Morgan Stanley Report on Broadband Pricing Wildly Overblown

By Justin Rohrlich A new report from Morgan Stanley media analyst Ben Swinburne makes quite the audacious claim. Swinburne believes that, as more customers “cut the cord” and enough people eventually consume programming via the Internet, via Apple's (AAPL) iTunes, Google's (GOOG) YouTube, and so forth, cable companies like Time Warner (TWX), Comcast (CMCSA), Cablevision (CVC), and others, may have to double rates for broadband service to make up for lost revenue.

(To read Michael Brush's piece on cash-rich companies, click here.)

Add to that the number of devices that now come web-ready. Aside from the new generation of televisions on the market that provide this feature, videogame consoles also do, such as the Sony (SNE) PlayStation, the Nintendo Wii, and the Microsoft (MSFT) Xbox -- which are found in 43% of US households. "This is the key part of the equation," Vince Vittore, an analyst at technology research firm The Yankee Group, told CNN. "Not just are these devices connected to the Internet, but they're coming prepackaged with the capability to connect to rich video sources. That really becomes a competitor to pay TV service."

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Vittore believes that as many as one-in-eight customers will migrate over from traditional cable to Internet-only viewing before the end of 2010. In a study titled “Consumers Consider Axing the Coax,” Vittore wrote:

Admittedly, this is a small phenomenon now, but a number of recent transactions and news items point to a shift in consumer thinking and a rise in what we term “coax-cutting.” We believe we will see a gradual shift toward more potential coax-cutters due to the following trends:

(To view Michael Comeau's article on how Amazon is setting itself up for the long term, click here.)

• The introduction of connected TVs in 2010 and beyond
• The escalation of pay TV prices as operators continue to wrestle with higher programming fees
• The increased proliferation of connected consumer devices that can function as set-top boxes

However, while delivery methods will undoubtedly continue to change, Vittore tells Minyanville that Swinburne's estimate regarding how much cable rates will rise may be spurious. “It's a logical thought process, because as more and more consumers cut off their cable service, [the cable providers] are certainly going to want to alter their cost structures,” he says. “But, if they can cut their programming costs by having fewer subscribers, they likely won't have to double the fee, but raise it by just a slight amount.”

To read the rest, head over to Minyanville.