What Comcast's huge profits tell us about the state of the
broadband industry
*by Timothy B. Lee **
**Vox.com**
**
**February 24, 2015, 10:20 a.m. ET*
http://www.vox.com/2015/2/24/8100405/comcast-huge-profits
*William Thomas Cain/Getty Images*
A common argument against network neutrality
<http://www.vox.com/cards/network-neutrality/whats-network-neutrality>
regulations is that restricting how broadband providers run their
networks — for example, by prohibiting them from charging certain
content providers extra to put their content in "fast lanes" while
everyone else's content gets stuck in the slow lane — is that this kind
of regulation will make it too difficult for network providers to recoup
their investments in broadband infrastructure.
So it's interesting to look at the 2014 financial results
<http://www.cmcsa.com/releasedetail.cfm?ReleaseID=897872> from the
nation's largest broadband provider, Comcast, which came out today.
Comcast's cable division (the company also owns NBC Universal) had
operating cash flow (revenues minus operating expenses) of $18 billion.
Of that sum, Comcast re-invested $6 billion in its network. But it also
gave $6.5 billion in profits back to shareholders, and the company
expects to return an even larger sum to shareholders in 2015.
This isn't a surprise. The company has posted a generous — and usually
growing — profit every year since at least 2006. Clearly, this is not a
company that's struggling to find the funds it needs to maintain and
upgrade its network.
To be clear, there's nothing wrong with companies earning profits and
giving them back to shareholders. You couldn't have a capitalist economy
if shareholders couldn't earn a return from their investments. But I
think we can draw two lessons from Comcast's financial results.
First, we're nowhere close to the point where increased regulations will
make it unprofitable to own and operate broadband networks. Critics have
warned that strong network neutrality regulations will reduce the
incentive to invest in broadband networks, and they probably will. But
even if they're right, it's likely that running a broadband network will
continue to be a highly profitable activity.
"Comcast doesn't seem interested in trying to steal market share from
rivals"
Second, Comcast's high profits are evidence of high barriers to entry in
the broadband industry. Ordinarily, a company that consistently made
billions of dollars in profits would attract new competitors seeking to
capture a piece of the market.
But with a few exceptions — such as Google's projects in Kansas City and
elsewhere — this hasn't really happened. In most parts of Comcast's
service territory, consumers' only alternative for broadband service is
the local phone company.
Conversely, Comcast doesn't seem interested in trying to steal market
share from rivals. Comcast could expand into the service territory of
neighboring cable companies or it could spend money building a
next-generation fiber optic network the way Verizon and Google have
done. Instead, they've chosen to spend more money rewarding shareholders
than investing in their networks.
Again, there's nothing wrong with a company spending money on dividends
and share buybacks. But this is all worth keeping in mind as
policymakers decide whether to approve Comcast's merger with Time
Warner. Broadband and cable television are already highly concentrated
markets with minimal competition. Having the nation's two largest cable
providers merge will make the problem even worse.
*Disclosure*: Comcast Ventures is an investor in Vox Media, the parent
company of Vox.com.
<http://www.vox.com/cards/network-neutrality/do-network-neutrality-regulations-discourage-investment-in-broadband>
What's the case against network neutrality regulations?
<http://www.vox.com/cards/network-neutrality/do-network-neutrality-regulations-discourage-investment-in-broadband>
Critics argue that requiring networks to treat all traffic the same
could discourage beneficial innovation by network owners. For example,
some applications (such as voice calling and online games) are
particularly sensitive to delays in delivering data. Internet users
might benefit if they could pay a premium to ensure that these
applications are given priority. But strict network neutrality rules
could bar ISPs from experimenting with this kind of service.
Another common concern is that regulations could discourage investment
in network infrastructure. In some parts of the country, companies such
as Verizon and Google have built new fiber optic networks that allow
speeds as high as 1 gigabit per second — about 50 times faster than
typical networks today. But these networks can cost billions of dollars
to build, so many parts of the country haven't gotten them yet. If
network neutrality rules make networks less profitable, that could slow
the pace of investment.
Some network neutrality opponents worry that it will be too difficult to
craft clear and effective network neutrality rules. The internet is
complex and changes quickly. Skeptics worry that regulations could
become obsolete almost as soon as they are established. That could
create a lot of work for lawyers without actually preserving internet
openness.
Finally, some regulation skeptics argue that network neutrality
regulations are unnecessary because ISPs have a natural incentive not to
break the internet. After all, internet access becomes more valuable if
there are more innovative services available online. Why would ISPs kill
the goose that laid the golden egg?
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