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CBS’ Idea of Choice: $5.99/Mo for CBS Library and Live Local CBS Station Streaming

broken bankThink you are already paying too much for cable television? If you thought Comcast charges too much, consider what CBS thinks is fair to charge for an on-demand library of CBS shows and a single live stream of your local CBS station – $5.99 a month.

Retransmission consent disputes are all about the money. As your local provider fights with a local station or cable network over their latest demand for more money, channels get dropped, providers get blamed and the content owners get richer when networks are restored.

One of the richest of all is CBS, which has told investors it plans to empty $2 billion from the pockets of American cable customers by the year 2020, up from $500 million in 2013. Not only will CBS demand new programming fees from its affiliates, it is also cajoling stations to demand not less than $1.75 a month from every cable subscriber for access to the local CBS over the air station.

Each time a retransmission consent contract comes up for renewal, cable operators know as certain as the sun will rise from the east that programmers will demand a healthy rate increase for the next contract period. That is why many cable companies now look to broadband for much of their future profits, because the TV business is getting very expensive when everyone has their hand out looking for more.

Some cable companies want an end to being stuck in the middle of these disputes and are supporting a plan to compel programmers like CBS, ESPN, TNT, HBO, and all the rest to publish a retail rate for their channel or network and let consumers decide whether it is worth the asking price.

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A proposal introduced last year called “Local Choice” would start the process with local television stations, which have demanded ever-higher carriage fees over the last 10 years, especially for network-affiliated stations.

Under the concept, customers would be given a choice of local stations by their provider. Theoretically, a customer could subscribe to CBS and ABC and tell NBC (and its local affiliate) to take a hike if they demanded too much. Another might be happy just paying for FOX and grab the rabbit ears for anything else they wanted to watch over the air for free.

Rockefeller

Rockefeller

No local station or network would voluntarily say goodbye to the golden goose that lays compulsory retransmission consent fees programmers currently collect from every cable subscriber, so last summer Congress proposed to mandate the concept in a clause of the Satellite Television Access and Viewer Rights Act (STAVRA).

Then Senate Commerce Committee Chairman Jay Rockefeller (D-W.V.) and Ranking Member John Thune (R-S.D.) beat the bipartisan drum loudly for change. But lobbyists also had drums. Rockefeller and Thune began wavering almost immediately.

“During the last month, Chairman Rockefeller and Ranking Member Thune have successfully begun a discussion on Local Choice, which would empower TV viewers, maintain our policy of broadcast localism, and ensure TV stations get fairly compensated for the retransmission of their signals,” read a joint statement issued last September. “Because it is a big and bold idea, Local Choice deserves more discussion and a full consideration by policymakers, and the committee may not have time to include it as part of STAVRA. Rockefeller and Thune are focused on passing STAVRA next week, and continuing to work with their colleagues on Local Choice.”

After the sudden insertion of Local Choice into a satellite television bill, an orange glow filled the night sky at 1771 N Street in Washington. It was Gordon Brown’s hair on fire. Brown is president and CEO of the National Association of Broadcasters (NAB), the very powerful lobby representing television stations and networks. But that night, he sounded exactly like a cable guy.

“NAB opposes this proposal because it eliminates the basic [cable] tier upon which millions rely for access to lifeline information,” Brown responded in a statement. “It proposes a broadcast a-la-carte scheme that will lead to higher prices and less program diversity. Furthermore, STAVRA appears to confer unfettered and unprecedented authority for government intervention into private marketplace negotiations.”

8679-2_NAB_logos_csThe cable industry has fought its own battle against a-la-carte on exactly the same ground Brown was now occupying.

Rockefeller later claimed he was only poking the Broadcast TV Bear to provoke a response, and he got one. The idea of Local Choice was stripped out of the bill by the fall. Rockefeller was reduced to saving face.

“What we wanted to do was introduce those ideas,” Rockefeller later told The Hill. “We made it sound like it was the focus of the bill, and K Street just went crazy, which is always good. But we knew that we’d have to take it out.”

Yes they did, after the NAB and their allies launched a major PR campaign against Local Choice, attracting over 130,000 comments against the plan.

Polka

Polka

But Rockefeller knew the idea was not going away.

“As people get a taste of being able to say ‘I only watch 10 channels so I should only pay for 10 channels,’ they’re going to love that. It’s going to spread like wildfire,” Rockefeller said.

Fast forward to this spring and it was back to business as usual. Retransmission consent disputes yanked several networks and stations off cable systems, providers mailed their annual rate increase notices, and the cable industry’s popularity and reputation with customers now rivaled ISIS.

Much of the collateral damage (apart from the collective emptying of your wallet) continues to be felt by America’s smallest cable operators that cannot negotiate for what passes as fair and reasonable programming rates from networks like ESPN and CBS. They cannot qualify for volume discounts that are so compelling, it drove AT&T (U-verse TV) into the arms of DirecTV just to get enough subscribers to knock a few more cents off the monthly price of regional sports channels. Only the biggest players in the game have the power and get the savings.

Matthew Polka, president of the American Cable Association (ACA), the other cable trade association representing the interests of small, often family owned cable systems, may not have the most power but he could have the strongest argument against the status quo. While the National Association of Broadcasters spent tens of thousands of dollars arguing today’s retransmission consent system works just fine, some of America’s smaller TV stations apparently didn’t read the NAB’s talking points.

GotchaThe “TV Station Group,” an informal collective of small market TV stations seeking a renewal of their carriage contract with DirecTV has been stonewalled by DirecTV for months. Last week, the station owners filed a complaint with the FCC asking them to stop or block AT&T’s merger with DirecTV until the satellite provider agreed to negotiate in good faith. It was clear from their filing DirecTV’s idea of negotiation is to send ‘take it or leave it’ nastygrams to the TV stations, serving markets like Spokane, Wash., and Yuma, Ariz. The only thing clear from the back and forth is that DirecTV has no doubt it can squash the stations like little bugs:

[W]e will not fall victim to your silly and obvious tactics to try to audit our retrans deals so you can see them all. We did not ask you to send to us your supposed rates, and your unilateral decision to do so doesn’t give you the right to see our other deals. But trust [us], no other station group – especially small groups such as Northwest – are paid by DIRECTV nearly what you have proposed, let alone what your sheet says.

A few weeks later, in response to another request from the broadcasters, DirecTV scolded them like a misbehaving teenager:

To repeat yet again, DIRECTV is not going to get pulled into your transparent trap to define what is ‘market’ by seeing our other deals. That is a precedent we will not set, including for NW. Please do not ask again.

“Judging from the TV stations’ complaint, it is evident that the retransmission consent market is broken and not working for these broadcasters any better than for cable operators,” Polka wrote in a press release issued today. “The time has come for these TV stations and others that have also filed good faith complaints to step out from NAB’s long shadow and join ACA in supporting efforts to update the rules and equip them with a strong referee that can help protect consumers and competition when negotiations break down.”

Polka continues to advocate letting customers decide whether they want to pay for local stations and cable networks. He argues CBS is already doing that today with its All Access program for broadband customers. In 94 markets, serving 64% of U.S. households, consumers can voluntarily subscribe to a live stream of their local CBS station and access a large 6,500 title on-demand library of CBS content for $5.99 a month.

cbs all accessNobody besides CBS knows how many have agreed to pay for All Access, but executives have told investors they are pleased with how the program is working. Still, Marc DeBevoise, executive vice president and general manager of CBS Digital Media at CBS Interactive knows he walks a very fine line promoting a product that could eventually undermine CBS’s current commitment to today’s retransmission consent system. DeBevoise told The Drum it does not market or intend to offer All Access as an alternative to the current cable model.

“At a high level, our strategy in launching CBS All Access was two-fold. First, to delivery our best fans access to the most CBS content we could on any device at any time – really delivering a service for our ‘superfans,'” DeBevoise said. “Additionally this service enables us to reach ‘cord-nevers’ that want to watch CBS content but don’t have a traditional cable package –a significant audience, with industry estimates ranging from 6.5 to 16 million households.”

But at $5.99 a month, that price may prove too steep for many casual viewers looking only for a show or two. Many viewers now rely on ad-supported Hulu, a project of the major American broadcast networks except CBS. Most Hulu customers watch their favorite network shows for free. The future possibility of paying $6 for each of four major American broadcast networks will likely be seen as out of line, especially by more casual viewers.

But for Polka and ACA member cable systems, the idea that customers will direct their All Access price shock wrath out on CBS, not the cable company, may be worth it.

John Malone Gets Puerto Rico Cable Monopoly: Liberty Global Takes Over Choice Cable

choice-300x169John Malone’s Liberty Global has bought out Puerto Rico’s second biggest cable television operator — Choice Cable TV — and will convert its customers to Liberty Cablevision of Puerto Rico.

Liberty joined Searchlight Capital Partners to close the $272.5 million purchase, which will make Liberty Puerto Rico’s largest cable company, passing more than one million homes and serving about 750,000 customers.

Liberty put $267.5 million of the purchase on its credit card, using debt borrowing from another Malone-controlled entity — Liberty Cablevision — to fund most of the deal. Liberty Global contributed just $10.2 million in equity and its partner Searchlight kicked in $6.8 million in equity.

The deal gives Malone’s company a total cable monopoly on the island. Choice Cable was the last standing cable operator not owned by Liberty, and served customers in western, southern, and central Puerto Rico. Choice itself consolidated several independent cable operators, including Cable TV Northwest (Aguadilla), Dom’s Cable TV (San Germán), Cablevision Mayaguez and TelePonce Cable TV. Now it has been consolidated itself.

mini-banner-cobertura

Choice Cable used to offer service in these Puerto Rican communities. Most of the rest of the island is served by Liberty Cablevision, which will now have a total cable monopoly across the unincorporated U.S. territory.

According to Liberty Global, the combined cable company will be expected to generate at least $390 million in annual revenue. If it doesn’t, rate increases could be on the way. Channel changes have already been introduced.

Liberty Puerto Rico added 18 new channels to the Choice Cable lineup at no extra cost. The Choice Pak package includes the new channels: AMC, AXS TV, beIN in Spanish and English, Cablevision, Disney Jr., Fox Sports 1, FX, Lifetime Real Women and PBS Kids. The Top Choice package will include: Crime & Investigation, DIY, Esquire, Fox Sports 2, History in Spanish, IFC, Military History and NBA TV.

But several other channels will be dropped: MTV, VH1 and Nickelodeon, Comedy Central, Spike, TV Land and Palladia HD. These Viacom-owned channels were discontinued last year by Liberty in a dispute over programming fees.

Liberty intends to offer up to 120/4Mbps Internet speeds, over 100 HD channels (352 channels total), and a “better balance of English and Spanish language networks” to current Choice customers.

Comcast System Audit in Tallahassee Takes Away Dozens of Channels It Will Restore for a Price

Phillip Dampier June 2, 2015 Comcast/Xfinity, Consumer News No Comments

comcast sucksA system audit by Comcast has created a firestorm across Florida’s Panhandle after customers lost dozens of channels while Comcast used it as an opportunity to sell customers more expensive television packages.

The cable company has been installing new technology that will help it verify customers are not getting channels or services they are not entitled to receive. After auditing subscribers in the Tallahassee area, many long-time Comcast customers found their TV lineup dramatically reduced, often with no warning.

“We found customers had access to channels not included with their service level,” Comcast spokeswoman Mindy Kramer told the Tallahassee Democrat. “Meaning, they were getting some channels that they had not subscribed to in their specific package.”

Comcast used the audit to upsell customers to a pricier package to get those missing channels back, annoying customers.

“During a recent system audit, it was discovered that you may be receiving channels that are not part of the video service to which you currently subscribe,” a Comcast letter said. It then gave an example of a channel the person had been receiving in error and suggested the customer upgrade if they wanted to continue receiving the same service.

“We apologize for any inconvenience this change may cause,” the letter said. “We appreciate your business and thank you for being a loyal Comcast customer.”

comcast flaNumerous Tallahassee customers contacted the newspaper and local media outlets to complain they lost dozens of channels without notice, many they had received for years. More recent subscribers also discovered their packages were suddenly much smaller.

Among seniors, the loss of Turner Classic Movies brought the most complaints. Customers who had received the network erroneously as part of a Digital Starter TV package ($43.45-68.95/mo) were told they must upgrade to Digital Premiere service to get that single channel back. That represents a rate increase of $22.94-47.54 a month, depending on the area. Digital Premiere costs $90.99-$131.99/mo., according to Comcast’s website.

Ron Crolla ended up paying a promotional rate increase of about $20 a month to restore his 85-year-old father’s Comcast service in a Tallahassee assisted living facility. Crolla said Comcast dropped about half of his father’s TV channels and did the same for many others in the same facility.

“The TV is his primary form of entertainment; he can’t drive, he can’t walk much,” Crolla told the newspaper. “It just seems all underhanded,” he said. “It just seemed like a crappy thing to do.”

Others thought about the same, judging from the newspaper’s Facebook page, overwhelmed with so many complaints about Comcast, a reporter covered the angry responses in another story:

tallahassee-democratMan, do people hate Comcast.

I can say that because that’s what many people told me this week, after a story ran in this newspaper about Comcast stripping cable customers of channels they weren’t paying for.

Dozens of emails and hundreds of Facebook and online comments came in hot. Most people shared their stories in gritty detail, breaking down their channel line-ups, what they paid and when. Some even passed on the name of the customer service representative they were dealing with, others just spun into a tirade.

People freely tossed out words like “furious,” “worst,” “sucks,” “hate” and others not fit for print. Something was triggered. People were pouring their hearts out in emails. It was personal. They were feeding off each other, finding solace in having a common enemy.

For many, it wasn’t about justifying the fairness of getting the extra channels for free, it was about Comcast’s method of ferreting out customers and dropping the channels with what many claim was no warning.

“If they wrote me a letter and told me I was getting extra channels for free, I probably wouldn’t even realize it because Comcast’s packages and lineups are so confusing,” said Tallahassee resident and Stop the Cap! reader Neil. “The classy way to handle it would be Comcast admitting it was entirely at fault and offering a special deal to keep the channels on at their wholesale cost for 6-12 months. I don’t want them to have to pay for something I am getting for free, but they decided to profit from their mistake at the customer’s expense. That is why Comcast is so despised around here. It is always an angle with them to get more money. If I make a mistake, I own up to it. If they make a mistake, they want to bill me for it.”

Comcast Raising Rates July 1st; Higher Cable TV Surcharges, $3 More for Double-Play Broadband/TV Package

Phillip Dampier May 26, 2015 Comcast/Xfinity, Consumer News 5 Comments

comcastJust in time for the summer fireworks, Comcast’s own rate explosion may be arriving in your mailbox. The cable company is boosting rates on cable television and broadband service in several regions, including higher Broadcast TV surcharges and, for some, the introduction of a new compulsory sports programming fee. Comcast customers shared their rate increase letter with Broadband Reports.

The original notification letter was littered with grammatical and spelling errors and obviously was never proofread. Maybe they are using the extra money to hire someone to help out with that. We’ve translated the text into the English language:

At Comcast, we are committed to constantly improving your entertainment and communications experience, and we continue to invest in making your services even better. Due to increases we incur in programming and other business costs, we periodically need to adjust our prices as we make these and other investments.

Starting on July 1, 2015, the prices of select XFINITY TV and Internet services and equipment will change. We’ve included the changes in this notice. Among these price changes, we have itemized a Regional Sports fee for customers receiving Digital Starter service tiers and above to offset the rising costs of distributing regional sports networks.

In the Atlanta area, a sample of rate changes include: a Limited Basic rate hike between $1-3 a month, a Standard Cable increase of $1 a month, a $2 hike in HD DVR Service (was $8, soon to be $10), a $1 Regional Sports fee, a $1.75 a month increase in the Broadcast TV Fee (this varies widely in different Comcast markets), and a $3 increase in the cost of Blast! With XFINITY TV or Voice Service (was $67.95, now $70.95). The modem rental fee remains unchanged at $10/mo.

Rates are unaffected for customers on term contracts or promotions until those plans expire. It will also not affect customers who have previously received a notification of a rate hike during 2015.

Analysis: Charter Communications Will Acquire Time Warner Cable/Bright House – What It Means for You

charter twc bhAs expected, Charter Communications formally announced its acquisition of Time Warner Cable and Bright House Networks in a deal worth, including debt, $78.7 billion.

The deal brings Dr. John Malone, a cable magnate during the 80s and 90s, back into the top echelon of cable providers. Malone orchestrated today’s deal as part of his plan to dramatically consolidate the American cable industry. Malone’s Liberty Broadband Corp. assisted in pushing the deal across the finish line with an extra $5 billion (supplied by three hedge funds) in Charter stock purchases.

The companies expect to win regulator approval and close the deal by the end of 2015.

“No one has ever had a better sense of the multichannel world than John [Malone],” Leo Hindery, a veteran cable-industry executive, told the Wall Street Journal. “Obviously he sees in Charter and Time Warner Cable a way to perpetuate a legacy that is unrivaled.”

But the man who may have made today’s deal ultimately possible was FCC chairman Tom Wheeler. Last week, he personally called cable executives at Charter and Time Warner Cable to reassure them the FCC was not against all cable mergers just because it rejected one involving Comcast and Time Warner Cable.

But Wheeler warned he would only approve deals that were in the public interest.

“In applying the public interest test, an absence of harm is not sufficient,” Mr. Wheeler said.

Consumer groups are wary.

“The cable platform is quickly becoming America’s local monopoly broadband infrastructure,” said Free Press Research Director S. Derek Turner. “Charter will have a tough time making a credible argument that consolidating local monopoly power on a nationwide basis will benefit consumers. Indeed, the issue of the cable industry’s power to harm online video competition, which is what ultimately sank Comcast’s consolidation plans, are very much at play in this deal.”

“Ultimately, this merger is yet another example of the poor incentives Wall Street’s quarterly-result mentality creates,” Turner added. “Charter would rather take on an enormous amount of debt to pay a premium for Time Warner Cable than build fiber infrastructure, improve service for its existing customers or bring competition into new communities.”

new charter

http://www.phillipdampier.com/video/Bloomberg Inside the Charter Plan to Buy Time Warner Cable 5-26-15.flv

A panel of Wall Street analysts discusses the chances for Charter’s plan to buy Time Warner Cable and Bright House Networks. Some analysts continue to frame regulator approval over video programming costs, while others argue broadband is the key issue the FCC and Justice Department will consider when reviewing the merger. From Bloomberg TV. (5:36)

A heavily indebted Charter Communications will not own the combined entity free and clear. At the close of the deal, Time Warner Cable shareholders will own up to 44% of the new company, Liberty Broadband up to 20%, Advance/Newhouse (Bright House) up to 14%. Charter itself will own just 22%, but will be able to leverage voting control over the entity with the help of Malone’s Liberty, which will get almost 25% of the voting power. That will give Charter just enough of a combined edge to control the destiny of “New Charter.”

As with the aborted deal with Comcast, lucrative golden parachutes are expected for Time Warner’s top executives who will be departing if the deal wins approval. In their place will be Charter Communications CEO Thomas Rutledge and a board compromised of 13 directors (including Rutledge himself). Seven directors will be appointed by independent directors serving on Charter’s board, two designated by Advance/Newhouse and three from Liberty Broadband, again giving Rutledge and Malone effective control.

Current Time Warner Cable and Bright House Networks customers will see major changes if Charter follows through on its commitment to bring Charter’s way of doing business to both operators.

No More Analog Television

all digitalCharter told investors at today’s merger announcement it will accelerate the removal of all analog television signals on TWC and Bright House cable TV lineups to free capacity for faster Internet products, more HD channels, and “other advanced products.”

Time Warner Cable CEO Rob Marcus told investors earlier this month TWC was already well-positioned with excess spectrum from moving lesser-watched analog channels to digital service and using “Switched Digital Video,” a technology that conserves bandwidth by only sending certain cable channels into neighborhoods where customers are actively watching them. This allowed Time Warner Cable customers to avoid renting a cable box for lesser-watched, cable-connected televisions in the home.

Charter’s plan requires a cable box on every connected television, at an added cost. The standard lease rate for the digital decoder box is $6.99 per month, and those customers on the lowest basic tier will likely receive at least two devices for up to two years for free, or five years for customers on Medicaid. Customers who subscribe to higher tiers of service or premium channels may receive only one device for free for one year before the monthly lease rate applies. For a home with an average of three connected televisions, this will eventually cost an extra $21 a month. DVR boxes cost considerably more.

No More Modem Lease Fee, But Only Two Choices for Internet Service

The good news is Charter does not apply any modem lease fees and there is a good chance if you already purchased your own modem, Charter will continue to let you use it. The bad news is that if you were used to sticking with a lower-speed broadband tier to save money, those days are likely coming to an end. Charter’s “simplified” menu of broadband options cuts Time Warner’s six choices and Bright House’s five options to just two:

  • 60/4Mbps for Spectrum Internet ($59.99)
  • 100/5Mbps for Internet Ultra ($109.99)

Charter_Spectrum_Mobile_Internet-finalThis is likely to be a red flag for regulators concerned about broadband affordability. Although it is likely Charter may offer concessions by grandfathering existing Time Warner Cable and Bright House customers under their current plans, Charter has nothing comparable to Time Warner’s “Everyday Low Price Internet” for $14.99 a month or a 6Mbps Basic broadband alternative far less expensive than Charter’s entry-level Internet tier. Bright House customers are not likely to experience something similar. The entry-level 15Mbps broadband-only plan is $65 a month without a promotion, according to Bright House.

Charter is rumored to be testing speed boosts for those two tiers for deployment in areas where they face fiber competitors. The first phase would raise Spectrum speeds to 100/25Mbps and Ultra to 300/50Mbps with plans to further increase speeds when DOCSIS 3.1 arrives — likely to 300/50Mbps for Spectrum and 500/300 for Ultra, at least where Google Fiber, U-verse with GigaPower, and Verizon FiOS offers competition.

Recently, Charter has followed Time Warner Cable’s marketing script and is actively promoting the fact the company has no data caps on broadband service, but Charter had a history of loosely enforced “soft caps” for several years in the recent past, so we’re not convinced data caps are gone for good at Charter.

Pricing & Service

billCharter enjoys a higher rate of revenue per customer than either Time Warner or Bright House, which is a sign customers are paying more. It is likely Charter’s reduced menu of choices is responsible for this. Although customers do get a better advertised level of service, they are paying a higher price for it, with no downgrade options. Ancillary equipment rental fees for television set-top boxes are also a likely culprit.

Charter also tells investors its merger with Time Warner and Bright House will bring “manageable promotional rate step-ups and rate discipline” to both companies. That means Charter will likely be less generous offering promotions to new and existing customers. Like Time Warner and Bright House, Charter will gradually raise rates on customers coming off a promotion until they eventually reset a customer’s rates to the regular price. But while Time Warner, in particular, was receptive to putting complaining customers back on aggressively priced promotions after an old promotion ended, Charter is not.

Charter customers tell us the company’s customer service department is notoriously inconsistent and promotional rates and offers can vary wildly. For some, Charter only got aggressive on price after they turned in their cable equipment and closed their accounts.

As far as service is concerned, CEO Thomas Rutledge has managed significant improvements while at Charter. What used to rival Mediacom in Consumer Reports’ annual ranking of the worst cable companies in America is now ranked number nine (Bright House took fourth place, Time Warner Cable: 12th).

But the presence of Malone in this deal, even peripherally, is a major concern. Malone-run cable companies are notorious for massive rate increases and poor customer service. Sen. Al Gore routinely called his leadership style of Tele-Communications, Inc. (TCI), since sold to Comcast, the Darth Vader of a cable Cosa Nostra and Sen. Daniel Inouye from Hawaii once remarked in a Senate oversight hearing that Malone’s executives were a “bunch of thugs.”

http://www.phillipdampier.com/video/Bloomberg Charter CEO Comfortable With Price Paid for Time Warner 5-26-15.flv

Watch Charter Communications CEO Thomas Rutledge stumble his way through an answer to a simple question: What are the public benefits of your merger with Time Warner Cable that the deal with Comcast didn’t offer? Did you like his answer? (5:28)

While Your Cable TV Bill Rises Due to “Increased Programming Costs,” So Are Advertising Loads

cablebill-web

Cablevision’s broadcast TV surcharge increased in January to $5.98 a month, which amounts to $71.76 a year, on top of your usual cable TV bill.

No it isn’t your imagination. While a growing number of cable television subscribers now face a “broadcast programming surcharge” on their cable bill to compensate television stations and networks for cable carriage, those same channels are larding up their programming with ever-increasing advertising. One quarter of every hour of network television is now littered with commercials — an all-time high for broadcast networks seeking to maximize advertising revenue.

Show openings have been cut to seconds, credits roll by at fast-forward speed – usually compressed into illegibility, and some cable networks have returned to the practice of chopping bits of shows and compressing playback of others to accommodate more commercials. That does not include product placement or “in-program” compensated advertising, which appears when a character picks up a can of Pepsi, walks by a Subway outlet, or reaches for a Pop-Tart for breakfast.

As early as 2009, TNS Media Intelligence found at least 36% of today’s network primetime shows were advertising-oriented. That included 7:59 of in-show brand appearances and 13:52 of commercial advertisements, for a combined total of 21:51 of marketing content.

Reality shows, as well as being cheap to produce, are product placement gold. America’s Toughest Jobs contained 44:50 per hour of advertising messages and product placement, The Biggest Loser ran up 40:37. Before the reality show craze, game shows were program-length commercials in disguise. Game show producers received an endless supply of prizes to give away in return for viewers enduring relentless 10-15 second pitches for Rice-a-Roni, crock pots, living room furniture sets, and current model cars and trucks. Viewers did not escape traditional advertisements along the way either.

Through much of the 1970s and early 1980s, an average hour of network television was between 48-52 minutes of programming, 8-12 minutes of network and local commercials. Short news breaks and public service announcements were often included during those breaks. Shows targeting children usually contained less advertising.

In 1984, the Reagan Administration deregulated broadcasters, claiming the free market was best equipped to contain any abusive practices as consumers theoretically could tune out stations and networks that allowed things to get out-of-hand.

In reality, what one network decided, the others usually followed. Outside of watching commercial-free PBS (although those sponsorship messages increasingly began to resemble traditional advertising over the years), viewers didn’t have much choice. For the last 31 years since deregulation, advertising has increased while show length has decreased. In the 1970s and 80s, pieces of rerun television shows created when ad loads were shorter were often cut from shows to make room for an extra ad or two. What was left after a trip to the cutting room was often played slightly sped-up, which made room for even more advertising. By the 1990s, producers created their shows with increasing advertising loads in mind. Short sacrificial 60-90 second end scenes, deemed non-essential to the show’s integrity, were often chopped when a show entered syndication.

In the 2000s, network executives started demanding producers drastically cut the length of show opening and closing themes. If producers didn’t, studios did it for them when a show was resold to a cable network. A rerun of Law & Order now features a 24-second opening, a big difference from the original 1:45 second opening the show had when it originally aired on NBC. End credits were usually squished on-screen to allow a 15-second network promotion to run at the top. Some networks even began their next show in one window while showing end credits of the last program in another.

But nothing affected commercial loads more than the 2008 Great Recession. Advertising revenue tumbled, along with the economy, and advertisers balked at paying traditional ad rates when online advertising was available for much less. The answer? Sell more ads… at a lower price. Once again, program lengths had to be cut to make room for the increasing number of commercials. By 2009, average network ad loads were up to 13:25 per hour. Just four years later in 2013, that number spiked to 14:15. It’s now 15 minutes and up at some networks, depending on the type of program.

As commercials neared comprising 25% of every hour of television, sponsors finally began to rebel. They were reacting to the pervasive growth of the DVR, which allowed consumers to record their favorite shows, if only to fast forward past the dense thicket of commercials. They sought a ceiling on ad loads and more creative ways to reach ad-skipping audiences numbed by relentless advertising. That meant even more product placement.

Although sponsors of expensive NBC, CBS, ABC, and FOX shows may have rebelled at the 15-minute mark, the same isn’t true with cable networks where ad loads are as high as 24 minutes per hour. In 2009, the average cable network aired 14:27 of advertisements an hour. This year, it’s up to 15:18 and still rising. Among the worst offenders:

ad load

To keep the money flowing from every direction, both over-the-air and cable networks, including those noted above, continue to seek additional compensation from your provider in the form of retransmission consent and carriage agreements. Whether you watch a channel or not, you are paying for it. Some of these compensation agreements are experiencing rate increases approaching 10% annually.

To the surprise of many industry analysts, some of the worst offenders are networks with declining ratings who risk further alienating viewers with even more advertising just to keep revenue numbers up. While traditional ads actually declined by 2% on most over the air networks this year, FOX more than made up for that with a 15% increase in advertising time. The cable networks with the highest ad increases this year were Viacom-owned channels (Comedy Central, Spike, MTV, Nickelodeon) jumping 13%, A+E Networks (A&E, Crime & Investigation, Lifetime, History) increasing 10%, and 9% at Discovery Networks. Which networks increased ads the least? Those owned by Disney, independent cable networks, and Time Warner (Entertainment).

“Generally speaking, the ratings winners (Disney, 21st Century Fox, Scripps Networks) are increasing investment in original content (and not abusively increasing ad loads), whereas the losers (A+E Networks, Viacom, NBCUniversal) and the neutrals (Discovery, AMC Networks) are decelerating investment in original content and stuffing more ad spots into their shows,” said analyst Todd Juenger of Sanford C. Bernstein.

Michael Nathanson of MoffetNathanson Research worries television is repeating the mistakes commercial radio made post-deregulation, when massive increases in advertising accompanied by decelerating investment in programming repelled many listeners, perhaps for good. Some have permanently abandoned commercial over the air radio in favor of commercial free music services, satellite radio, and streaming services.

“Networks can offset ratings challenges and pricing weakness with more inventory, however, we worry that it is a dangerous long-term game that ultimately devalues the consumer experience and reduces ad efficacy,” Nathanson said. “As we saw with radio, once the increased commercial load genie is out of the bottle, it is nearly impossible to put it back in.”

When Stephen Cox was watching The Wizard of Oz on TBS last November, something didn’t sound quite right to him about the Munchkins, who are near and dear to his heart. He wasn’t imagining things. Time Warner-owned TBS used compression technology to speed up the movie. The purpose: stuffing in more TV commercials.

“Their voices were raised a notch,” Cox, the author of several pop-culture books including one about the classic 1939 film, told the Wall Street Journal. “It was astounding to me.”

The Colbert Report hilariously depicts the next generation of product placement: the retroactive ad technology of Mirriad, which can insert products into shows years after they were made. (4:04)

Cablevision to Loyal Customers: Thanks for Paying Higher Prices for Cable Service When You Didn’t Have To

take the moneyIf you are a long time Optimum customer, the CEO, management, and shareholders of Cablevision would like to thank you for driving average monthly cable revenue per customer 4.8% higher from a year ago to $155.34 a month.

A few years ago, Cablevision developed a Stalinist approach to repeat customer promotions and retentions: nyet.

Despite mounting competition from Verizon FiOS, AT&T U-verse, Comcast and Time Warner Cable, Cablevision has held the line on repeatedly discounting its service for customers who complain their rates are too high.

“Our disciplined approach to pricing, promotional eligibility and customer credit policies has not wavered,” Kristin Dolan, chief operating officer, told investors on a morning conference call.

As a result, the average customer staying with Cablevision paid almost five percent more for service than they did a year earlier — more than $155 a month.

optimum“The main drivers of our increased revenue per customer came from a combination of rate increases, but also lower proportion of subscribers on promotion,” said Brian G. Sweeney, chief financial officer. “We had a number of fixed rate increases January 1 of this year related to cable box fees, an increase in our sports and broadcast TV surcharge, as well as the pass-through of PEG fees to certain customers.”

Cablevision elected to stop competing on price in 2013, telling customers they are entitled to one customer retention deal and that is all. As a result, Cablevision has been losing customers even as it gains revenue. Although it managed to pick up 7,000 net new broadband customers during the quarter, Cablevison lost 6,000 customer relationships, 28,000 video customers — double the number from a year ago, and 14,000 voice customers. That represents 11 consecutive quarters of video subscriber losses.

The customers that remain are meeting Cablevision’s earnings expectations as others leave for better deals elsewhere.

Kristin and James Dolan

Kristin and James Dolan

Cablevision admits many of its subscriber losses come from customers willing to shop around for a better deal. They usually find one. Although Verizon has tightened customer retention deals itself in response to Cablevision’s retention policies, Frontier U-verse in Connecticut continues to compete for new business on price, at least initially as part of new customer promotions.

Kristen Dolan argues Cablevision’s quality of service keeps customers loyal and brings many ex-customers back.

“We do a significant amount of [customer] win-backs every year and we really focus on why people are coming back and it’s not just about price,” Dolan said.

But some customers believe it is more about the price than Cablevision might think.

“The only reason I left Cablevision was because they wouldn’t negotiate and match a better deal Verizon offered me,” said Rob Hastings of Syosset, N.Y., who canceled service in 2013. “When Cablevision wouldn’t cut their price I left.”

Many of the customers coming back to Cablevision this year are, in fact, their old customers dealing with a rate reset from Verizon as promotions expire.

“When my Verizon FiOS rate shot up, I went back to Cablevision as a ‘new customer’ on a promotion,” said Hastings. “When that expires, I’ll bounce back to Verizon. Whoever gives me the best price gets my business as I am sure not going to pay extra to stay a loyal customer.”

cablevision service areaTo further combat promotion-bouncing, Cablevision is embracing its broadband product line and marketing new cord-cutting packages to customers that offer reduced-size cable television packages and free over the air antennas for local stations. The cable company also recently announced it would offer cable customers Hulu subscriptions. Jim Dolan, Cablevision CEO, believes broadband is where the money is and customers are willing to pay higher prices to get Internet access even when video package pricing has its limits.

“You’re seeing the video product begin to lose margin and not just among the little operators like us, but even some of the big operators,” said Dolan. “Our philosophy is we think of video as akin to the eggs and the milk in a convenience store. You have to have it, but you don’t make a lot of money on it. Now connectivity is a whole other basket. It’s more like the soda and chips aisle, and if you provide great connectivity, because it provides great value to the consumer, you can differentiate yourself and you can charge more and the margins are good on it.”

Dolan doesn’t think much of his competitor’s slimmed down cable packages either.

“Verizon’s known to embellish [and] use misleading messaging in their marketing to get the phones to ring,” said Dolan. “I think that’s partially how we view these packages. I can tell you that the packages that we’re offering provide a lot more flexibility.”

To further differentiate it from its competitors, Cablevision continues to emphasize its Wi-Fi network of hotspots across metro New York City. The company also recently became the first major U.S. cable operator to launch a mobile phone service that uses its network of Wi-Fi hot spots. Although not willing to divulge customer numbers, Kristin Dolan did say unique weekly visits increased 16% on average to Cablevision’s website, presumably to explore the Freewheel Wi-Fi calling product.

Cablevision’s highlights for the first three months of 2015:

  • Fiber to the Press Release: Cablevision was the first cable company to introduce 1-gigabyte residential service in the tri-state area. The service launched to a single new multi-tenant building in Weehawken, N.J. No further expansion is planned at this time;
  • Discounted Internet for the Cord Cutter on a Budget: Cablevision expanded the availability of $34.90/mo Internet Basics (5/1Mbps) across its entire service area. It includes an over-the-air antenna.
  • Third Party Set-Top Boxes: Cablevision is interested in providing a less expensive, open standard, set-top box platform in the future to customers that don’t want to pay for a large cable box.

Special Report: Wheeling ‘n Dealing At the California Public Utilities Commission – The Peevey Years

special report

Part One: The Peevey Era (2002-2014)

California’s Public Utilities Commission seems increasingly unable to escape its reputation for backroom dealing, close personal ties to lobbyists working for the utility companies it regulates, and a growing conclusion it could care less about the interests of ordinary California consumers it is supposed to protect. That’s great news if you are an energy or telecommunications company with business before the commission, but bad news for consumers.

In this first part in a series of reports, Stop the Cap! investigates corruption at the highest levels of the California regulator. Search warrants have been executed, documents seized, and top officials of one of the state’s largest utilities have been fired. But it that enough for Californians to finally get a fair shake?

Before a series of scandals reached the front pages of state newspapers last year, many Californians would be hard-pressed to explain what “CPUC” stood for, much less take an active interest in its regulatory and oversight activities. That may have made it easier for the California Public Utilities Commission to escape the close scrutiny other state agencies receive, at least until local news outlets turned their investigative reporters loose on the agency and its president.

The CPUC regulates the state’s energy and telecommunications companies, at least as far as federal and state laws allow these days. Most of the proceedings are conducted in public, but a great deal of the real business takes place behind closed doors in private. Sometimes these “ex parte” meetings and communications are disclosed to the public. But uncomfortably often, the participants look for excuses not to report.

Peevey

Peevey

The Michael Peevey Era: Bending Over Backwards for Utilities Who Returned the Favor

For most of the last 12 years, the man who presided over the CPUC was Mr. Michael Peevey.

Then Gov. Gray Davis appointed Peevey to lead the CPUC on New Year’s Eve 2002, replacing its incumbent president Loretta Lynch (no relation to the current Obama Administration’s attorney general nominee). Lynch had been a strong consumer advocate at the commission and tried to hold back utility company rate increases at a time when Enron was manipulating wholesale energy prices in the state. When Peevey and Lynch served together as commissioners at the CPUC, their relationship was clearly strained, with several testy exchanges taking place between the two. In general, they opposed each other. Peevey supported deregulation, Lynch sought to protect consumers from the effects of a manipulated, deregulated marketplace.

Consumer advocates like the Foundation for Taxpayer and Consumer Rights pounced on the nomination, predicting it would be a disaster for California consumers.

”Making Mike Peevey the head of the PUC is like asking [Enron’s CEO] Kenneth Lay to run the [Securities & Exchange Commission],” said FTCR’s senior consumer advocate, Doug Heller in January 2003. ”After what the energy industry did to California, it is shocking that Davis would give an energy company executive such a prominent position. Not only has Davis failed to place an independent consumer voice on the commission, he is letting the energy industry run the agency.”

Peevey was a company man through and through, spending decades working for California utilities, most recently as president of Edison International and its well-known subsidiary, Southern California Edison (SCE). He was also well-connected politically, married to Democratic state senator Carol Liu. He left Edison in 1993 in what a 1997 Wall Street Journal piece called “a less-than-amicable separation” to do consulting work for 18 months.

Peevey Made Millions While Supporting Energy Deregulation That Brought Higher Rates and Rolling Blackouts for California Consumers

In 1995, Peevey launched New Energy Ventures, Inc., luring a former president of the CPUC to the venture, which would take advantage of energy generation deregulation in California to compete with SCE for customers. Peevey was a staunch advocate and lobbied hard for energy deregulation in California.

California’s deregulation plan required the state’s three large investor-owned utilities—Pacific Gas & Electric, Southern California Edison, and San Diego Gas and Electric—to sell part of their generating capacity, making them dependent on a competitive, open power generation market to effectively serve customers. It also discouraged companies from entering into long-term supply contracts with independent power producers to create a hedge against sudden price spikes. As a result, the utilities had to rely on the newly created spot wholesale market for about half of the electricity their customers demanded. Among the largest players in California’s energy market was Enron Energy Services (EES), based in Houston, Tex.

Peevey was a true believer in deregulation and saw enormous money could be made promising deep discounts on energy costs to large businesses in California. At one point, Peevey said he expected to market energy the way others market phone service. Like many of the players in California, Peevey’s NEV was an energy middleman. It bought wholesale power generated by private producers and resold it to large grocery and department store chains, manufacturers, and even the U.S. Dept. of Defense at a profit.

Peevey sold his energy services company to energy giant AES for $90 million.

Peevey sold his energy services company to energy giant AES for $90 million.

Peevey had the good fortune to sell his venture to AES Corp., the largest U.S. developer of power plants, in 1999 for $90 million in cash and stock. He exited the business just six months before the start of the California Energy Crisis, which caused massive price increases and rolling blackouts across the state between 2000 and 2001. State deregulation, lack of federal oversight, and illegal market manipulation by Enron and others enriched the deregulated energy trading market while causing the bankruptcy of PG&E and the near bankruptcy of SCE in early 2001.

What deregulation advocates promised would be a veritable free fall of energy prices in the free market turned out to be a catastrophe for California and its citizens. The state lost an estimated $45 billion from deregulation and the illegal acts of Enron, as well as the loss of more than 1,300 utility jobs. Enron produced little power itself and owned relatively little in the way of hard assets. Like the big banks and investment firms that created wealth through trading barely tangible assets, securities and debt, Enron was less akin to PG&E and more closely resembled Goldman Sachs. Enron relied on low margin energy trading and energy supply contracts. It existed in a Wall Street-like trading environment, buying power from producers to selling to utilities, taking a cut each time. The more transactions, especially those at a higher price, the better for Enron.

”Every trading company in the country has been feasting on California, and Enron is the shrewdest of them all. They are like sharks in a feeding frenzy,” said Michael Shames, executive director of the Utility Consumers’ Action Network in San Diego in 2001. As he said that, Enron president Jeffery Skilling and family were spending two weeks sailing in the Virgin Islands. Skilling was deeply offended Californians were angry at Enron, which he called one of the great examples of the benefits of deregulation.

”We’re on the side of angels,” Skilling told Bloomberg News at the time. ”We’re taking on the entrenched monopolies. In every business we’ve been in, we’re the good guys.”

Today, Skilling is serving a reduced sentence of 14 years at the Montgomery Federal Prison Camp, Maxwell Air Force Base, Montgomery, Ala., and owes a $45 million fine.

Peevey never stopped advocating for deregulation, and his promise it would save Californians millions instead cost utility companies and the state tens of billions in losses. At the height of Enron’s market manipulation, Californians suffered multiple rolling blackouts while the energy markets made fortunes.

“This was like the perfect storm,” said former EES executive Steve Barth. “First, our traders are able to buy power for $250 in California and sell it to Arizona for $1,200 and then resell it to California for five times that. Then EES was able to go to these large companies and say ‘sign a 10-year contract with us and we’ll save you millions.'”

In a desperate bid to end the blackouts, utilities were eventually paying $1,400 per megawatt-hour for energy they used to produce for themselves for around $45.

http://www.phillipdampier.com/video/ABC Nightline California Energy Crisis 1-2001.mp4

In 2000-2001, California was embroiled in an energy crisis, with rolling blackouts and enormous wholesale rate increases. At the heart of the problem – deregulation, which forced utilities to divest energy production assets and buy and sell power in a “free market” dominated by energy traders like Enron. ABC’s Nightline reported on the crisis in 2001, largely accepting the industry’s premise that the problem was insufficient supply and increased demand.

Vice President Dick Cheney blamed prior administrations for the crisis and believed more deregulation across the country would solve the problem, adding “there has been no significant increase in supply in California for about 10 years, although there’s been a 24 percent increase in the demand for electricity.”

These reports came ten months before the fall of Enron. Investigations would later reveal Cheney was wrong. Deregulation and a lack of oversight allowed Enron to manipulate prices undetected by federal regulators charged with monitoring the energy market. At the height of the crisis, Enron was exporting California-produced power to adjacent states, only to sell it back to increasingly desperate utilities like SCE and PG&E at markups that cost California $1-2 million a day. Despite claims the crisis was caused by a lack of capacity, at the height of the blackouts California had an installed generating capacity of 45GW and faced customer demand of just 28GW. (8:00)

Peevey Wins Presidency of CPUC and Has New Allies in Effort to Help AT&T, Power Companies

Peevey escaped the scorn heaped on energy companies and utilities because he cashed out of NEV just prior to the start of the Energy Crisis. Davis thought putting a former industry guy like Peevey in charge of the CPUC would be an asset because he would understood how legacy utilities like PG&E and SCE worked and would know how the new competitive players operated from his experience at NEV. Davis had previously brought Peevey on board as an unpaid personal consultant, helping him navigate the state’s energy crisis. By March, 2002 he was appointed by the governor to be a CPUC commissioner.

In late December it became clear Loretta Lynch was being forced out and Peevey was in. Davis reappointed Peevey to a full six-year term and designated him president, which pays $117,818 a year. Lynch remained at the CPUC as a commissioner until her term expired.

Gov. Gray Davis lost his job in a recall election, partly fueled by the California Energy Crisis.

Gov. Gray Davis lost his job in a recall election, partly fueled by the California Energy Crisis.

To further empower Peevey, Davis also appointed his own trusted cabinet secretary, Susan P. Kennedy, to a vacant seat on the commission. Kennedy was closely connected with the California Democratic Party. She was its executive director from 1991 to 1994, then served as communications director for U.S. Sen. Dianne Feinstein of San Francisco from 1995 to 1998 before taking her post with Davis in 1999.

“Gov. Davis is cloning himself at the PUC to make sure he can get whatever he wants out of that agency,” complained Douglas Heller of the Santa Monica-based Foundation for Taxpayer and Consumer Rights Commission.

Both Kennedy and Peevey were regularly accused by consumer groups of turning the CPUC into an advocacy arm of some of the state’s largest utilities, usually at the expense of California’s consumers. When Pacific Gas & Electric (PG&E) got itself into trouble over safety breaches or regulatory violations, Peevey helped run defense and lessened the pain for the utility. Time for a rate increase? Peevey had the utilities’ backs.

Kennedy spent much of her three years at the CPUC (2003-2006) defending the interests of AT&T, the state’s largest telephone company. She helped head off efforts to enforce new consumer protection initiatives, watered down a cellular consumer’s “bill of rights” that would have disadvantaged AT&T and advocated for rate deregulation under the guise of competition. She was given prominent mention and support by the Koch Brothers-funded Heartland Institute after she was suddenly appointed chief of staff to Republican Gov. Arnold Schwarzenegger in December 2005:

Susan Kennedy’s policy positions at the CPUC, on the other hand, were as free-market as one could hope for in California, and there’s no sign she’s giving up on reform. This should delight the technology industry and benefit consumers everywhere. Republicans horrified by Kennedy’s appointment might check their own commitment to reform, smaller government, and a strong business climate.

Consumer groups were glad to see Kennedy out of the CPUC. She resurfaced this year as a key player in the CPUC influence game, but more on her later in the series.

http://www.phillipdampier.com/video/CBS News Incriminating Enron Tapes 2004.flv

About three years after the fall of Enron, audio tapes of phone conversations between Enron’s west coast energy traders revealed illegal market manipulation of electricity rates that went undetected under Michael Peevey. Despite the CPUC’s considerable resources, it took Eric Christiansen, assistant general counsel to the municipally owned Snohomish County Public Utilities District in Washington state to fight for, obtain, and make public the infamous Enron tapes. CBS News summarized in 2004 how Enron traders used California energy deregulation to their advantage, right under the noses of regulators. (3:38)

The Beginning of the End for Michael Peevey

The San Bruno gas pipeline explosion.

The San Bruno gas pipeline explosion.

The beginning of the end of Peevey’s reign over the CPUC began at 6:11 pm on September 9, 2010, in the San Francisco suburb of San Bruno, when a 30-inch diameter PG&E natural gas pipeline exploded in the middle of the Crestmoor residential neighborhood. The explosion and resulting fire was so enormous, first responders and the news media initially misreported it as a commercial jet crash. When it was all over, eight people were dead, 35 homes were leveled to the ground, and many others were damaged or uninhabitable.

Ironically, among the victims was Jacqueline Greig, 44. Greig worked for the CPUC, in a small, almost forgotten unit that advocates gas safety issues on behalf of consumers. Part of her job was reviewing PG&E’s plans to replace outdated natural gas pipelines like the one that exploded that early fall evening.

PG&E was implicated in the disaster, accused of operational deficiencies and reckless ignorance of public safety. In January, 2012, an independent audit from the State of California reported PG&E had also illegally diverted over $100 million from a safety operations fund for executive compensation and bonuses.

The federal investigation also accused the CPUC of not doing its job.

The National Transportation Safety Board found the CPUC “placed a blind trust in operators, to the detriment of public safety.”

Over 70 lawsuits were filed after the disaster, and critics accused the CPUC of being de facto members of PG&E’s defense team.

http://www.phillipdampier.com/video/KNTV San Francisco San Bruno Mayor Verbally Attacked by Peevey 9-10-13.flv

On the occasion of the third anniversary of the San Bruno explosion, CPUC president Michael Peevey allegedly verbally abused San Bruno’s mayor and city manager during a private meeting, upset that they used the CPUC offices as a backdrop for several press conferences critical of PG&E and how the CPUC enforced safety regulations. KNTV in San Francisco talked with San Bruno leaders who revealed what was said. Originally aired Sept. 10, 2013. (4:40)

In October 2012, a potentially embarrassing public hearing on the San Bruno pipeline blast to be held by the CPUC was suddenly suspended in favor of backroom negotiations to settle the case. Two months later, the CPUC decided Californians themselves should pay 55% of PG&E’s costs to inspect and upgrade suspect natural gas pipelines — estimated at $229 million.

After successfully getting ratepayers to cover most of the costs for PG&E’s mistakes, executives at the utility quickly pivoted to limiting the potential damage from anticipated fines yet to be levied by the CPUC over the San Bruno disaster. In September, 2014 PG&E learned it was facing an amount that could reach $1.4 billion. PG&E officials quickly called Peevey’s chief of staff – Carol Brown – to get her help moving San Bruno-related litigation to an administrative judge with a track record of being friendly to PG&E, with the hope the fines could be reduced or dropped.

That PG&E would reach out to regulators to discuss matters before the commission was not unusual, although it was improper. Utility executives knew they had plenty of opportunities to discuss whatever was on their mind with Peevey.

Image courtesy: KGO

Image courtesy: KGO

The fringe benefits of Peevey’s position seemed to go far beyond the responsibility of a utilities regulator earning a low six-figure salary. Peevey’s travels abroad were far beyond what most state regulators would consider reasonable. Peevey’s financial disclosures revealed he received gifts of $230,000 in international travel since he was appointed president of the CPUC in 2003. In all, Peevey spent 206 days abroad in at least 13 countries. On those trips, he was regularly joined by executives and lobbyists from some of the same companies that have business before the CPUC.

To avoid charges of a direct link between lobbyists and the CPUC president, special interests funneled money into a less obvious non-profit group called the California Foundation on the Environment and the Economy (CFEE). Ostensibly created to help the state move beyond fossil fuels and promote energy efficiency, the group also helps executives and lobbyists move closer to lawmakers and regulators. CFEE plans regular junkets to some of the best vacation spots on the planet, where it holds “conferences” and tours energy-conservation and environmentally friendly projects that happen to be within driving distance.

These were must-attend events for Peevey, who regularly skipped CPUC business, hearings run by the state legislature, and other important events so he wouldn’t miss a flight abroad or a quick drive to an expensive Napa Valley resort.

http://www.phillipdampier.com/video/KNTV Peevey Priority Senate Hearing or Napa Winery 5-2-13.flv

In a hidden camera investigation, KNTV found California Public Utilities Commission president Michael Peevey at a conference in wine country instead of answering tough questions from senators in Sacramento. Chief Investigative Reporter Tony Kovaleski caught up with an irritated Peevey in Napa. This story originally aired on May 2, 2013. (5:37)

While the state remained preoccupied with the San Bruno gas pipeline explosion, Peevey was packing for a flight to Madrid for a 12-day “travel-study excursion” that happened to hit the must-see stops in Sevilla and Barcelona, again sponsored by CFEE. Along for the ride was Peevey’s wife, two other state senators, several members of the state Assembly, CPUC commissioner Nancy Ryan, and executives from Chevron, Mirant (now GenOn, the owner of the Potrero power plant), Covanta Energy Corporation, Shell Energy North America, and engineering giant AECOM. PG&E and SCE executives were also in attendance, with plenty of time for fun and chats about the current priorities of the corporate utility business.

KNTV's Investigate Reporting unit has dogged Peevey for more than a year about alleged improprieties.

KNTV’s Investigate Reporting unit has dogged Peevey for more than a year about alleged improprieties. (Image: KNTV)

There isn’t much to see at CFEE headquarters at Pier 35 in San Francisco. Most of the activity takes place behind the scenes, where a long list of corporate members cut checks to CFEE to cover travel expenses for public officials. Among them include Verizon, Time Warner Cable, the California Cable & Telecommunications Association, Comcast, Chevron, J.P. Morgan, Goldman Sachs, AT&T, and PG&E. In return, executives often get to tag along on the exclusive junkets.

Although a rare trip to the less exclusive land of Inner Mongolia was a part of CFEE’s list of “travel studies” back in 2001, in recent years the destinations resemble the grand prize on a TV game show. Italy, Brazil, South Africa, Sweden and other destinations are covered, and you can be sure the guests are put up only in the finest hotels available.

“These ostensibly educational trips are essentially lobbying junkets, where utilities … wine and dine legislators,” said consumer group TURN spokeperson Mindy Spatt. The San Francisco Bay Guardian reported in 2011 TURN was raising the issue of these corporate-sponsored junkets several years ago when Peevey joined a CFEE trip attended by a representative of Southern California Edison “just coincidentally at the exact same time that he was penning an alternate decision in Edison’s rate case.” She added: “In TURN’s perspective, the commissioners need to be more in touch with what actual utility customers are experiencing, rather than in touch with the top restaurants in Brazil.”

In April 2013, CFEE paid the price for not keeping all their junkets far out of reach of the California media. KNTV, the NBC affiliate in San Francisco, followed Peevey to an exclusive Napa resort and a private reception at an upscale winery in St. Helena, all captured on hidden camera by the NBC Bay Area Investigative Unit.

Peevey was supposed to appear that day before the California Senate Budget and Fiscal Review subcommittee to discuss his performance after growing revelations showed a conflict of interest between the CPUC and the utilities it regulates. Peevey skipped the hearing and attended the corporate-funded tour instead. His only obligation was to deliver a five-minute speech at the event. The rest of the time was his to hobnob.

The affair got underway at noon with a catered lunch for guests, including a representative from PG&E. More than two dozen Sacramento lawmakers also had ID badges waiting for them on arrival. By early evening, Peevey was on board a luxury tour bus driving through Napa Valley to reach St. Helena’s exclusive Merryvale winery, which was closed to the public that day to keep the curious away. That event lasted more than three hours and included 100 guests — a small number of lawmakers and regulators outnumbered by corporate lobbyists.

Peevey was less than happy to be ambushed by KNTV reporter Tony Kovaleski in the Merryvale parking lot at the end of the evening. Part of the exchange:

Merryvale: Closed to public scrutiny.

Merryvale: Closed to public scrutiny.

Kovaleski: What is the message you sent by coming here to Napa instead of going to speak to the senate?

Peevey: You are very antagonistic you know. You are reading a script.

Kovaleski: Sir, I am not reading a script. I want to give you an opportunity to respond.

Peevey: But your questions are the wrong questions.

Kovaleski: You spent time here with the utilities you are paid to regulate.

Peevey: There’s no utilities here that I know of.

Kovaleski: PG&E was here. We saw them on the list.

Peevey: Oh, there may have been one person, I don’t know. […] You poor son of a b****. You have a job to do. It’s pathetic what you are doing. It’s pathetic.

http://www.phillipdampier.com/video/KNTV San Francisco Flown Wined and Dined on Lobbyists Dimes 7-31-13.flv

In California it’s perfectly legal, but does that make it right? KNTV in San Francisco examines the ongoing free travel CPUC president Michael Peevey has accepted from nonprofits and special interest groups. Chief Investigative Reporter Tony Kovaleski asks, are the trips simply gifts? Or are the gestures buying access to one of the most powerful people in California? This story aired on July 30, 2013. (6:58)

Although Peevey managed to withstand repeated questions about his travel habits and remained president of the commission during the tenure of current Gov. Jerry Brown, he had a lot harder time explaining away disclosed e-mails showing an even closer working relationship between himself and PG&E executives than anyone could have imagined.

65,000 Cringe-Worthy E-Mails Show Peevey as “a Micromanaging, Domineering Leader Who Appears to Have Overstepped His Role.”

cherryA Los Angeles Times story characterized the 65,000 released emails as presenting a “damaging portrait of former PUC President Michael Peevey as a micromanaging, domineering leader who appears to have overstepped his role. Peevey involved himself personally in internal decision-making at Pacific Gas & Electric Co. — the state’s largest utility — including its corporate leadership, political public relations strategy, safety policies and rate-setting cases, affecting billions of customer dollars, documents show.”

San Bruno city manager Connie Jackson was more concise: “I think we need to characterize it as collusion.”

“The bottom line is that I am amazed,” said Robert McCullough, an energy industry consultant and a former longtime manager at Portland General Electric in Oregon, who has analyzed thousands of the emails. “Peevey has passed beyond” improper contacts with PG&E, McCullough told the Times, and took on a “role where he was commenting and recommending promotions at PG&E. In effect, he was acting as a member of senior management” and “had clearly redefined the role of CPUC commissioner into a freewheeling advocate for the firm.”

Some of the most damaging emails involve PG&E vice president Brian Cherry, his immediate boss, and Peevey. Multiple emails show more than a passing interest on Peevey’s part on the management and business policies of PG&E. In one exchange, Peevey sought to arrange a quiet meeting with him and PG&E CEO Peter Darbee at Jardiniere, a French restaurant in San Francisco. On the agenda was the effectiveness of Darbee’s leadership of PG&E. It was seven months after the San Bruno pipeline exploded and San Bruno city officials were still blistering PG&E and others over the explosion and its cause.

Peevey seemed to think he played a role in the sudden decision Darbee took to retire just a few weeks later. In a follow-up email to Cherry, Peevey took some credit for the leadership change.

“The board did the right thing (with a little nudge) this morning,” Peevey wrote. “Maybe the beginning of a new, better leaf.”

Another email concerned a list of tentative personnel promotions at PG&E. Peevey wanted and got a copy of the list and then later replied he was thankful PG&E ran the names of the candidates “by me.”

To help keep an industry-friendly CPUC intact, Peevey privately e-mailed Cherry with tactical advice about how PG&E could effectively lobby Gov. Brown about forthcoming commission appointments.

pgeBut Peevey was also willing to use his connection with Cherry to shakedown PG&E for money for his non-profit group and to fight a ballot initiative he didn’t like.

Peevey leaned on Cherry in one email to donate at least $1 million to help fight a measure that would have suspended a California law limiting greenhouse gas emissions. PG&E gave half that, but probably could have saved its money because California voters shot down the measure by themselves in November 2010.

Peevey also wanted a $100,000 contribution from PG&E to throw a 100th anniversary celebration party for the CPUC. Peevey suggested a check on his desk would go a long way as commissioners pondered a PG&E rate hike request already before the commission. After all, Edison and AT&T had already confirmed they will contribute.

cpucCherry understood what was expected, and wrote his boss, “I told him I got the message.” PG&E also got a table… for $20,000.

“This is nothing less than quid pro quo deal-making with ratepayer dollars,” said Tom Long, an attorney with the The Utility Reform Network. “I honestly have never seen such smoking-gun evidence of corruption at the highest levels of the commission.”

Peevey wasn’t only friendly to giant power utilities. Under his leadership, the CPUC gave AT&T wide latitude and broad deregulation over its cable television and telephone business. The commission has also granted cable system ownership transfers with a virtual rubber stamp, and customers complain the CPUC has an uncanny knack of taking the provider’s side in consumer complaints.

The revelations lead to a scathing editorial in the San Diego Union-Tribune:

Peevey’s arrogance and sense of infallibility led him to conclude that rules were for other people. He didn’t just cross the lines of propriety in his dealings with utilities; he obliterated them. No one will be surprised if state and federal investigators find more scandals in coming weeks and months. Abuse of power is likely to be habitual when powerful people think they’re above the law.

http://www.phillipdampier.com/video/KNTV San Francisco E-Mail Scandal at PSC 11-12-14.flv

The NBC Bay Area Investigative Unit has discovered that CPUC president Michael Peevey failed to file the state-required disclosure form detailing successful requests for money from PG&E. KNTV takes a look at the e-mails exchanged between Peevey and top executives at PG&E. The Fair Political Practices Commission has joined the U.S. Attorney and the California Attorney General in investigating Peevey. Chief Investigative Reporter Tony Kovaleski reports in a story that aired on November 12, 2014. (6:37)

Everyone Wants to Be a PG&E Helper

Peevey was clearly not the only point of contact PG&E had with the CPUC. Released emails show a series of messages between Cherry and Peevey’s chief of staff, Carol Brown. It quickly becomes clear Brown was looking out more for the interests of PG&E than California ratepayers.

Brown

Brown

Brown told Cherry she would help him whenever possible, and that included advice on how a top PG&E official could effectively obfuscate in a response to an open “public request for information.”

Losing complaints or giving inaccurate answers to consumer inquiries that help steer consumers away from pestering energy and telecom companies appears to be business as usual at the CPUC. An April report from the California State Auditor found the CPUC routinely misclassify almost 40 percent of complaints they receive from the public, leaving the agency ill-equipped to properly address consumer grievances.

“In 17 of the 45 complaints we selected and reviewed for accuracy, we found that the branch did not correctly categorize the complaints,” auditors found. “As a result, the branch’s complaint data do not accurately reflect the complaints it receives, and the branch is providing users with inaccurate data.”

But even more damaging was Cherry’s need for Brown’s help to choose a friendly administrative law judge for a pending PG&E rate case. Cherry got his wish and it appeared PG&E’s $1.3 billion rate case was on its way to fast approval, at least until the email exchange went public and accusations of judge shopping emerged. The case has now been reassigned.

“I’m Not Here to Answer Your Goddamn Questions. Now Shut Up — Shut Up!”

Occasionally, Peevey’s domineering temper emerged in public and in May 2014, Mike Aguirre, former San Diego City Attorney got to see it on full display.

He appeared at a hearing representing a ratepayer who was upset about a proposed settlement between utility companies and consumer advocacy groups that required ratepayers to cover $3.3 billion of the $4.7 billion bill to decommission one of the state’s nuclear plants. Like many other disputes taken before the CPUC, this one was settled in a secret meeting.

Aguierre wanted Peevey to go on record that SCE, his former employer, did not have any contact with Peevey.

“I’m not here to answer your goddamn questions. Now shut up — shut up!” yelled Peevey in response.

Despite the slow motion public relations train wreck, Gov. Brown continued to stand by Peevey. Peevey stood by business as usual.

http://www.phillipdampier.com/video/KGTV San Diego CPUC president curses out San Diego attorney Mike Aguirre 5-22-14.mp4

KGTV in San Diego covered a May 2014 hearing that deteriorated after a San Diego attorney asked Peevey some questions about a secret meeting held between the CPUC and Peevey’s former employer that left San Diego ratepayers holding the bag — paying the bulk of the costs to decommission one of the state’s nuclear power plants. Peevey let loose. (2:23)

The CPUC’s Non-Neutral Net Neutrality Hearings

Peevey stares down Commissioner Carla Peterman

Peevey stares down Commissioner Carla Peterman

In the telecom sector, the most visible evidence that backroom dealings were underway at the CPUC occurred during the debate on Net Neutrality. The most awkward moment for the CPUC was at a September 11, 2014 meeting dominated by discussions about the open Internet.

The very sparsely attended public meeting ran several hours before the CPUC finally decided to vote on a resolution urging the FCC to adopt strong Net Neutrality regulations and impose Title II reclassification of broadband as a common carrier public utility.

The uneventful vote began with “Yes” votes from Commissioners Carla Peterman, Mike Florio, and Catherine Sandoval. Peevey and Commissioner Michael Picker both voted “No” and it would seem to the half-dazed audience soaking in an afternoon of arcane procedural matters that there was a clear 3-2 vote in favor of strong Net Neutrality.

But then something curious happened. Peevey declared, “That’s what’s adopted. All the other pieces go with that. There is no need for any other vote on any other matters.” It all seemed jovial enough until Peevey leaned to his right and stared down Peterman, adding, “unless anyone wants to reconsider their vote… rather quickly.”

Peterman seemed to think the chairman was joking and quickly declared, “No,” suggesting she was completely satisfied with her vote and the meeting plodded on.

http://www.phillipdampier.com/video/CPUC Net Neutrality Hearing Vote 9-11-14.flv

The CPUC seemed to be holding a routine vote on a resolution supporting strong Net Neutrality, including reclassification of broadband as a telecommunications service under Title II. But moments after the 9/11/14 vote, Peevey seemed to jovially stare down a commissioner who appeared to vote in a way he didn’t approve or expect. (2:32)

At the end of the agenda, just when the audience was certain the meeting was coming to an end, Peevey suddenly called for a five-minute “rest break.” Observers suggested that was odd because with no more business before the commission, calling the proceeding to a close seemed like a more logical idea. The five-minute break stretched into 10, 15, and eventually more than 20 minutes. As Peevey reconvened the meeting, he immediately prompted Peterman to her microphone.

Peterman

Peterman

“I want to ask Carla, commissioner Peterman, to say something here,” Peevey said.

For several minutes, Peterman verbally stumbled her way trying to backtrack her earlier strong support for Net Neutrality, now seeking to abstain from the vote altogether. Peevey’s tenor suggested he well understood Peterman’s intentions in advance and helped shepherd a new vote past the commission’s legal advisers.

Peterman seemed to suggest that because the commission was closely divided on the matter, more time should be taken to develop a statement of unanimity that all five commissioners could agree on. But the end effect of a 2-2 vote with one abstention would leave a final statement advocating Net Neutrality under Title II in the gutter.

Peterman, Peevey, and the commission’s legal advisers tried to navigate through the confusing vote changing procedure for several minutes. Commissioner Sandoval spoke up to make sure that statements of unanimity were not a new precedent at the commission, but seemed to resign herself that it would be the case for this particular resolution.

To any observer, it seemed clear Peterman was strongly lobbied during the “five-minute break” to change her vote, perhaps by telecom lobbyists or by Peevey himself. The end effect was neutralizing the state of California’s participation in the Net Neutrality debate with a virtual abstention. Although Peevey promised to return to the matter of Net Neutality two weeks after the Sept. 11 meeting, Peterman, who initially seemed concerned about moving forward with the discussion, later asked it be postponed for an extra two weeks. On Oct. 16, it was abruptly dropped from the meeting agenda altogether.

http://www.phillipdampier.com/video/CPUC Net Neutrality Hearing Vote Change 9-11-14.flv

After nearly three hours of the hearing had passed, watch as Peevey declares a five-minute “rest break” that stretched beyond 20 minutes. When the commission reconvened, Commissioner Peterman suddenly wanted to change her vote, neutering the resolution the commission voted to support an hour earlier in support of Net Neutrality. Despite Peterman’s claims of urgency regarding the issue of Net Neutrality, Peevey dropped the issue from the agenda a month later. (11:30)

Tracy Rosenberg, the executive director of Oakland-based Media Alliance, complained that the CPUC ignored more than 3,000 Californians that wrote comments to the CPUC about Net Neutrality.

“What’s going on here, folks?” Rosenberg asked.

“I got it,” came a terse response from Peevey, who offered no other comment.

http://www.phillipdampier.com/video/CPUC Tracy Rosenberg Media Alliance Comments on Net Neutrality 10-16-14.flv

Tracy Rosenberg from Media Alliance rose to protest the CPUC’s sudden drop of Net Neutrality from the agenda. Peevey dismissed her remarks, saying “got it” before quickly moving on to another speaker. (2:17)

Out With the Old, In With the New, But the Same Lobbyists Are Still There

In October 2014, Peevey relieved the governor from being pushed to take action to finally get rid of him. Peevey read a brief statement announcing he was headed for retirement.

“I will not seek reappointment to the CPUC when my term expires at the end of the year,” Peevey said. “Twelve years as president is enough.”

It was more than enough for San Bruno mayor Jim Ruane who said he was “extremely happy” Peevey was leaving. “It’s a tremendous victory, not just for the City of San Bruno, but for all citizens in the State of California. Under Peevey’s leadership, the CPUC has served as a pawn of state utilities and an agency marked by collusion, dysfunction and, we learned this week, possible corruption.”

http://www.phillipdampier.com/video/KNTV San Francisco Michael Peevey Last Day at CPUC 12-18-14.flv

He’s going. Colleagues compared Michael Peevey to President Franklin Roosevelt and the Pope in their farewell addresses to the longest-serving CPUC president in agency history. Detractors thought he could get away with anything. KNTV continues its series about the California Public Utilities Commission in a story that aired on Dec. 18, 2014. (4:20)

Today, Peevey is out of office, replaced by former commissioner-turned-president Michael Picker. But that may prove to be a distinction without much difference, according to a series of revelations published in the San Diego Union-Tribune that suggest Picker is being groomed by the same industry lobbyists that surrounded Peevey. More details about that and where the CPUC is headed next coming in the next part of our series.

Incumbent Cable, Phone Companies Will Tighten Bundle Pricing to Battle Cord-Cutting

triple play

A typical promotional offer from Comcast for a bundle of broadband, TV and phone service.

Cable and phone companies will continue to raise the price of broadband-only service while also increasing the value proposition of bundled packages of broadband, television, and phone service to keep customers from cutting the cable television cord.

For at least four years, cable companies have refocused rate increases and fees on Internet access, especially for broadband-only customers. At the same time, cable-TV rate hikes are easing, especially for customers subscribed to two or more services. Today, customers face prices as high as $67 a month for standalone Internet service. But that price can drop in half if customers bundle broadband with television and phone service. Most triple play promotions in markets where AT&T U-verse and Verizon FiOS compete can be as low as $90 a month. In less competitive markets, a similar promotion often costs $99-119 a month.

Recent research by Sanford Bernstein reveals these pricing strategies are not happening by accident.

Media analyst Todd Juenger recently held his second cord-cutting focus group in Comcast-dominant San Francisco and found some of those most likely to cancel cable television decided to keep their Comcast bundle after they discovered the cable company charges $66.95 a month for Internet-only service, excluding the modem rental fee. For $10 more per month during the first year, customers can get that same 25Mbps broadband service bundled with 140 TV channels. Assuming the customer doesn’t protest the subsequent rate increase beginning a year later, that rate will eventually reset to $136.90 a month. But price-sensitive customers who complain often avoid any rate increase at all.

Juenger’s focus group surveyed 18 men and women in the age group most likely to drop cable television – 21-38 year-olds. Despite their love for Netflix, Hulu, Amazon, and other online video services, the participants broadly recognized the cable/telco bundle now delivers a better value proposition and as long as cable and phone companies continue to price up standalone Internet service, many will choose to stay with the company they hate and not try to cobble together a comparable package of broadband and television service from other providers.

cablecord“Hence, we remain cautiously optimistic that cord-cutting, in large numbers, isn’t likely to happen,” Juenger wrote his clients. “It’s one of those ideas that sounds great in the abstract but crumbles when faced with the reality.”

As cable television pricing continues to exceed many household budgets, providers are seeking new customers that can afford cable TV but choose not to subscribe. One of their primary targets: broadband-only customers and cord-nevers who might be persuaded to add cable television at a starting price of $10-20 above what they pay for broadband service. That price is less than what Sling TV or PlayStation Vue charges for far fewer channels.

The challenge competing online video providers face is finding a compelling limited channel lineup that will appeal to all-comers. Although the average cable subscriber generally watches fewer than a dozen cable channels regularly, not having access to one or more of those favored channels is a deal-breaker for many.

Juenger’s focus group was most open to a hypothetical a-la-carte package of any 10 customer-chosen channels for $20 a month. But Juenger reminded his investor clients no such package currently exists and probably never will.

“Simply put, for existing pay-tv subs, the content [available to Sling or View customers] is too limited (relative to the cost savings); and for cord-nevers, the price is too high (relative to the appeal of the content),” Juenger wrote.

But Juenger did warn that customers are enthusiastic about sticking it to their current provider, if they can get the programming they want. That could make some programmers, especially broadcast stations and networks, more vulnerable to revenue loss. If a company can reliably offer a variety of theme-based slimmed down cable packages coupled with an effective and seamless over-the-air antenna, no retransmission fees would be paid to over-the-air stations and networks.

If the bundled package pricing argument doesn’t work with cord-cutters, the broadband usage cap probably will. Customers will quickly learn they can eat through their monthly Internet usage allowance watching live television online, or avoid that prospect by subscribing to cable TV, which offers unlimited viewing.

Sorry, That Competing Online Video/Cord-Cutter Competitor is Dead in the Water When Usage Caps Arrive

Phillip "It isn't so dumb to own the pipes" Dampier

Phillip “It isn’t so dumb to own the pipes” Dampier

In 2006, AT&T CEO Ed Whitacre thought his company was at a disadvantage being stuck with “dumb pipes” while Google, Yahoo! (remember them?) and Vonage couldn’t count their earnings fast enough. While AT&T sold consumers plain DSL service, content was king on Wall Street and Whitacre groused it was unfair for bandwidth hogs to use “the pipes for free.” That one statement was the equivalent of throwing a lit match on a hillside in Malibu Canyon and a predictable firestorm over Net Neutrality ensued.

Nine years later, Net Neutrality is now official FCC policy, although the sour grape-eating Republicans will continue to throw Congressional hissyfits along the way. While they rely on tissue-thin evidence to back their assertion the FCC secretly colluded with the Obama Administration to stick it to AT&T and demand its repeal, the future of Net Neutrality will more likely be decided in a courtroom a year or two from now.

Back in 2006 AT&T primarily sold DSL service and was looking for cash to finance its then emerging U-verse platform. AT&T planned to follow cable’s lead, devoting most of the available bandwidth on its fiber to the neighborhood network to cable television programming. Broadband speeds were limited to just under 25Mbps — even less if a large household had multiple television sets in use.

But as the Great Recession arrived and wages stagnated, the cost of what used to be a “must-have” service for most Americans increasingly began to exceed the household budget and the day finally arrived when cable companies started losing more television customers than they were adding. Even worse, cable programming costs continue to spiral upwards and no major cable company can increase cable television rates fast enough to support the usual profit margin the industry counted on.

What Whitacre failed to realize nine years earlier is that broadband providers did not simply own “dumb pipes.” AT&T, Comcast, Verizon, Time Warner Cable, Charter and other providers actually occupy two gilded catbird seats, with AT&T and Verizon dominating the wireless Internet business and Comcast, Time Warner, and Charter dominating at-home viewing and wired broadband. Lawmakers who deregulated both industries predicted pitting AT&T against Comcast or Verizon against Time Warner Cable would create competition not seen since Coke vs. Pepsi. Consumers would benefit and world-class service would result.

Instead, Time Warner Cable now sells Verizon Wireless phone service. Verizon gave up on expanding its FiOS network and is selling off its DSL and FiOS business in pieces to focus on its best moneymaker, Verizon Wireless. Comcast in turn threw in the towel on any notion of offering competing cellular service and, in fact, sold its acquired wireless spectrum to Verizon.

PlayStation Vue's lineup

PlayStation Vue’s lineup

The best way to make money is to avoid price wars with your competitors and the evidence shows there is growing peace in America’s Telecom Valley. Comcast can now raise your broadband bill because, for most, Verizon FiOS isn’t an option. AT&T U-verse does not have to hurry speed upgrades to customers if Time Warner Cable delivers no better than 50/5Mbps service in large parts of its service area. Google Fiber remains a minor threat, only available in a handful of cities. AT&T distributed more copies of its press release touting U-verse Gigapower — its gigabit Internet offering — than there are customers qualified to sign up.

Notice that we’ve drifted away from talking about cable television programming. So has the industry, now increasingly dependent on broadband rate increases to make up the difference in revenue they used to take home from their television packages.

But now that the biggest players have a predictable source of revenue, allowing disruptors to further challenge earnings isn’t something your local cable and phone company will allow for long. At the moment, those most likely to cause problems are the growing number of “over the top” streaming video services that do not require a cable television subscription to watch. But they do need broadband — Whitacre’s “dumb pipes” — to reach subscribers. To manage that, services like Apple, PlayStation Vue and Sling TV and their customers must deal with the gatekeepers — AT&T, Comcast, Time Warner Cable, Verizon and others.

What Whitacre thought was a disadvantage is now becoming the best thing in the world — manning a toll booth on the only two roads most Americans can use to access online content.

Today, Sony officially launched its Internet-TV service, “PlayStation Vue” in three cities (New York, Chicago and Philadelphia) with a base price of $49.99/month. In includes more than 50 cable networks and in the three launch cities — local network affiliates. In Chicago and Philadelphia, where Comcast provides cable service, potential customers will need to pay $50 a month for Vue and another $64.95 a month for 50Mbps broadband — the least expensive broadband-only tier that is suitable for high quality viewing. Your combined bill for both services is $114.94 a month. Comcast charges $99.99 a month for its double play – 220 TV channels and 50Mbps broadband — almost $15 a month less for its package, and it includes around 150 more channels than Vue.

Comcast explans its new usage caps.

Comcast explains its new usage caps.

But Comcast also has another weapon it is testing is several of its markets — the resumption of usage caps and overlimit fees on its broadband service. Comcast customers in most test markets are given 300GB a month, after which they face overlimit fees of $10 for each additional increment of 50GB. While web browsing and e-mail fit more than comfortably within those caps, watching HD video may not. That leaves a potential Vue customer with a major dilemma. Should they pay $15 a month more for service than they can pay Comcast for a better package -and- chew away their usage allowance using it?

Comcast has yet to figure out how to install a coin collector on top of your television set, so you can watch as much Comcast cable television as you’d like. But watching streaming video could get very expensive if it exceeds a future Comcast usage allowance.

Smaller video packages from providers like Sling TV or the forthcoming Apple streaming service might make more sense, but will still be subject to Comcast’s usage caps if/when they are reintroduced around the country, while Comcast’s own television service will not.

This is why cable and phone companies hold enormous power over their potential competitors, even if Net Neutrality is fiercely enforced. Usage caps and usage-based billing represent an end run around Net Neutrality and both are permitted. The FCC has consistently refused to engage on the issue of broadband usage caps, leaving providers with a useful weapon to deter customers from dropping their television package in favor of an online alternative.

With most Americans having a choice of only one or two “dumb pipes” over which they can reach these services, being an owner of those pipes and getting to set the rates and conditions to use them is a very comfortable (and profitable) place to be.

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