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For cable companies, Internet access services will become even more important if more people drop their TV services in favor of Netflix, Hulu and other video services. Although subscribers can easily drop TV to save money, they still need the Internet pipes for those online video alternatives.
The long-term value of cable operators "will mainly come from their use to provide broadband Internet service, not a video programming service which mainly comprises content that (has) been produced by others and, increasingly, will be available elsewhere on the Web," writes Andrew Sheehy, chief analyst of U.K.-based research firm Generator Research.
A combined Charter-Time Warner Cable would have a favorable service territory. Although Verizon's FiOS service offers better download speeds than cable, it would serve only about 10 percent of the combined cable company's service territory, according to Charter. That means most households would have to turn to the new company for the best Internet service, and the company could charge top dollars.
So far, cable Internet providers have kept fee increases modest. They prefer having the Internet service become the anchor for which to sell bundles with TV and voice services.
Ian Olgeirson, an industry analyst with SNL Kagan, says average cable Internet prices have risen just 10 percent over the past five years to about $43 per month at the end of 2013. The number of cable Internet subscribers has risen more quickly, growing 34 percent to nearly 51 million over the same period.
"For the most part, operators have still been in that mindset of gaining subscribers and making sure that they grow market share," Olgeirson says. "They've favored that over being aggressive about increasing prices for high-speed data service. It's been a successful approach."
Yet that could change as people's demands for greater bandwidth grow.
According to Time Warner Cable, its customers' use of Internet bandwidth is up 40 percent from a year ago.
It aims to double top speeds in New York to 100 megabits per second in February and has done so in Los Angeles already. This year, it is also targeting five markets to upgrade to as high as 300 megabits per second to satisfy user demand, although it didn't specify which ones. That faster speed would put it in line with Verizon's offering.
Charter is also in the midst of transforming its service so that the slowest speed across its service territory will be 60 megabits per second -- double the current minimum -- by the end of the year. (continued...)
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