COMPTEL: Broadband competition is intertwined with ability to offer video service

COMPTEL said in a new FCC filing that its wireline broadband members like Google Fiber (NASDAQ: GOOG) and Windstream need access to fairly priced video content in order to drive new choices for consumers.

Being able to provide a bundle of linear video and broadband is an essential element that competitive wireline service providers need to compete with cable in the residential broadband market.

"The Commission has long recognized that residential consumers continue to prefer to purchase both broadband and linear video services together in a bundled product," COMPTEL said in an FCC filing. "As such, competitive networks must provide competitive linear video services -- not just broadband services, in order to compete head-to-head with other wireline providers in the residential marketplace -- and to achieve higher broadband adoption rates by consumers."

Despite the call for fairness in the video pricing process, the reality is that content costs continue to rise.

COMPTEL cites an American Cable Association (ACA) research paper that found that "[o]ver the last eight years, total programming fees for the US multichannel video industry have more than doubled."

This has become a big issue for smaller multichannel video providers (MVPDs) that don't have the same clout as large cable MSOs such as Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC). The ACA paper revealed that this group has seen fees rise 10.6 percent.

Looking forward, the ACA paper forecasts that programming fees will continue to rise, which will drive MVPDs to pass on costs to consumers with higher service rates. The increase in programming costs will make the business case to expand broadband services into new markets will be "less tenable" for rural expansion, new fiber deployments, and incumbent telco deployments.

COMPTEL said its members are already seeing the effects of higher video costs.  

"They are offering linear video service at a loss which necessarily impacts their ability to expand and upgrade their broadband networks," COMPTEL said. "They are providing video simply to complete the bundle and support the provision of competitive broadband services."

Video pricing issues are not just an issue for up and coming providers like Google Fiber and Windstream, but also for well established players like AT&T (NYSE: T) and CenturyLink (NYSE: CTL), who continue to scale their video offerings into new markets.

As AT&T continues to focus on luring profitable customers, the telco reported in the second quarter that it lost 22,000 video subscribers. Despite the losses, consumer ARPU for U-verse triple-play customers continues to be more than $170.

CenturyLink said in its second quarter earnings call that it would extend its Prism IPTV service to approximately 250,000 additional homes to reach more than 2.8 million total Prism TV addressable homes by the end of the year. 

Separately, in a joint filing with Consolidated Communications and TDS, CenturyLink asked the FCC to bring consistency to the retransmission consent negotiation process.

"Indeed, even for the largest telephone companies, such as AT&T, the provision of video services is often a loss leader, and was a significant reason for AT&T's acquisition of DirecTV," COMPTEL said. "Similarly, CenturyLink asserts in this proceeding that Commission must reign in escalating retransmission consent fees in order to promote consumer choice in video delivery services."

For more:
- see this FCC filing (PDF)

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