Think About That for a Minute…
Commentary By Steve Effros Taking Stock That would be a good thing to do right now… and I mean RIGHT NOW. Grab as much cable stock as you can afford after the "mini-crash" of Tuesday. My bet is that by the time this is printed, or within the next few days, the stock values for cable will have bounced right back and the weird dip we just experienced will have allowed some folks to benefit. The effect of the stock market on our industry has been one of my pet peeves for years. It was very clear a dozen years ago that the managers of the biggest companies fell into the same trap as the "dot-com" folks did, thinking that "the business" was actually the generation of ever-increasing stock prices, regardless of what that meant to the real business… you know, the one where you create goods and services that are purchased by (hopefully happy) customers. The trend back then was so painfully obvious that it became embarrassing. Companies would say one thing in Washington about the trend lines in the business and say an entirely different thing on Wall Street. They would focus solely on stock prices and not really care about increasing customer prices. If you walked into most major MSO offices you found that there were television monitors on everywhere tuned to the second-by-second changes in the stock price. It was ugly. Of course the result was sluggish expenditures on customer service, reluctance to throw the big bucks necessary at capital expenditures and cost-cutting virtually any way possible to show higher and higher cash flows to the voracious appetites on Wall Street. It was a recipe for disaster. Luckily, DBS competition showed up. Suddenly someone else had a delivery mechanism that—because it was all-digital, didn’t require local construction, and once turned on was available nationwide—was "better" than ours. Well, that might be an overstatement. Rain fade, a clear view of the southwest, box costs, and all those other things come to mind. But what it did was kick the cable industry into high gear figuring out how to upgrade our technology to compete. We’ve done that in spades. We spent the money—well over $110 billion and counting. We now have the best combination of fiber and coaxial cable available to almost all the homes in the nation, and we are reaping the benefits of data and phone service as well as the traditional video fare. Indeed, it looks like video is going to take a back seat to the growth and margins available from the other two from now on. There is a certain irony that the telephone industry is trying to catch up. They are either building full fiber systems (since they are going to have to dig up every lawn anyway… otherwise it wouldn’t make sense technologically), or they are trying to evade some of those fundamental costs by leaving the twisted pair going to the home and hoping that "Internet Protocol" will solve that "house drop" issue for them. Either way, it’s going to ultimately cost them a lot more than it cost us, and they have no plans to come close to competing everywhere. If they build 40 to 50 percent of their service areas that will be a lot. So we managed to succeed, despite Wall Street. And now? Our stocks pop up and down based on what is going on in China and a computer glitch in New York? Forget it. Stop watching the prices day by day. Stick to watching the business.
