Your Broadband is About to Get Much More Expensive

While the press likes to focus a lot on the rise of scattered gigabit broadband connections as a sure sign of modern broadband progress, we've been noting for a while how broadband is quietly getting less competitive than ever across large swaths of the country. As AT&T and Verizon give up on unwanted DSL customers, and second-tier telcos like Windstream, Frontier and Centurylink simply refuse to upgrade their networks en masse, many users increasingly only have one option if they want anything close to "next-gen" broadband speeds: their cable provider.

As a result, cable companies have been hoovering up the lion's share of broadband subscribers for several years now , cementing a growing monopoly over broadband connectivity.

How big of a monopoly?

In a new research note by New Street Research analyst Jonathan Chaplin, the analyst points out that cable providers controlled 65% of the overall broadband market at the end of last year. That market share is expected to jump to 72.2% by 2020, by which point cable providers will lay claim to a whopping 78.331 million American broadband subscribers.

Phone companies simply don't think that bothering to upgrade copper DSL users to fiber at any real scale is worth it. As a result most telcos have either frozen DSL upgrades entirely, or are engaging in very selective upgrades in some areas (mostly housing developments). Instead, they're shifting their overall attentions to areas where they see higher growth and a faster return on their investment.

For example Verizon bought AOL and Yahoo to try and be the new Google (it's not working). AT&T bought Time Warner to try and dominate content. CenturyLink and Windstream bought Level 3 and Earthlink, respectively, to focus more seriously on the enterprise market. Billions are being spent on alternative interests instead of uniformly upgrading networks serving tens of millions of telco customers.

Less residential broadband competition means, of course, higher rates. That's already been made perfectly evident by cable providers that have increasingly implemented arbitrary and utterly unnecessary usage caps to simultaneously cash in on -- and hamstring -- competing streaming video providers. But analysts like Chaplin believe that as their market share grows and new subscriber growth saturates, cable providers will be quick to raise rates -- potentially doubling the amount they charge for broadband over the next few years.

As the primary source of value to households shifts increasingly from pay-TV to broadband, we would expect the Cable companies to reflect more of the annual rate increases they push through on their bundles to be reflected in broadband than in the past.

-New Street Research analyst Jonathan Chaplin

"Comcast and Charter have given up on usage-based pricing for now; however, we expect them to continue annual price increases,” Chaplin said.

It should be noted that's not really true. Comcast continues to slowly expand usage caps. The one exception is the company's Northeast territory where it sees notably more competition from the likes of Verizon FiOS. And Charter didn't "give up" on usage caps, it's simply banned from imposing them for a period of seven years as a condition to its recent megamerger. A condition, it should be noted, cable lobbyists are pushing the Ajit Pai led FCC to kill.

But Chaplin's central thesis remains on point: that cable providers are going to take full advantage and begin pushing faster and bigger broadband rate hikes -- especially as they feel the pinch on the streaming video end to their traditional television revenues (read: cord cutting).

"As the primary source of value to households shifts increasingly from pay-TV to broadband, we would expect the Cable companies to reflect more of the annual rate increases they push through on their bundles to be reflected in broadband than in the past," Chaplin said. "Interestingly, Comcast is now pricing standalone broadband at $85 for their flagship product, which is a $20 premium to the rack rate bundled price."

Of course cable providers have increasingly leaned on misleading, below the line fees to hide these rate hikes, while helping them falsely advertise a lower rate. Both Comcast and Charter are currently facing ongoing lawsuits for the practice.

The one-two punch of disinterested telcos and a return to more "industry-friendly" revolving-door regulators is going to be a windfall for cable providers. These companies will face less competitive pressure than ever before to lower prices and improve customer service, without regulatory pressure to behave in the absence of said competition and fewer consumer protections. All while revolving door regulators inform you that gutting privacy, net neutrality, and countless other consumer protections will magically forge telecom Uptopia.

And while many hold out hope that wireless broadband will somehow arrive to miraculously save the day, they tend to forget that US wireless broadband is already some of the most expensive in the world, something that's not changing anytime soon. Factor in the expected rise of additional mergers and consolidation expected in the wireless space (Sprint buying T-Mobile being the most likely) and we're potentially facing less competition in that space as well, putting an end to the recent return of unlimited data plans -- which even now aren't really a suitable replacement for fixed-line broadband.

In other words, if you were already annoyed by relentless cable broadband and TV rate hikes and poor customer service, you really haven't seen anything yet.