Broadband Cable Association of Pennsylvania


May 30, 2013

For all the fuss over Americans dropping their cable subscriptions in favor of Internet video, another type of cord cutting appears to be more common. Hundreds of thousands of Americans canceled their home Internet service last year, surveys suggest, taking advantage of the proliferation of Wi-Fi hot spots and fast new wireless networks that have made Web connections on smartphones and tablets ubiquitous. Last year around 1% of U.S. households stopped paying for home Internet subscriptions and relied on wireless access instead, according to consumer surveys by Leichtman Research Group Inc. Just 0.4% of households in the last year canceled their pay-television subscriptions in favor of getting video entertainment over the Internet via services such as Hulu or Netflix.

Dropping home Internet service isn't a great deal for heavy Internet users, however. While smartphones are fine for email and social networking, wireless data plans can be expensive and easily drained by even a single streamed high-definition movie. Free Wi-Fi is more widely available than ever, but cutting the Internet cord means users have to rely on cellular access at home. Still, frustrated by rising cable and Internet bills, some subscribers are testing whether their smartphones and free Wi-Fi might be good enough. Others, unable to afford both services, are having to make do without easy access to streaming video for entertainment and education, underscoring the persistent differences in how people of various economic levels go online.

Patrick Downs, a 36-year-old in Madison, Wis., is saving up for his wedding, which is why he plans to cancel Internet service from Charter Communications Inc. this summer. "The primary thing I use the Internet for is checking Facebook and reading emails and reading blogs," says Mr. Downs, a night auditor at a hotel. "If I can do all of that from my phone, why keep at-home Internet?" He says he worries about keeping up with "The Daily Show" and "The Colbert Report" since he doesn't have a DVR. "I'll probably have to watch them at work, but that could get me into trouble."

Right now, replacing home Internet with wireless doesn't make much economic sense for any but the lightest users, says Craig Moffett, an independent telecommunications analyst. Leading carriers Verizon Wireless and AT&T Inc. have installed high-speed networks, but the companies also are trying to make more money from Internet traffic by pushing plans that charge subscribers by how much data they use. The broader wireless industry offers less-expensive options, including unlimited plans at Sprint Nextel Corp. and the T-Mobile US Inc., although Verizon Wireless and AT&T have the most extensive networks at the highest speeds. To keep his costs down, Mr. Downs is switching from Verizon to AirFire Mobile, a small, wireless-network operation that offers unlimited nationwide talk, text and Web service for $40 a month.

Despite such cord cutting, the cable industry continues to add Internet subscribers, and most cellphone providers aren't encouraging people to switch completely away from wired Internet service. "The way we think about it is, wire-line and wireless networks are going to coexist," says Mike Roudi, senior vice president for corporate development at Time Warner Cable Inc. "It would be hard for somebody to rationalize getting rid of their home connection and moving all of that traffic to a wireless rate plan." Joseph Rainer, a massage therapist in suburban Milwaukee, says he was annoyed by his rising Internet bill from Time Warner Cable. After he threatened to cancel service, a representative offered a steep price cut. Mr. Rainer says he reluctantly agreed, realizing that feeding his video-streaming habit by cellphone would cost even more. "As much as I use the Internet, I would just be paying through the nose to Verizon for data," Mr. Rainer says. "You're in a Catch-22."

Still, with average home Internet charges approaching $50 a month and typical low-end smartphone plans costing at least that much, many Americans can't or don't want to pay for both. Surveys suggest that those who have to make the choice are choosing smartphone service-which, after all, offers both voice and online access-instead of home Internet. Minorities and people with low incomes are far more likely than the average American to rely on their phones as their primary way to get online, the Pew Research Center found last year.

Leichtman Research surveys show that spending for home Internet service has risen steadily over the years, to an average of $46.78 a month last year from $28.46 in 2005. People trading up to faster services-from dial-up to DSL to cable to fiber-optic-accounts for some of the increase, but so do rising prices. The telecom industry is starting to experiment with offering wireless service as an alternative for home Internet access as cellular networks get faster and are able to carry more traffic. Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group PLC, offers a home Internet modem that uses the company's fourth-generation LTE network. AT&T has pitched similar technology as the best way to provide Internet service in remote areas.

Dish Network Corp. Chairman Charles Ergen has defended his $25.5 billion offer for Sprint by saying that as many as a third of all Americans one day could find it more efficient to get their home Internet service wirelessly. That day hasn't arrived yet. Since canceling her $40-a-month Internet service from Comcast Corp. this year, Chloe French, a 27-year-old hotel worker in Ocean City, Md., has relied on her Verizon iPhone for email and Facebook at home. She taps into Wi-Fi service at a Starbucks to watch "Grey's Anatomy" and travels to the library to do online coursework as she trains to be a midwife. But isn't wholly satisfying. "#frugaltoafault," Ms. French posted on Twitter on a recent balmy Saturday, wishing she could be outside instead of in the library. Wall Street Journal

Viacom Inc. Chief Executive Officer Philippe Dauman mocked Sen. John McCain (R-Ariz.) for being the sole sponsor of a new bill to overhaul the way pay-TV distributors and programmers package and sell programming. At Nomura's Global Media & Telecom Summit in New York, Dauman downplayed the threat, saying McCain has been pushing for similar legislation for years and has made little progress. "McCain got a lot of publicity for his solo-sponsored bill, which he's been doing for, I don't know, 15 years now with no co-sponsors, going nowhere," he said.

McCain recently unveiled the Television Consumer Freedom Act of 2013, which would provide incentives for the industry to start selling channels to customers on an individual basis so viewers don't have to pay for channels in which they aren't interested. The McCain bill is aimed at fighting so-called bundling, when big companies such as Viacom and Walt Disney Co. roll all their channels into one bundle that they sell to distributors. McCain, a longtime critic of the television industry, has called bundling an "injustice being inflicted on the American people."

Dauman argued bundling actually lowers prices and increases value for consumers because it allows smaller networks to invest in their shows while knowing they will have distribution. "Consumers are enjoying what many have called the golden age of television," Dauman said. "It's good value for consumers." Los Angeles Times