WASHINGTON, D.C. – The cable industry’s transformation from a simple analog video provider to a provider of multiple services over an advanced digital communications platform has resulted in enormous benefits for U.S. consumers, including billions of dollars in savings, increased competition from multiple providers and access to innovative technology that is available to all demographic groups, according to a study prepared by Microeconomic Consulting & Research Associates, Inc. (MiCRA) and released today by the National Cable & Telecommunications Association (NCTA). The study was included in comments NCTA filed today with the Federal Communications Commission.
The MiCRA report, “Benefits to Consumers from the Transformation of the Cable Industry,” concludes that cable’s decade-plus investments in modern digital networks, which allow consumers to choose among a wide variety of products and bundles of services – including digital high-definition video, high-speed data, and digital voice – provides about $35 billion in annual consumer benefits.
The value of the total consumer benefits was calculated by estimating the value consumers attach to the services to which they subscribe today versus 10 years ago, and incorporating the positive impact of bundling multiple services, which has allowed providers to exploit economies of scale and scope in the provision of digital services to the home and resulted in lower prices for consumers.
Cable’s digital transformation began in the mid to late 1990s. Prior to that, the industry operated one-way coaxial cable systems which had limited spectrum and generally provided 100 analog channels or fewer to subscribers. But the cable industry invested heavily over a 10 to 15 year period by laying fiber optic cable to neighborhood nodes across the U.S., and cable networks today are two-way digital broadband platforms capable of providing voice, video, and high-speed broadband Internet services. Between 1999 – 2008, data from SNL Kagan shows that the cable industry invested $129 billion in the deployment of advanced communications infrastructure, which has resulted in cable operators offering consumers a bundle of advanced services at a considerable cost savings versus purchasing each service individually.
“Consumers as a whole have unequivocally benefitted from the transformation of the cable industry over the past ten years and its investment and entry into voice and high-speed data markets,” the report states. “The benefits can be attributed to the cable industry’s massive investments in deployment of advanced communications infrastructure, which enables provision of new digital video, data, and voice services. Consumers have voted with their feet by subscribing to these new services in ever-increasing numbers.”
About 60 percent of cable customers subscribe to broadband Internet service, 26 percent subscribe to digital voice service, and the penetration of each service continues to grow steadily. The triple-play bundle of digital video, broadband, and digital voice service continues to attract a larger share of cable customers, which provides the greatest opportunity for consumer savings.
But the benefit to consumers resulting from the transformation of the cable industry is not limited to cable subscribers, according to the study. Cable’s technological upgrade and provision of broadband Internet access service and voice service have forced a competitive response from the incumbent telephone companies, which now offer multiple advanced digital services available at discounted prices through their own bundled offerings.
“In addition to the direct benefits experienced by the cable companies’ customers, competing firms’ subscribers benefit as well from the vigorous competition between the rival firms,” the study says. “In particular, the incumbent local exchange carriers (ILECs) have been forced to compete aggressively to retain old customers and attract new customers for voice and data services. We estimate that the total benefit to all U.S. consumers flowing from the transformation of the cable industry over the last ten years to be $34.9 billion annually.”
The report also demonstrates that all demographic groups have benefitted from cable’s delivery of broadband Internet access and digital voice services. While broadband Internet service originally attracted upper-income households as subscribers, data in the last two years shows that broadband Internet access penetration rates for lower income households have increased substantially, reaching close to 50 percent in geographic areas with the lowest median household incomes. And subscriptions to cable’s digital voice service have been distributed more evenly across income groups, ranging from 21.4 percent to 28.9 percent across all income categories.
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A copy of the report is linked below.