What Comcast’s huge profits tell us about the state of the broadband industry

A common argument against network neutrality regulations is that restricting how broadband providers run their networks — for example, by prohibiting them from charging certain content providers extra to put their content in “fast lanes” while everyone else’s content gets stuck in the slow lane — is that this kind of regulation will make it too difficult for network providers to recoup their investments in broadband infrastructure.

So it’s interesting to look at the 2014 financial results from the nation’s largest broadband provider, Comcast, which came out today. Comcast’s cable division (the company also owns NBC Universal) had operating cash flow (revenues minus operating expenses) of $18 billion. Of that sum, Comcast re-invested $6 billion in its network. But it also gave $6.5 billion in profits back to shareholders, and the company expects to return an even larger sum to shareholders in 2015.

This isn’t a surprise. The company has posted a generous — and usually growing — profit every year since at least 2006. Clearly, this is not a company that’s struggling to find the funds it needs to maintain and upgrade its network.

To be clear, there’s nothing wrong with companies earning profits and giving them back to shareholders. You couldn’t have a capitalist economy if shareholders couldn’t earn a return from their investments. But I think we can draw two lessons from Comcast’s financial results.

First, we’re nowhere close to the point where increased regulations will make it unprofitable to own and operate broadband networks. Critics have warned that strong network neutrality regulations will reduce the incentive to invest in broadband networks, and they probably will. But even if they’re right, it’s likely that running a broadband network will continue to be a highly profitable activity.

Second, Comcast’s high profits are evidence of high barriers to entry in the broadband industry. Ordinarily, a company that consistently made billions of dollars in profits would attract new competitors seeking to capture a piece of the market.

But with a few exceptions — such as Google’s projects in Kansas City and elsewhere — this hasn’t really happened. In most parts of Comcast’s service territory, consumers’ only alternative for broadband service is the local phone company.

Conversely, Comcast doesn’t seem interested in trying to steal market share from rivals. Comcast could expand into the service territory of neighboring cable companies or it could spend money building a next-generation fiber optic network the way Verizon and Google have done. Instead, they’ve chosen to spend more money rewarding shareholders than investing in their networks.

Again, there’s nothing wrong with a company spending money on dividends and share buybacks. But this is all worth keeping in mind as policymakers decide whether to approve Comcast’s merger with Time Warner. Broadband and cable television are already highly concentrated markets with minimal competition. Having the nation’s two largest cable providers merge will make the problem even worse.

Disclosure: Comcast Ventures is an investor in Vox Media, the parent company of Vox.com.