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Comment by jerrya | Hacker News Reader

I don't have a free market in cable providers.

In my largish apartment complex, there is one cable provider: Cox. I can't use a sat dish, my apartment faces the wrong direction and I'm on the second floor. FIOS isn't available. CenturyLink agrees no "prism tv" whatever that is for me, and directtv is out because I am on the second floor and face the wrong direction.

So there's really no free market in cable providers for me, it's a monopoly situation.

The free market solution would be to require Cox to allow other cable providers to use their cable to get last mile to me and then let Cox, et. al., charge me however they wish.

I would be curious to know which situation Cox would prefer: mandatory unbundling, or force them to share the cable.

EDIT: I do wonder what keeps Verizon from offering FIOS if they wanted to. Is it too expensive to rewire a huge sprawling multi-floor apartment complex?

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EDIT: I do wonder what keeps Verizon from offering FIOS if they wanted to. Is it too expensive to rewire a huge sprawling multi-floor apartment complex?

My understanding is that Verizon has dramatically slowed their FiOS rollout, primarily because they don't think they're likely to be able to sell you "premium services" long-term. Does anyone think that within 10 years there will be any content worth having not available over a 100Mbit (or gigabit, even) pure IP connection? How much can Verizon expect to charge for such a connection?

FiOS made sense when they thought they would be Skype, HBO, NetFlix and iTunes combined, or at least get a cut on all of those. But even if we don't get regulated Network Neutrality, competitive pressure alone will commoditize content and application delivery over IP.

What I don't understand is their pricing model. It seems like they would do a lot better to have A) a "cheap crappy" option which is something like 384K internet and basic cable for an extraordinarily low price, and B) a 100Mbps+ internet service at the same profit margin they would get by selling an entire "triple play" package and then optional over the top phone and cable packages effectively for Verizon's cost, the point of offering them at all merely being to be able to supply the same overall offering as their existing competitors.

The result would be that Verizon could stop giving a crap about whether you use their TV offerings or Hulu or whatever else because that's not where they make their money, but at the same time customers wanting the "triple play" package can get it from them for a total price competitive with similarly situated ISPs and with an overall profit margin they expect from such a thing. Just admit to themselves that they're in the wire business, stop trying to be in the content business, and charge accordingly for the wire. Suddenly "cord cutters" are not a problem, especially when the competing ISP realizes the logic and does the same thing.

You have described what I can only assume is Apple's sales pitch to the carriers: Do you want to be stuck charging $50/month to "cable cutters" or do you want to sell a sexy "Apple TV" with an associated $100+/month "smart TV" plan?

Basically. Except that there is no need for a "smart TV" plan, just charge that much for the wire itself. Apple TV isn't going to do Verizon any good other than build a dependence on Apple like what the recording industry did with iTunes. If people want an Apple TV they can buy one from Apple and hook it up to the wire. Or they can get a gaming console instead, or roll their own Linux box, Verizon shouldn't have to care. They're in the wire business.

But right now their "wire" costs $50 or so a month. Their users currently pay them $60 more for a standard lineup and $10 for HBO on top of that (rough numbers). What happens when those users can get all that content through the $50 connection and start cancelling their TV? A 100+% price hike would be a tough needle to thread.

The answer is to change what they're selling. You can currently get whatever it is, say a 16Mbps connection, for $50/month. Stop selling that entirely. Discontinue it; put the existing triple play customers on the new triple play (which so happens to have the same price, just with more allocated to the connection itself), stop offering that tier to existing internet-only customers as soon as their contracts expire. Your new alternative is a) a very slow connection (not fast enough for Netflix/Hulu/whatever) for $29/month, b) a 100Mbps+ connection for $99/month, or c) a "triple play" 100Mbps+ connection + basic cable + phone for $110/month, and whatever premium channels you want on top of that for exactly what the channel itself charges for its content. Or you can get phone from Skype and TV from Hulu and Verizon couldn't care less, because they're not in the content business, they're in the wire business -- they should want you to stop subscribing to their over the top offerings and switch to third party services, because that's not where the money is.

Compare the revenues or market cap of Skype or Hulu to that of Verizon FiOS, and then realize that both Skype and Hulu have more customers than FiOS, and ask yourself which business you'd rather be in. Infrastructure operators selling over the top services is just an invitation for them to interfere with competitors -- let the over the top market be competitive (and therefore have very small margins) and take the margins from the infrastructure where you can hold on to them. Look up "one monopoly rent" theory. If they're going to have a monopoly and collect monopoly rents, just let them do it in the monopoly market and not have to lose the benefits of competition in the over the top market merely in order to claim the same overall margins spread out over more products. It actually seems to be Pareto optimal -- who is going to lose out here? Maybe the cord cutters, but they're doing something which is unsustainable at scale unless what I'm proposing ends up happening. So where's the drawback?

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