Space X Engine Production Woes Could Screw Up Musk's Starlink Broadband Play

from the trouble-looming dept

We'd already noted how Elon Musk's Starlink isn't going to be the broadband disruption play many people had imagined. The service lacks the capacity to really provide broadband to more than 500,000 to 800,000 users during its first few years in operation (for context, somewhere between 20 and 40 million Americans lack access to broadband, and another 83 million live under a broadband monopoly). With a $100 monthly cost and a $500 first month equipment fee, it's also not doing any favors for the millions of Americans who lack access to affordable broadband.

Eventually, with a fully upgraded fleet of 42,000 low orbit satellites years from now, Wall Street analysts estimate Starlink could potentially reach upwards of 6 million users. But again that's an optimistic high end guess, and it requires that everything go swimmingly the next few years.

Everything is not going swimmingly. Chip shortages initially delayed Starlink's exit out of beta. And now a new leaked email suggests that Musk is warning about a potential bankruptcy for Space X if the company can't sort out production of the company's Raptor engine:

"Unfortunately, the Raptor production crisis is much worse than it had seemed a few weeks ago. As we have dug into the issues following the exiting of prior senior management, they have unfortunately turned out to be far more severe than was reported. There is no way to sugarcoat this...What it comes down to, is that we face a genuine risk of bankruptcy if we can’t achieve a Starship flight rate of at least once every two weeks next year."

Will Heltsley, former SpaceX senior vice president of propulsion, recently left Space X due to a lack of progress on the project. In the email, Musk makes it clear that if things don't improve, Starlink could also be in deep trouble:

"The consequences for SpaceX if we can not get enough reliable Raptors made is that we then can’t fly Starship, which means we then can’t fly Starlink Satellite V2 (Falcon has neither the volume nor the mass to orbit needed for satellite V2). Satellite V1, by itself, is financially weak, while V2 is strong."

One problem, of course, is that Starlink is poised to receive millions in FCC subsidies to bolster a service that may not be financially viable several years from now. The Trump FCC already faced a scandal after it announced it would be doling out nearly a billion dollars to the planet's richest man (who professes a performative disdain for government subsidies) to deliver broadband to some traffic medians and parking lots. The Biden administration is scaling back the scope of the hand out after backlash, but Musk's Starlink is still poised to receive tens if not hundreds of millions of dollars.

Those subsidies are dependent on Starlink meeting certain projected deployment goals Musk's newly leaked email suggests they won't be able to actually meet if things don't turn around quickly:

So again, the question then becomes: why is the FCC continuing to dole out millions in subsidies for a service that may not even exist in a few years? Especially when that money can be used to help fund future-proof and already proven fiber deployments across countless communities? Starlink does have the potential to provide some help to shore up U.S. broadband access, but even before these latest problems its full potential reach was limited. And the world's richest man, who routinely professes a disdain for subsidies and "freeloading," has made it abundantly clear he doesn't want or need government financial help.

Filed Under: broadband, competition, elon musk, profitability, satellite, starlink
Companies: spacex

Chip Shortages Mar Starlink's Long-Awaited Exit From Beta

from the potentially-undercooked dept

Elon Musk's Starlink has finally exited beta, but chip shortages may mar the low-orbit broadband satellite venture's big day. The company has technically stopped calling Starlink a beta product, but warns in a new FAQ on its website that users expecting shipments of their new satellite dishes may be waiting a while:

"Silicon shortages have delayed production which has impacted our ability to fulfill orders. Please visit your Account page for the most recent estimate on when you can expect your order to be fulfilled.”

Over 500,000 users have signed up for the broadband service which delivers speeds of 100 Mbps or more for $100 a month (plus a $500 first month equipment charge). Users who had signed up for the service were already complaining that Starlink often just doesn't respond to customer support inquiries asking when a user's dish will ship, and this was before chip shortages entered the picture. There was also another Starlink website bug revealed this week that pushed back user pre-order dates by a year or more if they made tiny account changes.

Early reviews of the service have also been decidedly mixed, with complaints about line of sight and sporadic outages.

Starlink has consistently been heralded as a potential solution for the U.S.' broadband competition problem, but capacity and physics mean the service's overall reach was always going to be limited. Even Musk, who has a propensity to oversell his products, has acknowledged that the service won't be able to offer service in most densely populated urban and suburban areas. In other words, U.S. monopolies aren't sweating Starlink's entry into the market.

Early, pre-chip shortage estimates suggest that Starlink will struggle to deliver service to somewhere between 500,000 and 800,000 users, with many of those spots likely gobbled up by Musk fans. The service's $600 first month price point is also out of reach for the millions of Americans who can't afford broadband. With up to 42 million Americans without broadband access -- and another 83 million living under a monopoly -- even Starlink's maximum potential impact (which assumes the company can remain financially viable) will barely put a dent in the problem.

So yeah, Starlink will be a very good thing if you can get it, can afford it, and have no other options. But actually getting it will likely prove tricky for many. That's why there was some annoyance at the FCC throwing millions of dollars in subsidies at the planet's richest man for a service even he acknowledges many be tricky to keep financially viable over the longer haul.

Filed Under: broadband, chip shortages, competition, satellite, starlink
Companies: spacex, starlink

Even Elon Musk Makes It Clear Starlink Could Have Limited Impact, May Not Be Financially Viable

from the subsidize-me-please dept

When even Elon Musk is reining in expectations and speaking carefully about one of his products, you know you probably shouldn't get too excited.

We've noted how Musk's Starlink satellite broadband venture will certainly help a few people out of the reach of broadband options, but isn't going to meaningfully disrupt telecom. Limited capacity means Starlink will be able to provide broadband service to somewhere between 400,00 and 800,000 subscribers, in a country where up to 42 million Americans lack access to broadband, 83 million live under a broadband monopoly, and tens of millions more live under a duopoly. In short, Starlink will "fix" US broadband much like a squirt gun will kill an elephant.

Musk clearly knows that Starlink's reach doesn't meet the usual hype surrounding the billionaire's products, so he continues to be more candid and honest when talking about Starlink versus many of his other abundantly hyped projects. Like during his onscreen talk at Mobile World Congress (MWC) in Barcelona, where he once again tempered enthusiasm about Starlink's real-world impact:

"You can think of Starlink as filling in the gaps between 5G and fiber, and really getting into parts of the world that are hardest to reach,” he told interviewer Justin Springham, publisher of Mobile World Live, in a keynote Tuesday at the wireless industry trade show. As in, the last "3%, maybe 5%."

Musk also made it clear that the low orbit satellite broadband business is littered by failures, something he'd like to avoid:

"Every other low earth orbit constellation ever done has gone bankrupt,” Musk said early in the half-hour talk, citing such past collapses as Iridium. “Step number one for Starlink is don’t go bankrupt."

At the same speech Musk noted he's currently selling his "Dishy" terminals to users for around $500 despite costing $1000 to make. Other outlets, like Reuters, were even more pointed about the chance of Starlink success given it lacks the capacity to really obtain any real scale:

"Starlink would need a few million subscribers paying about $99 a month each to recoup a $5 billion investment in a year's time, said analyst Tim Farrar, president of TMF Associates.

A $30 billion investment over a decade would not require a dramatic rise in subscribers, but to achieve Musk's 2020 projection of roughly $30 billion revenue a year would require tens of millions of subscribers, he said.

But even the most rosily optimistic projections I've seen, which assume a full fleet of 42,000 satellites capable of offering 60 Gbit/s each many years from now, tops out at around 6 million max subscribers. So in other words there's a very real potential that Starlink not only doesn't really make much of a dent in the US broadband problem, but can't get anywhere close to financial viability anytime soon.

So the question then becomes, why bother? And the answer is because much like his heavily-ridiculed Las Vegas space tunnel, he's using potentially doomed side projects to nab government subsidies to finance his space ambitions. The FCC recently came under fire for giving the planet's second-wealthiest human being $883 million to deliver satellite broadband to a handful of traffic medians and already served airports. Instead of funding future-proof fiber, the FCC has been criticized for throwing money at a man who doesn't need it, to finance a project that may not even be around a few years from now.

To be clear, Starlink, if it survives, can genuinely help Americans out of the reach of traditional options. But keep in mind with a $600 first month cost ($500 for hardware, $100 a month) it's not exactly helping those who can't afford broadband. And with only 300,000 to 800,000 initial slots, those who really need the service will have to battle with Musk fanboys who already have decent options, but just want to be early adopters due to the Musk brand. In short there's an awful lot that can go very wrong here, and even the most optimistic projections for the venture aren't particularly productive or disruptive.

Filed Under: broadband, capacity, competition, elon musk, satellite, starlink
Companies: spacex

Elon Musk Makes It Clear Starlink Won't Have The Capacity To Disrupt U.S. Broadband

from the baby-steps dept

SpaceX says the company has received more than 500,000 pre-orders for the company's growing low-orbit satellite broadband service. The company opened up pre-orders back in February, and says it currently has about 10,000 users around the world participating in the beta. Starlink, which (for now) costs about $100 per month (plus a $500 first month equipment charge), should provide a welcome new option for many folks currently stuck without any broadband whatsoever.

But for those who continue to think Starlink is going to truly disrupt the broken U.S. broadband market, here's a few quick numbers. Up to 42 million Americans lack access to any broadband whatsoever, be it wired or wireless. Another 83 million currently live under a broadband monopoly, usually Comcast. Tens of millions more live under a broadband duopoly, which usually consists of Comcast and some regional phone company that stopped caring about upgrading its DSL networks sometime around 2005 or so. This regional monopolization directly results in spotty, expensive, sometimes sluggish service.

In contrast, SpaceX and Musk say that the 500,000 users will probably get the service they've pre-ordered. But Musk noted last week that as the company begins to push into the several million connection territory, things will likely get tricky. Particularly in more dense areas where capacity constraints will continue to be a big problem, much like existing higher-orbit satellite offerings:

Wall Street analysts recently predicted that even with Starlink's projected max deployment of about 12,000 low-orbit satellites, it's still only going to serve somewhere between 300,000 to 800,000 households, or less than 1% of the US market. And while over time analysts estimated that it could scale to about 6 million subscribers, that's still a fairly small dent in a very large US broadband problem. And at $600 for the first month of service, it's still out of range for many for whom broadband affordability is the real impediment to reliable access.

It's also still not entirely clear what kind of network limitations we'll see on a fully-loaded commercial Starlink network in the post net neutrality era. The company initially won't want to impose too many draconian limits (like caps, overage fees, or heavy-handed throttling) in order to lure in new subscribers. But as the network gets congested and runs into the unnegotiable limitations of physics, it seems inevitable we'll see more and more restrictions of this type, once again making it clear that wireless and satellite offerings are still no substitute for future-proof technologies like fiber.

Again, if you can afford the $600 first month payment, can actually secure a pre-order, and have no other options, it's very likely that Starlink will be a godsend regardless of where on the planet you live. It will also probably be helpful for those interested in getting portable access when camping, driving around in an RV, or in the middle of the ocean. But even the normally hype-prone Musk is making it abundantly clear that those expecting a major U.S. broadband market disruption shouldn't hold their breath.

Filed Under: broadband, competition, elon musk, satellite, starlink
Companies: spacex

Wall Street Analysts Say Musk's Starlink Poses No Real Threat To Traditional Broadband

from the gonna-need-more-satellites dept

To be clear: Space X's Starlink broadband service won't be taking on traditional broadband providers in major metro areas. Instead, the company will be using thousands of low orbit satellites (with lower latency than traditional satellite broadband) to deliver marginally decent service to under-served rural Americans, assuming it winds up being profitable longer term. In a country where an estimated 42 million can't get any broadband at all (during a raging pandemic, no less), any improvement helps.

At the same time, many Musk fanboys and press outlets continue to overstate Starlink's (which provides speeds "up to" 100 Mbps for $100 per month plus a $500 first month equipment charge) overall impact. And many telecom analysts continue to try and temper this unbridled enthusiasm, warning that by Musk's admission, the service isn't going to have the kind of capacity necessary to truly disrupt the traditional fixed broadband market. That includes Wall Street analyst Craig Moffett, who has been trying to calm investors in traditional broadband companies worried about Starlink's disruptive potential:

"For investors worried about Starlink's threat to terrestrial broadband, we think the threat is minimal," Moffett surmised. "Based on our analysis of the data available today … Starlink is much better suited for bringing broadband to unserved or underserved markets than it is for bringing competition to already-wired markets."

Even in the largely rural (and maritime) markets Musk's company is targeting, the overall impact is notably smaller than you might think:

"According to his analysis of available capacity and anticipated usage, Moffett estimates that Starlink's US TAM, at a full deployment of about 12,000 low-earth orbit (LEO) satellites (about 1,400 are in orbit today), is in the range of just 300,000 to 800,000 households, or less than 1% of the US market, Moffett notes."

On the maximum end, Moffett's study guesstimates that Starlink could ultimately serve as many as 6 million US subscribers once the company upgrades the low orbit satellites and boosts overall satellite total to 42,000. But again for context: there are 42 million Americans with no access to broadband whatsoever (double official FCC estimates), and another 83 million US consumers stuck under a broadband monopoly (usually Comcast). Tens of millions more live under a broadband duopoly, usually consisting of Comcast and a local phone company that probably hasn't upgraded its DSL lines since 2004 or so.

So again, while Starlink will be a very good thing for rural users with no options who can afford the $100 monthly charge, it's simply not going to revolutionize the sector anytime soon.

Filed Under: broadband, competition, elon musk, satellite, starlink
Companies: space x

Report Notes Musk's Starlink Won't Have The Capacity To Truly Disrupt U.S. Telecom

from the not-good-enough dept

We've noted a few times that while Space X's Starlink will be a very good thing for a limited number of rural customers out of the range of traditional broadband options, it's not going to truly disrupt the busted U.S. telecom market in any revolutionary way. The service should be a step up from traditionally expensive, capped, and sluggish old-school satellite broadband, since new low-orbit satellites can provide lower latency service at a price point Elon Musk insists will be competitive.

That said, the financial analysts at Cowen came out last week to note that even at its current maximum of 12,000 such satellites, Starlink will never have enough capacity to truly service more than 485,000 subscribers at full capacity:

"While Starlink has the ability to provide a practical satellite-based broadband solution for the underserved, the capacity has limitations in most of the US especially considering the growing demand for bandwidth driven by in-home data-rich applications and devices," the firm wrote in a research note first spotted by Light Reading.

Starlink currently has 650 satellites in orbit, with 12,000 planned by 2026. But even at full capacity the researchers estimate the service won’t be able to service any more than 485,000 simultaneous data streams at speeds of 100 Mbps.

Granted most ISPs operate under the "oversubscription" model, which correctly assumes that not all customers will be using the full throughput of their connection all day, every day. So Starlink can certainly offer slower speeds to notably more people. Especially if (with no net neutrality and a Trump FCC that couldn't care less about it) Starlink utilizes strange throttling technology that limits what users can do with those connections. But even that would barely dent the estimated 42 million Americans that lack access to any broadband, or the 83 million currently stuck under a broadband monopoly (usually Comcast).

Musk himself has acknowledged this limited capacity means Starlink won't be a major player in any major urban or suburban U.S. markets. That brings us to the other problem Cowen raises, namely that low orbit satellite will never really be able to scale with consumer demand the way traditional fiber optic broadband can. Especially not in the cloud computing, 4K game streaming era:

"US broadband consumption, and the speeds that users demand, is continuously growing," Cowen wrote. "Thus, as satellite throughput and technology continues to progress, so too will demand for faster speeds. As such, our analysis shows that LEO satellites will continuously be a step behind wireline telco/cable operators in meeting US consumer demand for broadband."

So yes, Starlink will be a good thing for a limited number of folks out of range of decent broadband or somewhere on a boat. But anybody framing this as a massive disruption to the status quo (something the press tends to enjoy doing when Musk is involved) is misrepresenting what the service will actually accomplish. As Starlink lobbies the FCC for up to $16 billion in subsidies, it's also worth remembering that U.S. taxpayers have thrown countless billions at existing monopolies for fiber optic networks that routinely wind up only half deployed.

Which is to say we could focus on state and federal corruption, and the decades of fraud and cronyism that have gifted entrenched telecom giants like AT&T, Comcast, and Verizon massive geographical monopolies. Then finally just deploy the coast to coast fiber networks American taxpayers have likely already paid for several times over with the help of pissed off communities. Or we could do nothing about that problem, over-hype half-measure efforts to re-invent the wheel, then grumble in a few years about the fact we never seem to quite fix America's stubborn "digital divide."

Filed Under: broadband, capacity, competition, elon musk, satellite, starlink
Companies: space x, starlink

FCC Skeptical About Space X Satellite Broadband Claims

from the disrupt-the-undisruptable dept

Ajit Pai's FCC majority is almost never skeptical about the claims made by giant broadband providers. Yet the FCC is expressing doubt that Elon Musk's looming, well-hyped satellite broadband service Starlink will deliver on its promises.

One of the downsides of traditional satellite service isn't just high prices, slow speeds, and usage caps -- it's latency. Traditional broadband delivers somewhere in the range of 20-30ms, whereas the physics of traditional satellite broadband means service usually delivers a 200ms response time; lag that's usually very noticeable. Space X's Starlink satellite service operates using far more satellites in far lower orbits, meaning latency should be dramatically improved. But Ajit Pai's FCC has been expressing doubts that the service will be able to deliver the low latency it's promising the public.

Despite the fact that Starlink could be very helpful in rural markets (its primary target), the FCC originally blocked the company from getting any rural broadband subsidies whatsoever. But last week in an order, the FCC reversed course (pdf), stating that Starlink could receive these funds. But the FCC was quick to express skepticism that Starlink can deliver broad commercial service with latency under 100ms, as it has been claiming:

"Service providers that intend to use low-Earth orbit satellites claim that the latency of their technology is "dictated by the laws of physics" due to the altitude of the satellite's orbit. We remain skeptical that the altitude of a satellite's orbit is the sole determinant of a satellite applicant's ability to meet the Commission's low-latency performance requirements. As commenters have explained, the latency experienced by customers of a specific technology is not merely a matter of the physics of one link in the transmission. Propagation delay in a satellite network does not alone account for latency in other parts of the network such as processing, routing, and transporting traffic to its destination. Short-form applicants seeking to bid as a low-latency provider using low-Earth orbit satellite networks will face a substantial challenge demonstrating to Commission staff that their networks can deliver real-world performance to consumers below the Commission's 100ms low-latency threshold."

One the one hand, I think Pai's skepticism is likely warranted. The satellite broadband sector, including low-Earth orbit satellite, has seen no limit of hype and failure over the last decade. Maybe Musk is the one who finally gets this play right, and maybe he isn't. But the broadband industry has been filled with so much empty hype over the years you really shouldn't buy into the hype of satellite broadband as a serious, major competitor until you see a broad, commercial launch. And even then, much like 5G, we need to see what speeds, pricing, and usage caps look like before declaring it some kind of competitive panacea.

On the other hand, this FCC's history is chock full of examples where it expresses absolutely no skepticism whatsoever at the absurd claims made by companies like AT&T, Verizon, Comcast, and Charter (Spectrum), which all have a vested interest in broadband competitors never seeing the light of day. This is also an FCC boss who has never once expressed the slightest concern about the billions in taxpayer dollars we've thrown at Frontier, AT&T, and Verizon for fiber networks that were never delivered. Seriously, check out the fraudulent nonsense by ISPs like Frontier is West Virginia, then realize the FCC has never made a peep.

Which is to say I think the FCC is making these claims in good faith, but the agency engaged in enough bad faith shenanigans the last three years, it's hard to say for sure. When you pander ideologically to industry like this FCC has done (repealing net neutrality, fighting privacy rules, fighting states' rights to enforce consumer protection), you start to lose the benefit of the doubt. Having watched this industry for 20 years, I certainly wouldn't be shocked to see regulatory barriers suddenly spring up in Starlink's path that have been lobbied for by the likes of AT&T, Verizon, and Comcast.

Either way, the potential exists for Starlink (and other companies, like Amazon), to finally disrupt one of the least liked industries in America. Assuming the technology works well. And assuming regulators don't foul it up. And assuming the company doesn't get bored with the high costs and hard work required to do battle with legacy broadband providers... you know, like Google did.

Filed Under: ajit pai, broadband, competition, fcc, low earth orbit, satellite, starlink
Companies: space x

Amazon Jumps Into The Satellite Broadband Game

from the don't-count-your-chickens dept

We've long noted that you wouldn't see net neutrality or privacy violations in the broadband sector if there was more competition. Historically however, entrenched companies like AT&T, Comcast, and Verizon have spent millions upon millions of dollars preventing that from happening. They quite enjoy the current paradigm of limited competition, and with state and federal regulatory capture they face absolutely no penalty for sky high prices and abysmal service in most markets. And as the late 90s and early aughts made pretty clear, they're extremely good at crushing smaller companies that try to disrupt the space.

Enter Amazon, which is one of countless companies (including Space X) exploring the application of low-orbit satellites as a new broadband alternative. Amazon subsidiary Kuiper Systems last week filed a request with the FCC to ultimately launch 3,236 low orbit broadband satellites that would cover a sizeable portion of the globe. From the filings it's not clear if Amazon will offer these services directly to consumers, or focus more on selling connectivity to other entities:

"Amazon's satellite plan isn't solely for residential and business Internet—it's also for mobile access. In its new filings, Amazon said its network will be available to mobile operators, raising the possibility that small rural carriers could buy bandwidth from Amazon to boost coverage in areas with poor cellular access."

Ultimately, companies hope that low-orbit satellites will provide uniform connectivity with far lower latency than traditional satellite broadband, a service long ridiculed for being expensive, capped, and slow. Space X's Starlink efforts are particularly interesting, given they involve launching more than 7,800 lower orbit satellites to blanket the country will less expensive broadband. OneWeb, Telesat, and Space Norway have also received the green light from the FCC for similar, albeit less ambitious, efforts.

And while many of these efforts are interesting, it's probably wise to not get too excited. There have been numerous efforts to use satellite broadband to disrupt the telecom logjam, most of which haven't really gone anywhere:

"The history of satellite internet, however, is defined by failure, including one of the largest corporate bankruptcies in history. This was a reality Elon Musk candidly acknowledged to reporters ahead of the Starlink launch. “No one has ever succeeded in making a viable low Earth orbit communication constellation right off the bat,” Musk said. “I do believe we’ll be successful, but it is far from a sure thing."

And it should be pretty clear that companies like AT&T, Verizon, and Comcast will be working tirelessly behind the scenes to throw up hurdles at every opportunity in a bid to ensure these alternatives never threaten their geographical monopolies. So while it's OK to be somewhat excited about these new efforts, you may want to temper your enthusiasm until you see a viable, working product. And oh, this is all before we get to the problems of space junk and the impact on astronomy.

Filed Under: broadband, competition, satellite
Companies: amazon

AT&T Spent Hundreds Of Billions On Mergers And All It Got Was A Big Pile Of Cord Cutters

from the synergies,-yo dept

Over the last few years AT&T and Verizon have been desperately trying to pivot from stodgy, protectionist old telcos -- to sexy new Millennial media juggernauts. And while this pivot attempt has been notably expensive, the net result has been somewhat underwhelming. Verizon, for example, spent billions to gobble up AOL and Yahoo, but its lack of savvy in the space has so far culminated in a privacy scandal, a major hacking scandal, a quickly shuttered website where reporters couldn't write about controversial subjects, and a fairly shitty Millennial streaming service even Verizon's own media partners have called a "dud."

AT&T's efforts have been notably more expensive, but just as underwhelming. The company first decided to shell out $70 billion for a satellite TV provider (DirecTV) on the eve of the cord cutting revolution. And the company's putting the finishing touches on shelling out another $89 billion for Time Warner in a quest to gain broader media and advertising relevance. That was paired with the launch of a new streaming service, DirecTV Now, which the company hoped would help it beat back the tide of cord cutting.

But things aren't really working out quite like AT&T planned. The company's stock took a beating last week after it acknowledged it would be facing a 390,000 reduction in pay TV subscribers this quarter. AT&T, in an 8K filing with the SEC, tried to partially blame hurricanes for the mass exodus occurring at the company:

"The video net losses were driven by heightened competition in traditional pay TV markets and over-the-top services, hurricanes and our stricter credit standards. The decline of traditional video subscribers negatively impacts our Entertainment Group revenues and margins, resulting in an adjusted consolidated operating income margin that will be essentially flat versus the year-ago third quarter."

Unmentioned is that AT&T also lost 351,000 pay TV subscribers the quarter before, as the company gets hit harder by cord cutting than most pay TV providers. One of the real reasons for these departures? While AT&T was willing to spend hundreds of billions on megamergers, it has spent the better part of the last decade (especially in places where poor people live) neglecting necessary network upgrades. As a result, in countless markets Verizon & AT&T users on last-generation DSL lines are switching to cable providers for faster broadband, and bundling cable TV service that's priced cheaper than broadband alone.

In short AT&T neglected its core business in order to daydream about matching Google or Facebook's ad revenues, but (so far) lacks the core competency to jump the gap from telecom to Silicon Valley-esque Millennial marketing. Both AT&T and Verizon have spent so many years operating as government-pampered protected duopolies, they believed they could pivot on a dime, ignoring that years of regulatory capture left them with only a few key skills: charging too much for too little, lobbying to thwart competition and bullshit.

To its credit, AT&T was at least willing to take a risk and launch DirecTV Now, a streaming alternative. And while the company did manage to add 300,000 streaming customers on the quarter, those users pay a fraction of what traditional cable TV customers do - and AT&T still saw a net loss of 90,000 pay TV users. Still, most other incumbent pay TV providers have responded to the cord cutting threat by raising cable TV rates (ingenious!) or by pretending to keep pace via the launch of streaming alternatives that are intentionally designed to be underwhelming, lest they cannibalize more lucrative legacy customers.

One of the core problems here is that Wall Street isn't satisfied with ISPs simply doing a good job and making a reasonable profit. The relentless, myopic need for quarterly improvements has companies like AT&T and Verizon trying to use megamergers and vertical integration to magically elbow their way into markets it's unclear they lack the competency for. And only after mindlessly cheering these deals do some Wall Street analysts realize some of these arrangements don't even make coherent business sense given the current market climate:

"Though the company partly blamed recent hurricanes for these trends, MoffettNathanson analyst Craig Moffett notes that weather was only the third of four reasons that AT&T listed. “Heightened competition in traditional pay TV markets and over-the-top services” came first. In other words: cord cutting. “It is becoming increasingly clear that the wheels are falling off of satellite TV,” he writes, meaning that Dish Network might announce similar results."

In an ideal world, AT&T would realize its core competencies (building and maintaining wireless and fixed-line networks) should take priority. That $70 billion spent on buying a doomed satellite TV company could have gone a long way in shoring up broadband service that in many regions still doesn't even meet the FCC's base 25 Mbps definition. But in the world we live in that's simply not sexy enough for Wall Street, and the need to grow simply for growth's sake will likely result in AT&T making even more expensive deals of dubious net benefit down the line. Next up: Waffle House?

Filed Under: broadband, cable, competition, cord cutting, dsl, mergers, satellite, tv, video
Companies: at&t, directv