Big Cable says investment is flourishing, but their data says it's falling | Hacker News Reader

Big Cable says investment is flourishing, but their data says it's falling

vox.com

290 pointsluu53 comments

"The industry is acting like a low-competition industry, scaling back investment and plowing its profits into dividends and share buybacks and merger efforts."

Most US industries are in a similar state (plowing profits into dividends and share buybacks and mergers). What's happening is companies are seeing there will be more benefit to their share holders to borrow money against their existing capital and paying that out as dividends than to risk that borrowed capital to make new investments. This is happening because the Federal Reserve has pushed the interest rate to near zero, at the same time people are over leveraged (since money has been so cheap for so long) and don't have the money to increase their spending in the future, which reduces the chance new investments will pay off.

EDIT: This website tends to be very pessimistic, but I found the following article informative and would illustrate my point well: http://www.zerohedge.com/news/2014-05-12/writing-wall-and-we...

This is one of those ideas that sounds reasonable, but falls apart as soon as it's critically examined. Zerohedge has predicted about 17 of the last 2 recessions.

* Household debt payments as % of disposable income are at 35-year lows: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=z...

* Business investment has resumed in full, nearly reaching the previous trendline: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=A...

* Commercial lending has resumed in full: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=A...

* Fixed investment is back at ~2004 levels: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=A...

* Net dividends are still lagging their pre-recession pace: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=A...

* Inflation is extremely low: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=A...

* Corporate debt is as safe as it's been since the 1970's: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=A...

The article posted by the OP is backwards looking over the past 5 years, the 5 years after the financial crisis when things were pessimistic. You're posting current data.

I did mention the Zerohedge article was very pessimistic. But I found it explains well in what circumstances companies choose to pay dividends, acquire using stock and to perform stock buybacks, instead of making new investments.

You've linked to a reference to dividends. What about stock buybacks?

Debt-service repayments are low due to low interest rates. If you've gotten a $1.5m loan at low variable rate of 1%, it would still be difficult to convince you to borrow another $1.5m, since there is uncertainty of future interest rates. You're not going to borrow more just because it's cheap, unless of course you're not on the hook in the case when interest rates go up. (i.e. using a limited-liability vehicle, i.e. a corporation.)

A high value of loans being made does not a healthy economy make. There was a very high amount of loans being made just before the financial crisis, too.

You've cherry-picked data that shows the economy seems to be in good shape.

I can do the same too.

Median household income in continuous decline since 2007: http://research.stlouisfed.org/fred2/graph/?id=MEHOINUSA672N

Less money = less spending.

Civilian-Employment ratio stagnating at 1983 levels: http://research.stlouisfed.org/fred2/graph/?id=EMRATIO

Stagnating employment = stagnating future income.

Inflation over 14 years at 2.5% is 40%: http://research.stlouisfed.org/fred2/graph/?id=CPIFABSL

Reduced savings and income due to inflation reduce leverage available, leading less to spend.

Investment looks like it's approaching a possible peak: http://research.stlouisfed.org/fred2/graph/?id=GPDIC96

Let's hope it can continue to increase - it's still far from the previous high in 2006.

If the inflationary policies of the Federal Reserve aren't doing any harm to the economy why not just keep up the bond buying program? Why taper? They have to, that's why.

> If the inflationary policies of the Federal Reserve aren't doing any harm to the economy why not just keep up the bond buying program? Why taper? They have to, that's why.

Wasn't your first contention that interest rates were too low? Now the Fed is responsible for the lack of inflation because.. why again?

Honestly, I was getting geared up to type a full rebuttal, but if you consider 2.5% p.a. inflation an issue, I'm just going to save my time.

It was a rhetorical question. I did not say tapering is bad move. I say it is a forced move because they can't afford to keep their current inflationary policy any longer, even when many of economic indicators remain below trend.. I'm not for or against anything the Fed does, the financial system is too far gone to save in the long run.

There's no way that Fed balance sheet will ever return to 'normal'.

The federal debt will never go back to previous levels.

Good. Our perspectives are too different.

Their policy was designed around avoiding deflation which is a vary real issue because when total debt decreases so does the money supply.

> "The industry is acting like a low-competition industry, scaling back investment and plowing its profits into dividends and share buybacks and merger efforts."

Apple must be operating in a low competition industry then ;-)

I am reading a lot of this noise, like the article, as, uhm, a naive perspective of business and economics through a political lens. It's like blaming retailers for inflation.

Apple is operating in a low competition industry. It has a monopoly on the sale of Apple products.

Those Apple products still have to compete with other companies' products.

First of all zero hedge is entirely the wrong place to get any information on the economy. He really does not have any idea how the economy works. For the last couple of years he has been predicting that the economy would crash and gold would skyrocket and exactly the opposite has been happening.

It is true that companies usually have a choice between investing and paying money back to the shareholders. It may be true that nowadays companies have mostly chosen to pay money back (i have not seen statistics, but it certainly feels that way sometimes).

But the federal reserve is not to blame for this. Federal reserve policy makes money cheap but it does not force companies to pay money back to shareholders instead of investing. It does not weigh much on that choice. In fact if anything loose federal reserve policy should be steering companies towards investment as cheap credit should help consumption. However, this effect may have been negated by much tougher credit terms for consumer loans.

But this lack of investing cannot be blamed on the federal reserve.

It's good for a contrarian analysis on world politics/economics if you take everything with a grain of salt

Every news source has a bias. It is the job of the consumer to understand what that bias is. An informed consumer observes the perspectives of many news sources with an understanding of their bias and forms an opinion of the truth based on that data.

I once heard a professional investor say that if you're buying stock that doesn't pay dividends, you're not investing, you're speculating.

Then again, as long as we're appealing to authority, Warren Buffet isn't a fan of dividends.

> I once heard a professional investor say that if you're buying stock that doesn't pay dividends, you're not investing, you're speculating.

You're speculating either way. Nobody will guarantee you a dividend.

For heterodox economics without the signature Zerohedge apocalypse hype, try the ftalphaville blog: http://ftalphaville.ft.com/

Also, on top of being cumulative and using different periods, the chart just directly visually lies.

The pixel height difference between the 78.2 and 148.8 bars is ~110px for 70.6B$. But between 148.8 and 210 it's 198px for 61.2B.

So the pixel difference increases despite the money difference decreasing. I have no idea how this can be justified. It makes the right side of the chart look more steep than the rest instead of less (except the left-most part).

They dabble in scaling 2-dimensional objects by radius instead of the area, but not quite by radius. A ~40% (cumulative) increase in dollars is shown as a ~70% increase in pixel area (which is a ~30% increase in radius, not ~40%).

I am just amazed at the lies and stupidity these people are pushing all so that a few people at the top can buy a few mansions/private-jets. Little do they realize what kind of damage they are doing to the competitiveness of America's economy.

US flourished as it did partly because of open/affordable road system. Physical goods and people and ideas were able to move about freely and hence the economy grew.

Now it's all about the internet access. The goods people buy are often sent over internet connection and people/ideas flow the best when internet is working.

And here we are, with the few cable companies that we have doing their best to hamper flow of idea over the internet, the lifeblood of our economy.

The ruling class in America no longer gives a flying shit about the health of the American economy or its competitiveness or any other such nonsense. They are in a resource-extraction phase and from the look of it they are just getting warmed up.

Whether that works out it anyone's best interest in the long run is forgotten as everyone at the top is just scrambling to grab whatever they can.

So, what they "realize" has nothing to do with it.

The environment in high finance companies is extremely competitive. As long as your number is bigger than everyone else's, you're succeeding. If your number is smaller, you're failing. Never mind if the number is still in the billions, or if you had to destroy the economy to get on top.

Considering that the "ruling class" are running companies that are operating in an increasingly global economy, how can they not be concerned about (global) competitiveness?

The ruling class are largely not in executive positions at companies.

This is not an information holy war. It's very simply about streaming Hollywood movies and TV shows over the Internet and who gets to profit from it.

I love the grand total of one option I have for broadband internet at my apartment.

In theory mobile carriers should bring competitive pressure to the broadband space. My sister-in-law's family in Japan has access to cheap broadband but they don't even use it, they all use pocket wifi. Now mobile internet sucks for some things and omg caps are teh worst but at least t-mobile is moving away from caps and most of comcast's customers are not counterstrike players.

Mobile carriers, at least here in the US, are extremely limited with backhaul. They can support high burst speeds, but they can't handle high traffic loads. That's one of the reasons why the data caps are so low on mobile (e.g., 5GBs) vs broadband (e.g., 500GBs). Otherwise, yes, a lot of people would ditch their cable/DSL and just use a mobile datacard/modem.

Strange, I would have expected spectrum to be the limiting factor. Shouldn't backhaul be much cheaper to and easier to improve for them?

Why do you only have one option?

I only have two: Brighthouse (basically TimeWarner) or AT&T Uverse. In the US, most broadband companies are issued local monopolies or duopolies on service, so there's little or no competition.

Exclusive cable franchises have been illegal since 1992. [1]

Cable companies choose not to compete against each other in order to keep their profit margins high. It's unofficial collusion between all the major players.

[1] http://www.mackinac.org/10118

Or a natural monopoly.

As 'dublinben points out, the granting of exclusive cable franchises has been illegal under federal law since 1992.

So why is there so little competition? Because municipalities make it unattractive for companies to compete. American cities are totally dysfunctional when it comes to socioeconomic conflict, and it plays out in a way where building infrastructure becomes a huge political battle: http://www.crainsnewyork.com/article/20140219/TECHNOLOGY/140.... If you want to bill fiber in New York City, you can't just operate like a regular business, targeting the most profitable customers. You have to play in this insane socioeconomic battleground with a civil rights lawyer breathing down your neck turning a simple business into an economic justice issue. Or you go into San Francisco, and your fiber upgrade gets stymied because people don't like how the boxes look: http://www.fiercecable.com/story/judge-orders-att-halt-u-ver....

We already have a tremendous amount of socioeconomic problems when it comes to housing; only those who are privileged enough to be able to afford housing near good schools, good communities can get good education and a stable/safe life, etc., why let the internet be a repeat of this? I say good on those cities trying to make things fair. It might make the difference of the next Zuck being from a middle-class household who in fact has the same speed and experience on the internet as everyone, rather than another privileged Harvard-educated brat who has the familiarity with the new and the fast, who is better able to see the frontier of internet technologies and is thus able to innovate without as many obstructions.

The current way, the rich are in some way subsidizing fast internet for the poor, and telecom companies are deprived of high profits. That is excellent.

Depriving the telecom companies of profits just means that investors will take their capital somewhere more profitable, like peddling advertising to kids: http://ycharts.com/companies/FB/profit_margin. Shareholders will do things like encourage Verizon to sell off all its wireline assets to get rid of less-profitable business lines and unionized workforces: http://www.dslreports.com/shownews/Goldman-Sachs-Wants-Veriz....

As for cross-subsidization, it's bad because it obscures the trade-offs that are being made. I'd be happy to pay tax money to subsidize internet for low-income households. But I want that on my tax bill, not my cable bill.

> I'd be happy to pay tax money to subsidize internet for low-income households. But I want that on my tax bill, not my cable bill.

But you know it as well as I do that that's not happening. I had to hear it from my grandma, Rush Limbaugh, and about 4 or 5 neighbors on my street about Sandra Fluke having the nerve to suggest contraceptive drugs be included as part of healthcare - can you imagine the kind of outrage you'd see at the idea of people's internet being put on your tax bill? That's never happening, it's not a politically viable solution, full stop. Heck, I know even very smart and educated people who like to regard the internet as a waste of time with nothing of worth.

> Depriving the telecom companies of profits just means that investors will take their capital somewhere more profitable, like peddling advertising to kids: http://ycharts.com/companies/FB/profit_margin.

You're very correct there. Personally, I'm convinced that Facebook is a house of cards that will soon fall (https://www.youtube.com/watch?v=oVfHeWTKjag) and I hope and pray that it does so very soon. And that it'll take down a lot of others too, with it. I have no good answers here, I just people were a little more assertive in spewing away anything with the FB logo. Let's hope all of this advertising model is a passing phase and we get over it.

You're certainly entitled to that point of view but then you have no right to complain that the companies in question aren't investing as much in infrastructure as you'd like them to.

Because corrupt regulators.

Oldest tricks in the chart book. Why do people lie in such an obvious manner and think no one will notice?

Because the majority of people will not notice, and many of us live in a majority-rule society. You can't fool all the people all of the time, but pay the right ones and the rest will fall in line.

Actually it is worse than that, most people do notice the lies but feel powerless to stop it. Mostly because they actually are powerless to stop it.

Indeed. You can write a letter to your congressman. Comcast can write a cheque.

Majority rule? No. We live in an oligarchy. The elections are a farce. They've been engineered and Gerrymandered into intractable stagnation.

My favorite chart lately:

http://junkcharts.typepad.com/junk_charts/2014/04/convention...

Another one like this: http://imgur.com/7vXJApW

I didn't see this broadcast, but if I were a director and I wanted to influence perception to the opposite of what the data shows, I'd flash this chart just long enough so that everyone sees the trend, but not long enough that they can grok the numbers.

The "saving grace" is that the numbers actually contrast to the background and are easier to read. FOX could learn a thing or two about the Reuters chart by making their numbers fade into the background.

> in the years that broadband service has been subjected to relatively little regulation, investment and deployment have flourished

Perhaps they are referring to the majority of the years/graph between 1997 and 2008? Which if they were, would make that statement true.

Even by saying that investment has increased overall between 1997 and 2013 would be true imho.

It's impossible for cumulative investment to not increase over time.

In theory it could remain flat, but you would only expect that as a precursor to bankruptcy.

This is cable industry trade data not really something intended for the general public. Dollar amounts aren't going to provide the context required to understand this data. For example over the last 5 years most cable MSOs have gone mostly/all digital which has reclaimed hundreds of megahertz's of spectrum. As a result spending on plant/infrastructure upgrades has slowed. The costs of the digital migrations wouldn't be classified as broadband investments even though it's directly related. Also in this time span most cable providers completed their transition to DOCSIS 3. Big upfront cost but less expensive to scale out over time. Soon they will have another big upfront cost for the DOCSIS 3.1 transition.

Least controversial HN post... EVER.

why is this not getting upvotes? awareness about telecom/broadband bullshit needs to be going up these days, if anything.

It's #2 on the front page right now...

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