In terms of heavy hitters, the most powerful person in the free world is quite the ally to have in your corner.
Last week, The White House issued a statement from President Barack Obama endorsing the Federal Communication Commission's (FCC) efforts to overhaul the way consumers purchase their cable boxes. This might sound like a small-scale issue, but cable box rental fees actually produce a whopping $20 billion in annual revenue for industry incumbents like Comcast (NASDAQ:CMCS.A) (NASDAQ: CMCSK), Time Warner Cable (NYSE: TWC), and AT&T (NYSE:T). Increasing competition could prove a win for consumers and, perhaps, some investors as well.
White House wants to "unlock the box"
According to the press release from The White House, the President has officially thrown his support behind the FCC's recent proposals to overhaul set top box regulations in the U.S.
Per the release, doing so "will allow for companies to create new, innovative, higher-quality, lower-cost products. Instead of spending nearly $1,000 over four years to lease a set of behind-the-times boxes, American families will have options to own a device for much less money that will integrate everything they want -- including their cable or satellite content, as well as online streaming apps -- in one, easier-to-use gadget."
Predictably, the cable industry revved its own lobbying effort into full throttle in reacting to the news. The self-described Future of TV Coalition -- a cable industry consortium funded by the likes of Comcast, Time Warner Cable, AT&T, and others -- issued a scathing rebuke of The White House's statement and the FCC's broader machinations to instill greater competition into the broader cable market.
Leaning on their preferred refrain, The Future of TV Coalition railed, "It is deeply disappointing that the White House appears once again to have outsourced a major tech policy decision to Mountain View [meaning Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL)], without taking the time to understand what's really at stake in this fight. The market is already moving toward a future powered by apps. The Google proposal the White House endorsed today will box consumers into yesterday's technology and impede the innovation consumers so desperately want."
If it sounds like this discussion has descended into a factionalized war of words, well, I'd be hard-pressed to disagree. However, with so much at stake, it also makes sense that both telecom and tech companies are pressing hard to see this highly impactful ruling fall in their direction.
As previously mentioned, a genuinely sizable amount of revenue lies at risk for the cable industry. In any industry, the consequences of a $20 billion industry wide revenue shift will undoubtedly produce new winners and losers. However, it's hard to sympathize with the cable industry's fire and brimstone rhetoric for one important reason.
The FCC's new rules won't preclude large cable providers like Comcast, Time Warner Cable, or AT&T for continuing their practice of renting out cable boxes. Rather, the proposal will simply allow other firms, like tech companies Alphabet and Apple, to sell or rent cable boxes to consumers. Said another way, the FCC proposed changes will simply split the long-standing link between who sells you your cable box and who sells your cable service. This means the company that provides the best cable box experience, which controls the user interface, stands a reasonably chance of winning consumer's business. Seems reasonable enough, right?
Also, it bears noting that large cable providers like Comcast, Time Warner Cable, and AT&T already have customer relationships with their cable subscribers. So long as they can develop set top box hardware that meets consumers' needs, they should be in pole position to keep their customers' business. So while this storyline remains very much in flux, it also seems that the likes of Comcast, Time Warner Cable, and AT&T should still enjoy a favorable competitive position should the FCC's proposed changes come to pass, even as Alphabet and Apple look to enter the space.