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Weekly UpdatesI. INTRODUCTION
Without a doubt, the Telecommunications Act of 1996 ("1996 Act") has been a triumph for the cable industry and consumers, ushering in a new era of competition that has greatly benefited the public interest. The law's implementation has not been perfect. But on the whole, it has reinvigorated and revitalized telecommunications as we know it, arguably hastening the greatest sea change ever to affect this country's telecommunications infrastructure.
The 1996 Act was also just the first step. In the ten years since passage, the world has changed dramatically. Internet-enabled wireless devices are becoming ubiquitous. Broadband service is fast becoming available just about everywhere. And we are moving to an on-demand world in which the consumer has total control. As Congress makes the difficult choice of either revising or rewriting the 1996 Act, lawmakers have much to consider. But they would be wise to retain some core principles, including the 1996 Act's dedication to the encouragement of facilities-based competition and to regulatory parity. Only with built-out facilities, where like services are treated alike, can competition flourish and consumers truly benefit.
As Congress began work on the 1996 Act fourteen years ago, the cable industry was living under the Cable Television Consumer Protection and Competition Act of 1992 ("Cable Act"). The Cable Act could only be described as overbearing and burdensome. Its complicated price regulation was making it impossible for Cox and other cable operators to fund needed investments to expand our channel capacity and transform infrastructure from one way analog networks to two way digital networks. Accordingly, our customers were being denied the new services they desired.
It was a frustrating time for us. As an industry, we saw rate regulation as a harsh, overbroad, and misguided effort to curb the rising cost of cable service because it ignored the fact that cable service was providing, on a highly capital intensive network, the additional content demanded by our consumers. Indeed for two decades, cable operators were in a full court press to wire the entire country as demand increased exponentially. People wanted cable service so badly that they literally chased our trucks down the street. Those days brought great promise and prosperity, but they also spurred inevitable growing pains. Service was sometimes sporadic. Telephone wait times could be long. And, yes, as cable operators added more and more content to the mix, they had no choice but to pass those costs on to customers in the form of higher prices. Customers, of course, were not interested in our economics. Many cable critics, meanwhile, seemed obsessed with forcing an artificial correlation between cable rate increases and the rate of inflation. This was folly. The overall inflation rate never had much to do with the higher license fees we were paying to add new programming or the money we were spending to build out our networks. It was an apples-to-oranges comparison if there ever was one. But such obvious realities were ignored by our critics.
In short, the Cable Act was bad medicine for consumers and for the industry. It erected economic barriers for many cable operators to make necessary investments to improve capacity and service, add new channels, or otherwise experiment with new technology. Meanwhile, the Federal Communications Commission ("FCC") issued decision after decision to try to bring order to chaos. But, while the FCC often did the best it could, its edicts could be confusing and contradictory. We won some small victories. One example, the "going-forward" rules, allowed us to modestly increase rates when we added new channels sought by our customers. But by this point, direct broadcast satellite competitors such as DirecTV and EchoStar were already plowing millions of dollars into marketing campaigns designed to peel off our customers. The cable industry fought hard and largely survived these circumstances. But, to use a sailing term, the Cable Act put us in irons. We were anxious for a fair shake in the marketplace because we knew we were building out a superior telecommunications platform.
II. THE 1996 ACT: A NEW HOPE
Over time, the cable industry was able to make its case against the Cable Act. But our opportunity really came in the mid-1990s when Congress--concerned that current telecommunications regulations were strangling competition--initiated a massive overhaul of the 1934 Communications Act. The mantra was the encouragement of facilities-based competition as a substitute for regulation. It was a chance for the cable industry to finally throw off the shackles of the Cable Act and enter a new era in which we could compete for voice and data customers and in which telephone companies could compete in our core video business. Confident that our entrepreneurial spirit, marketing prowess, and new focus on customer service (the latter was always a Cox strength) would win the day, we happily welcomed the telephone companies ("telcos") into a world where line of business restrictions would be a thing of the past. We were ready for competition. And the 1996 Act was a great gust of fresh air and source of hope for those of us toiling under the Cable Act's repressive regime.
In contrast to some of my cable-industry peers, I was an early believer in residential telephony. In fact, as passage of the 1996 Act approached, Cox started installing telecommunications equipment in select markets so that we would be ready to go the minute the new law went into effect. In September 1997, we launched local phone service to 1,500 homes in Orange County, California and immediately realized that our initial estimates of consumer demand were far too conservative. Within the first twelve months, we signed up ten percent of customers to whom the service was available. Since those early days, Cox has expanded phone service nationwide, and it is now available to nearly 8 million homes in twenty-three markets. We are experiencing year-over-year growth of about thirty percent, with a current roster of more than 1.7 million Cox Digital Telephone customers nationwide.
In 2005 alone, we added nearly 380,000 residential telephony customers, suggesting continued demand for a service that we could not even offer prior to passage of the 1996 Act. We are also chipping away at the incumbent telcos' dominance in commercial telephony services. Cox Business Services offers a full suite of voice, data, and video services for business, government, and education clients with more than 300,000 switched access lines. None of this would have been possible without the 1996 Act, which gave us the freedom to compete in these exciting new markets. Cox is living proof that a new facilities-based competitor can be successful--even when pitted against an entrenched incumbent. Consumers in those markets, meanwhile, have experienced choices they could not have imagined just a few short years ago.
Our telephony success suggests that consumers were ready for an alternative to the incumbent telcos, but it also demonstrates an even more salient point: the power of the bundle. With the 1996 Act, Cox and other cable operators were, for the first time, allowed to offer a full panoply of voice, video, and data services to their customers. It enabled cable operators to move beyond their core video business and offer new services as part of a cogent package--complete with volume discounts, the convenience of one bill, and the benefit of consolidated customer support and service from one company. At Cox, the bundle has helped us grow our other businesses as well: we now have more than 2.7 million Cox Digital Cable subscribers and more than three million broadband data customers, representing year-over-year growth of twelve percent and twenty-two percent, respectively. More than one million customers subscribe to the full video, voice, and data bundle. So the power and value of the bundle cannot be overstated. It drives new customer growth. Perhaps even more importantly, it helps us keep the customers we have already won. In fact, bundled services helped Cox reach 13.8 million revenue-generating units ("RGUs") in 2005, a ten percent increase over 2004.
As I mentioned earlier, not all of my cable colleagues have always shared Cox's enthusiasm for the full bundled offering--especially when it comes to a telephony component. But our growth numbers have started to convince even the skeptics. As we continue to roll out circuit-switched telephony and are now adding Voice-over-Internet Protocol ("VoIP") services to the mix, other cable operators are increasingly offering a telephony component to their own slate of services. VoIP technologies have progressed to the point of no return. Telcos, meanwhile, have reacted with more attractive bundles of voice and data products. Our telco opponents may have failed to successfully launch video services in the years immediately following passage of the 1996 Act, but they are now preparing another assault. In fact, many plan to attack our core video business by offering IP-based video services, or IPTV. And, as always, so long as there are no unfair regulatory advantages, we are fully prepared for the competition.
So the 1996 Act has been good to us. It has enabled us to transform a one-way analog network into a high-bandwidth, route-diverse, two-way interactive system. Our high-speed data and telephony products continue to grow at an impressive clip, giving our customers access to multiple flavors of bundled services. Without doubt, the 1996 Act's elimination of line-of-business restrictions and its encouragement of facilities-based competition--bolstered by fair interconnection rules, the easing of burdensome rate regulations for both cable and the telcos, and the establishment of dispute-resolution standards and deadlines for government decision-making--has been a boon to the public interest. Our services, meanwhile, have been rated number one in seven J.D. Power & Associates surveys.
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