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Derek Turner
@myvzw.com

Derek Turner to FFH5

Anon

to FFH5

Re: I got it wrong all these years

MR. JunkMail,

While I don't normally comment on blogs, I felt I could help inform this debate by citing my sources for you.

This margin figure is actually well known and confirmed many places, and in fact, it has been linked in these forums numerous times.

For example, the Wall Street Journal: »blog.ockhamresearch.com/ ··· to-come/

You note that the WSJ is considered to be a financial news outlet.

And this is verified by the FCC's own broadband task force. See slide #44 here:

»hraunfoss.fcc.gov/edocs_ ··· 42A1.pdf

Which explains an ISPs' total (capex + opex + transit) cost in an urban area are $91 per customer per year. Assuming cable ARPU for modem service of $40 per month, that is an 81% profit margin.

I don't appreciate being called an "anti-corporate idiot", as I think those who know me, even those in the ISP industry would disagree with that point. But that's not really the issue. The real issue is the supra-competitive profits earned by cable ISPs and the loss in consumer surplus this lack of competition causes.

I do find your comments enlightening, and I am glad I had the opportunity to help inform you on this one specific point.

FFH5
Premium Member
join:2002-03-03
Tavistock NJ

2 edits

FFH5

Premium Member

Re: I got it wrong all these years

said by Derek Turner :

For example, the Wall Street Journal: »blog.ockhamresearch.com/ ··· to-come/
Comcast, for instance, has a profit margin of 55% in video but 70% in phone and 80% for broadband, estimates Bernstein’s Mr. Moffett.
Again, these numbers are marginal operational costs and I still dispute they are accurate for even that calculation.
Those numbers ignore the debt that is still on the books and the interest charges to pay off that debt. And it ignores all the support and overhead costs of running a business.

The real profit margin for the last full year result(2008) is 7.4%. Of course I count all the costs and not just unencumbered marginal operating costs.
»www.cmcsk.com/common/dow ··· =1166691
said by Derek Turner :
And this is verified by the FCC's own broadband task force. See slide #44 here:

»hraunfoss.fcc.gov/edocs_ ··· 42A1.pdf

Which explains an ISPs' total (capex + opex + transit) cost in an urban area are $91 per customer per year. Assuming cable ARPU for modem service of $40 per month, that is an 81% profit margin.
Does not include costs already incurred (e.g., spectrum, prior plant build-out).
Let's take these a point at a time:
[A] $91 number does not reflect actual costs:
$91 was for URBAN areas only. Last I looked cable companies didn't just serve URBAN areas. That slide shows the cost is tremendously higher for rural access.

Well the cable companies are still paying for those already incurred costs thru the interest and principal on all the bonds that underwrote that construction.
------------------------

So to summarize: Ignoring all the costs is a red herring that tries to make Comcast and other cable companies look like robber barons, when the profit they make is not even covering their real cost of capital. Why do you think their stock price is so low? Because what they earn in income is barely enough to keep investors from taking their money and going elsewhere for better returns.

Derek Turner
@verizon.net

Derek Turner

Anon

Re: I got it wrong all these years

MR. JunkMail,

I am very aware of the NPM figures. But in this particular instance, when we are talking about a program to subsidize additional customers on an existing network, the proper figure to analyze is a contribution margin. I'm sure any financial analyst could share the reasons why that is the case, particularly in the case of adding customers to the cable network.

See »en.wikipedia.org/wiki/Co ··· n_margin

Second, as to FCC data, $91 is for urban areas, and over 95% of the qualifying homes for this program are located in such areas. Also, the opex in the FCC's slide includes all op-ex, including debt service.

Thank you again for contributing to the debate.

IndyThinkr
@att.net

IndyThinkr to Derek Turner

Anon

to Derek Turner
said by Derek Turner :

For example, the Wall Street Journal: »blog.ockhamresearch.com/ ··· to-come/

You note that the WSJ is considered to be a financial news outlet.
Um, except that the URL is not at wsj.com. ??
said by Derek Turner :

Which explains an ISPs' total (capex + opex + transit) cost in an urban area are $91 per customer per year. Assuming cable ARPU for modem service of $40 per month, that is an 81% profit margin.
Please tell us what a fair profit margin % is, and whether than should vary by industry, risk, or any other factors.
said by Derek Turner :

I don't appreciate being called an "anti-corporate idiot", as I think those who know me, even those in the ISP industry would disagree with that point. But that's not really the issue. The real issue is the supra-competitive profits earned by cable ISPs and the loss in consumer surplus this lack of competition causes.
I thought the issue was how to increase broadband Internet adoption?