Here’s something that never ceases to bother me, both as a recent cable chief technology officer and now, as a technology vendor: How is it that bandwidth is the growth engine for anyone who sells services over a network, but cable operators who invest in bandwidth get roundly punished by Wall Street?
Let’s face it: bandwidth is power. It’s been the key to cable’s dominance over satellite and digital subscriber line. Yet, Wall Street has frowned on initiatives that would create new downstream and upstream opportunities, while the market has encouraged telco investments in new fiber.
Just look at cable’s history. In over a half-century, bandwidth expansion has never disappointed. Extensions of shelf space historically have been followed by revenue growth.
The industry’s buildouts to 330 Megahertz and 550 MHz attracted new channels, which drove new revenues. When we added the “digital” platform, new revenues followed. Same with the addition of high-speed data and voice. In each case, bandwidth was the foundational platform for higher revenues and multiple-systems operator valuations.
I realize that I’m walking a very fine line. I don’t want to sound like an alarmist — because I truly don’t think there’s any cause for alarm when it comes to cable and bandwidth. But at the same time, I’m confounded that cable is penalized, not rewarded, for investing in growth engines for the future. Would you punish airlines for investing in … well, airplanes?
In a sense, it’s our own fault. Wall Street’s jitters about bandwidth expansion are a conditioned response. That last big round of network upgrades, when cable stretched its upper spectral limit to 750 MHz, did require heavy capital spending.
But if you remember nothing else, know this: upgrades are dead. The days of spending double- or triple-digit billions of dollars to expand bandwidth by ripping up streets — what we used to call “rebuild/upgrade” — are over. It’s important to understand just how expensive it is not this time around.
Today’s bandwidth expansion options are heavily technology-based (as opposed to plant-based). Cable could double its downstream capacity today for a single-digit percentage of what it spent the last time around. The same investment could take an upstream that already beats satellite (what upstream?), twisted pair and DSL and position it to go toe-to-toe with fiber.
Speaking of which: Why is it that massive capital spending to prepare telco networks for video isn’t getting the same cold shoulder from Wall Street? Earlier this year, Comcast shares dipped at just a hint at infrastructure investment. But Verizon Communications shares are up by roughly a third over the past year, even as it has plowed capital into new fiber.
Cable operators’ biggest competitive advantage is the size of the pipe into the home, and all the things that can be done with it. Whether it’s from high-definition lineups of 100 channels or more, HD on demand or T1, Data Over Cable Service Interface Specification 3.0 or Ethernet services, growth for cable’s investors will go hand in hand with the industry’s ability to maintain plant-capacity dominance.
In my view, the paradigm is upside down. Cable operators should be rewarded, not penalized, by Wall Street for investing in their networks, because their networks are their power.
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