StoptheCap! reader Tim wrote this morning to alert us that Fox News had picked up a story from the Sunday Times of London warning of the great Internet brownout about to afflict us all.  It turns out our old friends at Nemertes Research have trotted out another sensationalist study (right on cue after a month of nonsense about it from Time Warner Cable) predicting our online demise from too many users.

But is it any good?

The original article sure wasn’t.  John Harlow, who needed reporting assistance from Adam Lewitt, couldn’t be bothered.  Lazy reporters who reprint sensationalistic theories as fact without ever bothering to ask any questions about the source or challenging the theories, is a hallmark of sloppy, never break a sweat journalism.  Even Ted Ritter, quoted in the story, called the journalism sensationalistic and said the reporter “took great liberty with my quotes,” and he’s the guy pushing the theory!

I keep asking, “where’s the media” on so many issues that deserve more than a slapdash reprint of the cheat sheet on the study, toss in a few quotes and call it a day.  But then I realized in this day and age, we are the media.

So I plodded my way through the report.  It’s the same alarmist stuff as the last one, and the one before that.

They said it in 2007 and the only scurrying that came after it was from Nemertes’ clients running to Kinkos to make copies and get them into the hands of legislators to justify whatever political agenda they were selling that season (no to net neutrality, yes to bandwidth caps, yes to government funding or tax credits for private broadband, etc.)

And that is exactly the problem.

Nemertes’ findings are like magic sprinkles on top of a Baskin-Robbins ice cream cone.  They work with every flavor to justify whatever you want.

On all such matters, the only fact you have to remember is to “follow the money.”  Who pays for this research?

Ted Ritter from Nemertes answers:

Our research is funded by our clients: Vendors, service providers and fortune 500 enterprise.

And the results of this research are celebrated by all of the above:   Equipment suppliers love it because they can trumpet the scary findings on their “upgrade now” brochures. ISPs love it because they can claim they have to cap and tier customers in order to buy equipment to combat the “exaflood.” Proponents of government funding for the Internet love it because it hints major funding to subdue the crisis might be needed.

Without those supporters, this study would never have been done in the first place.  Additionally, Nemertes appears to have an additional revenue stream from licensing the results of the study to interested clients, who wouldn’t bother unless they had a vested interest in trumpeting the findings.

In other words, this is a classic case of “conflict of interest.”  But if you order in the next 20 minutes, you also get these extra benefits:

Since we all know the results are made public, and media availabilities are prominently mentioned on the website, a paying client has the bonus of a seemingly independent third party who will be available to discuss the findings and results.  That’s a quick path to media coverage, the more sensational the better.

Since it’s Nemertes saying it, that keeps the clients’ hands clean when they license a purportedly independent report and mention it prominently when delving into public policy lobbying, public relations, and marketing strategies.

It’s also unsurprising that Nemertes stays out of specific public policy recommendations, because that is exactly what clients want. They’ll provide their own spin as they see fit, just as happened in 2007 and will no doubt happen again.  Why pay for a study that makes a public policy conclusion you oppose?

It’s all very neat and tidy, especially when Mr. Ritter complains that the media was sensationalizing the results.  I’m sure his clients think exactly the opposite.  But then sensationalism and spin follows Nemertes’ report wherever it appears. It drew panic headlines in 2007, was dredged up again by a few marketing people to justify broadband usage caps in 2008, and largely the exact same panicky coverage is appearing now, coincidentally in the same month Time Warner used Nemertes’ theories to justify their Internet rationing effort.

One local Rochester television newscast even suggested a router failure responsible for a Time Warner service outage this past weekend might have been the result of an Internet “brownout.”  That was Baskin-Robbins Flavor #7, “Very Berry Strawberry.”  See, it does work for everything!

The Sunday Times doesn’t have time to check the facts with anyone else, and there are many others who have a different view on this.  Andrew Odlyzko is a professor of Mathematics at the University of Minnesota, and has been tracking Internet growth since 2001:

Nemertes Research has an updated version of their study from last year, and continues to predict a collision between demand and supply, unless dramatic increases in investment are made. The basic, and highly debatable, assumption behind their work, though, is that traffic is growing at 100% per year or more, and will continue to do so for the next half a dozen years. So far there is little evidence of that, though.

Nemertes waves away Odlyzko by claiming that their discrepancy in data with his comes from the ‘secret Internet’ private backbones. Of course, that data Odlyzko can’t get from them is the same data Nemertes cannot get from them either. So we are left with an assertion without raw data.

The creepy part of all of this is, *I* could use Nemertes’ study to help the cause on StoptheCap! Nemertes says nothing about the need for usage caps and limits — it instead suggests that insufficient infrastructure spending will cause the Internet to brown out causing loss of innovation, jobs, and all the rest.  So I *could* use Nemertes to justify why cable companies have a basic responsibility to stop cutting infrastructure spending and start increasing it, instead of capping people to ration the net.

But I won’t, because I have integrity.  I realize that no report is worth mentioning as factual and accurate without the underlying assurance of its independence and lack of bias.  As I wrote Mr. Ritter:

If you want to do reports for clients who subscribe to your service, then send them the results and don’t make them public. Let the clients make the report public, because they are effectively paying for it. It prevents the accusation you are astroturfing on their behalf by insulating their involvement and investment in the findings.

Otherwise, a list of all supporting clients by name, in addition to whether they have been licensed to use the material, absolutely must be added to the bottom of your findings, or those findings are rightfully dismissed out of hand as bought and paid for.

Alternatively, if you are doing this in the public interest, do not accept funding from those with a vested interest in the findings, and do not license their use by anyone. Let people read them on your site, in full and in context, not after some marketing group has massaged the relevant points for their latest strategy.

Ultimately, I think Nemertes basic conclusion that the Internet is growing, and fast, is borne out by reality — just not at the panic stricken pace they suggest.  I also think that just like every other technological challenge we have faced, innovation will bring solutions to problems we fear and panic about today, but aren’t that big of a deal tomorrow.

The short answer continues to be, upgrade the network.  The bad answers include another effort by some of those that we’re likely to discover paying for Nemertes’ studies to advocate supersizing profits through reduction in competition, installing artificial usage limits to retard the growth curve, and trying to legislate protectionism for incumbent providers.

More from the Re-Education camp.  They want to take some time and let us understand their plans, so that we can reject them out of hand all over again later this year.  Except next time, the protests and push back will be even greater than it was this spring.  That’s because we’ll also be educating customers about what tiered pricing will mean for their bill, both now and into the expansive future for the Internet.  Time Warner forgets Rochester Telephone’s disastrous attempt to get rid of flat rate home phone calling back in the 1970s and the firestorm that caused.  This is going to become more or less the same thing.  Even people without computers who don’t understand the Internet do understand one thing: they don’t trust Time Warner as far as they can throw them.  The company already forces channels on customers they don’t want, but have to pay for, and they also know this universal fact of life: cable bills always go up, never down.

So when Time Warner comes a’knocking and says they have a plan to save you money, people will slam the door in their face. Their claims that “they” found a lot of customers could “right-size” their plans when people realized they weren’t using that much is amusing, especially in Rochester where you can find the Road Runner Lite plan on the back of milk cartons bannered “Missing.”  That’s because the company makes it next to impossible for those light users to find the Road Runner Lite plan they already offer.  And when customers learn they can save money and never fear paying overlimit fees on their Internet under the existing plan, you can be sure they won’t be snake oiled into accepting the new one that has overlimit penalties that would make Bank of America blush.

Frontier isn’t fooled either.  Ann Burr, Chairman and General Manager, Frontier Communications of Rochester, might have a problem saying “inconsistency,” but her company is making hay out of the PR nightmare Time Warner put itself in, signing up new customers.

Fun Trivia: Ann Burr should know.  She used to be president of Time Warner’s Rochester division!

“We have a listening process,” says Time Warner spokeswoman Robin Wolfgang.  Yes, and here it is — Customer: “I want to keep the same plan I have right now and not pay three times more for the exact same Internet service I have today.“  Time Warner: “No.“  That about sums it up.

‘There is no reason to protest — we’re listening,’ says Time Warner, according to this report.  The company was responding to planned protests which continued despite the decision by Time Warner to temporarily shelve usage caps and tiered pricing.  That’s because most of those doing the protesting don’t believe for a second that Time Warner is listening to anyone but themselves.  Customers overwhelmingly rejected the “experiment” force-fed on people in four cities, but the company has never been willing to admit it was wrong, and give up on the idea for good.

A long history of endless rate increases, forcing people to pay for channels they don’t want, and a general sense of mistrust has become near-automatic for even under-informed customers.  But when we learn the facts about just how profitable Time Warner Cable’s Road Runner service is, they get hoppin’ mad.

I found it interesting WGHP also mentioned the protests in Rochester.  Melissa is here at least admitting, for the first time, they underestimated the impact of the “experiment.”  They also misunderstand the fact almost nobody wants this.  One of the news outlets needs to bring up the fact that Road Runner Lite is already available for those light users at a substantial discount, without ever worrying about overlimit fees under the tiered rate system they temporarily shelved.

Time Warner Cable released its first quarter earnings for 2009 today, and we were mighty curious to see if there was any evidence yet of the Irwin Allen production of The Exaflood, coming to an Internet connection near you.  Would Time Warner Cable be telling its investors that Internet brownouts were likely on its Internet service?  Would they sell investors on the importance of stemming the tide of bandwidth piggies by slapping them with gauges, tiers, and overlimit fees?  Would management proudly unveil their carefully crafted plan of action to cope with the crisis just a year or two in the distance?

No. No. And, oh please get real.

Time Warner Cable

Part of our job on StoptheCap! is to educate you with actual facts before the non-reality bizarroworld of Time Warner Cable marketing gets you to start believing in their tales of an Internet teetering on the edge of a cliff.  The fun part is, we get to educate you with their own material.

It’s not enough to simply oppose bandwidth/usage caps and rationing plans.  One must also be able to refute why they are supposedly necessary, and be able to recognize and debunk propaganda when you see it.

Throughout the latest quarterly report, as well as in today’s conference call with investors, I waited to hear one mention of the crisis that they claim is forthcoming.  Let’s review their own claims from just two weeks ago:

1. The Internet is growing a lot.
2. In order to keep up with the growth, we need to expand our infrastructure.
3. A tiered pricing system manages growth and provides incentive to stay within your plan limits.
4. DOCSIS 3 is expensive and we need the revenue from this plan to give you the faster speeds you demand.
5. We need to let people who use the Internet less get a lower cost plan.
6. Without this kind of approach, our service will be subject to brownouts and failure.

That sounds mighty serious and important.  It’s definitely something you’d need to disclose to shareholders and investors if you thought it was this critical to the future of your company, and considering broadband represents 1/3rd of your package of services, that’s something you cannot keep to yourself.

If it was true, that is.  If I could dance like this, I’d be Dancing With the Stars.

At the end of the quarter, within the time-frame when the corporate decision to expand metered use testing was approved, there is not one word about any of this that comes anywhere close to the Chicken Little Sky is Falling campaign foisted on Rochester, the Triad, San Antonio, and Austin.  There is none of this in the quarterly report, nothing about it in today’s conference call, up until an investor group asked the company about its public relations catastrophe.

If you review the audio from our earlier article on today’s meeting, enjoy the furious backpedal by CEO Glenn Britt, who tries to shift the topic to whether the Internet on cable was a crazy idea back in the 1990s.  In the end, it’s downplayed as a marketing test that got pushback, and the company will need to continue to explore and test new ways of changing its broadband business plan in the future.  It’s the mother of all dial-backs.  This was the easy part to discern, but when you dig deeper, it doesn’t take long before you realize we’ve all been had:

1. Time Warner’s only firm plans for DOCSIS 3 upgrades were for New York, NY (a city that was never on the “experiment” list we note).
2. Despite assurances that test cities would be getting upgrades as a result of the tiered pricing system, the company disclosed today there were no plans to immediately implement DOCSIS 3 in any other city.
3. Company officials downplayed the need for performing the upgrade in the first place, claiming there has not been much clamor for speed (so much for the crisis nearly upon us!)
4. The Lite plans for lighter users impact on the company’s returns for broadband, but are compensated for by heavier users who may actually be carrying that financial load with Turbo subscriptions.
5. The company again plans to reduce spending overall in the coming year, not increase it.
6. Most of the infrastructure enhancements in their fiber network aren’t for broadband, they’re for “switched digital video” which is helpful for cable systems trying to deliver additional HD channels.

So we can chalk this entire affair up to a marketing plan designed to convince customers that paying more for less, with absolutely no assurance (and evidently no intention) that “necessary” upgrades would be immediately scheduled and implemented was a good thing.

By the way, broadband made them another tidy pile of cash this quarter, with an increase in subscriptions, all which helped make their overall losses from an accounting change look a bit lower.

Cablevision

Meanwhile, another cable operator decided to take a nobler approach.  Cablevision quietly did their corporate responsibility thing and upgraded their cable broadband system to DOCSIS 3 without launching a pledge drive, (tote bag for 40GB cap!) so they could be prepared to confront Verizon FiOS, AT&T U-verse, or any other broadband player entering their market.  They also like having happy customers.  So, instead of a claim the digital tidal wave was nearly upon us so pony up some scratch, they upgraded their network and created new high speed tiers.  Tiers to attract customers into happily paying them more money for more service, so they can make bigger profits!  What a novel concept.  For $99 a month, for those who want super speeds, they’ll get them from Cablevision.  Those who want to spend less on a standard plan never have to worry about their connection slowing down any longer, either.

This morning illustrated once again why it is so critically important to check out the claims and statements being made by companies that want to convince you paying them a lot more for less is a good idea.  To think I was contemplating launching a multi-city bake sale to help bail out Time Warner from its horrible bandwidth demise, until I discovered their investors are being told everything is fine, the broadband division remains highly profitable, and they can even spend less on it in the quarters to come.  So I guess readers will have to muddle through without buying my Save Time Warner Bundt Cake, at least until they’re back later this summer with the gas gauge and another story they’ll choose to share with us.

For your convenience, I have compiled a package of media on the 1st Quarter Results for Time Warner Cable, including audio from this morning’s investor conference call, and copies of the reports for your review. You must remain on this page to stream audio clips.

A cue sheet is referenced below for the different audio actualities.  The complete conference call is available for download as an MP3 file.

Audio Actualities

Cut 1: Time Warner CEO Glenn Britt introduces earnings results, and touches on general economic conditions & competitive risk (3:51 minutes)

You can download the clip and listen later.

Cut 2: Time Warner EVP and Chief Financial Officer Rob Marcus talks about broadband results (0:20 minutes)

You can download the clip and listen later.

Cut 3: Time Warner EVP and Chief Financial Officer Rob Marcus notes subscriber results deteriorated in the last few weeks. (0:23 minutes)

You can download the clip and listen later.

Cut 4: Time Warner EVP and Chief Financial Officer Rob Marcus breaks down subscriber growth by product (0:22 minutes)

You can download the clip and listen later.

Cut 5: Time Warner EVP and Chief Financial Officer Rob Marcus discusses the reduction in capital spending (1:08 minutes)

You can download the clip and listen later.

Cut 6: COO Landel Hobbs reviews competition and its impact on Time Warner Cable (1:42 minutes)

You can download the clip and listen later.

Cut 7: COO Landel Hobbs on how Time Warner Cable will make investments in its platforms in this quarter and beyond (3:51 minutes)

You can download the clip and listen later.

Cut 8: Q&A – What impact has the usage based metering trial had on the company and what about DOCSIS upgrades? CEO Glenn Britt answers. (2:10 minutes)

You can download the clip and listen later.

Cut 9: Results on the Road Runner Turbo product and its impact on profits. EVP and Chief Financial Officer Rob Marcus answers. (0:19 minutes)

You can download the clip and listen later.

Cut 10: Q&A – How will online video impact Time Warner’s video business model, and are programming costs still increasing? EVP and Chief Financial Officer Rob Marcus answers and CEO Glenn Britt follows up. (3:46 minutes)

You can download the clip and listen later.

Cut 11: Q&A – What fiber product created more competition for Time Warner Cable in the last quarter? COO Landel Hobbs answers. (0:24 minutes)

You can download the clip and listen later.

Entire Event: 1st Quarter 2009 Time Warner Cable Investor Conference Call (54:48 minutes)

You can download the clip and listen later.

Time Warner Cable Documents

04/29/2009      Time Warner Cable Inc. to Report First Quarter 2009 Results

All documents are in Adobe PDF format.

Time Warner Cable 2009 First-Quarter Results 436.9 KB

Time Warner Cable 2009 Updated Trending Schedules 61.2 KB

Time Warner Cable 2009 First-Quarter Slide Presentation 294.8 KB

WXII did a follow-up the day after Time Warner announced it was shelving its metered broadband service plan.  It was clear that not everyone believes Time Warner’s plans have been shelved permanently.

A fair report with all sides represented, but the reporter’s estimates about the size of movies was generally inaccurate.  DVD quality/HD movies are far in excess of one gigabyte.  One movie is much more likely to consume at least four gigabytes if you are obtaining a high quality version suitable for display on a television set.  Game play has a wide range of impact on usage.  Some online multiplayer games consume surprisingly small amounts — especially when sending game plays and movements across a network.  Latency is a very bad thing in a fast moving game, after all.  But many game add-ons, updates and enhancements can use a lot more.

In a morning conference call with Time Warner Cable executives and investors, Time Warner Cable announced that the Powerboost technology upgrade will be provided to all Road Runner customers at no additional charge in the coming weeks. Powerboost formerly was available in most markets only to customers on the Turbo tier.

Powerboost provides a temporary speed boost to downloads on the Time Warner Cable broadband service, usually around 16Mbps, according to Time Warner officials.

Company officials also announced the only market where DOCSIS 3.0 upgrades are currently scheduled is New York City.  All other markets will eventually see upgrades announced in the coming years on a market by market basis.  Company officials downplayed the importance of the upgrade, saying they had not seen much demand for increased speed.  This diverges significantly from the company line that usage caps and tiered pricing were required to prevent “Internet brownouts” and to race additional funds to complete “necessary upgrades.”

Complete coverage on this story and its impact on metered pricing can be found on StoptheCap!

Time Warner officials announcing Powerboost to be made available to Road Runner Standard subscribers (0:23 minutes)

You can download the clip and listen later.

In a conference call this morning with Time Warner Cable executives, reporters questioned officials about their usage based pricing trials.

Company officials indicated that the company was dealing with a dynamic business sector and was trying to improve returns by trying new products and services, and redefining the business model for broadband, depending on customer reaction.

Company officials noted there was significant push back by consumers and politicians over usage based pricing, and withdrew the market trials for the time being.  However, company officials stressed they will “keep trying to do things in the future.”

“Back in the 1990s, Time Warner was primarily a TV company in a TV industry.  Broadband then was an innovating and radical thing, and a lot of people thought it was stupid and wouldn’t work.  [The usage based trial] got a lot of pushback, but this was just going to be a market trial.”

In a morning conference call with investors, Time Warner Cable management announced they would be initiating an upgrade to DOCSIS 3.0, the next generation in cable broadband technology, in just a single city in 2009: New York.

The work has already begun in Manhattan, where CMTS deployment will commence by the summer.  Initial testing has produced results up to 138Mbps down/18Mbps up.  However, company officials stress they have no plans to offer that level of speed, at least initially.  The upgrade should be available to customers by the end of 2009.

Time Warner continues to downplay the importance of DOCSIS 3.0 with investors, telling them this morning the company has seen little interest from customers in additional broadband speed, making the upgrade a low priority.  However, even though the company has no specific rollout schedule, it does propose to upgrade in the coming years on a market by market basis, with announcements preceding deployment in each area.

This is in marked contrast to public statements Time Warner’s corporate communications department had been making in markets where usage based pricing trials were to begin this summer.  Repeated statements from company officials warning of “Internet brownouts” and “capacity problems” were used as justifications to institute caps on usage with significant overlimit penalties as high as $2/GB.  Officials claimed just two weeks ago that the revenue earned from heavier users charged a higher price would be used to deploy “necessary DOCSIS upgrades.”  That is a message not given to investors.  Additionally, company officials never mentioned the need for usage based pricing throughout the one hour conference call, except in response to a question from a caller.  Company officials downplayed the usage based billing controversy as a “market trial that had pushback,” but also warned that additional tests to change the current broadband business model would be forthcoming.

Time Warner Cable reports healthy growth for the first quarter of 2009, ending March 31st.

Time Warner Cable Chief Executive Officer Glenn Britt said: “Time Warner Cable performed well in the first quarter, growing revenues, adjusted OIBDA and free cash flow from last year. We added very healthy numbers of new subscribers to our video, high-speed data and phone services, and our commercial services business continued to grow rapidly.”

Britt added: “We’re excited to be an independent company. Cable is a very good business, and our operations are strong and growing despite a challenging economy. We continue to generate very healthy free cash flow which will enable us to reduce debt over the next year.”

High-speed data revenues increased 11% ($107 million) to $1.1 billion, as a result of continued residential high-speed data subscriber growth and increased average revenue per commercial subscriber.

Time Warner Cable Rakes In Profits - Click to Enlarge

Time Warner Cable’s revenues are up across the board, including in high speed data, where the revenue per subscriber is up another 30 cents to $41.57 per subscriber.

In a morning conference call, Time Warner Cable executives reported they’ve leveraged additional earnings from reduced expenditures on infrastructure and cost cutting.  In the first quarter, Time Warner Cable added an additional 225,000 subscribers, making broadband by far Time Warner’s most resilient product line.  Penetration continues to increase in all markets for broadband.  Across the board, Time Warner Cable has a 33% penetration rate for Internet access, including all providers (dial-up/broadband).  In many markets, the rate is over 40%.

Costs and returns for high speed data have stabilized for high speed data products, according to company officials, calling into question claims that Internet growth would create financial and capacity problems for Time Warner Cable. Investors are getting a different message, with not a single word about capacity challenges or issues in the broadband division.

Company officials also admitted Turbo customers are helping “stabilize” revenues achieved from customers downgrading to “Lite” service tiers, allowing those heavier users with Turbo service helping to effectively subsidize revenue returns for lighter consumption “Lite” customers.

Spending on overall residential capital spending is expected to continue to decline, which means although company officials complain of costs associated with broadband expansion, the company does not plan to internally spend dramatically more money to deal with it.  DOCSIS 3.0 deployment was announced in just one Time Warner market: New York City, where it is expected to be deployed by the end of 2009.  Company officials claim they are not in a hurry to deploy the technology because of insufficient need and demand, which also completely contradicts earlier claims that the company needed to complete DOCSIS to deal with “Internet brownouts.”

“We do not see enormous demand at this time for speed.  We will gradually roll out DOCSIS 3.0 on a market by market basis over the next several years,” said company officials.

To meet competitive challenges, the company is significantly discounting product packages where AT&T U-verse and Verizon FiOS competition exists.  Company officials admitted that AT&T’s U-verse product is posing a greater challenge for them during the past quarter, perhaps due to its more aggressive rollout in AT&T territories.

In another admission, Time Warner Cable officials admitted that the video side of the business does face a challenge from online video.  Time Warner said it is exploring ways to stop losing video subscribers by partnering with cable networks to only make video programming available online to those with a confirmed video cable subscription.

Switched digital video is a primary driver of the expansion of fiber optic deployment, to provide additional HD channels to customers, not to meet broadband Internet demands.

Time Warner Cable does face some pressures on revenue — from the video side of the business.  Company officials admit there have been downgrades away from premium channels and digital cable services after recent rate increases and financial pressure from the poor economy.  The company has embarked on new marketing strategies with special targeted incentives and lower pricing for certain groups, citing the Latino Spanish speaking community as one particular example.  In some areas, the Spanish language marketing materials promote lower pricing and better promotions than those targeted to the English speaking community.

Company officials are also leveraging price protection agreements in their marketing strategies to “stabilize” pricing in return for a commitment to stay with the company for the length of the contract.  These agreements reduce downgrades and disconnects, known as subscriber churn in the industry.