73% FiOS, which already bring fiber lines all the way to customers' premises, could be boosted to gigabit speeds relatively easily by upgrading the equipment in central offices and consumers' homes, experts say.

Cable companies, meanwhile, are holding back. To offer the faster speeds across their service areas alongside other services like television, cable operators would have to spend billions more on their networks.

Unlike fully fiber Internet service providers, cable companies typically run fiber to neighborhood "nodes." Less-efficient coaxial cables connect those nodes to what can be hundreds of subscribers, who effectively share bandwidth.

About half the nation's cable systems would need more fiber before they could deliver gigabit speeds to all customers and continue offering television, says John Dahlquist, vice president of marketing for Aurora Networks Inc., a company that sells network infrastructure to both fiber and cable operators.

Pat Esser, chief executive of Cox Communications Inc., the nation's third-biggest cable company by subscribers, said it would cost him "multiple billions" to upgrade Cox's network to offer gigabit speeds to all its customers.

Cable executives acknowledge that demand for fast speeds is growing. Time Warner Cable Inc., TWC +1.37% the second-largest cable operator, said in November that more than 22% of broadband subscribers are opting for faster, costlier Internet speeds, up from 10% in 2009.

While many cities view affordable gigabit broadband as an economic-development tool, cable executives say consumer demand is lacking, and there are too few applications requiring such speeds to justify more investment in fiber. Time Warner Cable CEO Glenn Britt told investors at a recent conference that fiber "ends up being more about publicity and bragging."

For years cable companies were criticized by investors for their heavy capital spending as they improved their networks to offer additional services. A new round of upgrades could jeopardize big stock buybacks and dividends now in place in the industry.

"The pressure is on" for cable operators to exploit their current infrastructure first, says Jeff Heynen, a cable analyst at Infonetics.

CableLabs, the industry's research consortium, says cable "has a lot of tools to increase [its] bandwidth" to deliver gigabit speeds if the demand materializes. These include shifting to more efficient ways to deliver TV channels, something many operators are already working toward.

Comcast Corp. CMCSA +2.46% said it is "confident" it can "continue to return the majority of cable free cash flow to shareholders in the form of dividends and buybacks" even with future investment in its network.

Deciding not to upgrade carries risks. Wall Street views broadband as cable's hedge against the threat of consumers dropping their costly pay-TV packages for online alternatives.

"We're at a very early stage, but I do think the incumbents have some long-term risk" if they let other companies develop a reputation for leading innovation, said Blair Levin, a former chief of staff at the Federal Communications Commission who now leads Gig.U, an alliance of universities that are helping build gigabit fiber networks in university towns across the country.

The gigabit market remains tiny. Fewer than 30 companies offer such speeds today, reaching about 400,000 customers, according to RVA Market Research. Aside from Google, which has started offering service on its gigabit network in the Kansas City area, they are mostly smaller companies, such as Minnesota-based Hiawatha Broadband Communications Inc. and California-based Paxio Inc.; municipal operators like LUS Fiber, Lafayette, La.; and public utilities like Chattanooga, Tenn.'s EPB fiber network.

But the number of companies whose fiber-only networks are capable of relatively easy upgrades is much larger and growing. In addition to Verizon FiOS, which is available to 17 million people, primarily in the Northeast, more than 700 rural telephone companies that used to provide slow-speed Internet over copper wires have reinvested in building fiber-to-the-home networks, according to the Fiber to the Home Council, a trade group, and Calix Inc., CALX +0.98% which sells broadband equipment to both cable and fiber operators.

Cities including Chicago, Seattle and San Francisco, as well as the state of Hawaii, have set goals of more access to gigabit broadband. John Tolva, Chicago's chief technology officer, said he would bring a gigabit fiber network to Chicago whether the incumbent operators want to build it or not, though he would prefer their cooperation.

Several cities and Hawaii have said they would sweeten the deal to offset the cost of laying fiber, such as by expediting permits and, in some cases, even helping with marketing—as Kansas City is doing for Google. In Seattle, the city is opening up unused fiber lines it laid over the years to Gigabit Squared, a startup that plans to bring fiber to 50,000 homes and businesses.

City officials and Gig.U's Mr. Levin say that these public-private partnerships are more attractive and "replicable" than the municipal fiber networks that several cities funded more than a decade ago. Many of those networks ran into financial troubles as they battled lawsuits and aggressive marketing from big incumbents.

Some cable operators are extending fiber lines selectively to office parks and businesses that will pay for the bigger, pricier bandwidth. St. Louis-based Charter Communications Inc. CHTR +2.89% says requests for gigabit and multigigabit speeds from businesses have doubled in the past six months. But Charter and other operators say they aren't seeing enough demand to warrant extending fiber to small and medium-size businesses—and certainly not to every household. Cox says only 15% of its business customers are larger clients whose demands would require fiber.

Mr. Tolva in Chicago says business services offered by cable operators are far too expensive for "the kind of growing companies that we're trying to foster." He estimates it would cost businesses about $3,500 a month for a dedicated fiber line with gigabit-speed Internet from a cable operator.

By contrast, gigabit speeds in Chattanooga, where the public utility started offering fiber Internet in 2009, cost $300 a month. Some residential gigabit services are even cheaper: Google charges $70 a month for its Kansas City service, as does Sonic.net in California.

Some cable operators have ramped up their marketing and discounting aggressively to combat such newcomers. Vermont-based VTel, which plans to offer gigabit service to about 18,000 subscribers at $30 a month by the end of 2013, says that since it started laying fiber in Vermont more than a year ago, it has faced fierce competition from Comcast. Michel Guite, VTel's president, says Comcast has sent salesmen door to door to sign people up ahead of VTel's new service.

"Why bang on doors? Why not improve service and speeds?" he says.


Write to Shalini Ramachandran at shalini.ramachandran@wsj.com

A version of this article appeared January 2, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Speedier Internet Rivals Push Past Cable.
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Old 01-02-2013   #2
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Default Re: Speedier Internet Rivals Push Past Cable

The cable companies are fighting a losing battle. Eventually, the cost of their internet, TV service and box rental and the low cost of media players that are ever expanding in capabilities will cause a lot of migration to broadband based service both for TV and telephone. The basic business model for cable/iptv and satellite TV services requiring a minimum bundle of channels that also have advertising is doomed in the long run, imo.
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