The interesting phenomenon about technology disruption is that the tipping point occurs when a new technology becomes “good enough”—not great—just OK really.
The world that cable companies (such as TimeWarner, Comcast and Cablevision) live in is about to radically change. I just don’t know how. Below I lay out and dissect a few of the ways the world of cable television and internet may play out:
Scenario 1: Peak Wired Broadband
My very positive experience with the 4G LTE connection on my iPad suggests to me wireless internet connectivity may be reaching a “good enough” point versus high speed wired broadband that in the near future we shall see consumers disconnect from their cable and DSL internet connections in favor of 4G LTE wireless. Let’s be honest, most people use the internet for email, Facebook, e-commerce and web browsing. Relatively few of us are latency-sensitive, bandwidth hogs playing WOW or downloading massive BitTorrent files (Netflix and/or the fantasized true Apple TV is the major exception but I’ll get to that in the next scenario).
Let’s play this out a couple of years from now—it is 2014 and 4G LTE coverage is ubiquitous. You’re a 22 year old who just graduated from college and you’re moving into your first apartment. Your iPad and fancy new Macbook Air both have 4G LTE connections built in and Verizon bills you not by device but on an aggregate data basis (for instance, you are paying for 5 GB across all of your devices including smartphone, tablet and laptop for $100/month.). The multi-billion dollar question is when you call Comcast after you’ve moved in, what do you sign up for? In this scenario, my bet is that you pay your ~$60/month for your preferred cable television package but you opt out of both a landline (no-brainer right? What is this 1995?) and broadband internet. Why no broadband? The extra ~$40/month for broadband internet doesn’t really buy you much. With broadband you would end up using wi-fi anyhow which feels about the same speed as 4G for most of what you do, which is email, web and apps as previously discussed.
I recently mentioned this concept to a colleague at a major MSO and they chided at the notion. How could this possibly be, they argued? Broadband penetration is like running water or electricity—near-human rights status, right, right? Maybe, however, no one ever said broadband needs to use a physical wire as its medium. Wireless is broadband too.
Rewind a few years. While I was in investment banking in 2003 working with major telephone carriers such as Alltel and AT&T there was a lively debate concerning whether consumers would start “cutting the cord” and abandoning their landline telephones in favor of going mobile exclusively. Most of the telephone carriers thought that cord-cutting on a mass scale was a preposterous idea. Sure a few young wild and crazy college students were beginning to do it, but it would never be more than a few percent of the population! Cell phone service was unreliable, extremely expensive, bulky, couldn’t support faxes, sans effective 911, the networks couldn’t support very many people and plus…cell phone penetration was far from 100%! Some of those arguments were pretty darned good, but they only looked about 0-12 months into the future. They didn’t factor in that cell phone service was getting better and cheaper every year.
This may be where we are with broadband internet now—nearing a technological crossover threshold between wired and wireless. In 2012 we can now do Facetime video conferencing over 4G. Just the other day I watched a movie over 4G in a cab for 30 minutes without a single hiccough (amazing, I know). Not everyone will be happy with wireless-only of course. Gamers, streamers and some others will still subscribe to their wired broadband, just not everyone.
Scenario 2: Peak Cable Television
Here in 2014 the world may look very different in another way. Let’s assume between now and then Apple were to release their much anticipated and fantasized multimedia television set. You’d probably need/want wired broadband. So OK, you have wired broadband for it (and Netflix and/or similar Apple video services). But let’s say the Apple TV is a huge success and you have almost all the content you want, do you still pay for cable television? Maybe at first while Comcast, TimeWarner and others hang on as tight as they can to the one or two marquee cable channels they can in their walled gardens to maintain their content fees, but eventually the walls start tumbling down. Eventually you have apps on your TV that lead you to multiple streams of live content as well as on-demand recorded content plus lots of extras (think WatchESPN on steroids and you pay the network on a monthly subscription either directly or through the MSO as an intermediary). In this scenario you would disconnect your cable television package and keep your wired broadband internet—this is the Peak Cable scenario. The cable MSOs, like the wireless carriers before them, lose their walled gardens and become ISPs (“dumb pipes” as some like to deride) in the business of shuttling bits.*
*With cable television it isn’t quite that clear cut actually. Because the MSOs are much more closely tied to the content than the wireless carriers ever were, the cable companies will continue to get a revenue share for content into at least the medium term. However, even in this scenario they will look more akin to Apple and the iTunes Store perhaps taking 30% on a la carte content (but not forcing consumers into ridiculous 500-channel package deals).
[Editor’s Note: We have pretty good reason to believe the MSOs already fear this particular scenario. Cough. Cough.]
Scenario 3: Status Quo?
The question is can I imagine a future where the cable MSOs bill us for “voice” “video” and “internet” even though those are all the same thing: bits. Short answer, I don’t think so. AT&T recently acknowledged in the near future they’ll have to give up the charade of pretending a voice or SMS bit is different than an Angry Birds bit on their converged IP networks. I believe the same will be true for the cable MSOs, but some years behind. So, no, I don’t think the status quo for the cable providers is tenable, but I don’t know which way the path forward leads either. Hopefully the scenarios I laid out got you thinking.
[Editor’s Note: The photo at the top of the post pictures my very first cable box from Cablevision in the early 1980s on Long Island.]