Following the Money: Telecom's Best Friends in North Carolina Get a Payday

If there is one thing I know about how politics work, it is that when you follow the money you find the reason certain people are pushing so hard to get legislation through.  After doing some intensive research into the Senators involved with S1004, I found a trail of money that leads right back to the Cable/Telecom industry.  S1004 was primarily sponsored by Senator David Hoyle (D-Gaston County) and was co-sponsored by Sen Debbie Clary (R-Cleveland and Rutherford Counties).

Sen. David Hoyle (D-NC)

What made me think to look in the first place was the quotes in the local paper by Hoyle.

You can expect to see 1004 on the Senate floor and sent over to the House soon, said Sen. David Hoyle, its sponsor. Hoyle says he doesn’t much care how it gets studied, as long as it gets there.  “It’s an issue that needs to be looked at,” Hoyle said. “All the parties need to get in the same room and defend their position.”

Add that to a Hoyle quote reported on Facebook by the Greensboro News & Record’s Mark Binker, “I take great pride in being a pro-business member of the Senate.” Now I had to look.

What I found was that Hoyle took a total of $25,750 in telecom industry PAC money in 2008.  Embarq Employees PAC gave $4500, Time Warner PAC gave $4250,  AT&T PAC gave $4000, NC Cable PAC gave $2500, Sprint/Nextel PAC gave $3000, NC Broadcast PAC gave $1500, NC Association of Broadcasters PAC gave $4000 and ElectriCities gave $2000.  That last donor is particularly interesting, because their lobbyist, Drew Saunders, also happened to sponsor a nearly identical bill in  2007.

It is easy to see why Hoyle is pushing this legislation so hard for his telecom buddies: $25,750 is a lot of money for a state politician.  Most people don’t make much more than that in a single year working 40 hours a week.

Co-sponsor Clary has not been very outspoken on this bill, but her total take from telecom industry PACs was considerably lower as well, amounting to $4750.  Embarq Employees PAC gave her $1500, Time Warner PAC gave $1000, AT&T PAC gave $1750, and ElectriCities gave $500.

Other big players in the North Carolina Senate are also cashing their industry checks, and the details are forthcoming.  Next, my attention will turn to the sponsors of HB 1252 in the North Carolina House.  Soon, we’ll all know exactly how much is takes to get big telecom’s legislative agenda passed into law in the North Carolina General Assembly.

All information I have provided above was a matter of public records search at the NC State Board of Elections website.

A lot of big companies have gotten big headaches dealing with the implications of a wired world.  Instead of embracing change and developing new business plans to win profits from online users, many see the net as the enemy or something that must be controlled.  When netizens out-think corporate efforts to protect fat profits and market control, an executive throwing a hissyfit sooner or later goes public.

That’s precisely what happened at one of those elite breakfasts with “important people” this past Thursday, according to Irin Carmon, reporting for WWD Media.  Sony Pictures Entertainment CEO Michael Lynton let loose in a mini-tirade against what the Internet had done to Sony Pictures:

“I’m a guy who doesn’t see anything good having come from the Internet… (The Internet) created this notion that anyone can have whatever they want at any given time. It’s as if the stores on Madison Avenue were open 24 hours a day. They feel entitled. They say, ‘Give it to me now,’ and if you don’t give it to them for free, they’ll steal it.”

At the breakfast, co-hosted by the S.I. Newhouse School of Public Communications at Syracuse University and The New Yorker, Lynton wasn’t alone in whining about the online revolution’s impact.  Co-panelist Nora Ephron wanted to share her pain about how the Internet in impacting the newspaper business:

The Internet has had a greater effect on “our beloved print than it’s had on the movie business.” But, she conceded, “We’re in the last days of copyright, if you want to be grim about it….  Stop it. I dare you.”

When Hollywood or the folks who work for the dead tree format feel threatened, demanding control and order usually comes next, which is really just code language to hand power over to the entities feeling threatened.  Lynton didn’t disappoint, complaining the Obama Administration’s plan to improve broadband without first obsessing about piracy control measures was the equivalent of building highways with no speed signs or licensed drivers.

Of course, Lynton’s world view would have companies like Sony serving as the DMV, mandating the same kinds of onerous, consumer-unfriendly digital rights management schemes, lock-outs on content, or ludicrous high pricing — the very things that fuel piracy in the first place.

The newspaper industry’s problems didn’t start with the Internet.  The merger and acquisition frenzy of the 1980s and 1990s in the newspaper business created enormous debt, resulting in inevitable “cost-cutting” measures, laying off the very journalists that made newspapers worth reading to begin with.  Today, many newspapers print a dozen or less locally written stories per day, often shallow in scope, with the rest being wire service copy, columns, and lots of ads.  Is it any surprise many people drop their subscriptions for a paper that increases in cost and decreases in quality?  When movie studios shovel junk to moviegoers who pay $10 or more per person, bombard them with ‘preview’ commercials, and require “easy credit financing” to afford the popcorn and soft drinks, why be surprised when people rely on Netflix or other rental services to watch for less?

Controlling the Internet isn’t just limited to big media companies or newspapers.  Most of those opposing net neutrality have a vested interest in protecting their brand or service from the online free-for-all.  Some new media companies manage to make enormous profits that other older companies wish they could still earn.  It’s not always an issue of price or piracy.  More often, it’s about developing a product or service that consumers want and charging a fair price for it.  Consumer Reports online represents a success story.  Many are willing to pay a yearly access fee for their online content because of its quality and trustworthiness.  Meanwhile, several online news sites experimenting with subscription models to monetize their content also want to hang onto profits from their littered-with-ads look, driving readers crazy with video ads, sales pitches taking over your screen, and the usual pop-ups and pop-unders.  You still get all of the irritation, but now you also have to pay for the right to be irritated.  No wonder web audiences simply move on.

Instead of learning lessons from customers that reject limits on things they’ve already paid for, denial of access for ‘business reasons,’ or trying to reduce the quality of a product while charging the same or more for it, cartel thinking takes over. Enormous sums are spent trying to impose limits or order on the net to protect themselves, even if it means shutting down the Internet’s own “model,” where a level playing field means success to those with the best ideas, not just to those with the best connections and influence.

Cisco, a networking equipment and service provider, has announced a joint effort with Flash Networks to provide a new Intelligent Traffic Management “solution” to “maximize data revenues, network utilization, and subscriber satisfaction.”

The “solution” is being sold primarily to wireless bandwidth providers to help manage the “explosion of mobile data traffic” expected in the next five years.

“Our successful partnership with Flash Networks enables operators to meet the challenge of maximizing revenues while protecting network assets by providing tiered services that ensure fair bandwidth usage and protect the network from traffic congestion,” said Sergey Belonozhko, Area Sales Manager for SP at Cisco.

The Intelligent Traffic Management solution supports personalized data plans where service providers can notify subscribers when they are near usage quotas, provide a temporary bandwidth boost, offer data plan extension to support additional IP services, or enable subscribers to set personalized usage caps that can be updated in real-time based on personal financial limits. This same solution is used to both insert targeted advertising based on subscriber browsing patterns, and to block inappropriate content for safe browsing.

It is being touted by Cisco as a way for operators to implement service tiers to maximize revenue while at the same time reducing traffic load on networks, reducing the capital investments required to grow them with demand.  Customers end up with “gauges” and warnings to get them to reduce their usage, or give the operator an incentive to up-sell the customer to another tier of service (or make the customer purchase additional bandwidth.)

A nice tidy arrangement for all concerned, except the customer, of course.  Cisco has been one of the more active “exaflood” promoters, with their talking points even turning up on Australian breakfast television.  They promote the “Internet is over-flooded and will brownout” scare tactics to establish that premise in the minds of consumers, sell the “solution” to help manage the traffic growth, give operators the tools to help them raise prices, limit usage, and provide gauges to customers to get them to be paranoid about their usage, and then take their earnings to the bank.

Consumers get notification that their access has been capped, are told to recall the mainstream media stories about Internet congestion, and go along with the plan.

It’s part of the grand scheme for uninformed customers to simply accept higher prices and service quotas and limits, all while companies providing the bandwidth earn higher revenue than ever.

Verizon’s decision to exit several smaller communities across the country and hand operations over to Frontier isn’t threatening Comcast, one of the predominate cable providers in some of the larger communities Verizon is abandoning in Washington, Oregon, and Indiana.  Some of the impacted communities, particularly Fort Wayne, were being prepared for Verizon FiOS before this week’s announcement.  While Verizon and Frontier have agreed to continue building out the fiber to the home projects already underway, the cable operators serving these communities are likely to exploit the molasses slow transfer from one phone company to the other.

Comcast is busily deploying DOCSIS 3 in their service areas, and even with Verizon FiOS, cable operators with upgraded networks can readily compete for broadband business in any of their markets.

As Verizon rapidly loses interest in the markets it will be leaving, the slow transition can be part of a publicity campaign by the cable operator to convince customers to abandon the phone company, because ‘they’ve abandoned you.”

Donna Jaegers, a senior research analyst at D.A. Davidson & Company told Multichannel News, “Verizon has no real incentive to continue to invest more capital in these markets.”

“In that one-year window, the cable competitors have an easy sales pitch,” she said. “They can say, ‘Hey look, Verizon is already neglecting you — and for the next year they’ll have even more reason to neglect you.’ ”

Cable operators completing upgrades to their networks as a normal cost of doing business make competing with changes in a market a snap.  Some companies recognize the benefits of DOCSIS 3 and have upgraded without running a “pledge drive” to beg for money to do it.  Others have not.

The Austin Community Technology & Telecommunications Commission convened this past Wednesday for their monthly meeting to discuss, among other items, possible actions on Time Warner Cable consumption billing for broadband Internet.  According to chairman Chip Rosenthal, it was the longest agenda in the many years he’s been there, and the TWC discussion didn’t come up until after 9 p.m.

As a concerned Austinite and former TWC customer (thanks to AT&T U-verse!), I attended this meeting to make sure all the important information on the subject was made available to the commissioners.  I only had three minutes to speak, as per meeting rules, which wasn’t near enough time for me to get through my three pages of material.  Luckily though, since the topic was an agenda item, the commission was allowed to ask questions and they were gracious enough to ask me open-ended questions and allow me to continue my points.  I stressed to the Commission that the most effective actions they and the City Council could do is file comments to the FCC and the FTC, and to put pressure on state and federal legislators to remove impediments to municipal broadband.  I emphasized that even if the City has no intention of creating a municipal broadband service, it is to Austin’s benefit to have the option on the table.  I told the commission that I believe a major reason TWC initially chose Austin as one of its metered billing test markets is that TWC knew the city’s hands were tied and that it had no real recourse.  During the discussion after my presentation, the commission agreed to work on a resolution recommending to the City Council that, through the City Attorney, submissions be filed to the FCC, Federal Trade Commission, and the Texas State Attorney General, and they agreed that the city should begin working with state and federal legislators to stop abusive practices.  The commission also agreed they should focus their efforts on  the state and federal level because little could be done at the municipal level, and that they should seek out other municipalities in a similar situation to present a coordinated effort.

There were two interesting facts that I learned at this meeting.  One, the municipal franchise that TWC has with the city of Austin will expire in 2011, but at that point it will transition to a state franchise agreement.  I had never heard of a state franchise before.  I know that the negotiating power the city has at franchise renewal will be diluted considerably on the state level. Second, the current franchise only applies to TWC cable TV service, not its broadband products.  It was brought up in the meeting that Grande Communications, another regional cable provider, has full authority to compete in TWC’s market for broadband service.  This raised a serious flag to me.  If both cable TV and broadband products are carried on the same infrastructure, but the franchise agreement only applies to the cable TV service, then they are in effect creating and illegal de facto franchise out of the broadband market.  Grande cannot compete with TWC’s broadband product, because they’re not allowed to bring their cable TV infrastructure into TWC’s market.

Since TWC has decided to shelve it’s metered broadband trials in Ausin for the time being, there is not much the Telecom Commission can do against current TWC actions other than possibly investigate instances of service being shut off based on a soft 40 GB cap in their excessive use clause.  But the commission has resolved to begin the groundwork necessary to fight this issue in the future by codifying its own policies and rules for fair market practices and pressing the city of Austin to lobby state and federal lawmakers.

The Communications Workers of America and the International Brotherhood of Electrical Workers, two unions representing employees at Verizon and Frontier, are skeptical about the benefits of Frontier acquiring telephone lines from Verizon.

In a joint statement, the two unions suggest the debt load from the deal will mean less money for broadband service deployment, not more.

The sale would move 4.8 million lines serving residential and business customers in 14 states to Frontier. The deal calls for Frontier to take on $3.3 billion in debt; Verizon gets that amount in debt relief. That leaves Frontier saddled with debt that will lessen the potential amount available for investment in high speed broadband deployment.

Similar tax-free transactions by Verizon, especially those involving the Reverse Morris Trust tax provisions, haven’t worked out so well, especially for consumers in New England now served by FairPoint Communications.

Having your local phone company disappear and get replaced by another provider isn’t an everyday occurrence for most people.  Customers are concerned about the impact of Verizon leaving their area, to be replaced by Frontier, an unfamiliar company for most parts of the country.  We have the video.

Let’s begin in Fort Wayne, Indiana, where WANE-TV interviews one worried local businessman already dissatisfied with what Verizon was charging, and wonder what surprises Frontier will bring:

Road Runner Service Post-Cap 'n Tier in the Golden Triangle, Texas

Time Warner Cable has quietly ended its “experiment” of their “consumption based billing” scheme in the first city to test it, and the last to be rid of it — Beaumont, Texas.

Time Warner Cable’s website for the Golden Triangle division, serving Beaumont, dispensed with the tier selection menu which limited customers to 40GB of usage per month, and has returned to an unlimited service plan offering 5Mbps/384Kbps service for $44.99 per month.

Customers calling Time Warner’s office in Beaumont were told the consumption based billing experiment had ended.  However, as with other Time Warner Cable divisions, the “FAQ” on the topic has now also appeared on the help pages for this division as well.  It explains Time Warner Cable still believes their Cap ‘n Tier formula is the “fairest” and will reimpose limits “once customers gauge how much bandwidth they actually consume.”  Time Warner Cable has gotten bolder in sending the message the very unpopular billing system they attempted to test in several cities around the country will be back, whether customers like it or not.

But for now, the grand experiment has finally ended nationwide.

Time Warner Cable has appointed Andrew Heller, a 25-year veteran of the cable industry to oversee the cable-owned video project dubbed TV Everywhere.

TV Everywhere is the brainchild of Time Warner Cable, which wants to create a new central video distribution platform leveraging broadband to deliver streamed, on demand TV shows and movies, but only to verified customers of cable companies that already take a video channel package.

Andrew Heller, TWC's Head of 'TV Everywhere'

The cable industry is afraid that broadband customers might decide to watch all of their television online, and simply drop or bypass traditional cable television packages.  TV Everywhere is designed to stop that, by prohibiting non cable-video subscribers from accessing cable network programming online.

The first test of the new service is due during the second quarter of this year.  Meanwhile, the cable operator is engaged in intense discussions with programmers to state their case that it is unfair for them to pay monthly subscription fees for programming, when those same programmers are giving away clips and shows on the web for free.

Assuming the company is successful in its negotiations, programming websites would discontinue much of their traditional online video and get customers to “authenticate” they are verified cable TV subscribers before being permitted to access on demand video.

In a new wrinkle, Heller told Advertising Age that TV Everywhere is not going to be free, even to existing cable subscribers.  In fact, he’s concerned that consumers may stage protests similar to what Time Warner Cable received after testing metered pricing for Internet service.

The price of TV Everywhere has also been a subject of recent debate after Time Warner Cable canceled plans, after a huge outcry by customers, to test metered consumption of broadband video in certain markets.

“The consumer’s going to speak with their pocketbook,” Mr. Heller said. “We do know they want a new model, we do know they want more choice and they use their computer as an additional outlet. We will do what we can to listen to them.”

The question is, do consumers “want a new model” for online video, or are they satisfied accessing content the way they do now — through video programmer websites, or purchasing viewing rights for series from iTunes, Netflix, or Amazon?  Are consumers clamoring for a cable-controlled video platform that only provides access, for a price, to customers who already pay for a cable subscription including video channels?  Will this “listening tour” be like the last one the company attempted during the metered billing fiasco?

Frontier Communications agreed Wednesday to acquire nearly five million telephone customers being spun off from Verizon, primarily in rural areas, for $5.25 billion in stock. The buyout supercharges Frontier into the nation’s largest rural telephone company.  But the deal also puts a spotlight on large providers sacrificing their rural customers to focus on their larger urban markets.  About 700,000 of those Verizon customers are now off the list for Verizon FiOS deployment, as they transition into Frontier service territories.

Verizon’s chairman and CEO Ivan Seidenberg characterized the spinoff as part of Verizon’s interest in larger cities where advanced technology deployment makes sense.

“This transaction is part of our multiyear effort to transform our growth profile and asset base to focus on wireless, FiOS fiber-optic services and other broadband development, and global IP,” he said.

Our analysis of this will focus on the broadband implications of the transaction.  With this acquisition, Verizon wins by offloading more expensive and difficult-to-serve rural communities, where it is unlikely to deploy large broadband platforms in the future.  Frontier wins by becoming the nation’s largest rural telephone and communications services provider, potentially accessing even larger shares of forthcoming broadband stimulus money and other revenue available from the Universal Service Fund to sustain rural telephone service.

But will customers win?  Today’s announcement provides additional evidence that broadband service is diverging in urban and rural communities.  Large communities are enjoying deployment of advanced broadband platforms, and rural communities are simply not.

Frontier Communications Believes Rural America -Is- Their Business

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