I know I’ll be mostly preaching to the choir here when I say this, but cable companies like Comcast really do suck.
Even putting the ongoing net neutrality debate aside, the likes of Comcast have long ranked among the most hated companies in America.
On the American Customer Satisfaction Index, consumers rate Comcast just 60 out of 100 for its internet service. The industry average isn’t much higher at 64.
Reasons people hate their cable companies are entirely abundant; hidden fees, bad customer service, and slow speeds are just a few contributing factors.
I can’t think of a single person who doesn’t dread opening their cable bill or having to call the 800 number. Can you?
Monopoly or Not…
At the end of the day, all this strife boils down to one core issue that most consumers are all too familiar with: a lack of direct market competition.
While no single cable company can be considered a nationwide monopoly, regional occupation has severely limited consumer choice in the U.S. According to data from SoftBank, 37% of Americans have only two wired broadband providers to choose from, while 28% have just one.
When you start to break that down by speed, though, the numbers get worse… much worse.
As FCC data shows, once you get past 25 Megabit-per-second speeds, you find that a large majority of Americans have just one choice for an internet service provider (this includes satellite service providers).
In fact, a striking 78% of Americans have one ISP (or less) to choose from, while 97% have two or less, once you get into the 25 Megabits-per-second range. For perspective, 25 Megabits is Netflix’s minimum recommended speed for UHD streaming.
A few specific trends have led to the localized monopolies and oligopolies currently held by today’s ISPs. These are the big three:
- Industry consolidation
- Pre-deployment barriers/local government restrictions
- Limited competition from wireless/satellite
Now, each of these factors carries strong implications for investors, so it’s important to take note.
Consolidation, while not always consumer friendly, is typically good for those participating in the market. Small- and mid-cap investors win by having their stock bought out at a premium, while the top ISPs find means of accretive growth and wider moats through acquisition.
This consolidation trend isn’t going away anytime soon, but the latter two trends are disintegrating for reasons that will become apparent in a moment. Notably, these two trends have been historically good for the major ISPs in particular.
Pre-deployment barriers, for one, have long made new entry near impossible. Even Google, a cash king, had to halt its fiber broadband efforts due to the massive expenses it ended up running into. Goldman Sachs estimated that a national fiber network would cost $140 billion to deploy for Google.
It’s not just the cost of the physical infrastructure, either. Local governments make a killing off rights of way and pole attachment fees, which can increase deployment costs twofold.
Satellite providers, of course, have the distinct advantage of being able to bypass many of these local deployment barriers, but the service is notoriously slow.
Together, these factors have allowed cable ISPs to rule the roost for decades. The good news for consumers (and investors who position themselves accordingly), though, is that the castle walls are about to crumble.
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Capitalism Wins in the End
Unfortunately for Comcast and its ilk, cable ISPs are facing a real and present threat from ubiquitous wireless internet, which will come in the form of 5G. And there’s really not much they can do to stop it.
Unlike its mobile connectivity predecessors (2G, 3G, and 4G), 5G will not be designated to mobile phones. 5G will also compete directly in the residential broadband market, with speeds in the “100s of Megabits.”
In other words, wireless 5G broadband is going to provide 4x the speed of cable.
These deployments are happening sooner than most people realize, too, with Verizon launching commercial 5G broadband in four major cities by year-end.
Notably, these deployments don’t require unsightly and costly wiring in the final miles of deployment. That means fewer government roadblocks, as well as a new (potentially deadly) era of competition for cable ISPs.
More importantly, it means an incredible profit opportunity for investors, with the global 5G market forecast to reach $251 billion by 2025. As you might expect, deployment is going to require an array of new technologies, sparking numerous growth stories in the process.
With commercial 5G finally launching this year, investors should be prepared pull the trigger on 5G stocks.
Keep an eye out for a few of our top picks, coming your way next week.
Until next time, Jason Stutman
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