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Suddenlink Cable CEO: ‘People Don’t Realize the Days of Cable Company Upgrades are Basically Over’

Phillip Dampier September 1, 2010 Broadband Speed, Internet Overcharging, Online Video, Suddenlink, Video 12 Comments

Kent

Suddenlink president and CEO Jerry Kent sends word that the days of cable companies spending capital on system upgrades are basically over.

Interviewed on CNBC, Kent was responding to concerns about the cable industry’s long history of leveraged buyouts — amassing enormous debt to launch buyouts of small and medium sized cable companies as the march towards industry consolidation continues.

Kent’s own cable system — Suddenlink, was built partly on purchased cable systems from Cox and Charter Cable.  In the changing economy, Wall Street now wants to see cable companies with plenty of free cash flow on hand as part of their balance sheets, not just potential revenue growth through increased numbers of households made possible through debt-ridden acquisitions.

Kent sees Suddenlink, and many other cable operators, performing better as they transition away from making investments in system upgrades to accommodate demand.

“I think one of the things people don’t realize [relates to] the question of capital intensity and having to keep spending to keep up with capacity,” Kent said. “Those days are basically over, and you are seeing significant free cash flow generated from the cable operators as our capital expenditures continue to come down.”

Kent told CNBC Suddenlink had the fastest residential Internet service in the country — 107Mbps. (EPB in Chattanooga claims it offers 150Mbps residential service, although we don’t see much about it beyond a June press release on their website.)  Suddenlink’s speeds are one-way only, however.  The upstream speed for that tier of service is considerably slower — 5Mbps.  EPB offers the same upstream and downstream speeds.

Kent appeared on CNBC to discuss the “threat” to cable television company business models by online video.  Kent believes Suddenlink, and the cable industry more generally, is positioned to protect cable-TV profits with the TV Everywhere concept — offer online video of cable programming, but only to authenticated, current cable subscribers.  Those without cable subscriptions can’t watch.

Financial reports submitted by many of the nation’s cable operators confirm Kent’s claim that capital spending is being reduced.  Even among cable systems that claim they need to enact usage caps and other Internet Overcharging schemes to “invest in broadband upgrades,” the financial reports don’t lie — they are not using increased revenue for system upgrades.  They are instead retaining the revenue as free cash – available for other purposes, paying down debt, or returning it to shareholders through dividend payouts.

http://www.phillipdampier.com/video/CNBC Internet v. Cable 8-20-10.flv

CNBC interviewed Suddenlink CEO Jerry Kent on how the cable industry intends to cope with invasive online video, threatening to erode cable-TV profits.  (8 minutes)

Currently there are 12 comments on this Article:

  1. Uncle Ken says:

    Just great/ If what Kent says is true we will drop to the bottom
    of the rest of the earth and be back on dial up all in the name of stock
    holders. Most of the world will pass us by as they have on so many other
    things. We are going downhill in the worlds eyes. there will be no recovery
    from it. This post is not well worded because of the limits of typing. A
    person can say something in a minute
    even on the phone rather then 5 pages of text. What do you figure maybe
    a year or two before the system fails because of no more structure
    added.

  2. Jeremy says:

    That’s their whole plan so they can justify ripping off consumers with lousy bandwidth and caps.

  3. DM says:

    I hate hearing statements like this because this has been the cable industry’s exact attitude for the past five years.

    Regarding internet services, cable companies need to upgrade to DOCSIS 3 to alleviate bandwidth constraints. The past decade has seen a “speed war” with DSL providers that resulted in cable companies marketing speeds that consumers actually don’t get to see and congested networks that are caused by the amount of bandwidth that consumers are using. They have overpromised and underperformed. When they do upgrade to DOCSIS 3, it would be wise to not overpromise so that some of the bandwidth problems can be solved.

    Regarding television services, cable companies need to upgrade to all-digital delivery systems, possibly Switched Digital Video, and utilize MPEG-4 encoding so that they can improve the quality of channels, especially HD streams. Back in 2006 the satellite TV companies began the rollout of MPEG-4 equipment that allowed them to add more national HD channels and improve the quality of those HD channels. They have maintained a lead in both quality and quantity categories and have converted a lot of cable customers over to dishes.

    It seems like the cable industry has been on the slow-end of tech innovations the past few years and I don’t see that changing anytime soon.

  4. jr says:

    CEOs need to make 8 figures

  5. Tim says:

    And I guess the Cable Co’s don’t realize, their monopolistic hold is slipping through their fingers. If they won’t do it, then someone else will.

  6. Ian L says:

    A few things:

    1. Comcast competes with EPB, not Suddenlink. Totally different market; SL competes with fiber in a few places but that fiber tops out at maybe 15 Mbps down, at least for now.
    2. EPB *does* offer 150M symmetric, I checked with them to confirm this. They just aren’t marketing it yet. You have to ask for it.
    3. Suddenlink is probably THE most aggressive cable company as far as plant upgrades go right now. They’re pushing all of their plant in non-rural areas to 1GHz, and pushing all of their channels to digital that they can, resulting in immense bandwidth availability, at least for one-way (downstream) content.
    4. With (3) in mind, once Suddenlink gets their current upgrades (fiber rings, node splits, 1GHz, DOCSIS 3) done there really won’t be much more to do in terms of plant changes, aside from full-on FTTH, which won’t happen for awhile yet. Basically the only thing left would be to bond more and more DOCSIS channels as time goes on which is cheap (upgrade the CMTS, upgrade the modems, done). Upstream bonding may come as well, but only if the competition starts offering more than 5 Mbps on uploads. Since the competition is almost invariably copper-based (DSL) this won’t happen for awhile yet, so Suddenlink can keep their 16QAM upstream channels and low upload speeds.
    5. “If SL doesn’t do it, someone else will.” Any volunteers?

    • Tim says:

      “5. “If SL doesn’t do it, someone else will.” Any volunteers?”

      They already pulled this in NC. Citizens go to cable co and ask for better service. Cable co gives them the proverbial middle finger. Citizens decide to build their own fiber network. Cable co says, “Hey that’s unfair!!!” Tough beans, you had your chance…

  7. Nathan says:

    This is all well and good, but most areas that suddenlink covers only gets 1.5-10-15 mpbs up and 1(!!) down…

    • That’s good enough for web browsing and e-mail, exactly what Suddenlink apparently wants their customers to limit themselves to doing on their “we don’t need to upgrade” network.

  8. Mark Engstrom says:

    In my area of Texas, the highest download speed offered for residential service I believe is 25 Megabits.

    If you can get past the slow speeds, then you can also enjoy their filtering out incoming FTP, IRC, SMTP, POP, HTTP, SOCKS, SQUID, DNS protocol packets unless you are paying for “commercial” service.

    I personally am filing a complaint with the FCC and looking into contacting a class action law firm.

    Comcast has already settled in a similar lawsuit where they didn’t block p2p bitorrent traffic but only throttled it.

    I think this disservice will be a lot easier to prove in court.

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