If you get broadband from your cable company we suggest you sit down and make sure you aren’t drinking any coffee before you read further. We don’t want you spewing hot java all over your computer.
In a recent filing with the Federal Communications Commission a Washington-based think tank and media issues advocacy group, Free Press, did some serious digging to figure out what it actually costs cable companies to provide broadband services compared to what they charge you for it.
The Free Press researchers looked at the latest detailed financial information from Comcast and calculated estimates on the range of costs incurred by the company (for instance, advertising, customer service, upgrades, etc). The estimate did not include the initial expense for laying cable because those one-time costs have been fully recouped.
Coffee down? Here’s what they found.
For the second quarter of 2009, Comcast had a profit margin for its cable Internet service of about 70 percent. That’s not a typo.
One other relevant fact here is that your local cable Internet service uses just a few “channels.” So while about a quarter of cable operators’ revenue comes from selling Internet access, they only allocate around 3 percent of their networks’ total capacity to provide that access.
Then there is the question of the Internet “speed” offered by your local cable company. We’ll let Adam Lynn, one of the folks who worked on the Free Press project, take over the narrative.
“With major advances in technology in recent years, U.S. cable operators now have the ability to increase our Internet speeds, but they’ve long been dragging their heels on using their immense profits to invest in their networks. You may have heard about cable companies beginning to offer downstream speeds of “up to” 50 or 100 Mbps using DOCSIS 3.0 technology. Of course, these faster speeds would only begin to catch us up to our overseas counterparts.
Most likely, though, your cable operator still hasn’t begun offering the service, but here is a peek of what you can expect if that changes. In our filing, we run the numbers on DOCSIS 3.0 to illustrate just how cheap these upgrades are in relation to your monthly service fee. In other words, we show just how inexpensive it is for cable operators to offer large swaths of the country much faster speeds.
In general, two pieces of equipment need upgrading in order to get faster Internet: the equipment in your nearby cable building, and the cable modem in your home. Your cable company charges you a monthly modem rental fee separate from your monthly cost for broadband (Comcast just increased its fee). You can also buy your own modem.
The second piece of equipment that needs upgrading for faster Internet is the cable company’s equipment (known as the CMTS). In most cases, this is simply a software upgrade (like an update of your operating system), and the cost savings associated with the upgrade appear to completely offset its cost. Making these upgrades will allow companies to offer much higher speeds, something they should already be doing, given how much we’ve all been paying them for years.
In our research, we discovered all sorts of cable operators and equipment manufacturers discussing just how cheap these upgrades are. Japan’s largest cable operator revealed that these upgrades cost about $20 per household, while U.S. cable operator Charter puts that number at $8 to $10.
Of course, this all sounds like great news, right? Almost all of us can finally have those speeds that are offered to consumers overseas without an increase in price, given those huge profit margins and the low cost of upgrades. However, as you may have come to expect from U.S. broadband providers, wishful thinking and reality rarely align.”
You can read Lynn’s article on the filing here, or you can read the whole filing here.
You are now free to resume your coffee drinking activities.
