No comfort for the incumbents in the news…

Every so often I run across a series of stories that taken together make a much more interesting tale than reading them separately. That happened to me this afternoon when I found the following stories all open in my browser. What emerges is a cautionary tale for all big wireline providers….

First up was a story from USAToday—”DSL projected to lose out to Cable.” That article reported a projection that:

predicts that just 15% of all broadband users will have DSL in 2015 — half of its market share today.

The story is simple enough:

The problem for DSL, Anninger says, is that providers transmit data at only about 4 megabits per second. That can handle most of today’s tasks, including videoconferencing. But by 2015, most broadband subscribers will want at least 7 mbps — with many demanding much more — to serve homes where different people simultaneously use the Internet to watch videos, stream audio, make phone calls, download files and surf.

Frankly this isn’t new or much of an insight; it’s a shift that is already well underway. And it is gratifying to live in a place where the local provider is so ahead of the curve that its cheapest, lowest speed product has a speed of 10 mbps symmetrical today. But the idea that most of the country won’t be able to get 7 measly megs from their phone provider and so ditch the last pretense that real competition exists is pretty disturbing.

Of course the fact that cable will become an obvious monopoly in most places shouldn’t obscure the fact that cable is already charging what economists call “monopoly rents,” that is, wildly irrational profit levels:

Cable profits are the envy of other industries. Adam Lynn, research manager for Free Press, said information from SNL Kagan shows cable companies had an average 38.7 percent profit margin in the second quarter of this year,

That’s from an article I ran across from a local newspaper in Connecticut, of all places. That level of profit-taking demonstrates that what the textbooks say is true: that duopolies are no better than straight-on monopolies from the cost-to-consumer point of view.

But what looks like a “good” news for cable companies is tempered in USAToday article by the closing lines:

Before the cable companies do a victory dance, though, they should consider this: More than 60% of FiOS and U-verse’s broadband customers in the survey said they are “very satisfied” with the services. Only 36% of cable customers were equally pleased.

So the phone companies could save themselves—if they’d just go to fiber or deep fiber and carrry video over that enhanced line…

Or maybe not.

Maybe offering video isn’t their salvation; that “cable” market may be about to disintegrate…and in fact, maybe it is already disintegrating. I recalled a recent story that calls into serious question the idea that video content rather than raw bandwidth will be the salvation of any company:

Netflix represents more than 20% of downstream Internet traffic during peak times in the U.S. — and is heaviest in the primetime hours of 8 to 10 p.m., according to a new report from bandwidth management equipment vendor Sandvine.

Primetime is no longer the province of “hit” network shows. It’s still when people sit down to watch TV. But increasingly they are watching netflix. Or Hulu. Or maybe Google’s YouTube. Incidently, Google was reported today to provide 6% of the total internet traffic. Much of that has to be YouTube’s fancy HD downloads.

There’s not a lot of comfort in the news for any incumbent…it’s all about the big pipes folks.