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Time Warner Cable Will Extend Maxx Upgrades to 75% of Its Markets by 2016, If Comcast Merger Dies

twc maxxTime Warner Cable plans to reach 75 percent of its customers with Maxx service upgrades offering broadband speed boosts up to 300/20Mbps for the same price it charges for 50Mbps by the end of 2016, assuming a merger with Comcast does not result in the plans being shelved.

Time Warner Cable customers will also escape Comcast’s ongoing experiments with usage caps and usage-based billing if the company remains independent, as Time Warner Cable executives continue to maintain that usage pricing should only be offered to customers that want it.

Company officials discussed the ongoing investments in Maxx upgrades during a quarterly results conference call with investors held earlier today.

CEO Rob Marcus indicated Time Warner Cable will choose markets for Maxx upgrades based on what kind of competition the cable company faces in each city.

“Our aim is to have 75% of our footprint enabled with Maxx […] by the end of [2016], and my guess is we’re continuing to roll it out beyond that,” said Marcus. “So the only question is prioritization, and obviously as we think about where to go first, competitive dynamics are a factor. So that includes Google, although it’s not explosively dictated by where Google decides to go. In fact I think we announced the Carolinas before Google did their announcement this week. So competitors are certainly relevant obviously.”

Time Warner Cable has targeted its Maxx upgrades in areas where its principal competitors — AT&T, Google, and Verizon — have made or announced service and speed improvements. Maxx upgrades are now complete in New York City and Los Angeles. Much of Austin, Tex., is also finished, where both AT&T GigaPower U-verse and Google Fiber plan to offer gigabit service.

This year, Time Warner will focus on bringing Maxx to Charlotte, Dallas, Hawaii, Kansas City, Raleigh, San Antonio and San Diego. Charlotte, Raleigh, and Kansas City will eventually see high-speed competition from both Google Fiber and AT&T U-verse. Time Warner is facing increasingly aggressive competition from Hawaiian Telcom, San Antonio is on Google’s short list and will also likely see faster U-verse, and San Diego is on AT&T’s list for GigaPower upgrades.

Time Warner spent $4.1 billion on capital expenses in 2014, up nearly $900 million above 2013 spending. Most of the money went to network upgrades in Maxx markets where new set-top boxes and cable modems are being provided to customers. Marcus refused to offer any guidance about how much the company intends to spend on upgrades in 2015, citing its looming merger with Comcast.

Marcus

Marcus

Not every city will benefit from network upgrades. Although 2/3rds of Time Warner Cable markets will get Maxx over the next two years, several will have to make do with the service they have now. The Time Warner Cable markets most at risk of being left off the upgrade list also have the weakest competition:

  • Yuma, Ariz.
  • Nebraska
  • Wisconsin
  • Eastern Ohio & Pennsylvania (except Cleveland)
  • Binghamton, Utica, Watertown, Elmira, and Rochester, N.Y.
  • Kentucky
  • West Virginia
  • South Carolina
  • Western Massachusetts
  • Maine

If the merger with Comcast is approved, the Maxx upgrade effort is likely to be shelved or modified by the new owners as customers are gradually shifted to Comcast’s traditional broadband plans.

Marcus also continued to shoot down compulsory usage-based billing and usage caps questions coming from Wall Street analysts. Marcus reminded the audience Time Warner Cable already offers optional usage-based pricing packages, and they have no intention of forcing customers to accept usage billing or caps.

“I think the ultimate success of usage based pricing will depend on customer uptake and customers’ interest in availing themselves of a usage based tier versus unlimited tier,” said Marcus. In earlier conference calls, Marcus admitted only a tiny fraction of Time Warner customers have shown any interest in usage allowances. The overwhelming majority prefer flat rate service.

In contrast, Comcast’s broadband customers in several southern cities continue to be unwilling participants in that cable company’s ongoing usage billing trials.

Google, Cablevision Challenge Traditional Cell Phone Plans, Wireless Usage Caps With Cheap Alternatives

freewheelLuxurious wireless industry profits of up to 50 percent earned from selling some of the world’s most expensive cellular services may soon be a thing of the past as Google and Cablevision prepare to disrupt the market with cheap competition.

With more than 80 percent of all wireless data traffic now moving over Wi-Fi, prices for wireless data services should be in decline, but the reverse has been true. AT&T and Verizon Wireless have banked future profits by dumping unlimited data plans and monetizing wireless usage, predicting a dependable spike in revenue from growing data consumption. Instead of charging customers a flat $30 for unlimited data, carriers like Verizon have switched to plans with voice, texting, and just 1GB of wireless usage at around $60 a month, with each additional gigabyte priced at $15 a month.

With the majority of cell phone customers in the U.S. signed up with AT&T or Verizon’s nearly identical plans, their revenue has soared. Sprint and T-Mobile have modestly challenged the two industry leaders offering cheaper plans, some with unlimited data, but their smaller cellular networks and more limited coverage areas have left many customers wary about switching.

Google intends to remind Americans that the majority of data usage occurs over Wi-Fi networks that don’t require an expensive data plan or enormous 4G network. The search engine giant will launch its own wireless service that depends on Wi-Fi at home and work and combines the networks of Sprint and T-Mobile while on the go, switching automatically to the provider with the best signal and performance.

googleCablevision’s offer, in contrast, will rely entirely on Wi-Fi to power its mobile calling, texting, and data services. Dubbed “Freewheel,” non-Cablevision customers can sign up starting in February for $29.95 a month. Current Cablevision broadband customers get a price break — $9.95 a month.

Cablevision’s dense service area in parts of New York City, Long Island, northern New Jersey and Connecticut offers ample access to Wi-Fi. Cablevision chief operating officer Kristin Dolan said its new service would work best in Wi-Fi dense areas such as college campuses, business districts, and multi-dwelling units.

New York City is working towards its own ubiquitous Wi-Fi network, which could theoretically blanket the city with enough hotspots to make Cablevision’s service area seamless. But the biggest deterrent to dumping your current cell phone provider is likely to be available coverage areas. Google’s answer to that problem is combining the networks of both Sprint and T-Mobile, offering customers access to the best-performing carrier in any particular area. While that isn’t likely to solve coverage issues in states like West Virginia and the Mountain West, where only AT&T and Verizon Wireless offer serious coverage, it will likely be sustainable in large and medium-sized cities where at least one of the two smaller carriers has a solid network of cell towers.

Comparing the Wireless Alternative Providers

  • Google Wireless will offer seamless access to Wi-Fi, Sprint and T-Mobile voice, SMS, and mobile data at an undetermined price. Likely to arrive by the summer of 2015;
  • Cablevision Freewheel depends entirely on Wi-Fi to power unlimited voice, SMS, and data. Launches in February for $29.95/mo ($9.95/mo for Cablevision broadband customers);
  • FreedomPop Wi-Fi ($5/mo) offers an Android app-based “key” to open unlimited Wi-Fi access to 10 million AT&T, Google, and cable industry hotspots nationwide for calling, texting, and mobile data;
  • Republic Wireless developed its own protocol to properly hand off phone calls between different networks without dropping it. Calling plans range from $5-40 a month. Less expensive plans are Wi-Fi only, pricier plans include access to Sprint’s network;
  • Scratch Wireless charges once for its device – a Motorola Photon Q ($99) and everything else is free, as long as you have access to Wi-Fi. Cell-based texting is also free, as a courtesy. If you need voice calling or wireless data when outside the range of a hotspot, you can buy “access passes” to Sprint’s network at prices ranging from $1.99 a day each for voice and data access to $24.99 a month for unlimited data and $14.99 a month for unlimited voice.
Scratch Wireless

Scratch Wireless

Google is pushing the FCC to open new unlicensed spectrum for expanded Wi-Fi to accommodate the growing number of wireless hotspots that are facing co-interference issues.

Wi-Fi-based wireless providers are likely to grow once coverage concerns are eased and there is reliable service as customers hop from hotspot to hotspot. The cable industry has aggressively deployed Wi-Fi access with a potential to introduce wireless service. Comcast is already providing broadband customers with network gateways that offer built-in guest access to other Comcast customers, with the potential of using a crowdsourced network of customers to power Wi-Fi coverage across its service areas. FreedomPop will eventually seek customers to volunteer access to their home or business networks for fellow users as well.

AT&T and Verizon are banking on their robust networks and coverage areas to protect their customer base. Verizon Wireless, in particular, has refused to engage in price wars with competitors, claiming Verizon customers are willing to pay more to access the company’s huge wireless coverage area. AT&T told the Wall Street Journal its customers want seamless access to its network to stay connected wherever they go.

Verizon’s chief financial officer Fran Shammo appeared unfazed by the recent developments. On last week’s conference call with investors, Shammo dismissed Google’s entry as simply another reseller of Sprint’s network. He added Google has no idea about the challenges it will face dealing directly with customers in a service and support capacity. While Google’s approach to combine the coverage of T-Mobile and Sprint together is a novel idea, Shammo thinks there isn’t much to see.

“Resellers, or people leasing the network from carriers, have been around for 15 years,” Shammo said. “It’s a complex issue.”

Investors are taking a cautious wait-and-see approach to the recent developments. Google’s new offering is likely to offer plans that are philosophically compatible with Google’s larger business agenda. Challenging the traditional business models of AT&T and Verizon that have implemented usage caps and usage pricing may be at the top of Google’s list. The new offering could give large data allowances at a low-cost and/or unlimited wireless data for a flat price. Such plans may actually steal price-sensitive customers away from Sprint and T-Mobile, at least initially. Sprint is clearly worried about that, so it has a built-in escape clause that allows a termination of its network agreement with Google almost at will.

http://www.phillipdampier.com/video/WSJ Google Cablevision Challenge Wireless Industry 1-26-15.flv

The Wall Street Journal talks about the trend towards Wi-Fi based mobile calling networks. (1:59)

Welcome to 2015; Another Year Fighting for a Square Deal for Essential Broadband Service

Phillip Dampier January 5, 2015 Editorial & Site News No Comments
Phillip Dampier

Phillip Dampier

Welcome to 2015!

This is the seventh year Stop the Cap! has fought for better broadband across North America and beyond. Whether your provider is Comcast, Time Warner Cable, Rogers, Bell, AT&T, Verizon or a (dwindling) number of other cable and telephone companies, there is plenty of room for improvement.

When we began in the summer of 2008, Frontier Communications was contemplating a usage cap of just 5GB a month on their broadband service. A year later Time Warner Cable market tested caps as high as 40GB a month. For almost as long as we’ve existed, Comcast has believed 250GB a month was all most customers ever needed. Rogers’ most popular Internet package today offers 60GB a month, despite the fact Canadians on average watch more online video than anyone else. AT&T thinks 150GB a month is fine for DSL and 250GB is all you’d need as a U-verse customer. Verizon doesn’t see a need for limits on either its DSL or fiber optic networks. Neither does Cablevision.

Usage caps and so-called “usage-based billing” continue to be one of the most under-reported stories in the tech press. Touted as “fair pricing,” these plans are in fact little more than profit-padding for a service that already earns companies as much as 90% gross margin. There is nothing fair about usage-based billing in North America. Customers face the same prices they have always paid for unlimited service, but now endure an arbitrary usage allowance that usually includes a stiff overlimit fee. Those providers charging usage pricing do not offer the fastest service, have not made significant improvements above and beyond other providers that still charge flat rate prices, and frequently also charge excessive modem rental fees.

The duopoly most Americans have for broadband service has become quite fat and happy collecting ever-increasing amounts of money for service that only seems to improve after an upstart competitor like Google arrives ready to offer better service at a lower price. Customers in Kansas City, Austin, and a handful of other communities are getting the best upgrades and are empowered to negotiate a lower price for service. The rest of the country is not so lucky. A handful of often-under capitalized fiber competitors have arrived in some areas, but their market share generally remains a fraction of what the cable and phone companies have locked up.

We have always believed broadband was destined to become the next must-have utility service, following clean water, electricity, gas and some form of telephone service. Unfortunately, Washington policymakers continue to treat Internet access as an optional extra, allowing one or two companies to dominate access in most communities. Policymakers and regulators have done very little to protect consumers from the effects of marketplace concentration, allowing cable and phone companies to merge and raise prices, remain uncommitted to protecting the Open Internet with strong Net Neutrality protections, and not taking the effects of usage caps seriously.

One of the most effective ways a community can combat bad service and high prices is to support launching its own public broadband network. Throughout the United States, local town and counties enduring “good enough for you” broadband (or no service at all) are constructing their own fiber optic networks to better meet the realities of the 21st century digital economy. They face industry-funded opposition in at least 20 states where lawmakers have banned or severely curtailed these networks to protect private telecom giants from the effects of serious competition.

In 2015, Stop the Cap! will continue to fight for consumers looking for a better deal:

  • We continue to oppose industry consolidation. Mergers and buyouts benefit executives and shareholders. They almost never benefit customers who soon find rate increases, fewer choices, and often worse service as a result. Connecticut residents know that first hand enduring Frontier Communications’ recent bungled transition from AT&T service. Customers that dislike Time Warner Cable will likely loathe Comcast if that merger wins regulator approval. AT&T’s buyout of DirecTV leaves one less competitive choice for customers living in AT&T’s service areas looking for an alternative to U-verse television. Imagine if the government had approved AT&T’s attempted buyout of T-Mobile, the one wireless carrier now willing to throw a monkey-wrench into the current dominance of almost-identical expensive wireless service plans from AT&T and Verizon.
  • Usage caps and consumption billing remain unjustified, particularly for wired broadband. Despite industry claims that usage caps and usage billing stimulate investment, in most cases the costs of delivering broadband service and the amounts companies invest in network upgrades continue their relentless decline on a per customer basis. Usage billing is no prescription for congestion problems either. Most congestion problems occur during peak usage levels — when light and heavy users alike are most likely to be online. A truly fair usage pricing scheme would charge a fair price for actual usage and nothing else. But such a pricing scheme would likely cut broadband bills and profits. So providers offer pre-determined compulsory usage allowances at current prices instead, and do not offer a flat rate option or rollover unused usage to a future month. As a result, customers often pay more for less service and constantly have to check their usage to make sure they do not get an unexpected surprise on their bill.
  • Strong Net Neutrality protection is the best guarantee of preserving the Internet as it exists today – where success or failure of an online venture is based on what it offers customers, not on the size of its bank account. A nationwide end to laws restricting the development and expansion of community broadband is also essential to give communities self-determination of their broadband future.
  • We will continue to educate consumers on how to negotiate a better deal with your provider and avoid expensive surcharges like modem rental fees. We will also continue to enlighten you about the pervasive influence of Big Telecom money on non-profits, state and federal governments, and researchers that support the various agendas of some of the largest telecom corporations in the country.

Broadband is improving at an incredible pace around the world, but back home prices continue to rise while Internet speed improvements are often met by usage cap road bumps. Internet affordability remains as much of a problem as rural broadband access. The more you know, the more effective you can argue for a change in telecom policies, where the public interest is better-balanced against corporate profits and duopoly prices.

Thank you for being a part of our efforts to make things better.

Competition Finally Starts Hurting Verizon Wireless; Holiday Margin Pressure and Higher Disconnects

Phillip Dampier December 8, 2014 Competition, Consumer News, Verizon, Wireless Broadband 1 Comment

Christmas Stocking with chunks of coal laying on a green textured backgroundFor years Verizon Wireless has charged some of the highest prices in the wireless industry because it could. But those days may finally be coming to an end as the company admits it is seeing an increase in customer disconnects, and the company announced it will spend more on subscriber promotions to win back old customers and attract new ones.

Verizon Wireless executives have repeatedly stressed they can charge ‘Cadillac prices on a Cadillac network’ that has traditionally outperformed the competition in coverage, 4G data, and customer service. But customers may be telling the carrier “enough as enough” as a growing number are attracted to offers of dramatically lower pricing from Sprint and T-Mobile.

In a statement issued to shareholders, Verizon Wireless reports it is not on track to have a completely Merry Christmas:

As the company is accelerating the upgrades of high-quality customers to 4G, total retail postpaid disconnects are trending higher both sequentially and year over year in this highly competitive and promotion-filled fourth quarter.

The company expects that the fourth-quarter impacts of its promotional offers, together with the strong customer volumes this quarter, will put short-term pressure on its wireless segment EBITDA and EBITDA service margin (non-GAAP, based on earnings before interest, taxes, depreciation and amortization) as well as its consolidated EBITDA margin (non-GAAP) and earnings per share.

Despite the growing number of customers leaving Verizon for more affordable alternatives, those remaining are willing to pay even higher prices upgrading to the latest smartphones and tablets equipped to take advantage of Verizon’s 4G LTE network. Customers are gradually moving away basic cell phones and towards smartphones and tablets.

Customers are also increasingly willing to abandon the upgrade subsidy in favor of early upgrades and device payment plans. Verizon reports almost one-quarter of customers are now enrolled in its Verizon Edge smartphone program, which budgets the cost of a new phone in installments charged to a cell phone bill. Just three months ago, Verizon had only enrolled 12% of its customers in the upgrade program.

Wall Street Investors Suckered By Broadband, Wireless Myths on Usage Pricing, Network Investment

verizon-protestBig Telecom companies like Verizon and AT&T use phony numbers and perpetuate myths about broadband traffic and network investments that have conned investors out of at least $1 trillion in unnecessary investments and consolidation.

Alexander Goldman, former chief analyst for CTI’s American Recovery and Reinvestment Act grants, is warning Wall Street and investors they are at risk of losing millions more because some of the largest telecom companies in the country are engaged in disseminating bad math and conventional wisdom that relies more on repetition of their talking points than actual facts.

Goldman’s editorial, published by Broadband Breakfast, believes the campaign of misinformation is perpetuated by a media that accepts industry claims without examining the underlying facts and a pervasive echo chamber that delivers credibility only by the number of voices saying then same thing.

Goldman takes Verizon Communications CEO Lowell McAdam to task for an editorial published in 2013 in Verizon’s effort to beat back calls on regulators to oversee the broadband industry and correct some of its anti-competitive behavior.

McAdam claimed the U.S. built a global lead in broadband on investments of $1.2 trillion over 17 years to deploy “next generation broadband networks” because networks were deregulated.

Setting aside the fact the United States is not a broadband leader and continues to be outpaced by Europe and Asia, Goldman called McAdam’s impressive-sounding dollar figures meaningless, considering over the span of that 17 years, the United States progressed from dial-up to fiber broadband. Wired networks have been through a generational change that required infrastructure to be replaced and wireless networks have been through at least two significant generations of change over that time — mandatory investments that would have occurred with or without deregulation.

Over the past 17 years, the industry has gotten more of its numbers wrong than right. An explosion of fiber construction in the late 1990s based on predictions of data tsunamis turned out to be catastrophically wrong. University of Minnesota professor Andrew Odlyzko, the worst enemy of the telecom industry talking point, has been debunking claims of broadband traffic jams and the need to implement usage-based pricing and speed throttling for years. In 1998, when Wall Street was listening intently to forecasts produced by self-interested telecom companies like Worldcom that declared broadband traffic was going to double every 100 days, Odlyzko was telling his then-employer AT&T is was all a lot of nonsense. The broadband traffic emperor had no clothes, and statistics from rival telecom companies suggested Worldcom was telling tall tales. But AT&T executives didn’t listen.

fat cat att“We just have to try harder to match those growth rates and catch up with WorldCom,” AT&T executives told Odlyzko and his colleagues, believing the problem was simply ineffective sales, not real broadband demand. When sales couldn’t generate those traffic numbers and Wall Street analysts began asking why, companies like Global Crossing and Qwest resorted to “hollow swaps” and other dubious tricks to fool analysts, prop up the stock price and executive bonuses, and invent sales.

Nobody bothered to ask for an independent analysis of the traffic boom that wasn’t. Wall Street and investors saw dollars waiting to be made, if only providers had the networks to handle the traffic. This began the fiber boom of the late 1990s, “an orgy of construction” as The Economist called it, all to prepare for a tidal wave of Internet traffic that never arrived.

After companies like Global Crossing and Worldcom failed in the biggest bankruptcies the country had ever seen at the time, Odlyzko believes important lessons were never learned. He blames Worldcom executives for inflating the Internet bubble more than anyone.

A bubble of another kind is forming today in America’s wireless industry, fueled by pernicious predictions of a growing spectrum crisis to anyone in DC willing to listen and hurry up spectrum auctions. Both AT&T and Verizon try to stun investors and politicians with enormous dollar numbers they claim are being spent to hurry upgraded wireless networks ready to handle an onslaught of high bandwidth wireless video. Both Verizon’s McAdam and AT&T’s Randall Stephenson intimidate Washington politicians with subtle threats that any enactment of industry reforms by the FCC or Congress will threaten the next $1.2 trillion in network investments, jobs, and America’s vital telecom infrastructure.

Odlyzko has seen this parade before, and he is not impressed. Streaming video on wireless networks is effectively constrained by miserly usage caps, not network capacity, and to Odlyzko, the more interesting story is Americans are abandoning voice calling for instant messages and texting.

8-4WorldcomCartoonThat isn’t a problem for wireless carriers because texting is where the real money is made. Odlyzko notes that wireless carriers profit an average of $1,000 per megabyte for text messages, usually charged per-message or through subscription plan add ons or as part of a bundle. Cellular voice calling is much less profitable, earning about $1 per megabyte of digitized traffic.

Wireless carriers in the United States, particularly Verizon and AT&T, are immensely profitable and the industry as a whole haven’t invested more than 27% of their yearly revenue on network upgrades in over a decade. In fact, in 2011 carriers invested just 14.9% of their revenue, rising slightly to 16.3 percent in 2012 when companies collectively invested $30 billion on network improvements, but earned $185 billion along the way.

While Verizon preached “spectrum crisis” to the FCC and Congress and claimed it was urgently prioritizing network upgrades, company executives won approval of a plan to pay Vodafone, then a part owner of Verizon Wireless, $130 billion to buy them out. That represents the collective investment of every wireless provider in the country in network upgrades from 2005-2012. Verizon Wireless cannot find the money to upgrade their wireless networks to deliver customers a more generous data allowance (or an unlimited plan), but it had no trouble approving $130 billion to buy out its partner so it could keep future profits to itself.

Odlyzko concludes the obvious: “modern telecom is less about high capital investments and far more a game of territorial control, strategic alliances, services, and marketing, than of building a fixed infrastructure.”

That is why there is no money for Verizon FiOS expansion but there was plenty to pay Vodafone, and its executives who walked away with executive bonuses totaling $89.6 million.

As long as American wireless service remains largely in the hands of AT&T and Verizon Wireless, competition isn’t likely to seriously dent prices or profits. At least investors who are buying Verizon’s debt hope so.

Goldman again called attention to Odlyzko’s latest warning that the industry has its numbers (and priorities) wrong, and the last time Odlyzko had the numbers right and the telecommunications industry got its numbers wrong, telecommunications investors lost $1 trillion in the telecommunications dot.com bust.

As the drumbeat continues for further wireless consolidation and spectrum acquisition, investors have been told high network costs necessitate combining operations to improve efficiency and control expenses. Except the biggest costs faced by wireless carriers like Verizon are to implement strategic consolidation opportunities like the Vodafone deal, not maintain and grow their wireless network. AT&T is putting much of its spending in a proposed acquisition of DirecTV this year as well — at a cost of $48.5 billion. That could buy a lot of new cell towers and a much more consumer-friendly data plan.

Voice to text substitution (US)

year voice minutes billions texts billions
2005 1,495 81
2006 1,798 159
2007 2,119 363
2008 2,203 1,005
2009 2,275 1,563
2010 2,241 2,052
2011 2,296 2,304
2012 2,300 2,190

Cell phone network companies (if you can believe their SEC filings) are incredibly profitable, and are spending relatively little on infrastructure:

year revenues in $ billions capex in $ billions capex/revenues
2004 102.1 27.9 27.3%
2005 113.5 25.2 22.2
2006 125.5 24.4 19.4
2007 138.9 21.1 15.2
2008 148.1 20.2 13.6
2009 152.6 20.4 13.3
2010 159.9 24.9 15.6
2011 169.8 25.3 14.9
2012 185.0 30.1 16.3

Netherlands Telecom Regulator: A Broadband Duopoly Doesn’t Equal Competition

Phillip Dampier November 3, 2014 Broadband Speed, Competition, Public Policy & Gov't No Comments

logo-acm-enIn the Netherlands, having access to two broadband competitors isn’t enough to guarantee broadband competition, and Dutch telecom regulators are not about to deregulate Internet service in the country until consumers have more choices for broadband access.

The Dutch telecom regulator on Friday announced it will keep wholesale access regulations in place for an extra three years to guarantee KPN – the former state-owned telephone company – plays fair with competitors.

“If ACM were not to step in, there would be too little choice: Dutch telecom company KPN and cable company UPC/Ziggo would then dominate the market,” says the Authority for Consumers and Markets (ACM) in a written statement. “In ACM’s opinion, having just two providers in these markets cannot be considered healthy competition.”

“Furthermore, KPN and UPC/Ziggo are challenged by their competitors to continue to invest in their networks and to innovate,” said Henk Don, a board member of ACM. “As a result, faster and better connections become available in the Netherlands.”

kpn

KPN

The Dutch telephone and mobile provider will be required to continue allowing competitors such as Vodafone and Tele2 access to KPN’s landline and fiber to the home networks to offer competitive broadband service. ACM reports that Dutch consumers are saving at least $312 million a year in lower Internet access pricing just by forcing KPN to allow other companies to compete using its network.

KPN isn’t hampered by the forced openness, because ACM has also given the phone company relaxed operating rules to allow it to invest in DSL upgrades including vectoring and the forthcoming G.Fast standard, which could dramatically boost broadband speeds.

Most Dutch consumers, like those in North America, realistically have a choice between one telephone and one cable company — usually Ziggo (currently merging with UPC), for broadband service. But unlike in the United States, Dutch regulators have remained wholly unconvinced an effective duopoly is subject to enough competitive pressure to protect consumers and nascent competition from upstarts. Therefore, ACM has applied regulatory checks and balances to protect the marketplace and consumers from abusive pricing and service practices.

U.S. telecom companies argue that regulations hamper investment and delay network improvements. In the Netherlands, where broadband speed rankings exceed the United States, prices are also lower.

FCC Chairman Tom Wheeler Ignores Millions of Americans, Plans Fake Net Neutrality Frankenplan

frankenplanThe majority of 3.7 million comments received by the FCC advocate strong and unambiguous Net Neutrality protections for the Internet, but that seems to have had little impact on FCC chairman Thomas Wheeler, who is laying the groundwork for a hybrid Net Neutrality Frankenplan that would marginally protect deep pocketed content producers while leaving few, if any, protections for consumers.

The Wall Street Journal reported late last week that Wheeler is considering a “hybrid” approach, separating broadband into two distinct services:

  • Retail Broadband, sold to consumers, would continue as a broadly deregulated service, allowing ISPs to set prices and policies with little, if any, oversight. Wheeler’s plan would allow providers to freely implement usage-based pricing, establish paid fast lanes at the request of customers, and permit ISPs to continue exempting preferred content from usage pricing while charging customers extra to access content from “non-preferred partners;”
  • Wholesale Broadband, the connection between your ISP and content producers, would be reclassified under Title II and subject to common carrier regulations, which would allow the FCC to police deals between your provider and services like Netflix.

Wheeler’s proposal would offer significant protection to wealthy content producers like Netflix, Amazon.com, broadcasters and Hollywood studios, but would leave consumers completely exposed to providers’ pricing tricks, usage caps/consumption billing, and paid fast lanes that could leave unpaid content vulnerable to network deterioration, especially during peak usage times.

Comcast_pumpkinLarge telecommunications companies argue that deregulation promotes broadband investment and expansion to create world-class service. But years of statistics and comparisons with other countries suggest deregulation has not inspired sufficient competition to keep prices in check and force regular network upgrades. In fact, competition is much more robust at the wholesale level, while the majority of retail consumers have a choice of just one or two providers that receive almost no oversight. Those providers are now exercising their market power to further monetize broadband usage to boost profits and raise prices.

Wheeler’s proposal would ignore the wishes of more than three million Americans that want comprehensive Net Neutrality protections, as well as those of President Barack Obama, who has called for a ban on paid fast lanes. A senior White House official signaled Thursday the administration has concerns about Wheeler’s proposal, noting “the president has made it abundantly clear that any outcome must protect net neutrality and ban paid prioritization—and has called for all necessary steps to safeguard an open Internet.”

“This Frankenstein proposal is no treat for Internet users, and they shouldn’t be tricked,” consumer group Free Press CEO Craig Aaron said in a statement. “No matter how you dress it up, any rules that don’t clearly restore the agency’s authority and prevent specialized fast lanes and paid prioritization aren’t real Net Neutrality.”

Broadband providers don’t like Wheeler’s plan either. Verizon last week sent comments to the FCC warning any attempt to reclassify broadband under Title II “could not withstand judicial review.” Others, including the industry-backed U.S. Telecom Association, promised swift legal action against Wheeler’s proposal.

Aaron believes the last thing broadband needs is another “hybrid” plan.

“The FCC has already tried twice before to invent new classifications on the fly instead of clear rules grounded in the law,” Aaron said. “And twice their efforts have been rejected. This flimsy fabrication will be no different. And this approach will only serve to squander the political support of millions and millions of Americans who have weighed in at the agency asking for strong rules that will stand up in court.”

Time Warner Cable Recommits: No Mandatory Usage Caps As Long As Company Remains Independent

timewarner twcTime Warner Cable today recommitted itself to providing unlimited broadband service to any customer that wants it, promising customers they won’t be forced into a tiered usage plan as long as Time Warner Cable remains an independent company.

“We have no intention of abandoning an unlimited product we think that something that customers value and are willing to pay for,” said Time Warner Cable CEO Robert Marcus. “The way we’ve approached usage-based pricing is to offer it as an option for customers who prefer to pay less because they tend to use less. And we’ve made those available at 5 gigabytes per month and 30 gigabytes per month levels.”

Marcus told Wall Street analysts on an afternoon conference call that the average Time Warner Cable customer now generates 35GB of traffic per month, and that a significant percentage of light users might realize some savings choosing a 30GB optional usage plan. But Marcus also admitted that few do.

marcus

Marcus

“I think that’s a testament to the value they place on unlimited,” said Marcus.

Marcus’ decision to stay away from compulsory usage-capped Internet was questioned by Marci Ryvicker from Wells Fargo Securities, LLC., a Wall Street investment firm. Ryvicker tied the growth of online video consumption to the implementation of usage caps as way of protecting video revenue and regaining money lost from lost cable television subscriptions.

“I guess the underlying question is do you think you can monetize the pipe enough through high-speed data pricing to offset video decline,” asked Ryvicker.

“We haven’t really viewed usage-based pricing quite the way you’re postulating,” responded Marcus. “I think there’s a separate question as to whether or not we have the ability to offset video declines with [broadband]. I think it’s fair to say we’re very bullish on the high-speed data business and think we can continue to grow it based on both subscriber volume and incremental ARPU per [broadband] customer.”

Marcus added that Time Warner can continue to boost revenue by raising broadband prices and encouraging customers to upgrade to faster speed tiers at a higher price.

Comcast has a very different philosophy about usage caps — it embraces them. Comcast continues to test mandatory usage caps in several markets, leading to howls of complaints from customers and bill shock. One customer complained their cable bill frightens them every time they receive it, not knowing how much Comcast would charge them for that month of service. The family’s last cable bill, including Internet, exceeded $560, primarily due to Comcast’s overlimit usage fees. Comcast has also received complaints about its usage meter’s accuracy, but the company adamantly bills customers according to the readings of their meter.

“I’ll tell you what really isn’t fair,” wrote one customer. “That is that in ‘test markets’ like mine, Atlanta, we have the 300GB [cap] enforced with the penalty overage charge and we pay the SAME rates as people in other markets that aren’t yet one of the ‘test markets.’

Most analysts expect Comcast will eventually roll out usage caps to all of its customers, including any it acquires from Time Warner Cable. Customers cannot choose an unlimited use option in Comcast’s usage cap test markets.

The Capitol Forum’s Insightful Review of the Comcast-Time Warner Merger Deal: A Tough Sell

be mineWall Street is increasingly pessimistic about Comcast and Time Warner Cable pulling off their merger deal as regulators stop the clock to take a closer look at the transaction.

The Capitol Forum, an in-depth news and analysis service dedicated to informing policymakers, investors, and industry stakeholders on how policy affects market competition, specializes in examining marketplace mergers and their potential impact on American consumers and the general economy. The group has shared a copy of their assessment — “Comcast/Time Warner Cable: A Closer Look at FCC, DOJ Decision Processes; Merits and Politics May Drive Merger Challenge, Especially as Wheeler Unlikely to Embrace Title II Regulation for Net Neutrality” — with Stop the Cap! and we’re sharing a summary of the report with our readers.

The two most important government agencies reviewing the merger proposal are the Federal Communications Commission and the Department of Justice. The FCC is responsible for overseeing telecommunications in the United States and is also tasked with reviewing telecom industry mergers to verify if they are in the public interest. The Department of Justice becomes involved in big mergers as well, concerned with compliance with antitrust and other laws.

In many instances, the two agencies work separately and independently to review merger proposals, but not so with Comcast and Time Warner Cable.

Sources tell Capitol Forum there is a high level of coordination and information sharing between DOJ and the FCC, potentially positioning the two agencies in a stronger legal position if they jointly challenge the merger. Readers may recall AT&T’s attempt to buy T-Mobile was thwarted in 2011 when the FCC followed the DOJ’s lead in jointly challenging the merger on competition and antitrust grounds. With a united front against the deal in Washington, AT&T quickly capitulated.

comcast cartoonDespite a blizzard of Comcast talking points claiming the cable industry is fiercely competitive, Capitol Forum’s report indicates the DOJ staff level believes the cable industry suffers dearly from a lack of competition already, and allowing further marketplace concentration would exacerbate an already difficult problem.

Capitol Forum reports the DOJ’s staff is inclined to “take an aggressive posture with regards to [antitrust] enforcement.”

The DOJ would certainly not be walking the beltway plank to its political doom if it ultimately decides to oppose the merger.

Few on Capitol Hill are likely to fiercely advocate for a cable company generally despised by their constituents. The Capitol Forum report notes that Comcast faces powerful opposition and its political support is overstated. Comcast’s lobbying efforts and ties to President Obama and several high level Democrats have also been widely exposed in the media, which makes it more difficult for D.C.’s powerful to be seen carrying Comcast’s water.

In fact, the report indicates a regulatory challenge against Comcast and Time Warner Cable would face considerably less political opposition than what the FCC faces if it reclassifies broadband as a “telecommunications service,” protecting Net Neutrality and exposing the industry to stronger regulatory oversight.

The report suggests FCC Chairman Thomas Wheeler, who seems intent on opposing reclassification of broadband under Title II, may appease his critics by taking a stronger stance on the Comcast/Time Warner deal instead.

Wheeler has already expressed concern about the state of competitiveness of American broadband. He considers providers capable of delivering at least 25Mbps part of broadband’s key market, which in many communities means a monopoly for the local cable operator.

Understanding “The Public Interest” and the Implications of a Combined Comcast/Time Warner Cable on Competition

comcastbuy_400_241The FCC will review the transaction pursuant to Sections 214 and 310(d) of the Communications Act of 1934, in order to ensure that “public interest, convenience, and necessity will be served thereby.”

The merger proposal must also demonstrate it does not violate antitrust laws.

It is here that merger opponents have a wealth of arguments to use against Comcast and Time Warner Cable.

Despite Comcast’s insistence the deal would have no competitive implications, the Capitol Forum reports the merger’s potential anticompetitive effects are “widely recognized and evidence from the investigation could provide DOJ and FCC with a solid foundation to challenge the merger.”

Although the two cable companies don’t directly compete with each other (itself a warning sign of an already noncompetitive marketplace), the report finds “a wide array of anti-competitive effects and several antitrust theories” that would implicate the cable company in a Clayton Act violation.

Comcast is betting heavily on its surface argument that by the very fact customers will not see any change in the number of competitors delivering service to their area, the merger should easily clear any antitrust hurdles. That argument makes it more difficult for the DOJ to fall back on the usual market concentration precedents that would prevent such a colossal merger deal. To argue excessive horizontal integration — the enlarging of Comcast’s territory — the DOJ would first have to prove Comcast’s size in comparison with other cable companies is a reason for the courts to shoot down the deal. Or it could bypass Comcast’s favorite argument and move to the issue of vertical integration — one company’s ability to control not just the pipes that deliver content, but also the content itself.

octopusHere the examples of potential abuse are plentiful:

  • Comcast would enjoy increased power to force cable programmers to favor Comcast in cable programming pricing and policies while allowing it to demand restrictions on competitive online video competitors or restrict access to popular cable programming;
  • Comcast could impose data caps and usage-based pricing to deter online viewing while exempting its own content by delivering it over a Wi-Fi enabled gateway, game console or set top box, claiming all are unrelated to Comcast’s broadband Internet service or network;
  • Force consumers to use Comcast set top boxes that would not support competing providers’ online video;
  • Use interconnection agreements as a clever way to bypass the paid prioritization Net Neutrality debate. Netflix and other content producers would be forced to compensate Comcast for reliable access to its broadband customers;
  • Noting AT&T has declared U-verse can not effectively succeed in the cable television business without combining its customer base with DirecTV to qualify for better volume discounts, there is clear evidence that a super-sized Comcast could command discounts new entrants like Google Fiber could never hope to get, putting them at a distinct price disadvantage.

The FCC’s scrutiny of Comcast’s merger deal has already uncovered evidence previously unavailable because of non-disclosure agreements which show Comcast’s heavy hand already at work.

The report notes Michael Mooney, a senior vice president and group general counsel at Level 3, told the Capitol Forum the dispute earlier this year between Netflix and Comcast could have been resolved in about five minutes had Comcast added a port to relieve congestion at an interconnection point. The cost? Just $5,000. Had Comcast been willing to spend the money, millions of Comcast customers would have never experienced problems using Netflix.

Whether Comcast is ultimately deemed too large to permit another consolidating merger or whether it is given conditional approval to absorb Time Warner Cable remains a close call, according to the Capitol Forum, despite the fact consumers have urged regulators for something slightly more concrete – a single sentence, total denial of its application.

http://www.phillipdampier.com/video/Capitol Forum The Consumer Welfare Test.mp4

The Capitol Forum broadly explores how the “consumer welfare standard” has become a part of the antitrust review process over the last 30 years. Sometimes, a strict antitrust test is not sufficient to protect “the public interest” of consumers, and allows the dominant player(s) to harm competition. In the digital economy, corporate mergers that empower companies to restrict innovation can prove far more damaging than classic monopoly abuse. (15:52)

UN: U.S. Broadband Ranking Slips Again; Now 19th Place in Penetration, 24th in Wired Connections

All of the top-10 broadband rankings for accessibility, affordability, speed, and subscription rates have been awarded to countries in Europe and Asia, while the United States continues to fall further behind.

This week, the UN Broadband Commission issued its annual report on broadband and had little to say about developments in North America, where providers have maintained the status quo of delaying upgrades, raising prices, and limiting usage. As a result, other countries are rapidly outpacing North America, preparing the infrastructure to support the 21st century digital economy while officials in the U.S.A. and Canada cater primarily to the interests of large incumbent cable and telephone companies.

The United States has fallen from 20th to 24th place in wired broadband subscriptions, per capita. Virtually every country in western Europe now beats the United States, as does Hong Kong, Belarus, and New Zealand. Canada scored better, taking 14th place.

fixed broadband penetration 2013

Only managing a meager 19th place, only 84.2% of Americans are online. Iceland has 96.5% of their population on the Internet, closely followed by the other northern European nations of Norway, Sweden and Denmark. Also scoring superior to the United States: Andorra, Bahrain, Qatar, and the United Arab Emirates. Canada did better than its southern neighbor as well, coming in at number 16.

percentage using the internet

With big profits to be made in wireless, large wireless phone companies like Verizon Wireless and AT&T helped the U.S. achieve its best rating — 10th place in wireless. But the countries that exceeded the United States did much better (Canada was not rated this year.)

With the arguable exception of wireless, the United States is no longer a world leader in broadband and continues a slow but steady decline in rankings as other countries leapfrog over the U.S.

At least 140 countries now have a National Broadband Plan in place, most maintaining stronger oversight over telecommunications infrastructure than the largely unregulated U.S. broadband marketplace. After reviewing broadband performance across most UN member states, the Broadband Commission for Digital Development recognized several traits common in countries where broadband has been particularly successful:

Competition is essential to promote enhanced broadband. A monopoly or duopoly (usually a telephone company and cable or wireless operator) is not enough to promote healthy broadband advancements. At least three, near-equal competitors are required to achieve the best upgrades and price competition. The presence of smaller competitors or those charging considerably different pricing had little effect on competition.

Countries with the best speeds have national policies promoting the installation of fiber optic technology, at least in multi-dwelling units and new developments. Although the cost of fiber and its installation can amount to as much as 80% of a broadband expansion project, many countries have been successful compelling competing providers to share a single fiber optic network (and its costs) to make the investment more affordable. In terms of ultra-high-speed broadband, there are still not many consumer apps and services that need Gigabit speeds, but such services are on their way. Experience shows that technology typically moves faster than most people anticipate – so countries and operators need to start planning now for the imminent broadband world.

technology cost

A coherent regulatory foundation that emphasizes competition over regulation was the most effective policy. But regulatory frameworks must guarantee a level playing field among competitors and strong oversight to make sure competitors play fair. Regulation is not keeping pace with the changes in the market – Internet players offering equivalent voice and messaging services are, by and large, subject to relatively limited requirements (including consumer protection, privacy, interoperability, security, emergency calls, lawful intercept of customer data, universal service). Asymmetric regulation has resulted in an uneven competitive landscape for services. Governments and policy-makers need to review and update their regulatory frameworks to take into account evolving models of regulation.

Telecommunication and broadband access providers need to explore business arrangements with Internet content providers that will accelerate global investment in broadband infrastructure, to the mutual benefit of all, including end-consumers. Internet companies and Internet content providers need to contribute to investment in broadband infrastructure by debating interconnection issues and agreeing fees/revenue shares with other operators and broadband providers.

That last issue is now being hotly debated in the United States, where providers are seeking compensation from streaming video providers like Netflix, which now account for a substantial amount of Internet traffic.

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