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Wall Street Analyst Craig Moffett Unhappy “Unwelcome” Phone Subsidies Are Back

Moffett

Craig Moffett, a Wall Street analyst specializing in telecommunications stocks, has lowered his opinion of T-Mobile after the wireless company successfully topped analyst estimates of subscriber growth, in part by giving customers a better deal than its competition.

Moffett is concerned T-Mobile’s subsidized holiday price cuts on the latest Apple iPhone and a new flat rate plan delighted customers but threatened profits.

“[…]Even as the wireless stocks were rising in November and December, handset subsidies were quietly making their unwelcome return,” said Moffett in a report to his clients. “T-Mobile’s new ‘All-In’ pricing plan opens yet another front in the battle over service plan pricing, leaving us incrementally more cautious about ARPU (average revenue per user) forecasts for all operators, not least T-Mobile itself.”

T-Mobile has ditched promotions for all of its usage capped data plans and is now advertising T-Mobile One, an “unlimited” (but throttled for very heavy users) data, text, and calls for an all-inclusive price of $40 per line. Customers can still buy a limited data plan, but T-Mobile’s website strongly de-emphasizes that option.

While T-Mobile added 1.2 million postpaid customers in the fourth quarter, exceeding estimates, Moffett isn’t happy with the prices those customers are paying because it may force other carriers to reduce their pricing as well. That hurts everyone… on Wall Street.

T-Mobile USA John Legere has become a perennial and profane thorn in the side of his competitors.

That kind of marketplace disruption the wireless industry could do without, so analysts on Wall Street are taking bets on what company will acquire T-Mobile and get things back to business as usual. Moffett believes all signs point to an unprecedented wave of deregulation, lower corporate taxes, and money-fueled industry consolidation under the incoming Trump Administration.

Sprint is a rumored favorite to acquire T-Mobile, but then so is Comcast, which may seek to enter the wireless space through a large acquisition. Companies repatriating billions in excess funds stashed in overseas banks at the special low tax rate President-Elect Trump is proposing may be what drives the next buyout frenzy.

Community Broadband Battle in Savannah Media Pits Local GOP Against Broadband Choice

Savannah, Ga.

The very idea that a city would get involved in selling better broadband service to its residents has sparked a coordinated campaign to sully municipally owned providers and color the results of an ongoing study to determine if Savannah, Ga. is getting the kind of internet access it needs.

While the city and county continue their Broadband Fiber-Optic Feasibility Study and survey residents about incumbent providers including AT&T, Comcast, and Hargray Communications, an organized pressure campaign coordinated by the Chatham County GOP is well underway to undermine any idea the city should compete against the three dominant local internet providers.

“The purpose of this study is to examine how we are currently served with broadband infrastructure, particularly focused on the services available to our community residents, anchor institutions, businesses, and key services like public safety, health and education,” a Savannah city spokesperson told Stop the Cap!

The city’s goal is to: “confirm that residents, anchor institutions and businesses have access to the services they need and that those services are competitively priced.” Incumbent providers are betting the answer to that question will likely be no and have started early opposition to discourage the city from attempting to build its own broadband network. Comcast and AT&T have apparently teamed up with the local Chatham County GOP to defend current providers in suspiciously similar-sounding letters to the editor.

Consider two examples.

About a month ago, Stephen Plunk, executive secretary of the Chatham County Republican Party, liberally sprinkled talking points provided by outside think tanks in an editorial published by the Savannah Morning News:

The Savannah Morning News published this ominous illustration adjacent to a guest editorial from a Chatham County GOP official opposing public broadband.

Only 6,000 residents in Chatham County, out of about 280,000, do not have access to wired internet of any sort. About 90 percent of Savannah residents can choose from two or more wired internet service providers . The city’s current residential providers offer speeds up to 105 mbps, and its 12 business providers offer speeds that are generally between 100 mbps and one gigabit.

Private providers also are making big new investments here. Last year, Hargray Communications announced a plan to offer one gigabit speeds to Lowcountry customers. In March, Comcast announced its intention to offer 10-gigabit speeds to city businesses. Last month, AT&T said it also will begin offering superfast capacity.

Next, let’s look at whether a city should provide service directly to customers. Or, is it wise? To determine that, the city council must ask itself whether it wants to go down the path of Marietta, which ran its own internet company several years ago but was forced to sell that network at a loss when it failed to turn a profit year after year. Marietta’s mayor eventually admitted the city never should have become an ISP. There are government ISPs that do make a profit every year, but they are rare. Chattanooga’s government-run system is often touted as a model, but the city received more than $100 million from the federal government to get its system started.

This morning, Mary Flanders, chairwoman of the Chatham County GOP wrote essentially the same things in an “opposing views” piece published by the Connect Savannah weekly newspaper (and at least cited some of her sources):

They should proceed carefully. Cautionary tales about municipal broadband networks abound.

Consider the situation in Marietta, the sprawling suburb northwest of Atlanta. Marietta started its own municipal network that stretched along a 210-mile long route. After spending $35 million to build out the network, Marietta earned a grand total of 180 customers.

The then-Mayor said the city couldn’t keep pace with the expenses associated with the constant flood of technology upgrades required to manage a broadband network. The city ultimately sold the network in 2004 for a $20 million loss.

Pacific Research Institute, in a report on municipal broadband, found that “Mariettans had decided that they would rather take a $20.33 million loss than continue to subsidize a municipal telecom venture that was sucking their city dry.”

Marietta may be relatively close to home, but it’s not the only example. Provo, Utah spent $40 million to build its network, only to sell it to Google Fiber for the princely sum of $1. In Groton, Connecticut, taxpayers lost $38 million.

City leaders need to consider the downside risk to municipal services if and when the broadband network fails to attract customers and generate case. The shortfall has to be made up somewhere. Where will the money come from? Tax hikes?

Budget cuts to basic services or to the police or fire department? Try explaining that to voters come election time, especially if the crime rate is on the rise.

According to Kelly McCutcheon, President of the Georgia Public Policy Foundation, typically the consultants are the only ones who come out good on these deals. It would be a bitter pill to swallow by Savannah citizens and city leaders alike.

Let’s dig into some of the specifics on Internet needs in Savannah. Of the 280,000 residents in Chatham County, only 6,000 residents do not have access to wired Internet of any kind. About 90% of Savannah residents can choose from two or more wired Internet service providers (ISPs).

The city’s current residential providers offer speeds up to 105 mbps, and its twelve business providers offer speeds that are generally between 100 mbps and one gigabit, which is considered to be very speedy in the Internet world.

Private providers also are making big new investments in the area. Last year, Hargray Communications announced a plan to offer one gigabit speeds to Lowcountry customers. In March, Comcast announced its intention to offer 10-gigabit speeds to city businesses. Last month, AT&T said it also would begin offering incredibly fast capacity to Savannah entrepreneurs.

On track to be profitable by 2006, local politics forced an early sale of the community fiber network that was succeeding.

Most of these talking points have been debunked by Stop the Cap! over our nine-year history. The examples of municipal broadband failures are so few and far between, we’ve come to recognize them, and many of the shop worn examples provided by the Chatham County Republicans are more than five years old.

In Groton, Conn., the emergence of a municipal provider inspired network upgrades and more competition from Comcast while the phone company Southern New England Telephone (later AT&T and today Frontier Communications) did everything possible to keep the publicly owned provider from offering phone services to customers. In the end, Comcast undercut the municipal provider and AT&T’s deployment of U-verse created problems for the then-rosy revenue projections the municipal provider was depending on to recoup its original construction costs. The network was sold five years ago to a private provider and customers still appreciate the quality of the original network today run by Thames Valley Communications, which rates four out of five stars while its competitors Frontier and Comcast rate two. It would be wrong to assume today’s municipal broadband providers have not learned important lessons and now account for incumbents responding to competition with heavily discounted rate retention plans for customers threatening to leave, as well as network upgrades. Revenue projections have become more conservative, both to deal with unexpected construction costs and the revenue likely to be earned in light of cut-rate plans from the competition. But many customers make the switch anyway, persuaded by the quality and reliability of superior fiber networks, rate stability, and a more responsive level of customer service.

The networks in Provo, Utah and Marietta, Ga., are examples of what happens when politicians opposed to the concept of municipal broadband intentionally meddle with them in an effort to prove an ideological argument or to help move along a pre-conceived sale of publicly owned infrastructure to private companies.

In Provo, the fiber to the home network was built and quickly hamstrung by a Utah state law that forbade the city from selling broadband service to the public. Instead, it had to sell wholesale access to private companies it had to attract, who in turn would provide service to the public. Imagine a marketing campaign for a new provider that required customers to deal with two unfamiliar providers just to sign up.

Christopher Mitchell, who studies municipal networks and advocates for community involvement in broadband, wrote a year ago iProvo was facing serious challenges primarily because politicians and industry lobbyists got in the way:

“Industry lobbyists convinced Utah legislators to restrict local authority over municipal networks to ‘protect’ taxpayers and that argument is still frequently used today by groups opposing local internet choice. The law does not actually revoke local authority to invest in networks, it monkeys around with how local governments can finance the networks and requires that municipalities use the wholesale-only model rather than offering services directly.

“However, the debt-financed citywide wholesale-only model has proven to be the riskiest approach of municipal networks. Building a municipal fiber network where the city can ensure a high level of service is hard and can be a challenge to make work financially. Trying to do that while having less control over quality of service and splitting revenues with 3rd parties is much harder.”

Marietta’s experience with municipal broadband failed only because a new mayor unilaterally declared it an ideological failure and sold the network at a loss for political reasons. We covered that debacle ourselves back in 2012:

In Marietta, the public broadband “collapse” was one-part political intrigue and two-parts media myth.

Marietta FiberNet was never built as a fiber-to-the-home service for residential customers.  Instead, it was created as an institutional and business-only fiber network, primarily for the benefit of large companies in northern Cobb County and parts of Atlanta.  The Atlanta-Journal Constitution reported on July 29, 2004 that Marietta FiberNet “lost” $24 million and then sold out at a loss to avoid any further losses.  But in fact, the sloppy journalist simply calculated the “loss” by subtracting the construction costs from the sale price, completely ignoring the revenue the network was generating for several years to pay off the costs to build the network.

In reality, Marietta FiberNet had been generating positive earnings every year since 2001 and was fully on track to be in the black by the first quarter of 2006.

So why did Marietta sell the network?  Politics.

Marietta’s then-candidate for mayor, Bill Dunway, did not want the city competing with private telecommunications companies.  If elected, he promised he would sell the fiber network to the highest bidder.

He won and he did, with telecommunications companies underbidding for a network worth considerably more, knowing full well the mayor treated the asset as “must go at any price.”  The ultimate winner, American Fiber Systems, got the whole network for a song.  Contrary to claims from that the network was a “failure,” AFS retained the entire management of the municipal system and continued following the city’s marketing plan.  So much for the meme government doesn’t know how to operate a broadband business.

While members of the Chatham County GOP took potshots at outside consultants hired to consider whether Savannah should explore offering community broadband, Ms. Flanders was far more sanguine about her sources: the Pacific Research Institute (PRI) and the Georgia Public Policy Foundation.

In fact, the Pacific “Research Institute” doesn’t do independent research and it’s not an institute. It’s a right-wing, dark money-funded think tank with ties to the American Legislative Exchange Council (ALEC) and the Koch Brothers. The Georgia Public Policy Foundation, like PRI, prides itself on not revealing the sources of its funding, but SourceWatch uncovered their financial ties to the Donors Capital Fund, a corporate-“murky money maze” specifically designed to hide corporate contributions and the motives those companies have to send the money. So it isn’t a stretch to assume that when a think tank suddenly takes an interest in municipal broadband, checks from AT&T, Comcast, and others have proven to be helpful motivators.

Siren Song: Altice USA CEO Asks Workers to Trust Him Despite Ruthless Cost-Cutting Reputation

Goei

The CEO of Altice USA took time away from his luxurious homes in Switzerland and New York this week to sit down with concerned middle and working-class Cablevision employees at a meeting held at an unassuming company garage in the Bronx.

Dexter Goei has worries of an organized workforce on his mind. A recording of the meeting provided to Stop the Cap!, showed Goei spent most of his time trying to convince employees they could trust him to protect their future employment at the cable operator.

Since Altice acquired Cablevision in the U.S., the French media have criticized the ‘naiveté of American regulators’ that largely accepted the promises and commitments of the rapidly growing international cable and wireless company at the same time Altice was regularly accused of reneging on the promises it made to regulators in Europe, especially in France. The company has been fined at least twice for breaking those commitments.

Altice’s entrance into the United States began with the acquisitions of Suddenlink, a relatively small cable company serving forgotten small cities in states like Texas and West Virginia and the should-have-been-acquired-by-Comcast-or-Time-Warner-Cable-years-ago oddity Cablevision, which made money for its founding family the Dolans for decades, selling cable mostly in suburban downstate New York.

In America, those acquiring a rival operator are usually asked to show how a deal is “in the public interest” while also submitting to a review to ensure the transaction does not irreparably harm competition. For Suddenlink customers, almost anything Altice could do would be an improvement for a cable company run by a guy who admitted on national television that the days of big investments by cable companies in service improvements were over. It was time to reap the profits, to paraphrase then-CEO Jerry Kent. And so they did, coming up with innovative usage caps and overlimit penalties for customers who dared to use the cable company’s internet service to circumvent a costly cable television package.

Cablevision, in contrast, was usually better regarded than the cable giants that surrounded it. Although technologically aggressive, Comcast canceled most of the goodwill earned for its service improvements by treating customers like patrons of an S&M club. Time Warner Cable was also loathed for its “last to do anything” upgrades, disengaged customer service, and reliable rate hikes, but at least they learned from earlier customer service mishaps and generally relied on a policy of being nicer to customers that threatened to leave.

Cablevision innovated on ways to keep customer loyalty after Verizon FiOS arrived to compete in large sections of its service area. The company spent millions on a major Wi-Fi network for the benefit of its commuting customers, launched broadband speed upgrades earlier than most, and after one embarrassing episode with the FCC showing their speed claims were not met by reality, they have usually overachieved ever since.

Drahi

In 2016, almost everything except Comcast changed. Time Warner Cable was successfully sold to Charter Communications and a self-styled ‘Baron of the Stock Exchange‘ — Patrick Drahi, managed to invade the United States and successfully acquire the two cable operators, despite admitting he would gut spending and wring hundreds of millions in savings out of the transactions for the benefit of his investors.

Mr. Drahi’s penchant for ruthless cost-cutting isn’t new, and he’s been dubbed “The Slasher” in Europe since decimating the budget at his French wireless and broadband company SFR-Numericable. French unions hate him, and not just those representing workers at his telecom businesses. Since the Altice Media Group took control of several major print publications in France, independent photographers have complained Altice slowed payments to a crawl, leading to an open letter to the French government from several press photography agencies demanding action. To date, Altice owes more than a half million dollars in outstanding licensing payments.

Critics contend this is nothing new for Altice, often denounced for not paying vendors (or paying them only after they agree to provide discounts) or alienating employees with radical cost cutting and cutbacks. Customers don’t like what they see either, with more than a million dropping SFR for other providers.

But that was not a story Goei was prepared to share with Cablevision workers in the Bronx.

Instead, Mr. Goei told employees he turned his back on a lucrative career on Wall Street after the great financial meltdown of 2008 and saw more potential running cable companies in Europe and the United States. Goei told the workers Altice’s business plan is to acquire cable and telecom companies and reinvest the profits in improved customer service and better technology for customers. Actual customers of Altice’s cable companies in Europe are still waiting for those improvements.

The French loathe SFR-Numericable, giving it one out of five stars in reviews.

SFR-Numericable, which Goei claimed this week won acclaim from French regulators for being the most reliable in the country, gets scathing reviews criticizing the company for its very frequent service outages, tricky marketing, and incoherent customer service. “Legalized banditry,” claimed one customer. Another described the offshore customer care center as “the Moroccan nightmare,” with more than a few call center workers demonstrating less-than-capable comprehension of French. Service outages are rampant and represent the single biggest reason customers have canceled service.

Goei complained that acquisitions and upgrades have been complicated in Europe by former managers grabbing their golden parachutes and abandoning the acquired companies (without mentioning Altice’s well-known reputation for draconian salary cuts and downsizing) and slowdowns from underperforming suppliers (despite the fact some vendors in France complained their invoices went unpaid for weeks or months, leading to complaints to government regulators).

Forthcoming upgrades are one of the reasons Goei was in the Bronx to sell employees on the merits of Altice Technical Services (ATS), a spinoff entity expected to eventually manage all of Altice’s technical infrastructure and the technicians that will care for it.

“We don’t want to contract out,” explained Goei, who aspires to manage Altice’s forthcoming upgrades effectively in-house through ATS instead of going to outside contractors. To manage this, Goei needs to convince Altice USA’s technical employees to leave Altice and join ATS.

Will ATS protect workers and customers or simply help Altice rid itself of regulator-imposed conditions for its acquisitions?

Goei’s statements seemed to suggest that most will need to make that transition if they want to remain a part of Altice for more than five years, hinting ATS will increasingly manage more and more of Altice’s technical needs, eventually making Altice USA employees potentially redundant.

Goei also hinted ATS might perform work for more than just Altice, which underlined concerns for union organizers that ATS is being established as an independent contracting entity that would not be subject to any regulatory job protection conditions that came with the approval of Altice’s acquisition of Cablevision.

Altice’s plans to rip out and replace coaxial cable with an all-fiber network will likely provide work for the next 7-10 years, notwithstanding the ambitious five-year timeline Altice gave for the fiber upgrade. But employees peppered Goei with questions about job security, benefits like vacation pay, and exactly who will be running ATS and what their opportunities for advancement are.

The transition to ATS might effectively be in name only, because Goei claimed ATS will have full access to employees’ files and work history with Altice and Cablevision, and if managers make the transition to ATS, employees could report to the same manager or supervisor they did under Altice.

“We’re not bringing in some Mexican guy” to run things Goei said to nervous laughter and raised eyebrows from the almost all-minority audience.

Goei’s question and answer session is unlikely to assuage concerns ATS could evolve into little more than Altice’s version of an independent subcontractor with enhanced loyalty to Altice USA. Despite assurances Altice is not looking for excuses to radically trim its workforce, Altice’s history shows job cuts are an integral part of what the French business press calls “The Drahi Method.”

At France’s SFR, Drahi made clear he is looking to cut at least 5,000 paid positions, reducing the workforce from 14,700 to 9,000, starting in July. Observers suspect Altice’s reliance on ATS to act as an umbrella technical department for all of Altice’s North American acquisitions guarantees workforce reductions, if only to eliminate redundancy. Altice has already shown a willingness to lay off employees at its Cablevision and Suddenlink call centers.

But there is one area where Altice is willing to spend.

Le Temps reports Drahi is opening the checkbook to beef up its Geneva executive headquarters in Switzerland, increasing the workforce tenfold and centralizing business operations for the Altice empire. The office is packed with ex-Wall Street bankers and businessmen with a reputation for ruthlessness. Goei’s office is in the building, as is the company’s director — Michel Combes. Combes was notoriously hired away from Alcatel right after demonstrating a talent for swinging the job cutting ax. They are joined by Burkhard Koep, a former Morgan Stanley investment banker in charge of mergers and acquisitions.

The top shelf executives have moved themselves and their families from London, New York, Paris, Tel Aviv and Lisbon to the posh neighborhoods around suburban Geneva, where homes are more likely to be called estates.

The Geneva office conducts business through heavy reliance on videoconferencing and racking up frequent flier miles traveling abroad. Often absent is Drahi himself, who prefers to conduct business from his Zermatt-based luxury cottages. As much as executives spend their time pondering the next acquisition, Le Temps reports they also spend their weekends trying to renegotiate the company’s enormous debt load by seeking refinancing at lower interest rates.

“They play a bank against each other by saying: we will refinance to 6% the debt you loaned us at 7%,” reported the news outlet.

But Altice’s Geneva headquarters did not come for free. Drahi recently introduced a new franchise fee obligating each cable or telecom unit to pay 2-3% of their revenue to Mr. Drahi’s Switzerland office. In the first year that is expected to raise at least $550 million dollars. While popular with Swiss tax authorities, the substantial royalty payments are expected to reduce available cash for upgrades and debt service. Nobody is sure where the money will ultimately end up.

Merry Christmas from Comcast: We’re Raising Your Rates (Again)

Phillip Dampier December 14, 2016 Comcast/Xfinity, Competition, Consumer News 2 Comments

Tis the season for rate increases. Fa-la-la-la-la, La-La-La-La.

Comcast is bringing itself some Christmas cheer this holiday season with more of your money going into its pocket as the cable giant announces nationwide rate hikes that will cost customers an average of 3.8 percent more in 2017. Comcast blames much of the increase on others.

“We continue to make investments in our network and technology to give customers more for their money—like faster internet service and more Wi-Fi hotspots, more video across viewing screens, better technology like X1 and a better customer experience,” Comcast said in a statement. “Unfortunately, the costs we are charged to carry popular networks continue to increase significantly, especially broadcast television and sports programming, which are the largest drivers of increases in price adjustments.”

Customers may not feel like they are getting more for their money with Comcast’s data caps and overlimit fees, which increasingly affect customers except in the northeast (for now). Cable TV customers will generally see a published rate increase of around $1 a month, which sounds like a pittance until you scrutinize the rate hike more closely.

Bill padding is where the real money will be made in 2017:

  • Broadcast TV Fee: Was around $5 in most markets, but Comcast intends to charge $2 more, bringing the fee to $7 a month;
  • Regional Sports Surcharge: Whether you watch sports channels or not, you will be expected to pay $2 more next year for those channels, with fees rising to $5 a month.

The absence of viable broadband competition in states like Maryland, bypassed by Verizon FiOS, means Comcast can raise broadband prices almost at will.

TV Predictions notes officials in Montgomery County, which includes the suburban Washington, D.C. cities of Bethesda and Rockville, have been notified of $5 a month rate hikes on broadband, taking some internet access pricing above $80 a month:

  • Internet Plus will increase from $77.95 a month to $82.95 a month;
  • Internet Pro Plus with Showtime will rise from $81.95 a month to $86.95 a month;
  • Internet Pro Plus With HBO will increase from $84.95 a month to $89.95 a month;
  • Premier XF Double Play package will increase from $182.95 a month to $187.99 a month, taking Comcast closer to the $200 cable bill.

Standalone internet pricing is now just as expensive as a deluxe cable television package, despite the fact it costs Comcast only a fraction of the amount it charges to provide the service:

  • Performance plan will rise from $69.95 to $74.95 a month;
  • Performance Pro plan will go from $79.95 a month to $84.95 a month;
  • Blast plan will rise from $82.95 a month to $87.95 a month.

Stop the Cap! Reviews AT&T DirecTV Now: The Cord Cutting Revolution Continues

directvnow-planWhen AT&T announced it would offer 100+ cable television and broadcast network channels under the DirecTV Now brand for $35 a month, Wall Street had a fit.

Craig Moffett, an analyst with Moffett-Nathanson, speculated that AT&T would make at most a profit margin of $5 a month for its $35 a month plan, once programming costs were covered. But then AT&T announced it would sweeten the deal with a free Apple TV Player or Amazon Fire Stick for those confident enough to prepay for the new service. That makes DirecTV Now a purposefully unprofitable service, creating considerable stress for both the cable and satellite industry and their investors.

Variety notes the average DirecTV satellite subscriber delivers about $60 a month in profit to its owner, AT&T. That led the industry magazine to speculate DirecTV Now is a “loss leader” designed to sell its parent company’s AT&T-Time Warner, Inc. merger deal to regulators on the premise of increased competition delivering real savings to consumers.

Thankfully for Wall Street’s nerves, AT&T’s usual practice of marketing things with a lot of fine print emerged in the nick of time, and the $35 dollar price has now turned out to be an introductory offer for early adopters. In the not-too-distant future, AT&T will enroll new customers for its “Go Big” package at a much more profitable $60 a month. Customers who sign up at the $35 rate and stay customers will be able to keep that price as long as they make no changes to their account after the promotion ends.

Moffett

Moffett

But Moffett warned investors that the traditional cable television model is still under serious threat, and AT&T’s less-promoted “Live a Little” package offering 60 popular cable networks for the everyday price of $35 is the equivalent of AT&T “running with scissors” because it alone could cause millions of cable and satellite customers to cut the cord and stay more than satisfied with a slimmed down cable package.

“Virtually all the channels that anyone would really want, save for regional sports networks” are included in the lighter “Live a Little” package, Moffett added. Customers who loathe watching sports but want a beefier package can also sign up for a $50, 80-channel “Just Right” package that primarily omits sports-oriented channels and a handful of spinoff cable networks few would miss.

Moffett and other Wall Street analysts were hoping AT&T would bloat its cheaper package with home shopping, religion, and other little-watched, low-cost cable networks and then entice customers to upgrade to unlock more popular cable channels. Instead, AT&T’s most premium package — “Gotta Have It” which costs $70 a month adds the “can live without” networks like Boomerang, Cloo, El Rey, Centric, and other little-known channels that typically live unnoticed in Channel Siberia on 500+ channel cable lineups. The highest premium priced package is attractive only for those looking for Starz/Encore channels and the basic cable network that gets no respect — Hallmark Movies & Mysteries (a/k/a the Dick van Dyke Permanent Employment Network.)

prepay-directvnow“By stacking their base package with all the best networks — likely a requirement for getting the programming contracts at all — they still have the same problem that was highlighted initially,” by Moffett. “Put simply, they aren’t going to make any money.”

That quest for profit is further challenged with subscriber acquisition programs that dole out free Apple TV units to customers willing to prepay for three months of service at the $35 rate or an Amazon Fire Stick (with Echo remote) in return for prepaying for one month of service. Anyone in the market for either device can sign up for DirecTV Now, get the equipment at an attractive price, and consider the 1-3 months of service a free extra bonus. Customers were reportedly lining up at AT&T’s owned and operated retail outlets (not authorized resellers) to pick up devices and sign up for service today.

At these prices and with these promotions, AT&T DirecTV Now could first decimate the subscriber base of its immediate competitors Sling TV and PlayStation Vue, either of which offer a much less compelling value. AT&T can afford to charge a lower price because it has deeper pockets and enormous volume discounts on the wholesale price of cable programming — combining millions of DirecTV and U-verse TV subscribers together to negotiate what industry insiders suspect are major discounts the smaller providers cannot get.

But there are issues likely to be deal-breakers for some would-be DirecTV Now subscribers:

  • Local broadcast stations are available only in a handful of selected cities and only a very few include all ABC, NBC, and FOX affiliates. CBS is not participating in DirecTV Now at this time, and that is a major omission;
  • NFL Network isn’t on the lineup;
  • Regional sports networks are spotty and geographically restricted. Here is a detailed PDF outlining options by zip code;
  • There is a limit of two concurrent streams and although video quality is very good, it is not the 1080/HD experience AT&T’s marketing material would suggest. The quality of your internet connection will make a difference;
  • No DVR option at this time.

CNET compiled an excellent channel comparison chart to help consumers figure out which, if any, of these upstarts make sense as a cable TV replacement:

DirecTV Now vs. Sling TV vs. PlayStation Vue (top 169 channels, see notes below)

Channel DirecTV Now Packages Sling Package Vue Package
A&E Live a Little Orange, Blue No
ABC Yes or VOD Broadcast extra Yes or VOD
AMC Live a Little Orange, Blue Access
American Heroes Go Big No Elite
Animal Planet Live a Little No Access
Audience Live a Little No No
AXS TV Live a Little Orange, Blue No
Baby TV No Kids extra No
BBC America Live a Little Orange, Blue Access
BBC World News Go Big News extra Elite
beIN Sports No Sports extra Core
BET Live a Little Blue (Orange lifestyle extra) No
Bloomberg TV Live a Little Base No
Boomerang Gotta Have It Kids extra Elite
Bravo Live a Little Blue Access
BTN Just Right No Core
Campus Insiders No Sports extra No
Cartoon Network/Adult Swim Live a Little Orange, Blue Access
CBS No No Yes or VOD
CBS Sports No No No
Centric Go Big No No
Cheddar No Orange, Blue No
Chiller Gotta Have It No Elite
Cinemax PREMIUM ($5/month) PREMIUM No
Cloo Gotta Have It No Elite
CMT Live a Little Comedy extra No
CNBC Live a Little News extra Blue Access
CNBC World Just Right No Elite
CNN Live a Little Orange, Blue Access
Comedy Central Live a Little Orange, Blue No
Comedy.TV Just Right No No
Cooking Channel Just Right Lifestyle extra Elite
CSPAN Live a Little No No
Destination America Go Big No Access
Discovery Channel Live a Little No Access
Discovery Family Go Big No Access
Discovery Life Go Big No Elite
Disney Channel Live a Little Orange Access
Disney Junior Live a Little Kids extra Orange Access
Disney XD Live a Little Kids extra Orange Access
DIY Go Big Lifestyle extra Access
Duck TV No Kids extra No
E! Live a Little Lifestyle extra Blue Access
El Rey Network Gotta Have It Orange, Blue No
Encore Gotta Have It No No
EPIX No Hollywood extra No
EPIX Drive-in No Hollywood extra No
EPIX Hits No Hollywood extra PREMIUM, Elite
EPIX2 No Hollywood extra No
ESPN Live a Little Orange Access
ESPN 2 Live a Little Orange Access
ESPN Bases Loaded No Sports extra Orange No
ESPN Buzzer Beater No Sports extra Orange No
ESPN Deportes No Spanish TV extra Orange Elite
ESPN Goal Line No Sports extra Orange No
ESPNEWS Just Right Sports extra Orange Core
ESPNU Just Right Sports extra Orange Core
Esquire No No Access
Euro News No World News Extra No
Flama No Orange, Blue No
Food Network Live a Little Orange, Blue Access
Fox Yes or VOD Blue Yes or VOD
Fox Business Live a Little No Access
Fox College Sports Atlantic No No Elite
Fox College Sports Central No No Elite
Fox College Sports Pacific No No Elite
Fox News Live a Little No Access
Fox Sports 1 Live a Little Blue Access
Fox Sports 2 Go Big Blue Access
Fox Sports Prime Ticket Just Right No No
France 24 No World News Extra No
Freeform Live a Little Orange Access
Fuse Just Right No No
Fusion Just Right World News Extra Elite
FX Live a Little Blue Access
FXM Go Big No Elite
FXX Live a Little Blue Access
FYI Go Big Lifestyle extra No
Galavision Live a Little Orange, Blue No
Golf Channel Go Big Sports extra Blue Core
GSN Just Right Comedy extra No
Hallmark Live a Little Lifestyle extra No
Hallmark Movies & Mysteries No LIfestyle extra No
HBO PREMIUM ($5/month) PREMIUM PREMIUM, Ultra
HDNet Movies No Hollywood extra No
HGTV Live a Little Orange, Blue Access
Hi-Yah No No Elite
History Live a Little Orange, Blue No
HLN Live a Little News extra Access
HSN No No No
IFC Just Right Orange, Blue Core
Ion No No No
Impact No No Elite
Investigation Discovery Live a Little No Access
JusticeCentral.TV Just Right No No
Lifetime Live a Little Orange, Blue No
LMN Just Right Lifestyle extra No
Local Now No Orange, Blue No
LOGO Go Big Comedy extra No
Longhorn Network Just Right No No
Machinima No No Elite
Maker No Orange, Blue No
MGM-HD No No Elite
MLB Network Just Right No No
Motors TV No Sports extra No
MSNBC Live a Little News extra Blue Access
MTV Live a Little Comedy extra No
MTV Classic Go Big No No
MTV2 Live a Little Comedy extra No
Nat Geo Wild Go Big Blue Elite
National Geographic Live a Little Blue Access
NBA TV Go Big Sports extra Core
NBC Yes or VOD Blue Yes or VOD
NBC Sports Network Just Right Blue Access
NDTV 24/7 No World News Extra No
News 18 India No World News Extra No
Newsy No Orange, Blue No
NFL Network No Blue Core
NFL Red Zone No Sports extra (Blue) PREMIUM (Core and up)
NHL Network Go Big Sports extra No
Nick Jr. Live a Little Blue No
Nickelodeon Live a Little No No
Nicktoons Live a Little Kids Extra Blue No
ONE World Sports No No Elite
Outdoor Channel No No No
Outside Television No Sports extra Elite
OWN Just Right No Access
Oxygen Just Right Lifestyle extra Blue Access
Palladia No No Elite
PBS No No No
Poker Central No No Elite
Polaris No Orange, Blue Elite
POP No No Access
QVC No No No
Revolt Go Big No No
RFD TV Live a Little No No
Russia Today No World News Extra No
Science Just Right No Access
SEC Network Just Right Sports extra Orange Core
Showtime No No PREMIUM, Elite
Spike Live a Little Comedy extra No
Sprout Go Big No Elite
Starz Gotta Have It PREMIUM No
Sundance TV Go Big Hollywood extra Core
Syfy Live a Little Blue Access
TBS Live a Little Orange, Blue Access
TCM Live a Little Hollywood extra Core
Teen Knick Live a Little Kids extra Blue Elite
Telemundo Live a Little No No
Tennis Channel Go Big No No
The Weather Channel Live a Little No No
TLC Live a Little No Access
TNT Live a Little Orange, Blue Access
Travel Channel Just Right Orange, Blue Access
truTV Live a Little Blue (Orange comedy extra) Access
TV Land Live a Little Comedy extra No
TVG Go Big No No
Universal HD No No Elite
Univision Live a Little Blue (Orange Broadcast extra) No
Univision Deportes Gotta Have It Sports extra No
Univision Mas Just Right Blue (Orange Broadcast Extra) No
USA Network Live a Little Blue Access
Velocity HD Live a Little No Elite
VH1 Live a Little Lifestyle extra No
VH1 Classic No No Elite
Vibrant TV No Lifestyle extra No
Viceland Live a Little Orange, Blue No
WE tv Live a Little Lifestyle extra Access
WeatherNation Live a Little No No
Notes

Broadcast networks including ABC, CBS, Fox and NBC are not available for live streaming in many cities, except where noted as “yes.” The term “VOD” means viewers can watch these shows on-demand 24 hours after airing.
Most RSNs (Regional Sports Networks) not listed; varies per locality

PREMIUM = Available for an additional monthly fee beyond base package

DirecTV Now package key:
Live a Little = $35/month (Local ABC, Fox, NBC broadcasts included in select markets)
Just Right = $50/month
Go Big = $60/month ($35 / month introductory price)
Gotta Have It = $70/month

Sling TV package key:
Orange = $20/month
Blue = $25/month
other “”extras”” = another $5 /month each (Sports extra with Blue is $10)
Broacast Extra: ABC, Univision and Univision Mas available to Sling Orange subscribers in select cities

PlayStation Vue package key:
(for New York, Los Angeles, Chicago, Philadelphia, Dallas, San Francisco, Miami ONLY)
Access (Base) = $40/month
Core = $45/month (includes Access channels, some Regional Sports Networks)
Elite = $55/month (includes Access and Core channels)
Ultra = $75/month (includes Access, Core and Elite channels, plus HBO and Showtime)

(for all other cities, where ABC, CBS, Fox and NBC are available via VOD only)
Access Slim (Base) = $30/month
Core Slim = $35/month (includes Access channels, some Regional Sports Networks)
Elite Slim = $45/month (includes Core and Access channels)
Ultra Slim = $65/month (includes Access, Core and Elite channels, plus HBO and Showtime)

$5 a month each for HBO and Cinemax.

$5 a month each for HBO and Cinemax.

Time Warner, Inc. did its part, offering a substantial deal to DirecTV Now to allow customers to add HBO and Cinemax for just $5 a month each, substantially less than what both networks charge customers signing up a-la-carte. This also unlocks access to streaming options on both networks’ websites.

In fact, as a DirecTV Now customer, you will also become an authenticated pay television subscriber, unlocking access on various cable network websites to extra streaming and on-demand options.

The implications of DirecTV Now depend on how long AT&T extends its $35 offer, which is going to be compelling for a lot of Americans. Moffett predicts DirecTV Now could sign up a staggering 11 million Americans — at least two million cannibalized from its own DirecTV satellite customer base, six million cutting the cord on their cable company (including AT&T U-verse) and another three million cord-cutters or “cable-nevers.” Most of the latter are Millennials, and research suggests $35 may be low enough of a price point to sign them up.

AT&T is also raising concerns among internet activists because online streaming of DirecTV Now will not count against an AT&T postpaid customer’s data allowance. This zero rating scheme is seen as an end run around Net Neutrality, particularly because AT&T is not as generous with its competitors. AT&T said it will offer other video streamers the possibility of being exempted from AT&T data allowances, if they pay AT&T for the privilege.

How It Works/Signing Up

AT&T DirecTV Now starts with the Google Chrome 50+, Safari 8+ or Internet Explorer 11+ (on Windows 8 and up) web browsers or the DirecTV Now app. AT&T recommends Chrome for desktop viewing. The service doesn’t work with Firefox, Microsoft Edge, or legacy browsers.

The first step is registering for a 7-day free trial. Before handing over your credit card number, if you scroll down you will find a small free preview option is also available that includes a largely useless streaming barker channel promoting the service and a respectable collection of video on demand options from basic cable networks. The free video streaming option will give you a clue about how the service is likely to perform on your internet connection and devices. For the record, DirecTV Now now supports:

Support for other devices like Roku is coming next year.

Customers must be within the United States to use the service. If you travel abroad or to any U.S. territories like Guam, the Virgin Islands, or Puerto Rico, DirecTV Now will stop working until you return. When you sign up, keep in mind your billing zip code will mean a lot when it comes to accessing regional sports and local broadcast channels. DirecTV Now uses your billing zip code and your actual location to determine whether you are qualified to access regional sports networks and local stations.

Score a Free Apple TV Player or Amazon Fire TV Stick

Apple TV (4th Generation): Effectively free after prepaying for three months of service.

Apple TV (4th Generation): Effectively free after prepaying for three months of service.

If you are looking to score an Apple TV (4th generation) or an Amazon Fire TV Stick, you will want to skip the 7-day free trial and enroll in a paid plan immediately, which will allow you to select which player you want. If you want the Apple TV, you will prepay for three months at $35 a month ($105). The Amazon Fire TV Stick only requires you to prepay for the first month of service ($35). One device per email address, but you can sign up for multiple accounts (using individual email addresses) and get a device for each — especially useful for larger families that could run into DirecTV Now’s two-stream limit.

Consider your choices before enrolling. If you want to add premium channels or upgrade your plan, and you select the three-month prepay option to grab an Apple TV Player, adding premium channels like HBO and Cinemax or moving to a higher plan will result in three months of prepaid charges for those upgrades as well, billed automatically to your credit card on file — which amounts to a $30 charge if you select HBO and Cinemax. After your promotional prepaid term ends, your account will continue to be billed at the $35 (plus any add-ons) rate until you cancel. AT&T covers you for the forfeited first free week by extending your bill date out by seven days. Allow 2-3 weeks for the device(s) to be shipped to you.

You can also sign up at an AT&T owned and operated retail store, but be aware AT&T “authorized” reseller stores are not participating in this promotion. That may allow you to bring home a device today.

Don’t care about the device promotions? Take the 7-day free trial, but be aware that you are giving AT&T your credit card number and charges begin immediately after the free week ends unless you cancel. Here’s how:

  1. Sign in to your account.
  2. From your User Account overview page, select Manage My Plan.
  3. Select the Cancel Plan link.
  4. Choose one of the listed reasons.
  5. Select Cancel Now to confirm cancellation.

Your subscription will continue until the end of the billing cycle. No refunds or credits are provided for partial months. Your account will revert to Freeview demo status after you cancel a subscription.  You can add a subscription package back at any time.

Oddly, AT&T is not charging sales tax for New York, California, Maryland or Virginia residents. Customers in states like Tennessee where AT&T provides local phone service were most likely to face sales taxes. Those signing up early are in the best position to exploit what appears to be an oversight, or it represents the first time the New York Department of Taxation and Finance left money on the table.

directv-now-price

Streaming from Your AT&T Wireless Device Does Not Count Against Your Data Allowance

If you’re a DirecTV Now and AT&T Wireless customer, streaming most DirecTV Now movies and programs over the AT&T wireless network won’t count against your data usage allowance, according to AT&T. But believe it or not, AT&T’s fine print indicates advertisements and non-streaming app activity do count! There are some other important disclosures to be aware of:

  • You must be on the AT&T Wireless network within the U.S. (U.S. territories are not qualified for zero rating);
  • You must be a postpaid, not a prepaid AT&T wireless customer to qualify and must not have “data block” on your mobile line;
  • If you are grandfathered on an unlimited data plan, using DirecTV Now will not count against the 22GB data threshold which subjects you to speed throttling;
  • This offer may disappear at any time and/or is subject to change.

DirecTV Now Qualifies You as an Authenticated Pay Television Subscriber

Many cable networks require customers enter their cable, satellite, or telco TV login credentials to unlock video streaming and on-demand features. DirecTV Now is a qualified provider for these websites (more coming):

Other networks are not yet enabled for DirecTV Now. CNN, for example, has a prompt for DirecTV satellite customers to log in, but DirecTV Now has its own account registration system.

Local Channels Are Very Spotty

Local over the air channels are very limited on DirecTV Now and are geographically restricted. You can access these channels only if you are located in or very near to the cities listed below and your billing zip code is in the same area. If you travel outside of the immediate area, live streaming will stop working until you return.

ABC*  NBC**  FOX  and Telemundo  are covered by DirecTV Now in selected cities. CBS is not available on the service at all at this time.

  • wlsAtlanta, GA: WAGA-TV
  • Austin, TX: KTBC
  • Boston, MA: Telemundo East
  • Charlotte, NC: WJZY
  • Chicago, IL: WLS-TV, WMAQ, WFLD, Telemundo East
  • Dallas-Ft Worth, TX: KXAS, KDFW-TV, Telemundo East
  • Denver, CO: Telemundo East
  • fox2Detroit, MI: WJBK
  • Fresno-Visalia, CA: KFSN-TV, Telemundo East
  • Gainesville, FL: WOGX
  • Hartford-New Haven, CT: WVIT
  • Houston, TX: KTRK-TV, Telemundo East
  • 4nbcLas Vegas, NV: Telemundo East
  • Los Angeles, CA: KABC-TV, KNBC, KTTV, Telemundo East
  • Miami-Ft Lauderdale, FL: WTVJ, Telemundo East
  • Minneapolis, MN: KMSP-TV
  • New York, NY: WABC-TV, WNBC, WNYW, Telemundo East
  • Orlando-Daytona, FL: WOFL
  • Philadelphia, PA: WPVI-TV, WCAU, WTXF-TV, Telemundo East
  • Phoenix, AZ: KSAZ-TV, Telemundo East
  • Raleigh-Durham, NC: WTVD-TV
  • San Diego, CA: KNSD
  • San Francisco/Oakland/San Jose, CA: KGO-TV, KNTV, KTVU
  • Tampa-St Petersburg, FL: WTVT
  • Washington, D.C.: WRC, WTTG

*Not available on Internet Explorer 11 on Windows 7. **NBC live stream available on mobile and desktop devices only.

Giving the Service a Test

Stop the Cap! enrolled as an ordinary customer this morning and gave the service a rigorous test, including multiple streams over our 50/5Mbps internet connection. The service debuted today, and there is little doubt there is intense interest from consumers, so we expected some performance problems from the initial demand. We didn’t see any evidence of traffic congestion, however, and that is a good sign.

AT&T's John Stankey explaining DirecTV Now.

AT&T’s John Stankey explaining DirecTV Now.

A similar test of Sling TV did not perform as well during peak viewing times, when streaming problems emerged. DirecTV Now seems to be built to withstand intense demand.

One customer with a 6Mbps U-verse internet connection “in the boonies” was impressed the video quality of DirecTV Now was high even on a relatively slow DSL-like connection.

“This blows SlingTV away,” the person shared. “I only have U-verse 6Mbps internet service and it is not pixelated or buffering at all. Looks exactly like my regular DirecTV picture.”

AT&T published these recommendations for DirecTV Now customers regarding internet connection speeds:

  • 150kbps – 2.5Mbps – Minimum broadband connection speed for Mobile devices
  • 2.5 – 5.0Mbps – Recommended for HD quality

We’ve been led to believe DirecTV Now should perform equivalently to 1080i HDTV service (depending on the video source of course). We cannot say we agree it does right now. We noticed significant artifacts on high-motion video and picture graininess that left us feeling this was closer to a 720p HD experience. It isn’t possible to say whether the video player reduced playback quality because of internet traffic issues we were unaware of or if this is how the picture is supposed to look. It did not significantly detract from the viewing experience and the lack of buffering and pixelation was far more important to us.

AT&T store in NYC.

AT&T store in NYC.

DirecTV Now would serve adequately as a cable TV replacement if it had local station coverage and some type of DVR. At present, DirecTV Now is limited to a “Restart” feature that allows you to restart shows already in progress on certain channels, but you cannot fast-forward or record a restarted show. Once AT&T introduces a cloud-based DVR and fills out the local station lineup, this service could be lethal to overpriced cable TV packages.

AT&T’s marketing attempts to undercut the powerful position of inertia by setting an unknown time limit for customers to enroll in the $35 a month video package. If you don’t sign up today, you may not get the “free” Apple TV or Amazon Fire Stick and a respectable cable TV package for just $35 a month — about half what cable operators are charging these days for their bloated video packages. AT&T doesn’t care if you stick with your current cable provider and signup for DirecTV Now, if only to grab free streaming video equipment while sampling the service. They get their money either way.

Had AT&T permanently kept the price at around $35, many consumers would likely sit back and wait for AT&T to sort out the streaming contract issues it has with the TV networks — CBS in particular, and come up with a DVR solution before those potential customers decided to sign up and make the change. Based on several “hot deals” websites, the mentality among many consumers is to “lock in” the $35 price now and wait for AT&T to build out the package while continuing to invest $35 a month on it. That doesn’t seem so bad when you get free electronics as part of the deal.

Our Final Take

AT&T’s DirecTV Now is a potential winner and worth signing up for because of the introductory price and free equipment offers. But if you decide not to disconnect your cable/satellite television service, it is probably safe to drop DirecTV Now after your prepayment expires and return to resume service a little later. There will probably be some warning when AT&T will end the introductory price for the service, and interested customers can hop back on board before that date arrives. DirecTV Now will be a formidable competitor, but it will fight against consumer resistance to confront the cable company and cut cable’s cord until it solves the local channels issue and has a credible DVR option. The service could also use an add-on to make adding additional concurrent streams possible and more affordable than just signing up for a second account.

Don’t count out Big Cable just yet. With data caps and other internet overcharging schemes, Comcast, Cox, Suddenlink, and others can play games with usage allowances to deter customers from streaming all of their video entertainment online at the risk of blowing past their allowance. DirecTV Now’s $35 price won’t mean much after overlimit fees begin appearing on your internet bill.

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