"Before you jump to any conclusions about these companies, though, remember that the turn of the millennium was precisely when a lot of modern Internet cabling was being rolled out."
I feel like this is a very important point that is getting lost.
Of course costs are going to be higher and profits lower (or even negative!) when you're laying lots of new fiber and deploying new equipment. Maintaining that equipment in subsequent years will cost much less and you'll make more money those years selling service on it. There's nothing inherently wrong here.
Yes, costs naturally will be lower after the initial large capital expenditure.
No, this so called modern cabling has not resulted in cheaper and faster access fees. Americans pay some of the highest fees for comparable speeds. [1]
Lastly, the flip side of the coin is that if the ISPs figure out they can still make $$$ from not having to invest in upgrading infrastructure, then there is very incentive to do so.
The graph I would like to see here is "integrated expense" and "integrated income" over the years. That would indicate when the point-of-break-even happened (or will happen).
This felt like the main point of the article for me. Geographically it is very relevant to me (and fellow Australians, even if they are too stupid to see through our government's crap).
I don't see anything too surprising here. The big problem is the lack of disruption and innovation due to the government sponsored monopolies of internet/cable/network carriers over geographic regions.
However, it's normal to spend a lot of money on CAPEX and make higher profits on the services after the financing for capital expenditures used to expand the services has paid off. The only people who might find this less than obvious are probably solely from the lean internet business space, and haven't had any real experience in manufacturing or other capital-heavy businesses.
This is the saddest part about it. Cable companies and broadband were once the tip of the spear of innovation in terms of internet speed.
In '95 in Chandler, AZ I went from a 56k to a broadband connection up to 6 Mbps broadband connection (with so few on the nodes then) in one day. It was amazing innovation and almost magical.
The sad part is that the same companies that brought that are the same companies keeping us from leaps like that now, no longer disrupting or innovating, bean counting instead while the US broadband and subsequent innovation possibilities / new markets burn.
The best way to make more money and be more liked as a company if you are in broadband is to jump up a level and put your competitors on their heels by giving more speed/bandwidth, but there are no competitors worthy yet to challenge and shake up internet connections like cable companies did back when phone companies were lethargic.
Yep, welcome to capitalism. When you need to raise your profits to justify high prices for shareholders, it is a race to the bottom to see with how little you can spend for market competitive pricing.
Having been in the position of living in a city of over 1 million residents and therefore being able to choose my broadband provider from a generous selection of one option, I would really like to be welcomed to capitalism. Capitalism sounds lovely. Even if it doesn't promote higher quality service, market competitive pricing alone would be a huge improvement over what I'm used to.
This isn't capitalism, it's the opposite of capitalism. It's regulatory capture and government corruption. Most major ISPs are cable companies, and most ISPs/cable companies have a cozy legal arrangement with municipal areas to lock out competition. The free market is not in operation here.
Tell that to people of Eastern Europe, where 10 years ago it was a free-for-all build-your-network without any regulation or state intervention.
At one time I had half a dozen ISPs at my door to choose from, from companies with 100 subscribers to corporations with half a million household customers. Thank you, Capitalism, for offering me a gigabit connection for $16.8 per month (btw, my ISP just reduced their price from $18 per month a couple of months ago).
Seriously, how the hell do some people think that local authorities imposing restrictions/roadblocks on building of new last-mile alternatives is "capitalism"?
Which would be fine so long as there's a reasonable amount of competition. Too little competition means price gouging. Too much competition means everyone focuses on cheating rather than creating value. It would be more productive to focus on figuring out how to enact regulation/deregulation to tune the level of competition rather than bashing capitalism.
The problem is these companies try to act as utilities, not technology companies. They borrow large sums of money (look at dept of AT&T or VZ), invest some of it in their network, but use big chunks to pass on to shareholders as dividends. They are financial companies, not technology companies. They are far more concerned with paying a few cents more in dividend per share than delivering a few more Mbps. I guess that it capitalism, but it is short sighted. I think the days may be numbered. It would require a good investment of capital, but Google fiber for example shows that from the technology side it would be trivial to disrupt them.
The upsetting thing to me is not that the networks make money. That's fine. It is that they have stymied growth of our economy in favor of milking as much money as they can.
Think about the tremendous power unleashed when MP3 sharing, YouTube video, and Netflix streaming all became possible thanks to sufficient bandwidth. Now think about what would happen if we ramped up speeds instead of letting them trickle.
I don't know why people get PO'd that companies make money. That's the way capitalism works. It's not like anybody can just invest billions of dollars in infrastructure and hope to make money on it.
Then again, the town of Chattanooga TN may be on to something:
There's a huge difference between "companies exist only to pay (short term) shareholder dividends" and "shareholders are one of the ways companies raise capital to accomplish its mission"
It's two different cultural perceptions that have a big outcome on how companies are managed.
I think it's OK for people to be PO'ed when companies are managed by the first mindset. Because healthy capitalism is as much about culture as it is the concrete laws and regulations. Unfortunately I think the US is struggling with a bad culture here, as evidenced by "corruption" being relabeled as "lobbying", which has become culturally accepted.
I'd be more interested to see how more regional expenditures on infrastructure do (or possibly don't) change in response to new, viable competition, such as Google Fiber.
This is anecdotal and not the hard figures you're asking for, but I know in Austin both Grande and AT&T (two of the three ISPs in town) started offering gigabit packages. In almost all neighborhoods AT&T beat Google in getting fiber to people's doors. This went from being something they weren't even hinting at to being a reality within a year of Google announcing their intentions to provide fiber in Austin. And while Grande is still only offering fiber in high end neighborhoods, AT&T has pretty good coverage with it.
[+] [-] eli|11 years ago|reply
I feel like this is a very important point that is getting lost.
Of course costs are going to be higher and profits lower (or even negative!) when you're laying lots of new fiber and deploying new equipment. Maintaining that equipment in subsequent years will cost much less and you'll make more money those years selling service on it. There's nothing inherently wrong here.
[+] [-] newman314|11 years ago|reply
Yes, costs naturally will be lower after the initial large capital expenditure.
No, this so called modern cabling has not resulted in cheaper and faster access fees. Americans pay some of the highest fees for comparable speeds. [1]
[1] http://www.bbc.com/news/magazine-24528383
Lastly, the flip side of the coin is that if the ISPs figure out they can still make $$$ from not having to invest in upgrading infrastructure, then there is very incentive to do so.
[+] [-] pwarner|11 years ago|reply
All the last mile ISPs were doing circa 2000 was hooking smarter silicon on their existing copper.
The first big last mile fiber builds started towards 2005 I think. (fios etc)
[+] [-] hrjet|11 years ago|reply
[+] [-] fleitz|11 years ago|reply
[+] [-] deevus|11 years ago|reply
[+] [-] cmapes|11 years ago|reply
However, it's normal to spend a lot of money on CAPEX and make higher profits on the services after the financing for capital expenditures used to expand the services has paid off. The only people who might find this less than obvious are probably solely from the lean internet business space, and haven't had any real experience in manufacturing or other capital-heavy businesses.
[+] [-] drawkbox|11 years ago|reply
In '95 in Chandler, AZ I went from a 56k to a broadband connection up to 6 Mbps broadband connection (with so few on the nodes then) in one day. It was amazing innovation and almost magical.
The sad part is that the same companies that brought that are the same companies keeping us from leaps like that now, no longer disrupting or innovating, bean counting instead while the US broadband and subsequent innovation possibilities / new markets burn.
The best way to make more money and be more liked as a company if you are in broadband is to jump up a level and put your competitors on their heels by giving more speed/bandwidth, but there are no competitors worthy yet to challenge and shake up internet connections like cable companies did back when phone companies were lethargic.
[+] [-] _asciiker_|11 years ago|reply
[+] [-] opendais|11 years ago|reply
[+] [-] bunderbunder|11 years ago|reply
[+] [-] InclinedPlane|11 years ago|reply
[+] [-] hippiehippo|11 years ago|reply
At one time I had half a dozen ISPs at my door to choose from, from companies with 100 subscribers to corporations with half a million household customers. Thank you, Capitalism, for offering me a gigabit connection for $16.8 per month (btw, my ISP just reduced their price from $18 per month a couple of months ago).
Seriously, how the hell do some people think that local authorities imposing restrictions/roadblocks on building of new last-mile alternatives is "capitalism"?
[+] [-] jjoonathan|11 years ago|reply
[+] [-] virtue3|11 years ago|reply
[+] [-] pwarner|11 years ago|reply
[+] [-] dmourati|11 years ago|reply
According to Ookla,
US: 25.9 Mbps South Korea: 54 Mpbs Netherlands 46.3 Mbps Sweden: 46 Mbps Lithuania: 45.6
See also: http://www.wolframalpha.com/input/?i=internet+speeds+by+coun...
Think about the tremendous power unleashed when MP3 sharing, YouTube video, and Netflix streaming all became possible thanks to sufficient bandwidth. Now think about what would happen if we ramped up speeds instead of letting them trickle.
[+] [-] sp332|11 years ago|reply
[+] [-] noobermin|11 years ago|reply
[+] [-] hyperliner|11 years ago|reply
Then again, the town of Chattanooga TN may be on to something:
https://news.ycombinator.com/item?id=8064947
[+] [-] audunw|11 years ago|reply
It's two different cultural perceptions that have a big outcome on how companies are managed.
I think it's OK for people to be PO'ed when companies are managed by the first mindset. Because healthy capitalism is as much about culture as it is the concrete laws and regulations. Unfortunately I think the US is struggling with a bad culture here, as evidenced by "corruption" being relabeled as "lobbying", which has become culturally accepted.
[+] [-] finnn|11 years ago|reply
[+] [-] Berobero|11 years ago|reply
[+] [-] delucain|11 years ago|reply
[+] [-] rocky1138|11 years ago|reply
Or, Capitalism.
[+] [-] unknown|11 years ago|reply
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