The Fantasy of Verizon and Charter Price Competition in Worcester

Worcester's solution to resident complaints about the services of Charter Spectrum is bringing in competition, according to City Manager Eric Batista. In an interview on Friday on "Talk of the Commonwealth" with Hank Stolz. He cited Verizon FIOS internet service moving into the city as evidence of that market-based approach.

Hear the full interview here. The discussion about Charter Spectrum begins at 13:20.

It is a nice thought. It also won't work.

Verizon is currently digging to lay its fiber optic cable in Worcester to deliver its FIOS Internet service, but has no plans to deliver the television service that also runs on its fiber network. How does it make good business sense to do all that work and not bring television service?

Cable television providers rarely tread on each other's territory. While it doesn't meet the legal definition of collusion, it certainly meets the definition in the dictionary. Verizon, Charter, and Comcast have largely divided the country up into segments which each owns and can exploit for maximum profit without the nuisance of competition. On top of that, federal regulation largely protects these companies from being thrown out of a municipality. A municipality can not simply walk away from the cable television contracts when they expire, but must present evidence that the provider has breached the contract. Even if those breaches are apparent, the company is almost guaranteed to engage in expensive litigation against the municipality's decision.

In Springfield, Mayor Domenic Sarno denied Comcast a license renewal in December 2020. In February, a new 10-year contract was signed. Sarno extracted some concessions out of the company, including reducing eligibility for the senior citizen discount to 62 and the ability to raise the fees Comcast pays to the city (which companies simply pass on to the customer) should he choose to. It has also been promoted as a non-exclusive contract, but exclusive contracts are against federal law.

Sarno has openly said that he welcomes discussions with other companies. Despite this apparent opportunity for a service provider to break into a new market, nothing reported as of yet indicates that discussions are ongoing with another provider.

As I said above, they generally don't do that.

Batista also said in the same interview that the city will renew Charter's contract for cable television service. Although it's odd that he'd openly say so when the advisory committee that makes a recommendation to the city on what it should do with the contract has yet to complete its work, it is an honest statement. The city has little leverage in these decisions and negotiations with Charter Spectrum. Even if the city discontinued the contract, there is nothing to take its place.

The lack of treading on territory is less prominent in internet service, as we see with Verizon moving into Worcester. On its face, it seems like Verizon is brining more supply to the same demand in Worcester. Through a market economics lense, that should work to drive prices down.

When you look under the hood of each company, at just the top 10 largest investors in both companies, a different picture emerges.

As of 4 PM today, according to CNN Money, The largest institutional investor in Verizon is The Vanguard Group, which own 8.02% of Verizon stock, worth $13 million. The second largest owner of Verizon stock is BlackRock Fund Advisors, which owns 5.37% of Verizon, worth nearly $8.8 million.

As of 4 PM today, according to CNN Money, the second largest investor in Charter Communications is The Vanguard Group, which owns 5.33% of Charter, worth $2.9 million. The fifth largest investor in Charter is BlackRock Fund Advisors, which owns 3.04% of Charter, worth $1.7 million.

In comparing investors of each company, I only consulted the top 10 largest investors in each company. It is likely that others have investments in both.

The purpose of a corporation is to earn a profit for shareholders. These two firms, among the largest and most powerful on Wall Street, are not in the business of their collective $21.8 million engaging in a price war with their collective $4.6 million.

Vanguard and Blackrock won't stop us from being price gouged by Vanguard and Blackrock. It is pure fantasy.