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Verizon Reaches Deal With N.Y. Public Service Commission to Expand Fiber Network

Verizon Communications will bring fiber and enhanced DSL broadband service to an additional 32,000 New Yorkers in the Hudson Valley, Long Island, and upstate as part of a multi-million dollar agreement with the New York Public Service Commission.

When combined with an earlier agreement, Verizon has committed to bringing rural broadband service to more than 47,000 households in its landline service area, with the state contributing $71 million in subsidies and Verizon spending $36 million of its own money.

By the end of this year, Verizon expects to introduce high-speed fiber to the home internet service to 7,000 new locations on Long Island and 4,000 in the Hudson Valley and upstate regions.

“The joint proposal strikes the appropriate balance for consumers, Verizon and its employees,” said PSC Chairman John Rhodes. “The joint proposal builds upon and expands important customer protections previously approved by the Commission and it requires Verizon to expand its fiber network and invest in its copper network, both of which will result service improvements.”

The broadband expansion agreement will include copper reliability improvements in the New York City area, where FiOS is still not available to every home and business in the city. It also includes a commitment to provide fiber-to-the-neighborhood (FTTN) service in sparsely populated areas. This will allow Verizon to introduce or enhance DSL service capable of speeds of 10 Mbps or more.

Verizon has also committed to remove at least 64,000 duplicate utility poles over the next four years around the state. Utility companies have been criticized for installing new poles without removing damaged or deteriorating older poles.

For now, neither Verizon or the PSC is providing details about where broadband service will be introduced or improved.

The state has negotiated with Verizon for more than two years to get the company to improve its legacy landline and internet services, still important in New York. Verizon has complained that with most of its landline customers long gone, it didn’t make financial sense to invest heavily in older, existing copper wire technology. But Verizon suspended expansion of its fiber to the home network in upstate New York eight years ago, leaving many customers in limbo as landline service quality declined. There are still more than two million households and businesses in New York connected to Verizon’s copper wire network.

The state says the deal will “result in the availability of higher quality, more reliable landline telephone service to currently underserved communities and will increase Verizon’s competitive presence in several economically important telecommunications markets in New York.”

The upgrades will cover landline and broadband service improvements. Verizon has no plans to restart expansion of FiOS TV service.

The agreement was reached as the PSC continues to threaten Charter Communications with additional fines and Spectrum cable franchise revocation for failure to meet the terms of its 2016 merger agreement with Time Warner Cable.

FCC’s Ajit Pai Has “Serious Concerns” About Sinclair/Tribune Merger

Phillip Dampier July 16, 2018 Competition, Consumer News, Public Policy & Gov't 1 Comment

FCC Chairman Ajit Pai may have effectively derailed Sinclair’s $3.9 billion dollar acquisition of Tribune Media today after issuing a statement criticizing the deal.

“Based on a thorough review of the record, I have serious concerns about the Sinclair/Tribune transaction,” Pai said in a statement few expected to see from the current chairman. “The evidence we’ve received suggests that certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law.”

Pai is responding to ample evidence from those objecting to the deal showing Sinclair’s proposal to acquire 42 additional Tribune-owned TV stations and effectively maintain shadow control over stations it planned to divest would put the company far over the federal station ownership cap. Sinclair’s proposal to sell 21 stations to win government approval came under close scrutiny when it was revealed most of the buyers had direct ties to Sinclair or its founding Smith family. Critics charged Sinclair offered sweetheart deals to buyers in return for “sidecar” agreements to effectively retain control of the spun-off stations and have the option of buying them back later at a discount.

Pai

“When the FCC confronts disputed issues like these, the Communications Act does not allow it to approve a transaction,” Pai noted. “Instead, the law requires the FCC to designate the transaction for a hearing in order to get to the bottom of those disputed issues. For these reasons, I have shared with my colleagues a draft order that would designate issues involving certain proposed divestitures for a hearing in front of an administrative law judge.”

The chairman’s views were welcomed by FCC Commissioner Jessica Rosenworcel.

“As I have noted before, too many of this agency’s media policies have been custom built to support the business plans of Sinclair Broadcasting,” she said in a statement. “With this hearing designation order, the agency will finally take a hard look at its proposed merger with Tribune. This is overdue and favoritism like this needs to end.”

Industry observers suggest such a referral is a death blow in cases of similar mergers because of long delays and uncertainties. The FCC effectively ended the 2015 Comcast-Time Warner Cable merger when it referred the merger to a similar complicated hearing process. The two companies abandoned the deal after getting the news.

Sinclair’s deal has also been a lightning rod for controversy between liberal and conservative groups. The Washington Post found Sinclair “gave a disproportionate amount of neutral or favorable coverage to Trump during the campaign” while portraying Hillary Clinton negatively in much of its coverage. Politico reported Jared Kushner, President Trump’s son-in-law, made a deal with the president’s campaign to get additional access to the president in return for assurances Mr. Trump would receive, in Kushner’s words, “better media coverage.”

After the election, Sinclair-owned stations have been under growing scrutiny for airing mandated “must-air” conservative-slanted stories and editorials during local newscasts. Recent commentaries from former Trump campaign adviser Boris Epshteyn included praise for the president’s newest nomination for the Supreme Court and criticism over how the president is treated by the media.

Bipartisan criticism of the merger deal for violating the spirit of the FCC’s station ownership cap, consolidation of local news voices, and company-mandated stories forced into local newscasts may have persuaded Pai to express concern.

The FCC is continuing to explore possible changes to the station ownership cap under the leadership of Chairman Pai. Many large station owners are calling for the cap to be rescinded altogether or the maximum raised to allow one owner to reach at least 50% of the country. Any changes would likely come too late for the Sinclair/Tribune deal.

It is now up to executives at Sinclair and Tribune to consider whether to take their case to an administrative law judge and wait out a decision or drop the merger deal.

AT&T’s Vision for HBO: Hook ’em With Freebies, Addict Them Wanting More, Monetize Everything

Phillip Dampier July 9, 2018 AT&T, Competition, Consumer News, Online Video 1 Comment

This isn’t going to be your parent’s HBO much longer.

In a recent town hall attended by 150 employees, AT&T laid out its new vision for the premium network it recently acquired. one almost similar at times to the business plan of a drug pusher.

“We need hours a day,” said John Stankey, a recent transplant from AT&T’s executive suites now tapped to run WarnerMedia — AT&T’s new name for what used to be Time Warner (Entertainment) and owner of HBO. Stankey was complaining that HBO was out of touch with the times, attracting too few viewers to its multiplex of premium channels only a handful of times a week, if that. In a world shared by Netflix, that was not nearly good enough.

HBO, which began life as Home Box Office in November, 1972 is by far America’s oldest cable television channel. Originally a venue for high profile, unedited, commercial-free movies, along with sports and specials, HBO grew into a well-respected producer of high budget (often millions of dollars per episode), cutting-edge original movies and series, showcased to loyal audiences on Sunday nights for years. Series like The Wire, The Sopranos, Sex in the City, Oz and Game of Thrones are well-known across the country, but fewer than half of Americans subscribe to HBO to watch them. HBO has also been the critics’ choice for original content, showering awards on the network in unprecedented numbers for almost 20 years.

Now that AT&T is in charge, that is all about to change, as executives prepare to shift HBO away from “quality over quantity” towards “quality and quantity.” Stankey also made it clear the changes are first and foremost about making money — a lot of it earned by keeping subscribers on HBO property so their viewing habits can be studied and sold.

Stankey

“It’s going to be a tough year,” Stankey warned. “It’s going to be a lot of work to alter and change direction a little bit.”

“It’s not hours a week, and it’s not hours a month,” Stankey said of how long he expects HBO subscribers to spend time watching the service. “It’s hours a day. You are competing with devices that sit in people’s hands that capture their attention every 15 minutes. I want more hours of engagement. Why are more hours of engagement important? Because you get more data and information about a customer that then allows you to do things like monetize through alternate models of advertising as well as subscriptions, which I think is very important to play in tomorrow’s world.”

That will be a major shift for a network overseen top to bottom since 1992 by Richard Plepler, HBO’s chief executive. Plepler expanded on HBO original movies by launching expensive scripted series in the late 1990s that stood out by escaping broadcast television network censorship. But Plepler was very selective about the number of shows on HBO’s schedule, with some series taking years to develop. Under Stankey’s leadership, HBO will now be expected to dramatically expand original content, much like Netflix has done to keep viewers coming back for more.

“As I step back and think about what’s unique about the brand and where it needs to go, there’s got to be a little more depth to it, there’s got to be more frequent engagement,” Stankey said, adding HBO’s brand has to broaden its appeal to new audiences.

That will require a big boost to HBO’s budget. The pay movie channel is already extremely profitable, making almost $6 billion in profits over the last three years. It invested $2 billion in programming development, much less than the $8 billion Netflix is investing in less costly, but more prolific programming. HBO’s business plan depends heavily on American cable subscribers paying $10-15 a month for the network. It also earns money selling its original shows to television outlets in other countries. Its high monthly cost has always limited subscriber numbers, especially these days with cord-cutting and bill shaving. Premium movie channels are often the first networks to be dropped in return for a lower bill.

Plepler

To monetize its subscriber base, HBO either has to cut the cost of the network, transform it into must-have television, or a combination of both. Stankey is unhappy HBO has wavered around 40 million subscribers (out of 142 million American potential households) for years. He told audiences the network has to find ways to move the network beyond its perpetual 35-40% penetration “to have this become a much more common product.”

There was a clear sense of tension between Plepler, who is part of the New York City entertainment scene, and Stankey, a business-focused Texan with decades of experience in the Bell System — later AT&T. Plepler’s deference to Stankey’s new vision seemed uncomfortable at times, as Stankey made it clear who was now in charge:

Stankey: “We’ve got to make money at the end of the day, right?”
Plepler: “We do that.”
Stankey: “Yes, you do, just not enough.”

Plepler’s clearly defined tenure and vision at HBO had not wavered much since taking over in the early 1990s. But that vision was nervously discarded almost immediately as Stankey looked on.

“I’ve said, ‘More is not better, only better is better,’ because that was the hand we had,” Plepler explained. “I’ve switched that, now that you’re here, to: ‘More isn’t better, only better is better — but we need a lot more to be even better.’”

As a result, HBO, which used to be the darling of critics and well-to-do viewers in big cities on the east and west coast is getting a radical makeover. Onlookers can expect a much more aggressive marketing effort and free samples of the service to attract and hold new customers. It will have to keep its pricing closer to the competition, particularly as many consumers already subscribe to 1-2 different streaming services. Then it will have to give people a reason to subscribe to just one more service.

Relationship Between Spectrum and New York State Growing Worse By the Day

Whatever pleasantries were exchanged between Charter Communications and the New York Department of Public Service (Public Service Commission) earlier this year are now gone as the relationship between the cable company and state officials continues to deteriorate.

The first shot across the bow this summer came in Charter’s June 28th letter in response to a demand by the state to unconditionally accept the state’s terms of its 2016 Merger Order granting the acquisition of Time Warner Cable by Charter Communications. Except the cable company did not actually agree unconditionally to those terms. As part of a dispute over Charter’s fulfillment of its responsibilities in the Merger Order regarding rural broadband expansion, one section seemed to predict future litigation:

“While Charter’s acceptance of these commitments is unconditional, this acceptance remains subject to applicable law. Charter does not waive its positions as to the meaning or proper interpretation of its commitments (including Charter’s position that the negotiating history of Appendix A must guide such interpretation), or any of its legal rights including its right to seek review of the Commission’s June 14, 2018 Orders and the Commission’s interpretation and application of the January 8, 2016 Order.”

On July 3rd, Charter’s attorneys sent another letter to the telecommunications regulator doubling down on this language:

“Charter fundamentally disagrees that the Commission’s June 14th Order accurately reflects the agreement that was reached with Charter with respect to the Merger Order. The company intends to appeal the Order….”

That notification was included in a letter requesting an extension of the deadline to file a revised rural buildout plan to replace disqualified addresses with other New York addresses where broadband service is not currently available. Charter warned it would pursue “administrative and legal appeals” and did not want to take the time update its buildout lists until those challenges (and appeals) are exhausted. The company’s lawyers made sure to reserve all of Charter’s rights in an even lengthier footnoted disclaimer:

“Certain subjects discussed in this filing pertain to non jurisdictional products and services. Discussion of nonjurisdictional products and services is not intended as a waiver or concession of the Commission’s jurisdiction beyond the scope of Charter’s regulated telecommunications and cable video services. Charter respectfully reserves all rights relating to the inclusion of or reference to such information, including without limitation Charter’s legal and equitable rights relating to jurisdiction, compliance, filing, disclosure, relevancy, due process, review, and appeal. The inclusion of or reference to non jurisdictional information or to the ordering clauses or other requirements of the Order as obligations or commitments to provide non jurisdictional services shall not be construed as a waiver of any rights or objections otherwise available to Charter in this or any other proceeding, and may not be deemed an admission of relevancy, materiality, or admissibility generally. The requests discussed herein should not be construed in any way as a waiver by Charter of any of its legal rights, including (without limitation) Charter’s right to seek review of the June 14th Order or otherwise seek review of the Commission’s interpretation and application of its January 8, 2016 Merger Order.”

The key takeaway from this legal word salad is “non jurisdictional products and services” — code language from Charter to the state suggesting New York regulators have no legal authority to stand on imposing rules, regulations, and requirements on deregulated services like broadband. Charter’s lawyers defended the company against accusations it failed to meet the agreed-on schedule for rural broadband buildout to 145,000 unserved/underserved New Yorkers using similar language. Charter only began suggesting the state’s broadband expansion plan violated federal law after the state declared the company was out of compliance and fined.

Any legal action by Charter will likely rest on claims the federal government deregulated much of the cable business, including broadband service. Therefore, the state lacks enforcement power to compel Charter to offer broadband service to any unserved area, much less on a timetable. Remember, however, Charter was only too happy to agree to the terms of the merger agreement, with all its terms and conditions, to get the merger finished, without any complaints. Now it seems to have second thoughts.

“Charter finds that the task of revising the detailed Buildout Plan and the other requirements is far too large an undertaking to be accomplished with the necessary care and diligence required within the 21-day timeframe mandated in the Commission’s June 14th Order,” the cable company’s lawyers wrote, asking for an extension of the deadline.

Today, the Department issued a terse response to Charter’s legal team, authored by Kathleen Burgess, secretary of the Public Service Commission:

“Your request for a stay of the revisions of Charter’s Buildout Plan and the other provisions required by the Commission’s Order is not a matter for the Secretary. Your request for a 60-day extension is excessive and not adequately justified. Therefore, your request for an extension is denied.”

Two things seem clear: New York will continue to fine Charter for further missed deadlines, and it seems likely this matter is headed for court.

Charter Unconditionally Accepts New York’s 2016 Merger Order… Conditionally

Two weeks ago, New York State’s telecommunications regulator gave Charter Communications 14 days to fully and unconditionally agree to the terms and condition of the 2016 Merger Order that granted the cable company permission to acquire Time Warner Cable. On the last day, hours before the deadline expired, Charter agreed, sort of.

“This replacement letter hereby clarifies that Charter ‘unconditionally accept[s] and agree[s] to comply with the commitments set forth in the body of [the Merger Order] and Appendix A’ as set forth in Ordering Clause 1 of the Merger Order,” wrote Adam E. Falk, senior vice president for state government affairs at Charter Communications.

Unwilling to stop there, Falk decided to make the unconditional acceptance… conditional.

“While Charter’s acceptance of these commitments is unconditional, this acceptance remains subject to applicable law,” Falk wrote. “Charter does not waive its positions as to the meaning or proper interpretation of its commitments (including Charter’s position that the negotiating history of Appendix A must guide such interpretation), or any of its legal rights including its right to seek review of the Commission’s June 14, 2018 Orders and the Commission’s interpretation and application of the January 8, 2016 Order.”

That final paragraph signals the Public Service Commission/Department of Public Service that Charter intends to continue insisting that the language in Appendix A governs, defines, and characterizes the entire Merger Order — an argument the Commission had refused to accept because it gave a foundation for Charter officials to claim they were in full compliance with their commitment to roll out service to an additional 145,000 unserved New York residents. Appendix A omits the purpose and intent of the expansion commitment, explained elsewhere in the Merger Order as providing broadband service in New York’s unserved rural areas. Charter had attempted to count as “new passings” any new expansion of its cable lines, including those in wealthy gated communities and upscale condos, refurbished apartments in New York City, and new housing developments — all likely to receive service without the Merger Order.

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