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cable versus phone price wars are good!

In light of the debate (or is it a conflagration?) on Health Care reform that is currently raging in the United States an instructive story comes from my experiences with the company that provides my internet / phone and cable service. Cablevision, I'd been a customer of the service for about 4 years and was fairly happy with the quality of the options being provided (though the video signals on the standard cable channels are a bit too compressed..but I digress) the bandwidth and speed of the internet connection is routinely rated as some of the best in the country and the phone service does its job, it works and the sound quality is excellent. The problem is the service that I purchased is continuously going up in price, at one point I was paying nearly $200 a month for the combined service, to some that is nothing but as an engineer I have the curse of knowledge, I am well aware of the underlying technologies required to provide the service and know that for the cable provider , providing the service becomes a diminishing cost over time as Cablevision upgrades their back end routing nodes. In particular the ready ability to arbitrarily increase bandwidth on the back end using fiber optic interconnects and DWDM technology makes bandwidth a resource that the cable companies can procure with relatively little cost. So for Cablevision the costs of providing the combined service (which also makes things significantly more efficient and cheap on their back end) actually goes down over time, yet they continue to raise their prices yearly and in fact document that in their marketing materials as if as a customer I should accept the inevitability of the price increases. NO.

As an engineer I had learned and read about the plans by the "phone company" Verizon to lay fiber optic cable directly to homes. This FTTP or fiber to the premises rollout was scheduled to come to Brooklyn in 2008 and did just that. As soon as it was available Verizon put together a very competitive package of internet/cable/phone service to match that offered by Cablevision. A marketing push eventually led to agents going door to door to sell the new service, I dealt with an agent and switched my service over from Cablevision a little over a year ago, however I hadn't done my homework to figure out how I could continue to have distributed internet access to all the computers in my home (7 machines at the moment) this caused some consternation which led to eventual cancellation and then I reverted back to Cablevision after they called and offered to boost my service and reduce my fee for a year. All of this price play would not be possible had not Verizon come out to provide the competing service, you might wonder why it was that Cablevision had such a monopoly in my area and the answer was that it was government sanctioned. The cable companies were given specific rights to provide services that the phone companies could not, but as the technologies began to merge on the back end it made no sense to separate the providers (of phone/internet versus cable/internet service) as with modern data services phone/internet/cable were all transmittable down the same pipes. The attempts by the phone companies to be given the right to compete with the cable companies was finally granted and that opened the competitive landscape and immediately allowed the consumer a choice which lowered prices.

Now, fast forward to the present day. The year worth of reduced pricing that I got from Cablevision for coming back from Verizon is about to run out and the the cable company was sure to warn me of the 31% jump in monthly pricing that was to come. As if in clairvoyant recognition, a week later Verizon began a promotion for reduced service costs on the "triple play" that significantly out performed what I was currently paying for Cable vision (before the price goes back up) I am now in the process of signing back up with Verizon to take advantage of the opportunity. Hooray for competition! If it weren't for the regulation of the competitive zones I would have been forced to swallow the price increases by Cablevision for service that I will now enjoy from Verizon for less than half the price that Cablevision would claim they have no choice in charging me. This reinforces the truth of business pricing that many people don't think about, a company sets prices not at a fair percentage above the costs required to provide that service but rather they tend to price the service at what they determine the customer will pay. This difference will always exist in the absence of competitive pressures and the only way to get rid of it is for competitors to enter the space and thus keep the previous provider "honest" in terms of charging customers costs closer to the costs of the actual service or take no revenue at all from those customers.

An interesting aspect of this ordeal is that as soon as I switch back to Verizon , Cablevision will send a hard nose salesman to try and win back my service. In order to give them the opportunity to match pricing before I switch over I called cablevision and told them of my intentions , they claimed they could do nothing since my existing promotion was coming to an end. I am curious to see if I'll get that "come back" call any way after I switch, we shall see, for now is time to call Verizon and cut my data service bills in half, consumer options always force providers to charge honest pricing, yay for the customer.


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