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VCRs Officially Dead; Last Manufacturer of VHS Recorders Calls It Quits

Phillip Dampier July 21, 2016 Consumer News, History 2 Comments
How many of these do you still have in your basement or attic?

How many of these do you still have in your basement or attic? And more importantly, Be Kind, Rewind! (Image: Wikipedia)

The days of the Video Cassette Recorder (VCR) are coming to a quiet end as the last known manufacturer of the once-ubiquitous device announced it will stop making new machines at the end of July.

The VCR had its place in about 90 percent of U.S. homes just ten years ago. Although introduced to the consumer market in the late 1960s, the VCR remained a toy of the wealthy through much of the 1970s. It would take 10 years after that — the 1980s — for VCRs to become easily affordable and in enough homes to inspire a multi-billion dollar video rental industry with household names like Blockbuster. CNN even considered the VCR one of the most important cultural icons in its series The Eighties.

Like most new technology, the arrival of the VCR threatened everything, according to enterainment industry executives. Years of litigation dragged out issues like the right for consumers to make recordings of over-the-air stations to capture their favorite shows. Ad-skipping, courtesy of the fast-forward button, would “ruin” free television. Viewers might even build video libraries of shows and share them with friends and neighbors! At one time, some major companies in Hollywood even favored the imposition of a tax on blank videocassettes that would cover their losses from home recording. Copyright questions were finally settled in 1984, when the Supreme Court ruled home taping on a not-for-profit basis was perfectly legal. Hollywood survived despite this.

vcr_toshibaConsumers had a choice between two incompatible standards – the Sony Betamax, which promised superior video quality or JVC’s VHS format, a standard that allowed for longer recordings and was supported by just about every electronics manufacturer other than Sony. Some consumers owned both, but most settled for one or the other, and the VHS tape had a decisive advantage – extended recording time and near universal accessibility. It would eventually dominate in sales. More than 30 years later, recordings made on Betamax and VHS machines are still viewable, and turn up on video websites, often showcasing television as it used to look like in the 1970s and 1980s.

The VCR became so popular, it was a significant part of our lives. Pornography on videotape became a major issue during the Reagan Administration. But an even more pervasive problem was the flashing 12:00 time on your grandparent’s unconfigured VCR and the piece of black electrical tape used to conceal it. Videocassette clubs became as common as the record clubs that were around decades earlier. Parents used the VCR as an electronic babysitter to entertain children. Movie rental night was also the best way to watch your second, third, or fourth choice movie, as popular titles were cleared off shelves early in the evening. Rental fees, late fees, and “be kind, rewind” fees were also issues. But the worst nightmare of all was the horror of discovering a hopelessly unwound and tangled videocassette inside the machine, or worse, your child’s lunch.

What the VCR was invented for.

What the VCR was invented for: time-shifting

First generation VCRs were replaced with Hi-Fi and even SuperVHS models, which improved recording quality. Consumers bought second and third units for their bedrooms. Blank videocassettes were everywhere, often available hanging on a rack next to the checkout line.

The VCR was technology America took for granted… until the arrival of DVDs in 1995, just a decade after the VCR really got popular. There was simply no comparison. The DVD blew away videocassette video quality and offered easy accessibility, compact storage, and a longer lifespan. Just five years after the DVD showed up, it outsold all videotape formats combined. The pay television industry completed the hatchet job on the VCR with the introduction of the Digital Video Recorder (DVR) (Personal Video Recorder, or PVR, in Canada). The DVR was designed around the fact most consumers used VCRs to time-shift television programming, not build a personal library of recordings. With a DVR, a customer could quickly record their favorite shows and store them digitally, erasing unwanted shows with the push of a button.

The DVR still shows years of life, but the DVD’s days are likely numbered as cloud storage and on-demand video streaming make the need to collect and organize a library of shows and movies obsolete. Why buy it if you can stream it?

Manufacturers and retailers have noticed the shifting trends and the VCRs that were originally for sale in the 1980s were largely replaced by DVD players in the 1990s. Today, even DVD players are slowly being replaced in favor of devices like Roku or portable tablets.

Until this month, at least one manufacturer – Funai of Japan – still had a small niche market keeping VCRs in homes where owners spent decades amassing vast video libraries of movies and TV shows. Unfortunately, Chinese manufacturers of the parts needed to build a VCR have increasingly lost interest. So has Funai.

“We are the last manufacturer” of VCRs “in all of the world” — 750,000 units were sold worldwide in 2015, down from millions decades earlier, said Funai, which sold them under brand names like Sanyo, among others. This last holdout made VHS machines. Sony threw in the towel on making Betamax VCRs back in 2002. It stopped manufacturing blank tapes this year.

The infamous 8-track tape, just one of many orphaned recording media formats.

The infamous 8-track tape, just one of many orphaned recording media formats.

At some point in the next 10-20 years, the videocassette could represent one of the largest orphaned recording formats around. As little as 20 years from now, as your kids and grandchildren unearth strange plastic boxes from the attic or basement, they will wonder what they are and how to play them. Preservationists are concerned about the inevitable – discovering playable videocassettes have outlived the players required to watch them.

It isn’t the first time. Wire recordings still turn up in some attics. To the uninformed, they are nothing more than a spool of ordinary wire, except someone recorded sound on them sometime in the first half of the 20th Century. Even more common, open reel or reel-to-reel tapes wound on large plastic spools. This was the audiophile’s choice during much of the vinyl era, where the alternative was the obnoxiously awful 8-track tape or the hissy audio cassette.

If a radio broadcaster lived in your home, you might still find a few Fidelipac cartridges that slightly resemble 8-track tapes. These were commonly used to store continuous loop/always ready to go commercials and jingles. RCA developed its own version of the “Stereo Tape” in 1958 that came and went faster than the DuMont television network. In 1962, Muntz tried a Stereo Pak 4-track tape that went over like a yellow jacket swarm at a summer picnic. In 1966, the two track PlayTape format showed up and the only place you were likely to ever encounter it was inside certain Volkswagen automobiles. In 1977, someone had the brilliant idea of taking reel-to-reel size tape and loading it into a giant cassette-like shell. The Elcaset was born with a gigantic price tag. Unfortunately for the inventors, most consumers thought regular cassettes sounded good enough.

From the 1970s on, videotape was where it was at, and early formats were likely wound on spools or inserted into cartridges with strange-sounding names like U-matic. TV station personnel knew about these formats, but most consumers didn’t.

Making audio sound better in the 1980s brought three more attempts to recreate the portable cassette-like experience in a digital format. In 1988, Digital Audio Tape (DAT and R-DAT) arrived. It promised CD audio quality recordings. The record industry promised to destroy it at all costs because it could make perfect digital copies, great for bootlegging and pirating. It never emerged from niche status. The same was true for Sony’s bizarre MiniDisk, introduced in 1991. A sort of recordable CD-like disk placed inside a computer disk-style cartridge, it won some market share in Japan, but was never more than a curiosity in North America. If record companies didn’t release albums on these formats, they tended to tie quickly. Helping it along to the grave was copy protection technology, which irritated some users. In the end, the MiniDisk was deemed irrelevant after MP3 players arrived.

Philips of the Netherlands and Sony of Japan made one last effort before the MP3 rage with their 1992 introduction of the Digital Compact Cassette. Its main selling point was that players were backwards compatible and could also play ordinary cassettes (the things most consumers were starting to shove into drawers and shoe boxes the moment digital audio formats like MP3 took off). Too little, too late, and although Philips had a small loyal following for their players in Holland, you now have a better chance of finding blank digital cassettes stuffed into the back of drawers than you will ever have encountering a player to play them on.

Spring 2016: An Update and Progress Report for Our Members

stcDear Members,

We have had a very busy winter and spring here at Stop the Cap! and we thought it important to update you on our efforts.

You may have noticed a drop in new content online over the last few months, and we’ve had some inquiries about it. The primary reason for this is the additional time and energy being spent to directly connect with legislators and regulators about the issues we are concerned about. Someone recently asked me why we spend a lot of time and energy writing exposés to an audience that almost certainly already agrees with us. If supporters were the only readers here, they would have a point. Stop the Cap! is followed regularly by legislators, regulators, public policy lobbyists, consumer groups, telecom executives, and members of the media. Our content is regularly cited in books, articles, regulatory filings, and in media reports. That is why we spend a lot of time and energy documenting our positions about data caps, usage billing, Net Neutrality, and the state of broadband in the United States and Canada.

A lengthy piece appearing here can easily take more than eight hours (sometimes longer) to put together from research to final publication. We feel it is critical to make sure this information gets into the hands of those that can help make a difference, whether they visit us on the web or not. So we have made an extra effort to inform, educate, and persuade decision-makers and reporters towards our point of view, helping to counter the well-funded propaganda campaigns of Big Telecom companies that regularly distort the issues and defend the indefensible.

Four issues have gotten most of our attention over the last six months:

  1. The Charter/Time Warner Cable/Bright House merger;
  2. Data cap traps and trials (especially those from Comcast, Blue Ridge, Cox, and Suddenlink);
  3. Cablevision/Altice merger;
  4. Frontier’s acquisition of Verizon landlines and that phone company’s upgrade plans for existing customers.

We’ve been successful raising important issues about the scarcity of benefits from telecom company mergers. In short, there are none of significance, unless you happen to be a Wall Street banker, a shareholder, or a company executive. The last thing an already-concentrated marketplace needs is more telecom mergers. We’re also continuing to expose just how nonsensical data caps and usage-based billing is for 21st century broadband providers. Despite claims of “fairness,” data caps are nothing more than cable-TV protectionism and the further exploitation of a broadband duopoly that makes it easy for Wall Street analysts to argue “there is room for broadband rate hikes” in North America. Stop the Cap! will continue to coordinate with other consumer groups to fight this issue, and we’ve successfully convinced at least some at the FCC that the excuses offered for data caps don’t hold water.

Dampier

Dampier

FCC chairman Tom Wheeler’s broadening of Charter’s voluntary three-year moratorium on data caps to a compulsory term as long as seven years sent a clear message to broadband providers that the jig is up — data caps are a direct threat to the emerging online video marketplace that might finally deliver serious competition to the current bloated and overpriced cable television package.

Wheeler’s actions were directly responsible for Comcast’s sudden generosity in more than tripling the usage allowance it has imposed on several markets across the south and midwest. But we won’t be happy until those compulsory data caps are gone for good.

More than 10,000 Comcast customers have already told the FCC in customer complaints that Comcast’s data caps are egregious and unfair. Considering how unresponsive Comcast has been towards its own customers that despise data caps of any kind, Comcast obviously doesn’t care what their customers think. But they care very much about what the FCC thinks about regulatory issues like data caps and set-top box monopolies. How do we know this? Because Comcast’s chief financial officer this week told the audience attending the JPMorgan Technology, Media and Telecom Broker Conference Comcast always pays attention to regulator headwinds.

“I think it’s our job to make sure we pivot and react accordingly and make sure the company thrives whatever the outcome is on some of the regulatory proposals that are out there,” said Comcast’s Mike Cavanagh. We suspect if Chairman Wheeler goes just one step further and calls on ISPs to permanently ditch data caps and usage billing, many would. We will continue to press him to do exactly that.

Stop the Cap! supports municipal and community-owned broadband providers.

Stop the Cap! supports municipal and community-owned broadband providers.

Other companies are also still making bad decisions for their customers. Besides Comcast’s ongoing abusive data cap experiment, Cox’s ongoing data cap trial in Cleveland, Ohio is completely unacceptable and has no justification. The usage allowances provided are also unacceptably stingy. Suddenlink, now owned by Altice, should not even attempt to alienate their customers, particularly as the cable conglomerate seeks new acquisition opportunities in the United States in the future. We find it telling that Altice feels justified retaining usage caps on customers in smaller communities served by Suddenlink while denying they would even think of doing the same in Cablevision territory in suburban New York City. Both Suddenlink and Cablevision have upgraded their networks to deliver faster speed service. What is Altice’s excuse about why it treats its urban and rural customers so differently? It frankly doesn’t have one. We’ll be working to convince Altice it is time for Suddenlink’s data caps to be retired for good.

We will also be turning more attention back on the issue of community broadband, which continues to be the only competitive alternative to the phone and cable companies most Americans will likely ever see. The dollar-a-holler lobbyists are still writing editorials and articles claiming “government-owned networks” are risky and/or a failure, without bothering to disclose the authors have a direct financial relationship to the phone and cable companies that don’t want the competition. We will be pressing state lawmakers to ditch municipal broadband bans and not to enact any new ones.

We will also continue to watch AT&T and Verizon — two large phone companies that continue to seek opportunities to neglect or ditch their wired services either by decommissioning rural landlines or selling parts of their service areas to companies like Frontier. AT&T specializes in bait-n-switch bills in state legislatures that promise “upgrades” in return for further deregulation and permission to switch off rural service in favor of wireless alternatives. That’s great for AT&T, but a potential life-threatening disaster for rural America.

We continue to abide by our mandate: fighting data caps and consumption billing and promoting better broadband, regardless of what company or community supplies it.

As always, thank you so much for your financial support (the donate button that sustains us entirely is to your right) and for your engagement in the fight against unfair broadband pricing and policies. Broadband is not just a nice thing to have. It is an essential utility just as important as clean water, electricity, natural gas, and telephone service.

Phillip M. Dampier
Founder & President, Stop the Cap!

Cincinnati Bell Plans to Shutdown Telegraph Grade Service, On Offer Since the 1800s

telegraph key

Telegraph key

If you thought your Internet service was slow, consider being a customer of Cincinnati Bell’s 75 baud Telegraph Grade service, on offer to subscribers since the 1800s for low-speed stock quotes, telegrams, and office-to-home communications. But don’t consider it too long, because the service is about to be discontinued.

The first telegram in the United States was sent on Jan. 11, 1838 using the newly developed “Morse Code” system introduced by Samuel Morse. The message was sent unceremoniously across two miles of wire strung across the sprawling Speedwell Ironworks outside of Morristown, N.J. But the experiment didn’t attract much attention until it was repeated in 1844 in Washington, D.C., where members of Congress looked on as the message, “What hath God wrought” successfully traveled from Washington to Baltimore, Md. A decade later, telegraph lines were strung to every major city on the east coast. By 1861, telegraph cables stretched across the territories west of the Mississippi and reached the West Coast, putting the Pony Express out of business.

It would be a decade after that before The City and Suburban Telegraph Company, later Cincinnati Bell Telephone, was officially incorporated on July 5, 1873, becoming the first company in the city to offer direct communication between the city’s homes and businesses. Only the wealthiest families could afford a private telegraph line, which cost $300 a year provided you lived no more than a mile from the company’s office. After four years, the company only managed to attract 50 paying customers, mostly business tycoons who relied on the telegraph to stay in contact with the office while at home. Other businesses used telegraphs to connect their different offices. Most employed young men to serve as telegraph operators, translating short written messages into a series of dots and dashes and back again.

Telegraph stamps, used to prove payment for sending and receiving messages.

Telegraph stamps, used to prove pre-payment for telegraph messages.

Business was better further east. The story of two men that would change the course of the telegraph and launch a company that remains a household name to this day started in 1838 when banker and real estate entrepreneur Hiram Sibley moved to Rochester, N.Y. He saw plenty of opportunities in upstate New York and quickly settled in, later becoming elected Monroe County Sheriff. That position soon led to his introduction to Judge Samuel L. Selden, who had the patent rights to the House Telegraph system. Seeing an opportunity, the two embarked on their own telegraph business — the New York State Printing Telegraph Company. It did not take long for them to realize competing against the larger New York, Albany, and Buffalo Telegraph Co., was a financial disaster. The two decided it would be smarter to consolidate existing providers instead of building new networks to compete. The first craze of telecommunications company consolidation was underway. With the assistance of deep pocketed investors in Rochester, Sibley and Selden founded the New York and Mississippi Valley Printing Telegraph Company. The new entity would string some of its own telegraph lines westwards, but more importantly it would focus on acquiring its rivals, especially in areas where fierce competition kept profits low and expectations of monopoly wealth even lower.

sibley

Sibley

By 1854, Sibley and Selden were confronted with competitors using two different messaging systems among 13 different companies. Sibley’s solution? Buy them out and unify them with the Morse system, available thanks to a separate acquisition of the Erie & Michigan Telegraph Company. In 1856, the company that had its beginnings in Rochester was renamed the “Western Union Telegraph Company,” which referred to the union of the different telegraph systems of the “western states” of that era (today considered the midwest).

Between 1857 and 1861 merger mania hit almost all the telegraph companies, and by the end of this period, most formerly independent companies were owned by one of six conglomerates:

  • American Telegraph Company (covering the Atlantic and some Gulf states),
  • Western Union Telegraph Company (covering states North of the Ohio River and parts of Iowa, Kansas, Missouri, and Minnesota),
  • New York Albany and Buffalo Electro-Magnetic Telegraph Company (covering New York State),
  • Atlantic and Ohio Telegraph Company (covering Pennsylvania),
  • Illinois & Mississippi Telegraph Company (covering sections of Missouri, Iowa, and Illinois),
  • New Orleans & Ohio Telegraph Company (covering the southern Mississippi Valley and the Southwest).

Much like the cable industry today, these six giants maintained a mutually friendly alliance and never competed for territory. Any remaining independents quickly learned cooperation with these larger systems was essential. But once competition stalled in the telegraph business, so did interest in investing in challenging upgrades.

western unionBy 1860, as the United States continued its expansion westward and tension grew between the northern and southern states over issues like slavery and self-determination, the administration of President James Buchanan realized having a reliable national telegraph network was critical to the security of the country. Unfortunately for the president, his priorities ran headlong into private company intransigence. Persuading the for-profit companies to expand their networks to connect the west coast seemed impossible. None wanted to risk investor dollars on a telegraph line they believed would be too expensive and difficult to maintain.

That same year Congress passed, and President James Buchanan signed, the Pacific Telegraph Act, which authorized the Secretary of the Treasury to seek bids for constructing a transcontinental telegraph line, financed by the federal government. Two of the three bidders eventually dropped out, leaving Hiram Sibley’s Western Union the sole bidder.

The Pacific Telegraph Act of 1860 resulted in the construction on this telegraph line extending from Nebraska to Nevada.

The Pacific Telegraph Act of 1860 resulted in the construction of this telegraph line extending from Nebraska to Carson City, Nev.

To insulate his other business interests from the project, Sibley organized the Pacific Telegraph Company to be responsible for construction of the new telegraph line to the west, starting in Omaha, Neb. Sibley also consolidated several small local companies into the California State Telegraph Company, which in turn launched the Overland Telegraph Company, managing construction of the cable eastward from Carson City, Nev., to Salt Lake City. The line was finally completed in October, 1861, seven months after the outbreak of the Civil War.

While newly elected president Abraham Lincoln was distracted settling into office starting March 4, 1861, Sibley was quietly preparing to consolidate control over the new taxpayer-funded cross-country cable. After the project was complete, Pacific Telegraph and California State Telegraph were quickly merged into Western Union, making Hiram Sibley the undisputed king of the telegraph industry. Any future ventures rising to challenge Western Union were instead eaten up by acquisition. By 1866, Western Union announced it was moving its company headquarters from Rochester to 145 Broadway in New York City.

Sibley retired from Western Union in 1869, and went into the seed and nursery business in Rochester and Chicago. He left the company during its most powerful era, having a virtual monopoly on the telegraph business at least a decade before the telephone would arrive on the scene. He retired the richest man in Rochester, and his home in the East Avenue Historical District still stands today. He gave generously to charity after retirement and helped incorporate a new college in the Southern Tier of New York called Cornell University.

The Hiram Sibley House, constructed in 1869, still stands today at 400 East Ave, Rochester, N.Y.

The Hiram Sibley House, constructed in 1868, still stands today at 400 East Avenue, Rochester, N.Y.

As the 1870s arrived, the Civil War was five years finished and huge changes were coming. Although telegraph service was already in place in many eastern seaboard cities, it took longer to arrive in smaller cities in the midwest and southern United States, and it was not too long after that before the telephone followed.

In Cincinnati, the telegraph service that began in 1873 was threatened by the arrival of the telephone in 1878 — just five years later. That fall, Cincinnati’s telegraph company signed an agreement with Bell Telephone Company of Boston, the first telephone company in the country. Bell held several patents essential for manufacturing telephones and granted the telegraph company an exclusive contract to sell phone service within a 25-mile radius of the city.

Bell Telephone arrived in the era of the Robber Barons, where trusts and monopolies were the product of unfettered capitalism. Bell’s business planners were more than happy following the telegraph industry to the glory days of consolidation and monopolization.

By 1879, the Bell Telephonic Exchange was well on its way, up and running on the corner of Fourth and Walnut streets in downtown Cincinnati — the 10th phone exchange in the nation and the first in Ohio. That year, Cincinnati’s first phone book was printed and the young men that operated the telegraph lines were not welcome manning the huge expanse of manual cord boards built inside the central office.

City and Suburban believed women served as better ambassadors for the newly emerging telephone company and the concept of “Hello Girls” was born. Only later would the Bell System insist on referring to these professional employees as “operators.” In Cincinnati, around two dozen women manned the cord boards in the exchange office during its first year. They were required to memorize the names of all callers and had to quickly learn how to complete calls — a process that involved connecting a patch cable between the caller and the person called on a giant board with a plug for every subscriber. They managed nearly 150,000 completed calls during the first year for over 1,000 customers.

1930s: View of half of the world's longest switchboard at the City and Suburban Telegraph Company (later Cincinnati Bell Telephone). The board held 88 positions and handled a record of 9,722 outgoing calls in 1937. Cincinnati, Ohio. 01/01/1935 Photo by Cincinnati Historical Society/Getty Images

Jan. 1, 1935: View of half of the world’s longest switchboard at the City and Suburban Telegraph Company (later Cincinnati Bell Telephone). The board held 88 positions and handled a record of 9,722 outgoing calls in 1937. (Photo by Cincinnati Historical Society/Getty Images)

The simplicity and directness of the telephone quickly proved a major challenge for the telegraph industry. Western Union saw opportunities investing in telegraph networks overseas to stay ahead of this trend. It also launched a stock ticker service and a money transfer service, allowing people to send money across the country in a matter of hours. Despite the innovation, by 1875, financier Jay Gould had finally managed to assemble a formidable competitor to Western Union — the Atlantic and Pacific Telegraph Company. An overabundance of Western Union stock on the market by 1881 made it possible for Gould to finally launch a successful takeover.

A Telex machine in use during the 1970s.

A Telex machine in use during the 1970s.

Telegraph lines remained in use well into the 20th century, used primarily for business communications, cables, and telegrams which were printed and delivered by messenger. Cincinnati Bell sold telegraph grade data lines for a variety of business applications, including slow speed data services. Even after the Morse code telegraph of the 1800s was long gone, other data services existed well before the arrival of the fax machine and the home computer. Telex messages were exchanged over a network of “teleprinters” which resembled an oversized manual typewriter. AT&T’s Teletypewriter eXchange (TWX) network was common in large businesses during the late 1960s into the 1970s. One of Cincinnati Bell’s other large customers for slow speed data lines was the military.

Cincinnati Bell customers signed up for telegraph grade service received an unconditioned telephone line capable of transmitting at 0-75 baud or 0-150 baud in half-duplex or duplex operation. That was half the data speed of computer modems common in the mid 1980s supporting up to 300 baud — which transmits text at a speed most can read and follow along in real-time.

Remarkably, Cincinnati Bell still needs the permission of regulators to drop the Civil War era telegraph service and in discontinuance requests sent to state and federal authorities, it reminded regulators the change will have no impact on the “public convenience and necessity” because there has been no demand for the service for a long time.

In fact, Cincinnati Bell has no customers to notify of the impending doom of telegraph grade service, because there have been no customers subscribed to it.

cincinnati bellCincinnati Bell’s request would have gone unnoticed if it wasn’t for the long legacy of the telegraph era. Western Union dispatched its last telegram on Jan. 27, 2006, after 155 years of continuous service, and largely kept quiet about it, only notifying current customers: “Effective 2006-01-27, Western Union will discontinue all Telegram and Commercial Messaging services. We regret any inconvenience this may cause you, and we thank you for your loyal patronage. If you have any questions or concerns, please contact a customer service representative.”

Those nostalgic for telegrams might be interested to know another company has risen where Western Union left off. iTelegram promises to bring back the experience of a messenger at your front door, but it’s a costly trip down Memory Lane. A Priority Telegram costs $28.95 + $0.75 per word and is delivered usually within 24 hours, and includes proof of delivery. A “MailGram,” dispatched through the U.S. Mail is a slightly less expensive option, costing $18.95 and includes up to 100 words. It arrives in 3-5 days. Or you could send an e-mail for approximately nothing.

While Cincinnati Bell’s request recalls a distant past, Verizon and AT&T are also asking to discontinue services that customers were still using in the 1990s. Verizon wants to drop postpaid calling cards and personal 800 services that customers used to buy from MCI, now a Verizon subsidiary. For its part, AT&T wants to drop operator-assisted services due to almost no customer demand. In many areas, dialing “0” no longer even works to reach one of those Hello Girls… pardon me, I meant operators.

The Peaceful War Against Comcast’s Data Caps: Don’t Like ‘Em? Get Off Your Butt

Licensed to print money

Licensed to print money

In 2008, Stop the Cap! was launched because the telephone company that serves our hometown of Rochester, N.Y., decided on a whim that it was appropriate to introduce a usage allowance of 5GB per month for their DSL customers. Frontier Communications CEO-at-the-time Maggie Wilderotter defended the idea with the usual claim that the included allowance was more than enough for the majority of Frontier customers. DSL customers already have to endure a lot of issues with Internet service and data caps should certainly not be one of them.

Stop the Cap! drew media attention and focus on the issue of data capping, organized customers for a coordinated pushback, and sufficiently hassled Frontier enough to get them to make the right decision for their customers by quietly rescinding the “allowances.”

As it would turn out, Frontier’s correct decision to suspend usage caps would prove an asset to them less than one year later when Time Warner Cable made it known it would trial its own usage caps in Austin and San Antonio, Tex., Greensboro, N.C., and yes… Rochester, N.Y. starting in the summer of 2009.

Time Warner Cable was slightly more generous with its arbitrary allowance — 40GB of usage for $55 a month. Customers already paying a lot for Internet access would now also have an arbitrary usage allowance and overlimit penalty fees with no service improvements in sight. Frontier’s decision the year before to rescind data caps played to their advantage and the company quickly launched advertising in Rochester attacking Time Warner Cable for its data caps, inviting customers to switch to cap-free Internet with Frontier.

Data caps are here!

Data caps are here!

Time Warner Cable’s experiment lasted less than two weeks and was permanently shelved, never to return. Four years later, Comcast began its own usage cap trial that not only continues to this day, but has expanded to cover more than 1,000 zip codes. Capped service areas typically live with a 300GB usage allowance with an overlimit fee of $10 per 50GB.

Yesterday at the investor-oriented UBS Global Media and Communications Brokers Conference, Comcast chief financial officer Mike Cavanagh assured Wall Street and shareholders Comcast’s desire to boost revenue from monetizing broadband usage remained an “important contributor” to the company’ goal of “demonstrat[ing] value and derive value from that pricing.”

Cavanagh said the company is using the line ‘heavy users should pay more’ to justify its caps.

“It’s been an experiment that we are using that the key data point behind it is kind of intuitive – ‘10% of our client base uses 50% of capacity.'”

While not ready to announce Comcast’s cap plan would be introduced nationwide, Cavanagh assured investors the experiments will continue as Comcast makes sure that over time it is “compensated for the investments that today’s marketplace requires us to make.”

The difference that makes it possible for Comcast to carry its usage cap experiments forward while Time Warner Cable had to quickly end theirs comes down to one thing: organized customer pushback. Time Warner Cable got heat from relentless, organized opposition in the four cities where caps mattered the most to consumers. Comcast, for the most part, is getting about as much heat as it usually does from customers. It’s time to turn the heat up.

protest

In fighting this battle for the last seven years, I can share with readers what works to force change and what doesn’t:

In 2009, Time Warner Cable faced protesters opposed to usage limits at this rally in front of the company's headquarters in Rochester, N.Y.

In 2009, Time Warner Cable faced protesters opposed to usage limits at this rally in front of the company’s headquarters in Rochester, N.Y.

Generally Useless

  • Complaining about usage caps in the comment sections of websites;
  • Signing online petitions;

Impotent But Potentially Useful in Large Numbers

  • Calling the provider to complain about usage caps;
  • Complaining about usage caps to a provider’s social media team (Facebook, Twitter, etc.);
  • Writing complaints on a company’s open support forum;

Useful, But Unlikely to Bring Immediate Results

  • Writing a letter or making a call complaining to elected officials about usage caps;
  • Advocating for more competition, especially from public/municipal broadband;
  • Filing formal complaints with the FCC and Better Business Bureau;
  • Complaining to state telecom regulators and your state Attorney General (they have no direct authority but can attract political attention);
  • Canceling or downgrading service, blaming usage caps for your decision.

Gasoline on a Lit Fire

  • Organizing a protest in front of the local cable office, with local media given at least a day’s notice and invited to attend;
  • Contacting local newsrooms and asking them to write or air stories about usage caps, offering yourself as an interview subject;
  • Sending local press clippings or links to media coverage to your member of Congress and two senators. Suggest another media-friendly event and invite the elected official to attend and speak, which in turn generates even more media interest.
In 2009, Time Warner Cable planned to implement mandatory usage pricing starting in Rochester, N.Y., Greensboro, N.C., and San Antonio and Austin, Tex.

In 2009, Time Warner Cable planned to implement mandatory usage pricing starting in Rochester, N.Y., Greensboro, N.C., and San Antonio and Austin, Tex.

In the battle with Time Warner Cable, we did all the above, but especially the latter, which quickly spun the story out of control of company officials sent to distribute propaganda about usage cap “fairness” and “generous” allowances. We were so relentless, we managed to get under the skin of at least one company spokesperson caught on camera being testy in an on-air interview, which backfired on the company and angered customers even more.

In the case of Comcast, very few of these techniques have been used in the fight against their endless data cap experiment. Customers seem satisfied writing angry comments and signing online petitions. Some have filed complaints with the FCC which are useful measures of hot button issues on which the FCC may act in the last year of the Obama Administration. But there is no detectable organized opposition on the ground to Comcast’s data caps. That may explain why Comcast’s CEO has repeatedly told investors your reactions to Comcast’s caps have been “neutral to slightly positive.” Many Wall Street analysts obviously believe that, because some are advocating the time is right to raise broadband prices even higher. After all, if your reaction to data caps was muted, raising the price another $5 a month probably won’t cost you as a customer either.

It would be very different if these analysts saw regular news reports of small groups of angry customers protesting in front of Comcast offices in different areas of the country. That would likely trigger questions about whether broadband pricing has gotten out of hand. Coverage like that often attracts politicians, who cannot lose opposing a cable company. Once Congress gets interested, the fear regulation might be coming next is usually enough to get companies to pull back and reconsider.

comcast sucksIf you are living with a Comcast data cap and want to see it gone, you can do something about it. Consider organizing your own local movement by tapping fellow angry customers and recruiting local activist groups to the cause. In Rochester, there was no shortage of angry college students and groups ready to protest. Google local progressive political groups, technology clubs, and technology-dependent organizations in your immediate area. Some are likely to be a good resource for building effective public protests, sign-making, and other TV-friendly protest techniques. Contact town governments, the mayor’s office of your city, technology-oriented newspaper columnists, radio talk show/computer support show hosts, etc., to build a mailing list for coordinated announcements about your efforts. Many local officials also oppose data caps.

If a local news reporter has covered tech or consumer issues in the past, many station websites now offer direct e-mail options to reach that reporter. If you give them a good TV-friendly story to cover, they will be back for more coverage as your local protest grows. We helped coordinate and share news about efforts against Time Warner in the cities that were subject to experiments, which also gave us advance notice of their talking points and an ability to offer a consistent response. Several stations carried multiple stories about the cap issue, supported by calls to TV newsrooms to thank them for their coverage and to encourage more.

We realize Comcast’s responsiveness to customers is so atrocious it approaches criminal, but Comcast does respond to Wall Street and shareholders who do not want the company under threat of fact-finding hearings, FCC regulatory action, or Congressional attention. They also don’t want any talk of municipal broadband alternatives. Sidewalk protests in front of the local cable office on the 6 o’clock news is a nightmare.

In the end, Time Warner Cable didn’t want the hassle and got the message — customers despise data caps and want nothing to do with them. Time Warner hasn’t tried compulsory usage caps again. If you want Comcast to get the same message, those living inside Comcast service areas (especially customers) need to lead the charge in their respective communities. We remain willing to help.

FCC Demands Details About Charter’s Suddenly Retired Usage Caps

charter twc bhLess than three months before announcing it would acquire Time Warner Cable in a $55 billion deal, Charter Communications quietly dropped usage caps, in place on its broadband plans since 2009, without explanation and the FCC wants to know why.

FCC officials have sent a letter to Charter requesting a range of information about the company’s broadband services, including information about Charter’s since-dropped usage cap program. The federal agency reviewing its buyout of Time Warner Cable wants to know when Charter dropped its usage caps and why.

Charter Communications has promoted “no usage caps” as a selling point to convince regulators its purchase of Time Warner Cable is a consumer-friendly transaction. Charter has promised a cap-free Internet experience for Time Warner Cable customers for three years, but has not committed to offer unlimited broadband service beyond that date.

Two months before Time Warner Cable planned a since-dropped 2009 market test of usage caps in New York, North Carolina and Texas, Charter Communications confirmed it was introducing “monthly residential bandwidth consumption thresholds” on its broadband customers ranging from 100GB for customers with speeds of 15Mbps or slower and 250GB for customers subscribed to 15-25Mbps service.

“In order to continue providing the best possible experience for our Internet customers, later this month we will be updating our Acceptable Use Policy (AUP) to establish monthly residential bandwidth consumption thresholds,” Charter’s Eric Ketzer told DSL Reports at the time. “More than 99% of our customers will not be affected by our updated policy, as they consume far less bandwidth than the threshold allows.”

Few customers realized Charter had placed a cap on Internet usage because the cable company treated the limits as “soft caps” — guidelines they could cite if they found a customer using a very large amount of bandwidth. But customers were not charged overlimit fees and few ever heard from Charter about their usage, even if it well-exceeded their allowance.

In front of Time Warner Cable protesting Internet Overcharging in 2009.

In front of Time Warner Cable offices in Rochester, N.Y. protesting Time Warner Cable’s proposed usage caps. (April 2009)

Only a handful of companies, including national providers like AT&T (for DSL) and Comcast (in usage cap market trial areas), have followed up usage allowances with stinging overlimit fees for those exceeding them, applied to customer bills. The practice is far more common among smaller and regional cable companies like Alaska’s GCI, which earned 10 percent of its broadband revenue billing customers for excess usage.

In March of this year, Stop the Cap! reported Charter quietly dropped usage caps (or “thresholds”) from their Acceptable Use Policy, ending six years of usage capped service — less than three months before announcing it was acquiring Time Warner Cable.

Time Warner Cable’s own experience with usage caps was short-lived after Stop the Cap! and other consumer advocates and elected officials launched a protest campaign against Time Warner Cable’s plans to expand a test of usage-based billing beyond Beaumont, Tex. to Rochester, N.Y., Greensboro, N.C., and the cities of Austin and San Antonio in Texas.

Time Warner proposed four tiers of usage allowances: 5, 10, 20, and 40 GB priced from $29.95 to $54.90 a month. The overlimit fee was to be $1/GB. Sanford Bernstein, a Wall Street research firm, predicted an average family subscribed to Time Warner’s top 40GB usage plan would pay around $200 a month in overlimit fees if they used Netflix more than 7.25 hours a week.

Within two weeks of launching protests in the four cities where Time Warner was planning to add caps, the plan was shelved permanently. But many Time Warner Cable customers have remained wary of the company’s plans regarding usage caps. Time Warner’s retooled, optional usage capped tiers offered to customers looking for a discount have proved dismal failures since their introduction, with fewer than 1% of Time Warner customers finding usage-limited Internet access compelling.

Rationing Your Internet Experience?

Rationing Your Internet Experience?

Consumer advocates also fear usage caps could reappear under Charter as quickly as they disappeared. Stop the Cap! is suspicious of Charter’s time-limited commitment to keep customers free of usage caps for three years. We are lobbying state and federal regulators to permanently extend that commitment as a condition of approving any merger between Charter and Time Warner.

“Customers must be assured they can always choose a reasonably priced unlimited use Internet option,” said the group’s founder Phillip Dampier. “If Charter/Time Warner Cable/Bright House wants to offer optional discounts for customers volunteering to limit their personal use, we are not opposed to that. But based on Time Warner’s own record, you can count on only a few thousand customers willing to voluntarily surrender unlimited, flat rate access.”

Stop the Cap! believes there is no credible reason Internet providers should be imposing compulsory usage caps or usage billing on anyone.

“Broadband is a huge money-maker and the costs to offer it continue to drop even as provider profits rise,” said Dampier. “Rationing broadband with a usage allowance is as credible as rationing Niagara Falls or breathing.”

The FCC is also requesting documentation detailing Charter’s proposed expansion of Wi-Fi hotspots in Time Warner Cable areas and company plans to boost standard broadband speeds from 15Mbps to 60Mbps. Charter has until Oct. 13 to respond.

Special Report: Drahi Strikes Again: Stop the Cap! Analyzes Altice’s Acquisition of Cablevision

special reportAfter 44 years in the cable television business, the Dolan family has agreed to part with its prize possession, Cablevision Systems Corp. in a $17.7 billion dollar deal with Patrick “The Slasher” Drahi’s Altice NV.

The transaction will profoundly impact Cablevision’s employees, customers, and potentially the cable business in general in the New York City metropolitan area, where Cablevision’s 3.1. million customers live.

Who is Patrick Drahi?

Although few Americans have heard of the self-made billionaire Patrick Drahi, most of French-speaking Europe knows Mr. Drahi only too well, regularly criticized in the French press for surrounding himself with debt-laden acquisitions, stiffing vendors and suppliers, and paying rock-bottom wages to the employees that remain after constant campaigns of ruthless cost cutting.

Drahi’s idol is none other than cable magnate billionaire John Malone, the man pulling the strings at Charter Communications. In the 1970s and 1980s, Malone ran America’s largest cable conglomerate – Tele-Communications, Inc. (TCI), a company castigated by customers for high rates and poor service about as much as Comcast is today.

Altice1Malone’s reputation with the U.S. Congress reached its lowest point in the 1980s when then-Sen. Al Gore, Jr. (D-Tenn.) alternately accused Malone of heading a monopolistic cable “Cosa Nostra” that extorted his constituents with rate increases that exceeded 180% in less than five years and the “Darth Vader of Cable.” Malone taught Drahi that massive sums of money could be made buying and selling cable television (and later broadband) over systems that are usually de facto monopolies. Although entertainment is always in high demand, few governments treat the cable systems that offer it as an “essential utility,” allowing them to charge whatever they want for service.

From his earliest days working for a small cable operator, Drahi dreamed of building a cable empire buying and selling cable systems, extracting whatever he could from subscribers. One of his earliest techniques was flouting a French telecommunications law that, at the time, forbade the carriage of non-French language channels. His cable systems quietly added Arabic language networks to entice the large North African immigrant community in France to sign up for service. Drahi did not directly promote the networks, relying on word-of-mouth to deliver sales in the Arabic speaking community.

The Sacred Monster

While very conservative about spending money on wages, service upgrades, and technology, customers of Drahi-owned cable companies report he had no problem raising their rates. Numericable’s customer satisfaction rating rivals that of Comcast — a one-star cable company charging five-star prices.

Drahi

Drahi

The announced acquisition of Cablevision (and earlier Suddenlink) by Drahi’s company — Altice NV, came with glowing coverage from the American media, particularly cable business news channels, the Wall Street press, and the New York Times. A Sept. 7, 2015 piece by Nicola Clark in the Times presented Drahi as a classic “rags to riches” success story, noting he loathes being interviewed and allegedly leads a humble existence:

Despite a personal fortune estimated at close to €17 billion, Mr. Drahi indulges in few of the trappings of great wealth, friends and colleagues said. Although he keeps several elegant homes — in Geneva, Paris and Tel Aviv — his personal tastes and habits hew to the mundane. He wears a plastic Swatch instead of a Rolex and often arrives at business meetings on foot or a bicycle, instead of by chauffeured car.

Clark only mentions in passing she relied almost entirely on a series of interviews with “a half-dozen friends and colleagues” to paint what turned out to be a one-sided picture of Mr. Drahi for American readers. That story had eyes rolling among staffers in the offices of French newspaper Les Echos, incredulous at the American infatuation with a man the newspaper calls the “sacré monstre” — sacred monster. In New York, reporter Lucie Robequain, foreign business correspondent for the French daily, tried to share the scene at the Goldman Sachs-organized Communacopia conference where the deal was personally announced by Mr. Drahi for her French readers.

cablevision“Newspapers [in America] devote entire pages [about Drahi], emphasizing his self-made-man side which Americans love so much,” Robequain noted. She added the New York Times painted Drahi an almost romantic figure, proposing to his wife one hour after meeting her and then putting everything between them at risk to build his personal fortune.

A later piece in the Times on Sept. 17 by Emily Steel and Mark Scott also was the subject of derision in the European press. Steel and Scott called Altice a “bold new player” in the American cable market and gave Dexter Goei, one of Drahi’s lieutenants (some in the French press prefer ‘minion’) space to gush about the game-changing deal. Goei joined Altice in 2009, having worked for 15 years in investment banking with JP Morgan and Morgan Stanley until the Great Recession arrived.

“There’s a new sheriff in town, and we’re probably going to run it a little differently,” Goei said during the investor conference in New York on Thursday that unveiled the deal.

Phantom Fiber

The Times piece also relied on unnamed “analysts” dangling the promise of fiber optics to appease subscribers concerned about a legendary cost-cutter taking the helm of the cable company.

[…] Analysts said Altice invests heavily in new infrastructure — with a focus on upgrading fixed-line networks with the latest fiber-optic technology. The priority, analysts said, is to provide subscribers with faster Internet connection speeds at competitive prices.

Previous deals involving Altice (Image: Financial Times)

Previous deals involving Altice (Image: Financial Times)

In Europe, the press is skeptical about promised upgrades, noting Altice is “an empire built on a mountain of debt” largely made possible by quantitative easing and record low interest rates, which permit companies to finance buyouts on the cheap. Drahi says he can save money through synergy — sharing operations and minimizing the need for customers to reach out for customer service. Altice officials claim just by simplifying Cablevision’s bills, the company can save $14 million annually.

Drahi’s success story with Wall Street and other investors comes from his ability to cut costs at acquired companies, often dramatically. It is part of the informal deal with investors that has allowed the company generous credit to continue its buying spree. The Cablevision deal promises the Dolans and other investors only $3.3 billion in cash. The rest of the purchase price will come from raising $8.6 billion in new debt, saddled on Cablevision’s books inside Altice.

So while unnamed analysts are promising fiber upgrades for Cablevision customers, the Financial Times and CNBC report only one thing will be on Cablevision’s menu post-merger: spending a lot less, not more. Drahi seems to agree.

In a slide presentation to investors, Altice compares Cablevision’s $49 a month in operating expenses per customer against what its Numericable operation in France spends on its customers: $14 a month.

So how does Numericable spend three times less on subscribers than Cablevision?

Cost Cutting Specialists

Say hello to Michel Combes, former CEO of Alcatel-Lucent. Two years ago, he took leadership of the company that was better known by many as Bell Labs. Known as a cost-cutter, Combes quickly announced plans to strip the company of less profitable business units and fired about 10,000 workers while also holding the line on salaries (except for his) of the remaining employees. After two years in the leadership position, Combes engineered the sale of the company to Nokia, putting himself out of a job. But he won’t be hurting. A breathtaking golden parachute package approved by his colleagues on Alcatel Lucent’s board caused a political furor in France.

Combes

Combes

Combes’ departure bonus was originally planned to amount to $15 million in stock after completing the company’s sale to Nokia, an amount Emmanuel Macron, France’s economic minister, called shocking and irresponsible. Under pressure, the board has since cut the payoff roughly in half. But according to L’Observateur, Drahi has offered his friend an even more lucrative “golden hello” — stock options awarded as a signing bonus worth up to $100 million. Combes’ first role will be to serve as Altice’s chief operating officer, presiding over new rounds of cost-cutting at the company’s various acquisitions. One item spared from review is Combes’ own compensation package. Those under him are not so lucky.

Wages and Jobs

“I do not like to pay salaries, I pay as little as I can,” Drahi told investors at the Goldman Sachs event last week. Drahi complained more than 300 employees at Cablevision were being paid more than $300,000 a year. “This we will change.

In addition to a large number of expected layoffs at Cablevision, widespread salary reductions are also likely to be forthcoming. Drahi’s cable companies have some of the smallest compensation packages in the industry, except at the top executive level.

Cablevision’s already testy relationship with some of its union employees will likely grow much worse under Drahi’s leadership. But that battle may have to wait until another day. In February, the union ratified a two-year agreement with Cablevision. In Europe, Drahi’s reputation among public unions is so poor many of the opinions expressed by unionized workers cannot be printed in a family newspaper.

Suppliers complain Drahi's companies don't pay their bills.

Suppliers complain Drahi’s companies don’t pay their bills.

In Lisbon, Jorge Felix – a representative of the trade union organization of workers at PT (Portugal Telecom) warns U.S. unions should get everything from Altice and Mr. Drahi in writing.

“There are commitments made by Altice before our union and are written,” Felix said, adding that he was disturbed by Drahi’s attitude toward his middle class employees. Felix notes Drahi has already created tremendous controversy in Portugal by stonewalling payment of suppliers and vendors’ outstanding invoices until the company secures written agreements promising enormous discounts, often amounting to 30-40% off current prices. That, in turn, can cause layoffs and salary reductions at suppliers, enriching Altice but hurting just about everyone else.

Drahi: Looking to run faster than the music

France’s Economic Minister Macron seems to agree, lashing out at Drahi’s now familiar business model.

“Is it good for the economy? The answer is no,” he said. “Is it good for investment? The answer is no. Is it good for employment? The answer is no.”

Macron also expressed concern that Drahi’s telecom empire was growing too fast — and taking on too much debt too quickly.

“I have a big concern in terms of leverage on Drahi due to its size and its place in our economy,” he said. “That’s my responsibility to look at it. He is looking to run faster than the music.”

Macron

Macron

Macron and his staff are concerned many of Drahi’s top executives and advisers come from New York’s financial markets and investment banks who either left or were pushed out in the turmoil of the Great Recession. Macron worries Drahi could be constructing the world’s first “too big to fail” cable operator that could cost nearly 100,000 jobs and require a government bailout if things turn sour.

Promised Service Improvement & Upgrades

With each cable consolidation merger, companies routinely promise subscribers will benefit from improved service. As mentioned earlier, unnamed analysts predict Drahi could invest up to $30 billion to improve the cable companies he buys in the United States.

“Which Altice are they talking about,” asks Stop the Cap! reader François Ribaud. “Altice owns Numericable, the largest cable company in metropolitan France, and if they are spending money it certainly was not on us.”

Ribaud’s original cable company Noos was acquired by Numericable in a massive acquisition effort in the early 2000s which today leaves almost all of France served by a single cable operator — Numericable.

“Things stagnated after that because Patrick Drahi does not spend money unless he has to,” Ribaud said. “The set-top boxes are outdated, the broadband service is often oversold, and heaven help you if there are service problems. The North African call center customer service help is an example for Numericable of getting what you pay for. They are awful.”

Charles Dolan

Charles Dolan

Drahi’s competitors in the fixed line and wireless markets eventually forced his wallet open, requiring an investment in fiber optics to help it remain a player in one of Europe’s most contentious telecommunications price wars. Drahi’s company in France lost subscribers as its network suffered from a lack of needed upgrades to manage demand.

“Now that I live in New York, I can say it is completely different than in France,” Ribaud said. “There is certainly no price war here, so there is no need to spend more money. The only people spending money will be customers I assure you.”

The Creator of Home Box Office Signs Off

Cablevision has been rumored “for sale” for so long without a deal, many analysts predicted the founding family would never let go of the company founded by 88-year old Charles Dolan, who helped transform what used to be a rural service to help customers receive distant over the air stations over a shared antenna into an urban and suburban subscription television business. Dolan made cable television something more.

Dolan founded Home Box Office (HBO), a commercial-free premium movie and entertainment channel free from the network “standards and practices” divisions that removed profanity and edited out violence from movies originally shown intact in theaters.

Cablevision systems used to cover 2.9 million subscribers in 19 states, many in small and medium-sized communities. By the 1990s, cable systems were swapped or sold to build regional empire-like service areas. Cablevision was no different, retreating to just three large service areas in New York, Cleveland and Boston. Soon thereafter, Cablevision would only serve metropolitan New York, particularly in Brooklyn, the Bronx, Long Island, parts of northern New Jersey and Connecticut, while exiting Cleveland and Boston.

The New York Post reported secret talks for the sale began in June, and a deal was complete at the end of August. Some of the discussions took place on a yacht floating around the Mediterranean. The Post reports the sale of Cablevision was an emotional experience for Dolan and he still thinks of the people who work there as family. But in the end, the Dolan family’s proceeds from the sale will reinforce their already well-established wealth and prominence. The same is unlikely to be true for Cablevision’s employees and customers under Drahi’s cost-conscious leadership.

Cable Operators Told to Get Ready for a Gigabit, But Will Rationed Usage Make It Meaningless?

Phillip Dampier: A cable trade publication is lecturing its readership on better broadband the industry spent years claiming nobody wanted or needed.

Phillip Dampier: A cable trade publication is lecturing its readership on better broadband the industry spent years claiming nobody wanted or needed.

Remember the good old days when cable and phone companies told you there was no demand for faster Internet speeds when 6Mbps from the phone company was all you and your family really needed?

Those days are apparently over.

Multichannel News, the largest trade publication for cable industry executives, warns cable companies gigabit broadband speeds are right around the corner and the technological transformation that will unleash has been constrained for far too long.

Say what?

Proving our theory that those loudest about dismissing the need for faster Internet speeds are the least equipped to deliver them, the forthcoming arrival of DOCSIS 3.1 technology and decreasing costs to deploy fiber optics will allow cable providers to partially meet the gigabit speed challenge, at least on the downstream. Before DOCSIS 3.1, consumers didn’t “need those speeds.” Now companies like Comcast claim it isn’t important what consumers need today — it’s where the world is headed tomorrow.

Comcast 2013:

Comcast executive vice president David L. Cohen writes that the allure of Google Fiber’s gigabit service doesn’t match the needs or capabilities of online Americans.

“For some, the discussion about the broadband Internet seems to begin and end on the issue of ‘gigabit’ access,” Cohen says, in a nod to Google Fiber. “The issue with such speed is really more about demand than supply. Our business customers can already order 10-gig connections. Most websites can’t deliver content as fast as current networks move, and most U.S. homes have routers that can’t support the speed already available to the home.” Essentially, Cohen argues that even if Comcast were to deliver web service as fast as Google Fiber’s 1,000Mbps downloads and uploads, most customers wouldn’t be able to get those speeds because they’ve got the wrong equipment at home.

Comcast 2015:

“We’ve consistently offered the most speeds to the most homes, but with the current pace of tech innovation, sometimes you need to go to where the world is headed and not focus on where it is today.”

“The next great Internet innovation is only an idea away, and we want to help customers push the boundaries of what the Internet can do and do our part to inspire developers to think about what’s possible in a multi-gigabit future.  So, next month we will introduce Gigabit Pro, a new residential Internet service that offers symmetrical, 2-Gigabits-per-second (Gbps) speeds over fiber – at least double what anyone else provides.”

Nelson (Image: Multichannel News)

Nelson (Image: Multichannel News)

Rich Nelson’s guest column in Multichannel News makes it clear American broadband is behind the times. The senior vice president of marketing, broadband & connectivity at Broadcom Corporation says the average U.S. Internet connection of 11.5Mbps “is no longer enough” to support multiple family members streaming over-the-top video content, cloud storage, sharing high-resolution images, interactive online gaming and more.

Nelson credits Google Fiber with lighting a fire under providers to reconsider broadband speeds.

“Google’s Fiber program may have been the spark to light the fuse — Gigabit services have fostered healthy competition among Internet and telecommunications providers, who are now in a position to consider not ‘if’ but ‘when and how’ to deploy Gigabit broadband in order to meet consumer’s perceived ‘need for speed’ and maintain their competitive edge,” Nelson wrote.

But the greatest bottleneck to speed advances is spending money to pay for them. Verizon FiOS was one of the most extravagant network upgrades in years among large American telecom companies and the company was savaged by Wall Street for doing it. Although AT&T got less heat because its U-verse development costs were lower, most analysts still instinctively frown when a company proposes spending billions on network upgrades.

Customer demand for faster broadband is apparent as providers boost Internet speeds.

Customer demand for faster broadband is apparent as providers boost Internet speeds.

The advent of DOCSIS 3.1 — the next generation of cable broadband technology — suggests a win-win-win for Wall Street, cable operators, and consumers. No streets will have to be torn up, no new fiber cables will have to be laid. Most providers will be able to exponentially boost Internet speeds by reallocating bandwidth formerly reserved for analog cable television channels to broadband. The more available bandwidth reserved for broadband, the faster the speeds a company can offer.

Many industry observers predict the cable line will eventually be 100% devoted to broadband, over which telephone, television and Internet access can be delivered just as Verizon does today with FiOS and AT&T manages with its U-verse service.

The benefits of gigabit speeds are not limited to faster Internet browsing however.

Nelson notes communities and municipalities are now using gigabit broadband speeds as a competitive tool selling homes and attracting new businesses to an area. According to a study from the Fiber to the Home (FTTH) Council, communities with widely available gigabit access have experienced a positive impact on economic activity — to the tune of more than $1.4 billion in GDP growth. Those bypassed or stuck in a broadband backwater are now at risk of losing digital economy jobs as businesses and entrepreneurs look elsewhere.

The gigabit broadband gap will increasingly impact the local economies of communities left behind with inadequate Internet speeds as app developers, content producers, and other innovative startups leverage gigabit broadband to market new products and services.

The Pew Research Center envisioned what the next generation of gigabit killer apps might look like. Those communities stuck on the slow lane will likely not have access to an entire generation of applications that simply will never work over DSL.

But before celebrating the fact your local cable company promises to deliver the speed the new apps will need, there is a skunk that threatens to ruin your ultra high speed future: usage-based pricing and caps.

At the same time DOCSIS 3.1 will save the cable industry billions on infrastructure upgrade costs, the price for moving data across the next generation of super high-capacity broadband networks will be lower than ever before. But cable operators are not planning to pass their savings on to you. In fact, broadband prices are rising, along with efforts to apply arbitrary usage limits or charge usage-based pricing. Both are counter-intuitive and unjustified. It would be like charging for a bag of sand in the Sahara Desert or handing a ration book to shoreline residents with coupons allowing them one glass of water each from Lake Ontario.

skunkCox plans to limit its gigabit customers to 2TB of usage a month. AT&T U-verse with GigaPower has a (currently unenforced) limit of 1TB a month, while Suddenlink thinks 550GB is more than enough for its gigabit customers. Comcast is market testing 300GB usage caps in several cities but strangely has no usage cap on its usage-gobbling gigabit plan. Why cap the customers least-equipped to run up usage into the ionosphere while giving gigabit customers a free pass? It doesn’t make much sense.

But then usage caps have never made sense or been justified on wired broadband networks and are questionable on some wireless ones as well.

Stop the Cap! began fighting against usage caps and usage pricing in the summer of 2008 when Frontier Communications proposed to limit its DSL customers to an ‘ample’ 5GB of usage per month. That’s right — 5GB. We predicted then that usage caps would become a growing problem in the United States. With a comfortable duopoly, providers could easily ration Internet access with the flimsiest of excuses to boost profits. Here is what we told the Associated Press seven years ago:

“This isn’t really an issue that’s just going to be about Frontier,” said Phillip Dampier, a Rochester-based technology writer who is campaigning to get Frontier to back off its plans. “Virtually every broadband provider has been suddenly discovering that there’s this so-called ‘bandwidth crisis’ going on in the United States.”

That year, Frontier claimed most of its 559,300 broadband subscribers consumed less than 1.5 gigabytes per month, so 5GB was generous. Frontier CEO Maggie Wilderotter trotted out the same excuses companies like Cox and Suddenlink are still using today to justify these pricing schemes: “The growth of traffic means the company has to invest millions in its network and infrastructure, threatening its profitability.”

Just one year later, Frontier spent $5.3 billion to acquire Verizon landline customers in around two dozen states, so apparently Internet usage growth did not hurt them financially after all. Frankly, usage growth never does. As we told the AP in 2008, the costs of network equipment and connecting to the wider Internet are falling. It still is.

“If they continue to make the necessary investments … there’s no reason they can’t keep up” with increasing customer traffic, we said at the time.

We are happy to report we won our battle with Frontier Communications and today the company even markets the fact their broadband service comes without usage caps. In many of Frontier’s rural service areas, they are the only Internet Service Provider available. Imagine the impact a 5GB usage cap would have had on customers trying to run a home-based business, have kids using the Internet to complete homework assignments, or rely on the Internet for video entertainment.

So why do some providers still try to ration Internet usage? To make more money of course. When the public believes the phony tales of network costs and traffic growth, the duped masses open their wallets and pay even more for what is already overpriced broadband service. Just check this chart produced by the BBC, based on data from the Organization for Economic Co‑operation and Development. Value for money is an alien concept to U.S. providers:

_70717869_countries_with_high_speed_broadband

The usual method of combating pricing excess is robust competition. With a chasm-sized gap between fat profits and the real cost of the service, competitors usually lower the price to attract more customers. But the fewer competitors, the bigger the chance the marketplace will gravitate towards comfort-level pricing and avoid rocking the boat with a ruinous price war. It is one of the first principles of capitalism — charging what the market will bear. We’ve seen how well that works in the past 100+ years. Back in 2010, we found an uncomfortable similarity between broadband prices of today with the railroad pricing schemes of the 1800s. A handful of executives and shareholders reap the rewards of monopolistic pricing and pillage not only consumers but threaten local economies as well.

special reportThe abuses were so bad, Congress finally stepped in and authorized regulators to break up the railroad monopolies and regulate abusive pricing. We may be headed in the same direction with broadband. We do not advocate regulation for the sake of regulation. Competition is a much more efficient way to check abusive business practices. But where an effective monopoly or duopoly exists, competition alone will not help. Without consumer-conscious oversight, the forthcoming gigabit broadband revolution will be stalled by speed bumps and toll booths for the benefit of a few giant telecommunications corporations. That will allow other countries to once again leap ahead of the United States and Canada, just as they have done with Internet speeds, delivering superior service at a lower price.

China now ranks first in the world in terms of the total number of fiber to the home broadband subscribers. So far, it isn’t even close to the fastest broadband country because much of China still gets access to the Internet over DSL. The Chinese government considers that unacceptable. It sees the economic opportunities of widespread fiber broadband and has targeted the scrapping of every DSL Internet connection in favor of fiber optics by the end of 2017. As a result, with more than 200 million likely fiber customers, China will become the global leader in fiber infrastructure, fiber technology, and fiber development. What country will lose the most from that transition? The United States. Today, Corning produces 40% of the world’s optical fiber.

Global optical fiber capacity amounted to 13,000 tons in 2014, mainly concentrated in the United States, Japan and China (totaling as much as 85.2% of the world’s total), of which China already ranked first with a share of 39.8%. Besides a big producer of optical fiber, China is also a large consumer, demanding 6,639 tons in 2014, 60.9% of global demand. The figure is expected to increase to 7,144 tons in 2015. Before 2010, over 70% of China’s optical fiber was imported, primarily from the United States. This year, 72.6% of China’s optical fiber will be produced by Chinese companies, which are also exporting a growing amount of fiber around the world.

John Lively, principal analyst at LightCounting Market Research, predicts China could conquer the fiber market in just a few short years and become a global broadband leader, “exporting their broadband networking expertise and technology, just like it does with its energy and transportation programs.”

Meanwhile in the United States, customers will be arguing with Comcast about the accuracy of their usage meter in light of a 300GB usage cap and Frontier’s DSL customers will still be fighting to get speeds better than the 3-6Mbps they get today.

The Philippines: Free Market Broadband Paradise or Deregulated Duopolistic Hellhole?

special reportFans of the “hands-off” approach to broadband oversight finally have a country where they can see a deregulated free marketplace in action, where consumers theoretically pick the winners and losers and where demand governs the kinds of services consumers and businesses can get from their providers.

That country is the Philippines, which has taken the libertarian free market approach to Internet access in a dramatic leap away from the authoritarian Marcos era of the 1980s.

The Deregulation “Miracle”

Until 1995, the Philippines Long Distance Telephone Company (PLDT) maintained a 60-year plus government-sanctioned monopoly on telecommunications services. Its performance was less than compelling. Establishing landline service took up to 10 years on a lengthy waiting list. Getting a phone line was the first problem, making sure it worked consistently was another. Just over 10 years after the United States formally broke up AT&T and the Bell System, the government in Manila approved RA 7925 – the Public Telecommunications Policy Act of 1995, breaking PLDT’s monopoly and establishing a level playing ground for each of 11 regions across the country and its many islands in which private companies could compete with PLDT for customers.

philippinesTo attract investment and competition, the government declared all value-added services like Internet access deregulated and guaranteed the complete privatization of all government telecom facilities no later than 1998. It also initially limited the number of companies that could compete against PLDT in each region to two new entrants. The government felt that would be necessary to attract competitors that knew they would have to quickly invest millions, if not billions, to build telecom infrastructure in the Philippines. It would be hard to make a case for investment in a region where a half-dozen companies all engaged in a price war fighting for customers while stringing new telephone lines and building cell towers.

To prevent cherry-picking only the wealthiest areas of the country, the government declared its desire for a privately funded nationwide telecom network and used the 11 regions, combining urban and rural areas in each, to get it. Competitors were required to support at least 300,000 landlines and 400,000 cellular lines in each region. That assured new networks could not simply be built in urban areas, bypassing smaller communities. After building their networks, companies largely operated on their own in a mostly-free deregulated market, slightly overseen by the National Telecommunications Commission (NTC) — the Philippines equivalent of the FCC.

The early years of telecom deregulation seemed promising. PLDT, much like AT&T in the United States, kept the lion’s share of customers (67.24%) after deregulation took effect, but new competitors quickly captured one-third of the market. But with lax regulation and oversight, some of the Philippines’ most powerful families, many benefiting under years of the Marcos dictatorship, managed to gain influence in the newly competitive Philippines telecom business. In the United States, telecom competition meant a choice between Sprint, MCI, AT&T or others. In the Philippines, you dealt with one or two of nine powerful family owned conglomerates, each operating with a foreign-owned telecom partner. It would be like choosing between companies owned by the Rockefellers, the Astors, the Carnegies, or the Morgans.

pldtThe NTC remained more “hands-off” than the FCC, avoiding significant involvement in critical interconnection issues — how competing telephone companies handle calls from subscribers of a competing provider. That was last an issue in the United States in the early 1900s, where rare independent competitors to the rapidly consolidating Bell System faced a telecom giant that initially refused to handle calls from customers of other companies. American regulators eventually demanded interconnection policies that guaranteed customers could reach any other telephone customer, regardless of what company handled their service. In the Philippines, the NTC eventually mandated less-demanding access, allowing companies to charge long distance rates to reach customers of other companies. In the 1990s, it was not uncommon to find businesses maintaining at least two telephone lines with different companies to escape long distance expenses and stay accessible to all of their potential customers.

PLDT initially fought the opening of the marketplace but benefited handsomely from it once it took effect. The company got away with setting sky-high interconnection rates to connect calls from other smaller providers to its customers. It also made access to its network a minefield of bureaucracy and often required competitors to sign unfair revenue sharing agreements.

It is Cheaper to Buy Out the Competition Instead of Competing With It

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(Image Courtesy: Mary Grace Mirandilla-Santos/LIRNEasia)

The investment community eventually balked at the cost of constructing competing telecommunications networks, especially after the dot.com crash in 2000, and a drumbeat for industry consolidation through mergers and acquisitions quickly grew too loud to ignore. Investors fumed over the amount of money being spent by providers to meet their service obligations in the 11 subdivided regions. Instead of building redundant or competing infrastructure, allowing competitors to merge would cut costs and enhance investor return. The NTC let the marketplace decide, as did the government, and it led to a frenzy of industry consolidation that ran far beyond what the FCC and American Justice Department would ever tolerate.

In 2011, the government backed a colossal merger that brought together the wireless networks of Pilipino Telephone Corporation, PLDT, and Smart under the PLDT brand. The three former competitors became one and controlled 66.3% of the Philippine’s wireless customers. The merger was comparable to allowing Verizon to buy out Sprint.

Additional mergers in response to the super-sized PLDT rapidly reduced the competitiveness of Philippine’s telecommunications marketplace to a duopoly. Just two companies — PLDT, Globe, and their respective house brands — dominate landline, DSL, cable, and wireless telecommunications service in the Philippines. The investment community celebrated the deal’s approval as a lucrative goldmine of future revenue gains from a less competitive market.

Philippine Broadband: Hey, It’s at Least Moderately Better Than Afghanistan

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(Image courtesy: Mary Grace Mirandilla-Santos/LIRNEasia)

Broadband performance, under any measure other than financial success, has proved abysmal for Philippine consumers and businesses. The country’s broadband speeds are among the worst in the world, only beating Afghanistan in many speed tests. Look the other wayoversight led to a bribery scandal in 2007 that threatened to bring down the government. Officials exploring the development of a National Broadband Network were accused of soliciting kickbacks from Chinese equipment vendor ZTE, which would have been responsible for supplying equipment for the project. The government canceled the project as the scandal widened and some of the principals left the country or in at least one case were kidnapped.

Eight years later, broadband in the Philippines would be considered a North American nightmare. The free market approach has led to free-flowing profits and a profound lack of marketplace competition, with broadband ripoffs and broken promises rampant across the country.

Although both PLDT and Globe Telecom are spending large sums on infrastructure, much of it benefits their very profitable wireless networks and business customers. Despite the investments, residential customers are stuck with some of the world’s worst broadband speeds and performance.

An independent Quality of Service test revealed the bad news all around:

The findings of the Philippine QoSE tests were expected, but nevertheless still disappointing.

The best performing among the three ISPs delivered only 21% of actual versus advertised speed on average. This same ISP also offered at least 256kbps download speed (generally accepted definition of broadband) only 67% of the whole time it was tested, falling short of the required 80% service reliability.

The Broadband Commission defines the core concepts of broadband as an “always-on service” with high capacity “able to carry lots of data per second.” While there is no official definition of broadband locally, the Philippine Digital Strategy 2011-2016 defines broadband Internet service as 2Mbps download speed.

Finally, like the last nail in the coffin, Philippine ISPs performed the worst in terms of value for money when compared to select providers in South Asia and Southeast Asia. The highest value given by any of the three Philippine ISPs tested was a measly 22kbps per US dollar. This figure is too low when compared to similar mobile broadband ISPs that offer 173kbps per dollar in Jakarta, Indonesia and 445kbps per dollar in Colombo, Sri Lanka.

These results have huge implications on truth in advertising, consumer welfare, and the need for appropriate regulation.

My DSL Service is So Bad I Prefer 3GB Usage-Capped Slow Wireless Instead

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Legarda

Home DSL broadband is so bad that customers have increasingly dropped service in favor of tightly managed wireless service. Companies report DSL customer losses over the past few years, with no end in sight.

The telecom regulator has generally just shrugged its shoulders at the situation, suggesting competition between equally poor providers will somehow resolve the problem. That view is applauded by service providers who claim the Internet is “just a value-added service” not essential to basic living needs. But consumer groups wonder why providers are allowed to make false advertising claims about the speed of their service with no repercussions. A range of position papers appealing to the government to create a meaningful minimum broadband speed have been introduced and some are being pushed by members of the Philippine Senate.

Senator Loren Legarda joined scores of other frustrated customers complaining about unreliable and expensive Internet in the country. In a 2014 hearing Legarda complained she had once again lost her DSL Internet connection in her office and her wireless connection was so slow it was unusable.

“As we speak now, there is no Internet connection in my office,” Legarda said. “I received a message this morning from my staff on my way here because I may be e-mailing, etc. And for someone whose deadline was yesterday, I always want things done fast and I’m sure many of you want that efficiency too to serve our people better.”

ANC aired this story about Sen. Legarda’s broadband problems and how Philippines’ providers oversell their networks back in 2014. (4:56)

We Oversold Our Networks So Sue Us, Except You Can’t

Providers blame the problem on oversold networks that attempt to manage too many paying customers on an inadequate network. In other words, they blame themselves with little fear any regulator will create problems for them.

Wireless service is no panacea either. Customers in the Philippines face draconian “fair use policies” on so-called “unlimited plans” that leave them throttled after 1GB of usage per day or 3GB of usage per month, whichever happens first. Providers suggest the policy is a benefit, promising them a better user experience. Besides, they suggest, even those that run into the speed throttle can still browse the Internet, albeit at as speed resembling dial-up:

Your internet speed will slow down if you use up 1GB of data for the day, or accumulate 3GB of data usage for the month.

If you hit the 1GB/day threshold, you’ll experience slower speed, but no worries because as we mentioned above, you can still surf! You’ll move up to normal speed at midnight. If you hit the 3GB/month threshold, your speed will move up to normal speed on the next calendar month (not based on bill cycle).

With a stifling usage allowance, shouldn't providers in the Philippines be offering better speeds?

With a stifling usage allowance, shouldn’t providers in the Philippines be offering better speeds?

Say Hello to the “Promo Pack” – Your Net Neutrality Nightmare Come True

Remember the scary ads from Net Neutrality proponents promising a future of Internet add-ons that would charge you to surf theme-based websites without facing network slowdowns or stingy usage caps if Net Neutrality protections were not forthcoming? In the Philippines, the nightmare came true. Mobile providers sell added cost “promo packs” that bundle extra throttle-free usage with theme-based apps. A package with Spotify runs about $6.50US a month and includes 1GB of usage. Anyone can buy a Spotify premium membership in the Philippines for around $4.37US without the add-on. But even worse are app-based promo packs that bundle free-to-download-and-use apps in the U.S. with special designated usage allowances.

Want to use Google Maps on your wireless provider? A “promo pack” including it costs around $2.17 a month and includes 300MB of usage. That money doesn’t go to Google — it stays in the pocket of the provider – Globe Networks. Twitter will set you back $4.37US a month and includes 600MB of usage, which seems odd for a short message service when contrasted with an identically-priced promo pack for Facebook, that needs the extra usage allowance more than Twitter likely would. But then they also get you for Facebook Messenger, which costs an extra $2.17US per month and comes with its own usage allowance — 300MB.

"What If" actually "Is" in the Philippines.

“What If” actually “Is” in the Philippines.

Globe-Telecom3While segmenting out popular mobile apps for special treatment, Philippine mobile providers have also taken Verizon and AT&T’s lead, pushing plans like myLIFESTYLE that bundle unlimited text and phone calls with expensive data plans.

Lifestyle Promo Packs:

Lifestyle Bundle

Price (Philippine Peso)

Consumable MBs/GBs

Description

Spotify

299

1GB

Premium membership to Spotify, with 1GB data
Work

299

1GB

Access to Gmail, Yahoo Mail, Evernote, + 10GB Globe Cloud Storage
Explore Bundle

99

300MB

Access to Agoda, Trip Advisor, Cebu Pacific, PAL
Navigation Bundle

99

300MB

Access to Waze, Grab Taxi, Google Maps, MMDA app, Accuweather
Shopping Bundle

299

1GB

Access to Zalora, Amazon, Ebay, OLX, Ayosdito
Facebook

199

600MB

Access to Facebook
Twitter

199

600MB

Access to Twitter
Viber

99

300MB

Access to Viber
FB Messenger

99

300MB

Access to FB Messenger
Chat Bundle

299

1GB

Access to Viber, Whats App, FB Messenger, Kakao Talk, Line, WeChat
Photo Bundle

299

1GB

Access to Instagram, Photogrid, Photorepost, Instasize

Extra Add-ons:

Basic Price Description
Consumable 100 Stackable Amounts of P100 denomination consumables
Unli Duo 299 Unlimited Calls to Landline/duo
Unli Txt All 299 Unlimited Texts to other networks
Unli iSMS 399 Unlimitend International SMS to one intl. number
Unli IDD 999 Unli IDD calls to one intl. number
DUO International 499 Unlimited calls to US landlines

The Philippines Should Regulate Under the American Example vs. The Philippines Should Not Regulate Under the American Example (It’s Obama’s Fault)

Lincoln_MemorialProviders in the Philippines have learned a lot from America’s telecommunications lobbyists. Their advocacy campaigns revolve around the theme that the United States has the best wireless networks in the world, developed under a largely hands-off regulatory philosophy that the Philippine government should follow.

The government and regulators largely acquiesced to that campaign until this year, when that idea came back to haunt providers. Earlier this year, the Obama Administration and the FCC began taking a more hands-on approach to telecom regulation after recognizing the marketplace is not as competitive as providers suggest. Strong Net Neutrality enforcement, limits on mergers and acquisitions and strong signals marketplace abuses would no longer be tolerated are now being pushed in Washington by the White House and the Federal Communications Commission. Providers in the Philippines no longer advocate following the American model, but it may now be too late.

obamaThe NTC is close to issuing new minimum broadband speed and performance standards and is now listening to Filipino consumers that launched Democracy.net.ph to fight usage caps in the Philippines back in 2011. The NTC may soon require providers advertise average speeds and performance, not “up to” speeds nobody actually receives. Those getting poor service would be entitled to refunds or rebates.

That could be the first step towards a more activist NTC that may have learned the lesson that listening to the broken promises of better service through deregulation has resulted in some of the worst broadband performance the world has to offer. The Philippines took the advocacy arguments of the deregulation crowd and doubled down, not only allowing providers to lie and distort in their advertising, but also permitting massive industry consolidation reducing the choice for most Filipinos to just two providers for almost all telecommunications services. The government looked the other way as corruption turned into a scandal and today it is left with two very powerful conglomerates that deliver third world Internet access while pocketing the generous proceeds.

A Better Way to Better Broadband

A deregulated, free market only works where healthy competition exists. Too few players always leads to reduced innovation, poorer service at higher prices, and a corporate fortress deterring would-be competitors that are unlikely to be able to survive in a fair, competitive fight. For the Philippines (and by extension the United States) to fully benefit from healthy competition, large conglomerates must be broken up and further mergers must be prevented above all else. Until sufficient competition can self-regulate the marketplace, strong oversight is necessary to protect consumers from the abuses that always come from monopolies and duopolies. Charging wireless customers for free apps and suggesting 3GB of usage is equal to unlimited broadband are two places to start cracking down, quickly followed by an investigation into where investment dollars are being spent and for whose benefit. It seems like customers are not reaping any rewards in return for high-priced service.

The Philippine government should also continue exploring a National Broadband Network strategy that puts the country’s broadband needs above the profit motivations of the current duopoly. Governments build roads and bridges, airports and railways. Broadband is another infrastructure project that needs to be developed in the public interest. If private companies want to be a part of that effort, that is wonderful. But they should not be dictating the terms or holding the country back from what may be the biggest scandal of all — broadband that barely performs better than what the Taliban can get these days in Helmand province.

Still Paying After All These Years: Verizon Raised NY Landline Rates for Phantom FiOS

Phillip Dampier July 15, 2015 Consumer News, History, Public Policy & Gov't, Verizon 1 Comment

Verizon's FiOS expansion is still dead.

Verizon customers in New York are paying artificially higher telephone rates justified to encourage Verizon investment in FiOS fiber to the home upgrades most New York State communities will never receive.

Starting in 2006, the New York Public Service Commission granted Verizon rate increases for residential flat-rate and message-rate telephone service and a 2009 $1.95 monthly increase for certain residence local exchange access lines to encourage Verizon’s investments to expand FiOS fiber to the home Internet across New York State.

“We are always concerned about the impacts on ratepayers of any rate increase, especially in times of economic stress,” said then-Commission chairman Garry Brown in June 2009. “Nevertheless, there are certain increases in Verizon’s costs that have to be recognized. This is especially important given the magnitude of the company’s capital investment program, including its massive deployment of fiber optics in New York. We encourage Verizon to make appropriate investments in New York, and these minor rate increases will allow those investments to continue.”

After Verizon announced it was suspending further expansion of its FiOS project a year later, the company continued to pocket the extra revenue despite reneging on the investments the PSC considered an important justification for the rate increases.

nypsc

“The commission allowed Verizon rate increases in 2006 and 2008 based, in significant part, upon the assumption that the revenue from the higher rates would lead Verizon to invest in fiber optic lines, presumably for the benefit of wireline customers,” argues a coalition of state legislators, consumer groups, and unions. “Serious questions exist regarding the extent to which funds may instead have been used to build out the network for the benefit of wireless customers. Publicly available reports, while fragmentary, suggest that Verizon may have included construction costs for significant benefit of its wireless affiliate to be included in the costs of the Verizon New York wireline company, thus adding to its costs and tax losses.”

shellAlmost a decade later, Verizon is still receiving the extra revenue while some public officials complain Verizon is not meeting its commitments even in cities where Verizon has introduced FiOS service.

Last week New York City Mayor Bill de Blasio ordered all future city contracts with Verizon be reviewed and authorized by City Hall. City officials complain Verizon promised in 2008 it would make FiOS available to every city resident no later than mid-2014. A year later, the service is still not available in some areas.

Verizon has blamed access issues and uncooperative landlords for most of the delays, but city officials are not happy with Verizon’s explanations.

“They [Verizon] have to demonstrate to us that they are good corporate actors if they want us to use our discretion in ways that benefit them,” the mayor’s counsel, Maya Wiley, told the New York Post.

Meanwhile, upstate New York residents now indefinitely bypassed by Verizon FiOS want a refund for the rate increases that were supposed to inspire Verizon to keep expanding fiber optics.

“Verizon has made at least $250 from me and every other upstate customer for nine years of broken promises,” said Penn Yan resident Mary Scavino. “Not only don’t they offer us fiber optics, we cannot even qualify for DSL service from them. If you can’t get Time Warner Cable in the Finger Lakes, you often don’t have broadband at all. It is them or nothing. Where did our money go?”

And, we're done. Verizon FiOS availability map also showing areas subsequently sold to Frontier.

And, we’re done. Verizon FiOS availability map also showing areas later sold to Frontier.

Fred, a Stop the Cap! reader in the city of Syracuse, thinks the PSC should immediately revoke the rate increases and force Verizon to refund the money to customers who will not get upgraded service.

“It’s not like Verizon cannot make money in a city like Syracuse,” writes Fred. “It’s clear the CEO thinks even more money can be made off Verizon Wireless customers off the backs of landline customers, and the PSC continues to look the other way while they do it.”

Verizon claims it has lost money on its copper wireline network for years, something the PSC seems to accept in its 2009 press release announcing rate increases:

The rate increases will generate much needed additional short-term revenues as the company faces the dual financial pressures created by competitive access line losses and the significant capital it is committing to its New York network. For 2008, Verizon reported an overall intrastate return of negative 6.7 percent and a return on common equity of negative 48.66 percent. The current trend in the market is toward bundled service offerings, and Verizon believes the proposed price changes to its message rate residential service will encourage the migration of customers towards higher-value service bundles.

That migration costs New York ratepayers even more for telephone service. Verizon’s website prompts customers seeking new landline service to bundle a package of long distance discounts and calling features that costs in excess of $50 a month before taxes, fees, and surcharges. Bundling broadband costs even more. Verizon does not tell customers ordering online they qualify for a bare bones landline with no calling features and pay-per-call billing for less than half the cost of Verizon’s recommended bundle.

Verizon's discount calling program "Message Rate B" is only available to Washington, D.C. residents who have been threatened with final disconnection by Verizon.

This Verizon discount calling program known as “Message Rate B” is only available to Washington, D.C. residents who have been threatened with disconnection or have an outstanding balance owed to Verizon. It costs $7.29 a month and includes 75 local calls.

More than three dozen New York State legislators also question whether Verizon’s “losses” are actually the result of Verizon’s purposeful “misallocation of costs” — moving expenses to the landline business even if they were incurred to benefit Verizon’s more profitable wireless division.

“The result has been massive cost increases for consumers, especially for the garden-variety dial tone service at the bottom of the technological ladder,” argues their 2014 petition. “For example, in New York City […] since 2006 the price of residential ‘dial tone’ service (one line item on the bill) went up 84%, while other services, such as inside wire maintenance, went up 132%.”

The petitioners claim there is evidence to dispute Verizon’s assertion its legacy copper network is as big of a money loser as the company suggests, thanks to “cooking the books” with accounting tricks. The petitioners want the PSC to order a review of Verizon’s books to be certain consumers are not being defrauded or manipulated.

Verizon-Tax-Dodging-banner

Community leaders were arrested in 2013 during a protest outside Verizon’s NYC headquarters (at 140 West Street at the West Side Highway) to out the company for its history of avoiding taxes. (Image: Vocal NY)

From 2009-2013, Verizon New York reported losses of over $11 billion dollars, with an income tax benefit to Verizon Communications of $5 billion, and significant tax revenue losses for state, city and federal governments. Verizon New York has apparently paid no state, city or federal income tax for the last five years or more.

If Verizon is using accounting tricks to inflate the cost of legacy landline service while reducing costs to its wireless service, it could prove a win-win for Verizon and a lose-lose to ratepayers. Verizon could use its “losses” to argue for greater rate increases for landline customers while further reducing its tax obligations. On the wireless side, Verizon would enjoy praise from Wall Street analysts and shareholders pleased by the company’s apparently effective cost controls.

The best evidence of these techniques in action are the statements of company officials which suggest wireless costs are being paid by wireline customers.

Verizon’s chief financial officer, Fran Shammo, indicated to investors that Verizon wireline construction budgets are charged for expenses related to wireless service.

“The fact of the matter is wireline capital — and I won’t get the number but it’s pretty substantial — is being spent on the wireline side of the house to support the wireless growth,” Shammo told investors at Verizon at Goldman Sachs Communacopia Conference, Sept. 20, 2012. “So the IP backbone, the data transmission, fiber to the cell, that is all on the wireline books but it’s all being built for the wireless company.”

“It seems to me Verizon Wireless, already considered the Cadillac of wireless companies, doesn’t need a hidden subsidy from Verizon paid for by ratepayers all over the state,” Fred argues. “It seems very curious to me Verizon pioneered a large regional fiber optic upgrade that just a few years later it considers too costly to continue expanding, even as AT&T, Google, Comcast, and other companies are now entering the fiber business. A Public Service Commission that wants better broadband for New Yorkers ought to get to the bottom of this because it just doesn’t look right.”

Big City Telecom Infrastructure is Often Ancient: Conduits 70+ Years Old, Wiring from 1960s-1980s

A panel electromechanical switch similar to those in use in New York until the 1970s.

A panel electromechanical switch similar to those in use in New York until the 1970s. They were installed in the 1920s.

As late as the 1970s, New York Telephone (today Verizon) was still maintaining electromechanical panel switches in its telephone exchanges that were developed in the middle of World War I and installed in Manhattan between 1922-1930. Reliance on infrastructure 40-50 years old is nothing new for telephone companies across North America. A Verizon technician in New York City is just as likely to descend into tunnels constructed well before they were born as is a Bell technician in Toronto.

Slightly marring last week’s ambitious announcement Bell (Canada) was going to commence an upgrade to fiber to the home service across the Greater Toronto Area came word from a frank Bell technician in attendance who predicted Bell’s plans were likely to run into problems as workers deal with aging copper infrastructure originally installed by their fathers and grandfathers decades earlier.

The technician said some of the underground conduits he was working in just weeks earlier in Toronto’s downtown core were “easily 60-70 years old” and the existing optical fiber cables running through some of them were installed in the mid-1980s.

At least that conduit contained fiber. In many other cities, copper infrastructure from the 1960s-1980s is still in service, performing unevenly in some cases and not much at all in others.

Earlier this year, several hundred Verizon customers were without telephone service for weeks because of water intrusion into copper telephone cables, possibly amplified by the corrosive road salt dumped on New York streets to combat a severe winter. Verizon’s copper was down and out while its fiber optic network was unaffected. On the west coast, AT&T deals with similar outages caused by flooding. If that doesn’t affect service, copper theft might.

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Fiber optic cable

Telephone companies fight to get their money’s worth from infrastructure, no matter how old it is. Western Electric first envisioned the panel switches used in New York City telephone exchanges until the end of the Carter Administration back in 1916. It was all a part of AT&T’s revolutionary plan to move to subscriber-dialed calls, ending an era of asking an operator to connect you to another customer.

AT&T engineer W.G. Blauvelt wrote the plan that moved New York to fully automatic dialing. By 1930, every telephone exchange in Manhattan was served by a panel switch that allowed customers to dial numbers by themselves. But Blauvelt could not have envisioned that equipment would still be in use fifty years later.

As demand for telephones grew, the phone company did not expand its network of panel switches, which were huge – occupying entire buildings – loud, and very costly to maintain. It did not replace them either. Instead, newer exchanges got the latest equipment, starting with more modern Crossbar #1 switches in 1938. In the 1950s, Crossbar #5 arrived and it became a hit worldwide. Crossbar #5 switches usually stood alone or worked alongside older switching equipment in fast growing exchanges. It occupied less space, worked well without obsessive maintenance, and was reliable.

It was not until the 1970s that the Bell System decided to completely scrap their electromechanical switches in favor of newer electronic technology. The advantages were obvious — the newer equipment occupied a fraction of the space and had considerably more capacity than older switches. That became critical in New York starting in the late 1960s when customer demand for additional phone lines exploded. New York Telephone simply could not keep up with and waiting lists often grew to weeks as technicians looked for spare capacity. The Bell System’s answer to this growth was a new generation of electronic switches.

The #1 ESS was an analog electronic switch first introduced in New Jersey in 1965. Although it worked fine in smaller and medium-sized communities, the switch’s software bugs were notorious when traffic on the exchange reached peak loads. It was clear to New York Telephone the #1 ESS was not ready for Manhattan until the bugs were squashed.

Bell companies, along with some independent phone companies that depended on the same equipment, moved cautiously to begin upgrades. It would take North American phone companies until August 2001 to retire what was reportedly the last electromechanical switch, serving the small community of Nantes, Quebec.

ATT-New-York-central-office-fire-300x349

A notorious 1975 fire destroyed a phone exchange serving lower Manhattan. That was one way to guarantee an upgrade from New York Telephone.

On rare occasions, phone companies didn’t have much of a choice. The most notorious example of this was the Feb. 27, 1975 fire in the telephone exchange located at 204 Second Avenue and East 13th Street in New York. The five alarm fire destroyed the switching equipment and knocked out telephone service for 173,000 customers before 700 firefighters from 72 fire units managed to put the fire out more than 16 hours later. That fire is still memorialized today by New York firefighters because it injured nearly 300 of them. But the fire’s legacy continued for decades as long-term health effects, including cancer, from the toxic smoke would haunt those who fought it.

The New York Telephone building still stands and today also houses a street level Verizon Wireless retail store.

New York Telephone engineers initially rescued a decommissioned #1 Crossbar switch waiting to be melted down for scrap. It came from the West 18th Street office and was cleaned and repaired and put into emergency service until a #1 ESS switch originally destined for another central office was diverted. This part of Manhattan got its upgrade earlier for all the wrong reasons.

Throughout the Bell System in the 1970s and 80s, older switches were gradually replaced in favor of all electronic switches, especially the #5 ESS, introduced in 1982 and still widely in service today, serving about 50% of all landlines in the United States. Canadian telephone companies often favored telephone switches manufactured by Northern Telecom (Nortel), based in Mississauga, Ontario. They generally worked equally well as the American counterpart and are also in service in parts of the United States.

The legacy of more than 100 years of telephone service has made running old and new technology side by side nothing unusual for telephone companies. It has worked for them before, as has their belief in incremental upgrades. So Bell’s announcement it would completely blanket Toronto with all-fiber service is a departure from standard practice.

For Bell in Toronto, the gigabit upgrade will begin by pushing fiber cables through existing conduits that are also home to copper and fiber wiring still in service. If a conduit is blocked or lacks enough room to get new fiber cables through, the Bell technician predicted delays. It is very likely that sometime after fiber service is up and running, copper wire decommissioning will begin in Toronto. Whether those cables remain dormant underground and on phone poles for cost reasons or torn out and sold for scrap will largely depend on scrap copper prices, Bell’s budget, and possible regulator intervention.

But Bell’s upgrade will clearly be as important, if not more so, than the retirement of mechanical phone switches a few decades earlier. For the same reasons — decreased maintenance costs, increased capacity, better reliability, and the possibility to market new services for revenue generation make fiber just as good of an investment for Bell as electronic switches were in the 1970s and 1980s.

AT&T produced this documentary in the mid-1970s about how New York Telephone recovered from a fire that destroyed a phone exchange in lower Manhattan and wiped out service for 173,000 customers in 1975. The phone company managed to get service restored after an unprecedented three weeks. It gives viewers a look at the enormous size of old electromechanical switching equipment and masses of phone wiring. (22:40) 

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