Broadcast TV – Sword of Damocles pt. V.

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5G could be an extinction level event for cable TV.

• The latest surveys are suggesting that fast internet is one of the few things that is keeping growth in cord cutting in USA from becoming a deluge.
• To me, this means that 5G could be the technology that kills a dying industry stone dead.
• Ironically, this trend has really helped the over-the-air broadcasters (OTA) as Internet users are picking and choosing their premium content from the streaming services and using OTA for everything else (see here).
• Cable’s problem is simple.
• The average cable subscription is above $100 whereas streaming bundles from companies like Sling TV cost around $40 largely due to differences in competition.
• In many areas of USA, the cable company has an effective monopoly in that locality thanks to its deployed infrastructure whereas the streaming services are available everywhere and have to compete with each other forcing them to price competitively.
• However, there are still 90m households in USA that pay for cable and a recent survey by Deloitte (see here) found that fast Internet was the main reason why 56% of cable TV users had kept their service.
• Hence, it is this lock on very fast internet speeds (enabler of streaming) and lack of competition in the last mile that is keeping 50.4m households from ditching cable entirely.
• There are signs of this reality in the way that bundles are priced with fast internet only being very expensive meaning that the cost to add content on top is relatively small.
• I think that this is because the internet service is being substantially overpriced due to a lack of competition in the last mile.
• Hence, if there was effective competition for fast internet access, I suspect that this model would very quickly fall to pieces.
• With the de-regulation of the internet in USA, effective competition is badly needed in the last mile for the free market to operate effectively.
• To me, this is by far the most compelling use case for 5G.
• 5G’s ability to use huge blocks of unlicensed spectrum combined with sophisticated tricks with radios and antennae, would enable cost effective competition with both fibre and cable delivered internet access.
• Furthermore, with no requirement to dig up the roads and user-installed receiving units, the cost to roll it out would be far lower.
• This would make it possible to have competitively priced internet only access for the first time.
• With this scenario, the cable companies will either have to cut their prices massively or face losing most of their business.
• Either way, I think this represents an existential threat for the cable tv industry that will need to rethink its proposition to survive.
• I suspect that the result will be much smaller, more innovative but less profitable cable companies offering better customer service than they do today.
• The alternative is to be remembered as case studies of dominant companies that fell by the wayside because they refused to move with the times.
• I doubt that many of their customers would be sad to see them go.