February 9, 2015

Bruce Kushnick of the New Networks Institute has quite a story in the Huffington Post today. He's found some really interesting information in Time Warner's profit statements:

Using just Time Warner Cable supplied information, we find that the company reported over $5.8 billion in revenues for High-speed Internet, but had direct expenses, according to their own annual report, of $175 million -- thus the profit margin (revenue minus expenses) is 97% -- (i.e., $175 million divided by $5.82 billion). Applying it to the revenues per customer we see that the customer pays $43.92 to TWC, on average, and it cost Time Warner Cable $1.32 to offer.


He writes about the many criticisms he's received from writing about their 97% profit margin on high-speed internet, mainly that he's misinterpreting the information.

But I note that others have also found that the cable companies have obscene profit margins on their Internet service. Two years ago, MIT Technology Review wrote: (February 4, 2013)

"In parts of the country, slower-speed copper, fast-download cable, and a few fiber networks are already built out. The cable distribution giants like Time Warner Cable and Comcast are already making a 97 percent margin on their "almost comically profitable" Internet services, according to Craig Moffet, an analyst at the Wall Street firm Bernstein Research. As Blair Levin points out, "If you are making that kind of margin, it's hard to improve it." And most Americans have no choice but to deal with their local cable company."

He writes that, despite obscene profits, there have been continuous rate increases and the addition of made-up service fees. But the real kicker is when he has to say about Verizon:

In examining Verizon's financial accounting over the last five years, we uncovered that Verizon's entire fiber to the premises (FTTP) networks are being constructed as "Title II", common carriage to get the state-based utility rights-of-way as well as charge phone customers for 'massive deployment of fiber optics' -- I.e., Verizon New York's local phone customers paid for the construction of some, if not most of the costs of upgrading the networks.

(I note that Verizon has claimed that "Title II harms investments" and this issue is at the center of the Net Neutrality fights. We found Verizon failed to disclose these facts about Title II to the FCC, courts or public and we filed a Petition for Investigationagainst Verizon with the FCC over this.)

Based on the financials from Verizon New York (and filings with the NY Public Service Commission, etc.) the FiOS cable TV line of business did not pay for construction of the fiber networks, nor did the 'Internet-broadband-ISP' part of the business. It was paid for by the Title II voice/telephone part of the business.

So Verizon has said it will sue the FCC over regulating broadband internet under Title II, yet they're using the same regulations to underwrite their fiber optic network as a common carrier. Nice, huh?

This is a very interesting piece, and I've only scratched the surface. Every consumer should go read the whole thing.

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