The Huffington Post reports
In our Petition for Investigation of Time Warner Cable (TWC) and Comcast, we point out that TWC's High-Speed Internet service has a 97 percent profit margin and a number of people asked how that statistic was derived. Simple. Time Warner Cable provides the information, (with some caveats).
Below is the actual financial information excerpted from the Time Warner Cable, 2013 SEC-filed annual report. (Please note that this same mathematics is also used by Comcast and probably Verizon and AT&T, though they do not explicitly detail their financials in this way.)
Moreover, we need to put this financial information in context to what customers are paying, and more specifically with the Time Warner Cable Triple Play bill that's been featured in previous articles.
[...]
Net Neutrality, Competition, and Fees to Competitors
In the current FCC proceeding about Open Internet, commonly known as "Net Neutrality", one of the issues surrounds what the competitors and content providers, such as Netflix, are paying to connect to the cable networks. On the other side, the 'slow-lane-fast-lane' discussion is all about charging end-user customers more or getting your service slowed down in some way.
To put it bluntly, with a 97 percent profit margin for High-Speed Internet, TWC has given its own services 'priority' favoritism, a sweet-heart deal,--call it what you want--but any other company would never, ever [be allowed to pay just] $1.32 a month to use the TWC networks to offer competitive High-Speed Internet, but this is what it costs Time Warner Cable's ISP, the part of the company offering the Internet and broadband service, to offer end users High-Speed Internet service. Competitors would most likely have to pay about 50 percent or more of the 'retail' average price of $43.92 to offer their service as a competitor.
If customers have been 'defacto' investors, paying an extra $5.00 a month since 2001 under the "Social Contract" to fund upgrades of the cable networks for High-Speed Internet, why shouldn't these networks be open so we can choose who offers us Internet or cable service over these wires?"
(Score: 1, Insightful) by Anonymous Coward on Monday February 09 2015, @02:23PM
high profit margin == company rips off customers
(Score: 5, Insightful) by ikanreed on Monday February 09 2015, @03:04PM
Well, in conjunction with ripping off the taxpayers who helped subsidize building their original network.
(Score: 5, Insightful) by Hairyfeet on Monday February 09 2015, @04:03PM
And for those that doubt we were robbed? We aren't talking 10 million, 20 million, even 50 million, we are talking about 200 billion dollars [pbs.org] stolen from the American people that was SUPPOSED to be in return for giving us a coast to coast national broadband infrastructure so that every American that wanted broadband could have it. All we got was a low res Goatse while they stuffed the money in their pockets! Hell I've been trying to get high speed to my mother's place for the better part of 20 years and even though you can literally see the end of the line from her front porch (its about a block and a half away) neither will run it to her (cable offered....if she coughs up $14,000 for the line PLUS signs a 5 year contract to take the most expensive package they have) so you can imagine how much that shit pisses me off!
That is why I say we should treat them like any other fraudster, either they give us what we paid for within 90 days (since they have had over a decade and a half) or we take the last mile away from them and open it up to competition. They want to own the last mile? We'll give 'em 15 years for every FTTH they wire up that currently has NO wired coverage available! Its obvious that if we are to compete with the rest of the world we have to have a reliable fast broadband infrastructure nationwide but TFA shows what we end up with without some kind of intervention, jacked prices, cherry picking, and large swaths that have no coverage at all or are considered "covered" thanks to access to some insanely high cost/low bandwidth WISP or cellular network.
ACs are never seen so don't bother. Always ready to show SJWs for the racists they are.
(Score: 5, Interesting) by Anonymous Coward on Monday February 09 2015, @03:10PM
Little more to it than that...
http://thismatter.com/economics/oligopoly-pricing-models.htm [thismatter.com]
(the last graph is the important one)
http://www.sparknotes.com/economics/micro/monopolies/section2.rhtml [sparknotes.com]
(the formulas for it)
Basically MR=MC is the 'sweet spot'. They figure out what it costs per person. Put there 'build out' at that point. Then jump up to the demand curve for the pricing. In a pure competition model the demand curve usually equals the marginal rev curve. In an monopoly/oligopoly situation that is not necessarily true.
However, have you often wondered why TW and AT&T advertise like crazy and 'buy stadiums'? They are actually raising internal costs so they can increase margin (moving to the left on the demand curve). They are literally wasting money and resources so they can increase profits.
97% is not too surprising for a monopoly sort of situation. I had several *very* successful businessmen tell me "buy for x sell for 2x if you own the market. You will make money. Anything more or less and you will lose money. We are not totally sure why it works." It worked for them because of where they were on the demand curve and marginal cost curve.
(Score: 2, Insightful) by Anonymous Coward on Monday February 09 2015, @02:31PM
Not sure about the rest of you, but where I live, TWC is basically the only game in town for cable TV and Internet.
Their prices have crept up for years, while their levels of service have plateaued or declined.
Everyone hates Comcast, but Time-Warner is right up there...
(Score: 3, Informative) by novak on Monday February 09 2015, @06:00PM
Everyone hates Comcast, but Time-Warner is right up there...
This. I had them briefly and am glad to be rid of them. Never had comcast, so I can't compare but TWC is pretty awful.
novak
(Score: 5, Informative) by Covalent on Monday February 09 2015, @02:40PM
http://www.businessinsider.com/sector-profit-margins-sp-500-2012-8 [businessinsider.com]
Data is from '12, but presumably today's numbers aren't far off. You can see that the average profit margins are typically 30%, so 97% is off the charts.
Seems to me like cutting prices by 75% would lower their profit margins to the 20 - 25% range...which would put them in line with industry standards, and would also put their price in line with sanity. But that is probably not going to happen.
You can't rationally argue somebody out of a position they didn't rationally get into.
(Score: 3, Interesting) by frojack on Monday February 09 2015, @10:22PM
Yeah, but....
The consolidated figured in Business Insider are hardly typical of, and probably drawn up differently than the cable internet segment.
I suspect this isn't out of line for other big cable tv companies.
They already have the cable plant for the TV segment and they have had that for years and years.
They went all digital on that cable plant freeing up boat loads of bandwidth.
Bolting on IP traffic to an existing cable plant involves a change out of gear (bidirectional amps etc) that was accomplished decades ago.
So the only thing to pay for is the installation, (installation charges cover that) and the upstream bandwidth to their inter-ties.
And since they already have nationwide TV backbones, they can do their upstream inter-ties where ever it is most cost effective.
Finally, we don't know the details of the calculation. Is cable plant extension included in cable internet costs? Or is that all in the capital budget?
Short answer is I suspect cable internet is a cash cow for ALL the Cable TV providers. Not JUST those that own a movies and media components.
Could they reduce their prices? Probably, but until they start losing customers they will charge what the market will bear, because for most
people, in most places, they are the only game in town.
Title II [ting.com] is about more than just net neutrality.
No, you are mistaken. I've always had this sig.
(Score: -1, Troll) by Anonymous Coward on Monday February 09 2015, @02:50PM
. . . since 2001 under the "Social Contract" to fund upgrades . . ..
What the hell is the Social Contract? Where can I read the language of that contract and am I a signatory?
(Score: 2) by ikanreed on Monday February 09 2015, @03:37PM
Um, this is a hypothetical deal, in this particular case. So you didn't sign it because it's being raised as an alternative to the status quo.
I mean that anarcho-capitalist argument is bullshity enough when it's actually relevant.
(Score: 0) by Anonymous Coward on Monday February 09 2015, @02:50PM
It should become a popular poster in college dorms and business school hallways, but for opposite reasons.
Here's the theme song [youtube.com] for the combined TWC/Comcast company.
(Score: 2, Interesting) by Anonymous Coward on Monday February 09 2015, @03:32PM
In economics class the teacher should use Cable as an example of what happens when there is little competition.
(Score: 4, Informative) by Thexalon on Monday February 09 2015, @03:53PM
They absolutely do, along with Standard Oil and US Steel for historical examples, and phone networks today. Where you tend to get monopolies are cases where the economies of scale always outweigh the diseconomies of scale, and thus the place with the minimum marginal costs are at least equal to the total demand for the product. In those instances where the product in question is basically a modern necessity, such as a utility, a regulated monopoly is the least-bad situation for the economy as a whole, because otherwise all suppliers will tend to merge until there's a monopoly.
The thing is, if the regulators loosen their grip (or never existed), then the monopoly will overcharge customers dramatically. That hurts the economy as a whole, because all the monopoly's customers will have to pay much more than the product is actually worth, which means they have less to spend or invest on other more-useful products.
The only thing that stops a bad guy with a compiler is a good guy with a compiler.
(Score: 3, Insightful) by Anonymous Coward on Monday February 09 2015, @04:06PM
But regulation is evil and the free market will fix everything!!!!!!!111eleven
(Score: 5, Funny) by darkfeline on Monday February 09 2015, @03:17PM
Should it even be legal for a company to make more than, say 50% net profit margin? If you're making that much money, at least pay your employees an extra French fry or something.
Join the SDF Public Access UNIX System today!
(Score: 5, Interesting) by Thexalon on Monday February 09 2015, @03:36PM
More to the point, why can't the public utilities commissions or FCC step in to demand lower prices? And before some libertarian says that's unfair, I'll point out that they voluntarily sought out local monopolies in exchange for utility regulation (this isn't uncommon for phone or electric or water service either), which includes government controls on pricing.
The only thing that stops a bad guy with a compiler is a good guy with a compiler.
(Score: 0) by Anonymous Coward on Monday February 09 2015, @05:18PM
says it all
(Score: 4, Interesting) by frojack on Monday February 09 2015, @10:37PM
More to the point, why can't the public utilities commissions or FCC step in to demand lower prices?
Its already in the works, The FCC is pushing for Title II common carrier status for ISPs.
Why? Net Neutrality, bundled with the fact that in most places these big ISPs have a defacto monopoly.
In my town I have a choice of Comcast (wired all over town) or horribly slow ADSL in limited areas.
We don't generally limit profits unless there is some sort of unfair market advantage that works to prevents competition.
Its finally dawned on people that the vast majority of people in the US DON'T have a choice of internet providers.
There are at least three different TV providers.
No, you are mistaken. I've always had this sig.
(Score: 1, Interesting) by Anonymous Coward on Monday February 09 2015, @03:41PM
These are gross margin numbers. I'm no fan of cable companies or monopolies, but Huff-Po's understanding of how to read a financial statement is seriously lacking.
(Score: 5, Insightful) by iwoloschin on Monday February 09 2015, @03:46PM
Sure, it should be legal for a company to charge whatever they think the market will bear for their product. For most companies this is totally fine, if you've got a shortage of product, or just a product that is *that* amazing, then sure, charge for it! I know of many companies with obscene profit margins, but they're usually just the best in their game, and can very much justify the crazy profit margins.
This falls apart with monopolies though, particularly legal monopolies such as public utility companies. If you're the only one who can provide a service to an area, your charter should limit your profit margin to some reasonable level. Charge a lot of money for service if you want, but anything over the set profit margin must be reinvested in plant or reimbursed.
(Score: 5, Informative) by Anonymous Coward on Monday February 09 2015, @03:19PM
Wireline Costs And Caps: A Few Facts (2011) [fastnetnews.com]
Exponential bandwidth growth and cost declines (2012) [networkworld.com]
Not only is wired internet dirt cheap, it is experiencing slower CAGR than mobile [ethernetalliance.org].
Please reply with newer per-gigabyte costs and graphs if you can find it.
(Score: 4, Informative) by Anonymous Coward on Monday February 09 2015, @03:24PM
The Zettabyte Era - Trends and Analysis [cisco.com]
You can expect traffic growth to slow as streaming becomes saturated and H.265 and other codecs cut video bandwidth by up to 30-50% for existing resolutions. 4K TV/monitor growth is less than expected so far, so 4K streaming and torrents will take years to become mainstream.
(Score: 2, Funny) by Anonymous Coward on Monday February 09 2015, @06:02PM
Ah, so 4K TVs/monitors grow? So if I buy a small one, how long until it has grown to a full-size living room TV? :-)
(Score: 3, Funny) by Anonymous Coward on Monday February 09 2015, @06:49PM
Depends on how often you water it.
(Score: 3, Informative) by Anonymous Coward on Monday February 09 2015, @04:00PM
This guy has informal numbers from about a year ago: http://blog.streamingmedia.com/2014/02/transit-works-costs-important.html [streamingmedia.com]
At the cheapest tier he quotes, 3Gbps, it costs 50 cents for 1Mbps sustained per month which works out to roughly 1TB of data for $1.50.
It seems reasonable that an ISP as large as TWC buys their bulk ip transit in increments at least that big.
(Score: 4, Insightful) by VLM on Monday February 09 2015, @04:10PM
Does anyone know what the cost of revenue is? From the SEC filing? I read the article but its not clear.
What is clear is it isn't interest costs on capex, its not employee salaries, its not plant maint costs, and not advertising costs. Those are all broken out separately and not considered in the math the hit piece uses.
So when you exclude from the expense category, financing costs, labor, maint, and advertising, whats left is unsurprisingly like 3% of revenue, but ... what exactly IS it? executive level bonuses? retirement account funding / matching 401K expenses? Office christmas parties?
(Score: 0) by Anonymous Coward on Tuesday February 10 2015, @06:55AM
Billing. The only expense is billing the customers.
(Score: 2, Interesting) by Anonymous Coward on Monday February 09 2015, @04:14PM
Assume you have to listen to all traffic in some desert place and NOT be a bottleneck (which would make your listening post obvious) then how do you keep up with dirt cheap internet?
you don't!
you mandate that internet has to stay slow which you cannot do per-se, but you can "legally" allow the network operators to milk the customers thus indirectly limiting the traffic strain on your "invisible" listening post by making fast internet expensive and not popular : )
(Score: 4, Interesting) by bob_super on Monday February 09 2015, @04:29PM
We really need a "conspiracy" mod.
(Score: 5, Insightful) by Aurean on Monday February 09 2015, @04:19PM
This needs to end. I would also suspect the MAFIAA of having a hand in this mess - cheap, plentiful internet threatens their bottom line as well.
It's not that far fetched, considering that they are already in bed with the big ISPs through bundling cable and internet.
If Wheeler and Co actually go through with Title II reclassification, we will be living in interesting times indeed.
(Score: 4, Interesting) by fritsd on Monday February 09 2015, @05:33PM
By an amazing coincidence, that 97% is about the same percentage as U.S. voters that voted for the demopublicrats ;-)
(Score: 0) by Anonymous Coward on Monday February 09 2015, @07:20PM
I think you will find that 97% is often the same as all but 3% of any number you care to name between 0 and 1
(Score: 2) by tangomargarine on Tuesday February 10 2015, @12:43AM
97% of those who voted perhaps. Definitely not 97% of eligible voters.
"Is that really true?" "I just spent the last hour telling you to think for yourself! Didn't you hear anything I said?"
(Score: 4, Disagree) by jmorris on Monday February 09 2015, @06:14PM
As usual our Party minder is here to advance the Great Leader's latest inititive. And again, as usual they are a lie. They don't lie, they ARE a lie. That and demonstrate that progs are both illiterate and innumerate.
Start with the money shot. It shows OPERATIONS expenses only. Video programming has direct per subscriber costs for each channel subscribed. Phone has direct expenses associated with having a number in service. As we all (or should) know Internet service has little to none of that. I'm not even sure what the $175M they show there represents, it should be a bit fat goose egg since they shouldn't even be paying for their upstream at their size; they should be able to directly peer. Don't believe me, go actually READ the 10-K linked above. Employee expense is even a different line item on that chart and we all know tech support isn't free.
Much of these companies expense isn't operations of that sort. Go look at their total residential revenue of 18,402(millions) and see that only 5,822 was from data. Their entire network is pretty much IP based or will soon be so it makes sense to sorta split the cost of building and running it. 3,198 in direct CapEx (CPE equip, lines, infrastructure, etc.), 15,056 in Plant & equipment, service on 25,052 in debt, etc.
No, as usual the numbers thrown around to justify more government are bogus but that is just a smokescreen anyway. There ARE problems with the duopoly of Cable/Telco having an iron grip on the Internet. That problem is a creation of government regulation and like every other time the Progs plans fail the solution offered is always 'more cowbell.' If a little regulation and oligarchy doesn't fix a problem, double down.
The solution is fairly obvious. If government granted monopolies are a problem, fix that by minimizing the damage they can cause by virtue of being integrated into larger entities. Break up the phone and cable companies again, but don't be stupid like last time. The last mile is a natural monopoly so accept that and see where that leads. Create new government regulated monopolies in possession of the last mile, regulated as utilities and running on the utility investment model of assured dividends but little growth or hope of massive stock appreciation. The rest of the phone and cable co would be a totally unregulated entity buying access to the last mile and offering services atop it at whatever the market will bear for rates and services. The key being they buy access to the last mile at a regulated price that keeps the monopoly in business, upgrading and paying dividends but it is the exact same price offered to ANY company wishing to sell end customer services atop the infrastructure.
(Score: 1, Interesting) by Anonymous Coward on Monday February 09 2015, @09:13PM
The last mile is a natural monopoly
In Wilson, NC and in Chattanooga, TN, they have a public (taxpayer-owned) ISP.
Both are superior to what was being offered by the Capitalists at the time they were built.
It would be interesting to hear you discuss your ideas with someone from one of those cities as you discover how well (gasp!) Socialism works for them.
-- gewg_
(Score: 0) by Anonymous Coward on Monday February 09 2015, @11:20PM
As a resident of chattanooga, I wish they would sell access to other ISPs. I mean the service is fine so far, but what if they decide to knuckle under to an extra-legal MAFIAA request to pull my access? I will be stranded. As it is now, my right to internet access exists only at their pleasure. If they decide they don't like me, best case I spend thousands going to court to get it back.