Time to regulate internet service as utility
Speculation has been growing in recent days that struggling satellite TV provider Dish Network could merge with AT&T’s DirecTV satellite service.
Dish’s chairman, Charlie Ergen, fanned the flames last week when he told financial analysts a deal with rival DirecTV is “probably inevitable” as both services navigate an increasingly challenging competitive landscape.
I don’t know about inevitable, but I suspect the smart money is on Dish, which also owns Sling TV, climbing into bed with someone (if not DirecTV, maybe Amazon?).
My typical reaction to any news of possible market consolidation is that consumers could be about to get hosed. Less competition almost always means diminished service and higher prices.
In this case, however, I’m not so sure.
Moreover, perhaps a bigger worry isn’t that cordcutting is taking a toll on traditional pay-TV providers. It’s that telecom companies, seeing how the wind is blowing, are responding to the rise in streaming services by jacking up prices for broadband internet access.
“The dominant players in the broadband market — giant telco and cable companies — shouldn’t act as gatekeepers to an internet that they didn’t build,” said Emily Rusch, executive director of the California Public Interest Research Group.
I reached out to both Dish and AT&T. Neither company wanted to discuss a potential merger.
Still, I found myself surprisingly comfortable with the notion that they could get hitched.
I immediately thought of
satellite radio providers Sirius and XM, which merged in 2008 after both companies told federal authorities they couldn’t survive on their own.
The deal created a satellite radio monopoly.
It also maintained commercial-free satellite radio for beleaguered commuters who would go nuts without such a service (including me).
The Federal Communications Commission decided after a 57-week review that, monopoly concerns notwithstanding, “the merger is in the public interest and will provide consumers with greater flexibility and choices.”
The FCC’s reasoning was based on the fact that a merged SiriusXM still had to compete with terrestrial radio, streaming music services and increasingly ubiquitous portable media players (Apple’s iPod debuted in late 2001).
Even so, authorities required the merged SiriusXM to freeze subscription rates for three years and set aside 8% of its channels for noncommercial programmers.
Similar reasoning — and conditions — should apply to a possible Dish-DirecTV deal, which would maintain satellite as an option for households, mainly in rural areas, that might not have access to other pay-TV services.
The merged companies would still have to compete in most regions with cable and streaming providers, the latter of which are strengthening quickly, although perhaps not in a sustainable manner considering how fast they’re burning through cash (Netflix spends billions annually to attract customers).
But there’s no way Dish and DirecTV should be allowed to become one without accepting a limitation on future rate hikes. The three-year precedent of the SiriusXM deal should serve as a minimum requirement.
In any case, it appears the days of satellite TV are numbered. Dish lost 336,000 subscribers last year.
The much larger DirecTV lost nearly 3 million accounts — more than twice the 1.2 million subscribers that departed a year before.
The writing is on the wall: Consumers want more control over their TV viewing and they’re sick of paying for bloated pay-TV packages that may include hundreds of channels they never watch.
Traditional pay-TV providers — cable and satellite companies — lost a total 6 million customers last year as more and more Americans opted to cut the cord and switch to streaming services such as Netflix, Hulu and Amazon Prime Video.
The arrival of turbocharged new players such as Disney+ and Apple TV+ has only accelerated the exodus.
Which brings us to broadband.
Telecom companies will do everything possible to protect shareholder value. For the likes of AT&T, Comcast, Charter/Spectrum and others, that means offsetting losses in TV subscribers by increasing revenue from fast-growing internet-only customers.
Spectrum, the dominant cable company in Southern California, announced last fall that the cost of its standard internet service was rising by $4 a month to $69.99. If you use the company’s gear for Wi-Fi, your monthly cost rose by $5 to $75.99.
This was Spectrum’s third rate hike within a span of 12 months. (The L.A. Times partners with Spectrum for a nightly TV show.)
Similar rate increases have occurred nationwide among all telecom providers.
I get that pay-TV companies are sticking it to customers in part because their programming costs keep soaring.
I also see how, from a purely business standpoint, if one part of your business is growing and another is declining, you increasingly rely on the growing part for profit.
When it comes to internet access, though, we’re not talking about a luxury, such as subscribing to HBO. We’re talking about a necessity.
About 80% of U.S. households now have access to broadband internet. Cable companies account for nearly two-thirds of service.
I’ve long believed that broadband should be regulated like a utility.
It’s no less vital to most households than water and power.
“Broadband is a necessity to every consumer and especially important in households with children,” said Sally Greenberg, executive director of the National Consumers League.
“Broadband is today what electricity was several generations ago,” she said. “Without it, consumers simply cannot function in the 21st century.”
Service providers should have to justify rate increases just like other utilities. If higher prices are warranted by legitimate operating costs, so be it.
If not, go pound sand. Some industry analysts are already predicting we’ll soon be charged as much as $100 monthly for internet access. That’s not because of massive network upgrades.
It’s because service providers, with limited competition, know they can get away with it.
It’s because they’re determined to maintain quarterly revenue levels that shareholders grew accustomed to in fatter, happier days, before cord cutting gave customers an actual choice.
It’s a new world, and businesses will have to adapt. That might mean having one satellite TV provider rather than two, just as we’ve gotten by with a single satellite radio company.
It also means consumers need to be protected from price gouging for something they can’t live without. Give state public utilities commissions the power to oversee internet pricing.
If prices are fair, the service providers have nothing to worry about.
If not, that’s something else they’ll have to adapt to.