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Cable Listens to Wall Street: Standalone Broadband Pricing Heading for $80/Month

Phillip Dampier October 18, 2017 Competition, Consumer News 10 Comments

Cable operators that have watched their stocks get pounded after warning their third quarter earnings would reflect an undeniable trend towards cord-cutting are considering dramatically raising broadband-only pricing to $80 or more to protect profits.

Comcast is among the largest cable companies responding to repeated calls from Wall Street analysts to boost broadband pricing, hiking broadband-only rates to around $65 a month after a customer’s $40 promotional pricing offer expires. Charter Communications also hiked prices earlier this year to $65 a month for its entry-level 60 or 100Mbps package, with further rate increases expected in early 2018. But those incremental rate hikes are not enough to satisfy analysts who fear cable’s video earnings losses are already higher than the revenue gained from charging more for broadband service.

In a note to investors, Morgan Stanley said the cable industry’s efforts to jack up prices for those dropping video service have made some progress, noting most companies raised prices by 12% in 2017, establishing a new beachhead rate of $65 a month — the rate broadband-only customers should now expect to pay.

“As video revenue growth is increasingly pressured, leaning on data pricing is tempting to sustain earnings,” said Benjamin Swinburne, a Morgan Stanley analyst in a report.

But recent rate hikes don’t go far enough for some. Prices must rise at least another $15 a month to satisfy Jeffries analyst Mike McCormack and restore industry profits lost from cord-cutting. McCormack notes customers who have not canceled cable television are being insulated from the most dramatic rate hikes impacting cord-cutters, pointing out the average customer with a bundle of services now pays around $49 a month for broadband service — $16 less.

“Cable companies are likely to raise stand-alone broadband pricing in order to combat the EBITDA declines from downsizing,” said McCormack in a report. “This practice is already evident and justified given the lack of a bundling discount. Based on our analysis, we estimate Comcast would need to raise stand-alone pricing to roughly $80 in order to break even from a profitability perspective.”

Swinburne

Jonathan Chaplin, an analyst for New Street Research who has called on the cable industry to double broadband pricing for more than a year, thinks the marketplace is ripe for sweeping rate increases.

“We have argued that broadband is underpriced, given that pricing has barely increased over the past decade while broadband utility has exploded,” New Street said. “Our analysis suggested a ‘utility-adjusted’ ARPU target of ~$90. Comcast recently increased standalone broadband to $90 (including modem), paving the way for faster ARPU growth as the mix shifts in favor of broadband-only households. Charter will likely follow, once they are through the integration of Time Warner Cable.”

Wall Street analysts typically use code language that avoids portraying the marketplace as a monopoly or barely-competitive duopoly, instead preferring to note there is little risk or headwind to prevent operators from boosting prices or using their large market share to their advantage. Chaplin argues that cable television is no longer to profit center it used to be — broadband is.

“In fact, the [free cash flow] lost from subs dropping pay-TV is generally recovered through higher [broadband] pricing,” said Chaplin.

Many analysts also argue that most of the proceeds collected from charging higher broadband prices should be used to buy back shares of stock or returned to shareholders, not used to upgrade or expand service. In fact, Wall Street is currently punishing Altice USA, sending its initial stock price from $30 a share to just $24.49 this week. One of the reasons for the fall is the money its Cablevision unit is spending to replace its coaxial cable network with fiber optics. AT&T’s stock has also suffered as the company continues to spend money on expanding its AT&T Fiber service while combating cord cutting with its U-verse and DirecTV services.

Charter Sues Striking Union Over Alleged Acts of Sabotage; Lobbyist Earns from Both Sides

Phillip Dampier October 16, 2017 Charter Spectrum, Public Policy & Gov't 2 Comments

Members of IBEW Local 3 have been on strike for about seven months. (Image: IBEW Local 3)

Charter Communications is suing the International Brotherhood of Electrical Workers Local 3 alleging its striking members are responsible for repeated acts of vandalism and sabotage of Charter’s cable service Spectrum in the New York City area.

The lawsuit, filed last week in Manhattan Supreme Court, claims union members have cut or damaged cables and other property at least 125 times since the union went out on strike in March.

“The sabotage was done purely out of maliciousness,” Charter’s attorneys allege in the lawsuit. “The saboteurs clearly knew the optimal locations where they could quickly cut cable lines to multiple customers without being harmed or observed, suggesting they are cable technicians who work for Charter.”

A Charter spokesman said the company filed the suit to get union members to stop damaging its equipment.

Union members suggest Charter brings no hard evidence to the table about who is responsible. Union officials have repeatedly denied involvement and have urged those responsible to stop, noting it risks turning Spectrum customers against the union.

Meanwhile, a powerful New York City lobbying firm appears to be getting rich representing Charter Communications while also representing three of the cable company’s biggest critics in City Hall, including New York City Mayor Bill deBlasio.

The Daily News reports the MirRam Group represents the mayor, City Council Speaker Melissa Mark-Viverito and Public Advocate Letitia James. James has been a client since 2013 while Mayor deBlasio hired the company in April to assist him with his re-election campaign. The lobbying firm has collected $150,000 from Charter and its predecessor Time Warner Cable in the last 12 months.

The newspaper reports the terms of the contract require MirRam Group to promote Charter’s business with ‘key public officials’ in city and state government, including monitoring legislative developments that could impact on the cable company in New York. The lobbying firm is also required to “promote Charter’s public policy interests” and is not supposed to “represent other clients on matters adverse to or in conflict with” the cable company’s goals.

Lexington, Ky. Proposes Giving Charter 30 Days to Resolve Problems or Face Fines

Phillip Dampier October 12, 2017 Charter Spectrum, Consumer News, Public Policy & Gov't 1 Comment

Charter Communications will have 30 days to fix alleged problems affecting Lexington, Ky.’s cable subscribers or the company could face fines of $500 a day for each violation.

The Lexington-Fayette Urban County Council voted to put the resolution on its agenda for tonight’s meeting, and it is expected to pass.

The city is exasperated over Spectrum’s failure to allow customers to speak to supervisors, not allowing customers to return cable equipment by mail, and for charging customers for services they did not order.

“Because of the volume of complaints we have received, we have decided to go forward with this next step,” General Services Commissioner Geoff Reed told the Lexington Herald-Leader.

The complaints began pouring into city offices shortly after Charter Communications’ Spectrum replaced Time Warner Cable.

Because of federal deregulation, local authorities have little say over cable company rates or services and no say at all over internet service. But the city can hold the cable company accountable to its video service franchise agreement. If Charter fails to correct the alleged deficiencies, the county council can order an administrative hearing and fine the company up to $500 a day per violation.

Cable Operators Talk Broadband Capacity and Upgrades

With many cable operators reporting a need to double network capacity every 18-24 months to keep up with customer traffic demands, the industry is spending time and money contemplating how to meet future needs while also finding ways to cut costs and make networks more efficient.

Top technology executives from five major cable operators answered questions (sub. req’d.) from Multichannel News about their current broadband networks and their plans for the future. Some, like Mediacom, are aggressively adopting DOCSIS 3.1 cable broadband upgrades for their customers while companies like Cox and Comcast are deploying multiple solutions that use both traditional hybrid fiber-coax network technology and, on occasion, fiber-to-the-home to boost speed and performance. But at least one cable company — Charter Communications — thinks it can continue operating its existing DOCSIS 3 network without major upgrades for several years to come.

Cable Broadband Traffic Can Be Handled

“We’ve been on a pretty steady path of doubling our network capacity every 18-24 months for several years, and I don’t see anything that makes me think that will change,” said Tony Werner, president of technology and product at Comcast. “We’ve been strategically extending fiber further into our network to meet customer demand, and that effort, combined with our commitment to deploying DOCSIS 3.1 has given us a network that’s powerful, flexible, and ready for what’s next.”

J.R. Walden, senior vice president of technology at Mediacom was more aggressive.

“We have completed the removal of all the analog channels. That was the big step one,” Walden said. “Step two was to start transitioning high-speed data over to DOCSIS 3.1, so we’re not adding any more 3.0 channels, and reuse spectrum for 3.1, which is a bit more efficient. The whole company is 3.1, all the modems we’re buying since June have been 3.1, so we’ve begun that next transition.”

Walden added Mediacom is also trying to improve broadband performance by reducing the number of customers sharing the same connection.

“We average about 285 homes to 290 homes per node as an average,” he said.

Mediacom is also scrapping older technology on the TV side to open new bandwidth. The cable company is getting rid of MPEG-2-only set-top boxes so the company can transition its video lineup to MPEG-4. But even that won’t last long. Walden admits the company will then quickly start moving less-viewed channels and some premium networks to IP delivery.

Traditional cable broadband service relies on a hybrid fiber-coax network.

In its European markets, Liberty Global has adopted Converged Cable Access Platform (CCAP) equipment across its footprint. CCAP technology saves cable operators space and operates more efficiently, and supports future convergence of technologies that cable operators want to adopt in the future. CCAP has helped Liberty Global deal with its 45% traffic growth by making upgrades easier. The company is also using advanced features of CCAP to better balance how many customers are sharing a connection. The next step is adopting DOCSIS 3.1.

“Seventy to 80% of our plant will be DOCSIS 3.1 ready by the end of next year, giving us a path to even greater capacity expansion allowing us to continue to increase the available capacity across our access network, upstream and downstream,” said Dan Hennessy, chief architect of network architecture for Liberty.

Charter is prioritizing maximizing performance on the network it already has.

“Our priority is to constantly balance capacity against demand. It’s a never-ending quest,” said Jay Rolls, Charter’s chief technology officer. “We watch it very closely, and we’re very pragmatic about it — the volume of tools, metrics and ways to see what’s really happening, and invest accordingly, is really deepening in ways that matter.”

Is Fiber-to-the-Home in Your Future?

While some cable operators like Altice’s Cablevision are scrapping their existing hybrid fiber-coax networks in favor of fiber-to-the-home (FTTH), America’s largest cable operators are not in any hurry to follow Altice.

Comcast has expanded its fiber network closer to customers in the last few years, but sees no need to convert customers to FTTH service.

“I feel pretty strongly that the best path ahead is to leverage the existing coaxial network and DOCSIS resources to the fullest, then inch towards FTTH, over time Why? Because we can. We don’t have to build an entire network just to turn up one customer.”

The next generation of cable broadband service may depend on CCAP – technology that will cut operator costs and lay the foundation for changing the way video and other services are delivered to customers.

Cox has a 10-year Network 2.0 plan that will bring fiber closer to customers, but not directly to every home. More important to Cox is having the option to support symmetrical speeds, which means delivering upload speeds as fast as download speeds.

“We’re also thinking about the fiber investment and fiber deep as it relates to our wireless strategy, enabling some of our customers with a small cell strategy but also positioning ourselves to take advantage of that in the future, as well as thinking about fiber deep to benefit both residential and our commercial customers simultaneously,” said Kevin Hart, Cox’s executive vice president and chief product and technology officer.

Liberty/Virgin Media’s Project Lightning is bringing cable broadband and TV service to places in the UK that never had cable service before.

In Europe, Liberty Global’s “Project Lightning” network expansion initiative is building out traditional cable service in the United Kingdom. Most of the UK never adopted cable service, favoring small satellite dish service instead. Now Liberty Global is putting cable expansion on its priority list. But decades after most North Americans got cable service for the first time, today’s new buildouts are based largely on fiber optics — either fiber to the home or fiber to the neighborhood, where coaxial cable completes the journey to a customer’s home.

Charter admits the technology it will use in the future partly depends on what the competition is offering. Rolls says the company can eventually roll out DOCSIS 3.1, take fiber deeper, or offer symmetrical download/upload speeds presumably targeted towards its commercial customers. But he also suggested Charter’s existing network can continue to deliver acceptable levels of service without spending a lot on major upgrades.

“It’s a rational approach, where we’re trying to balance the needs, the available technologies, and the costs,” Rolls said. But he also suggested DOCSIS 3.1 isn’t always the answer to upgrades. “DOCSIS 3.1 has some pretty remarkable capabilities, but it’s not necessarily a hard-and-fast reason to not take fiber deeper, for instance [allowing for additional DOCSIS 3 node splits]. Different situations drive different capacity decisions.”

Walden agreed, and Mediacom customers should not expect more than DOCSIS 3.1 upgrades for the near future.

“[Fiber deep] is a bit further out, at least as a large-scale type of project,” Walden told Multichannel News. “I think fiber deep for multi-dwelling units, high-density areas and some planned higher end communities doing deeper fiber or fiber-to-the-home [is happening]. But as a wholesale [change] and going to node+0 kind of architecture, I don’t see that in the next two years.”

Are Symmetrical Speeds Important for Customers?

Verizon’s fiber to the home service FiOS uses symmetrical broadband speeds to its advantage in the marketplace.

Many fiber to the home networks offer customers identical upload and download speeds, but cable broadband was designed to favor downstream speeds over upstream. That decision was based on the premise the majority of users will receive much more traffic than they send. But as the internet evolves, some are wondering if cable broadband’s asymmetric design is now outdated and some competitors like Verizon’s FiOS fiber to the home service now use its symmetrical speed advantage as a selling point.

Cox Communications does not think most customers care, even though its network upgrades are laying the foundation to deliver symmetrical speeds.

“It’s a little but further out on the horizon,” said Hart. “The upstream growth rate is ticking up a couple of notches, but not to the tune that we would need significant additional capacity and/or a complementary need for symmetrical bandwidth. [A]t this stage, the symmetrical is a nice-to-have for residential and definitely will be a good option for our commercial customers.”

Rolls isn’t sure if symmetrical speeds are important to customers either and Charter has no specific plans to move towards upload speed upgrades.

“The world of applications and services continues to evolve, obviously, but so far we’ve been able to meet those needs with an asymmetrical topology,” Rolls said. “That said, things like real-time gaming, augmented and virtual reality, and the Internet of Things — some of those will likely drive more symmetry in the network. It remains to be seen.”

Conn. Gives Charter $10 Million Loan, $10 Million Tax Credits for Its New Headquarters

Phillip Dampier October 3, 2017 Charter Spectrum, Public Policy & Gov't No Comments

Connecticut taxpayers will underwrite the cost of Charter Communications new 500,000 square foot, 15-story headquarters building with a $10 million direct loan and an additional $10 million in tax credits.

The cable company, which has the highest paid CEO in the United States, will use taxpayer dollars to help fund its new corporate offices at the Gateway Harbor Point, with an option to further expand the site into a two building campus. It won taxpayer support for committing to create 400 jobs in 2012 under the state’s First Five Program. Now it has agreed to create an additional 1,100 jobs at its corporate headquarters in Stamford and make an investment of $100 million in capital expenditures in Connecticut over several years. The more jobs Charter creates in Stamford, the more tax credits the company can receive.

“Since relocating Charter’s headquarter operations to Stamford in 2012, the company has undergone a transformation to become the second largest cable provider in the U.S.,” said Tom Rutledge, chairman and CEO, Charter Communications. “This new, state-of-the-art facility in downtown Stamford will provide Charter the necessary resources to facilitate its continued growth. We are excited to continue expanding in Connecticut, and thank Governor Malloy, Mayor Martin, the Connecticut Department of Economic and Community Development, and the entire Stamford-area federal, state and local delegation of elected officials for their continued partnership and support.”

“Today is a great day for Connecticut,” said Governor Dannel P. Malloy. “Charter’s announcement to create an additional 1,100 jobs shows that our strategic investments are continuing to spur economic growth and create good paying jobs in the state. We look forward to the continued success of Charter Communications as they grow within the state.”

What has been good for Connecticut has not proven so great for Charter Communications workers in other states. Several hundred have been laid off, mostly at call centers. But a number of employees working at Time Warner Cable’s headquarters in Manhattan have also left.

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