Competition In The Video Marketplace

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Slide 1

Competition In The Video Marketplace

Charter Communications®

Grier C. Raclin

Department of Justice Antitrust Division

2007 Telecommunications Symposium

November 29, 2007


Slide 2

Introduction to Charter

Charter's logo and market (Cable, Internet, Telephone)

  • Charter, with ~5.7M customers (~11.7M RGUs) in 29 States, is the country’s 3rd largest publicly-held cable system, and 5th largest-publicly held MVPD.
  • Charter provides analog, digital and high definition video programming (including video-on-demand and pay per-view); high-speed Internet service; and telephone service – separately and in two- and three-product Charter Bundles
  • Since 1998, Charter has obtained thousands of franchises and has invested billions of privately-financed dollars building out its network and upgrading its systems.

Slide 3

The Video Marketplace is Highly Competitive

Charter and cable in general face robust competition in the video marketplace from, among other sources:

Satellite Operators (Direct TV; EchoStar) with ~30M subscribers (~33% market share) and ~$28B in combined annual revenues

Competing Cable Companies, including over-builders (e.g., RCN), municipal cable operators, and private cable operators/SMATVs – possibly growing presence in light of FCC’s MDU non-exclusivity and “Drywall” orders

Local Telcos expanding into video (e.g., NRTC’s “IP Prime”) and advantaged with Rural Loan availability

. . . . . and, of course


Slide 4

The RBOCs

  • Verizon claims to pass 4.7M HHs and have over 700,000 FIOS customers, gaining more than 200,000 last quarter and ~17,000 every week
  • Including its DBS partnership, Verizon has over 1.5 million customers, making it the 10th largest MVPD
  • AT&T claims to have 126,000 customers for its new “U-verse” video service, growing at ~10,000 per-week
  • Including its DBS partnership, AT&T has > 2.1 million customers, making it the 9th largest MVPD

Each RBOC enjoys tremendous advantages in terms of having huge capitalization and revenue flows; in-place networks, systems & infrastructure (build at rate payers’ cost); and well-known brand names.


Slide 5

Relative 2007E Revenues ($B)

Bar graph showing relative revenues for 2007 (estimated) in billions of dollars

[D]

AT&T has ~20x, and VZ has ~16x, Charter’s Revenues


Slide 6

Relative Market Capitalizations

Bar chart showing market capitalization for several companies

[D]

AT&T has 411x, and VZ has 230x, Charter’s Market Cap.


Slide 7

And the Future Promises More Competition

RBOCs promising dramatic growth

  • VRZN projects to reach 18M HHs, and have 3-4M FIOS customers (20-25% penetration) by 2010
  • ATT on track to pass 8M HHs by 2008

Power Companies soon be offering “Broadband over-Powerline” video services

IPTV offering video over the internet; including majors (CBS’ Audience Network; NBC/Fox’s Wulu; ABC’s Full Episode Player; Disney’s XD Theater) and new entrants (e.g., NetFlix; Amazon; IP Prime; Joost; Veoh)

Mobile Delivery Platforms to cell phones and PDAs, such as Google’s latest platform proposal


Slide 8

Neither State nor Federal Regulations Constrain New Entrants

  • Charter has obtained thousands of franchises since its inception – over 2,000 in one 18-month period alone
  • Over 18 states, including the largest, have adopted state-wide franchising laws (6-7 considering similar laws in ‘08)
  • In addition, the FCC has granted tremendous regulatory relief uniquely to cable’s competitors; e.g.,
    • Sat Coms and most PCOs not subject to Rate Regulation, MDU Exclusivity Prohibition, Program Access or equal Must Carry Requirements
    • RBOCs given unique relief from Franchising Delays and Build-Out Requirements
    • VRZN granted permanent waiver of Set Top Box Integrated Security Ban for low-end boxes vs. Charter’s 1 year waiver

Slide 9

Charter’s Commercial Responses

  • Competition is not new – the ILECs normally are 3rd or 4th competitor in a market – so overreaction to entry to be avoided
  • Key competitive response is the Charter BundleTM – offers unmatched value to customer.
  • But, in the normal course, we are also:
    • Offering Enhanced Productse.g., more HD; 16 Mbps HSI (DOCSIS 3.0 may offer > 100 Mbps; Almost equal to = asymptotic to or > FIOS); Digital Home; Home Networks
    • Enabling Increased Bandwidthe.g., rolling out switched digital
    • Increasing Distribution Channels – increased Internet and sales and service centers; WalMart agreement
    • Improving Customer Service – 2-hour services windows; same-day service appointments

Slide 10

Summary

Competition in the video industry is longstanding and robust, with two to four competitors in each local market.

Regulatory action in the past two to three years, under the guise of removing barriers to entry, has actually put the regulatory “thumb on the scale” in favor of huge new entrants that do not require further regulatory advantages.

Thank you.

Updated June 25, 2015

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