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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.

Suddenlink: Subscribers Walloped With Big Rate Increases and “Free” Speed Upgrades (With Usage Caps)

suddenlink meter

Suddenlink customers are unhappy with the cable company’s usage caps that go with “free speed upgrades.”

Suddenlink subscribers promised “free” speed upgrades are calling them Suddenlink’s Trojan Horse because they are accompanied by dramatically higher cable programming surcharges and usage caps.

St. Augustine, Tex. subscribers got a smaller bite in the mail than some other communities:

Effective with the March 2015 billing cycle, Suddenlink customers will experience no change to the price of telephone service and no change to the price of Basic TV service. There will also be no change to the price of Expanded Basic TV service; however, a $3.00 sports programming surcharge will be added to the bills of customers subscribing to this service to cover a portion of the skyrocketing cost of dedicated sports channels and general entertainment networks with sports programming. The broadcast station surcharge will increase $2.88 per month to cover the escalating fees charged by broadcast TV station owners. Optional tiers of digital TV channels will increase $1.25 per month per tier. High-speed Internet services will increase $3.00 per month.

Over in Chandler, Tex., fees went even higher, with one customer reporting his broadcast station surcharge now exceeded $8 a month. Another customer counting up all the extra fees added to his bill found them coming close to an extra $25 a month.

But the state that gets the worst from broadband providers remains West Virginia, where Suddenlink faces only token DSL competition from Frontier Communications. Suddenlink retention representatives dealing with customers threatening to cancel service in West Virginia are well aware customers have nowhere else to go and don’t break a sweat trying to rescue business.

“We are a business and our goal is to make a profit,” one retention representative told a Suddenlink customer dropping service in favor of DirecTV.

Customers tell Stop the Cap! they were first excited Suddenlink was dramatically boosting Internet speeds — good news for the small and medium-sized cities Suddenlink favors over larger cable operators. The bad news is Suddenlink is bringing back strict enforcement of usage caps, temporarily suspended when its usage measurement tool was proven inaccurate.

Suddenlink has been upgrading its cable systems since 2014 and has gradually rolled out new speeds. Most customers can now choose speed tiers of 50, 75, 100, or 150Mbps, but some larger systems are getting more robust upgrades:

  • Current speed 15Mbps increases to 50Mbps (250GB usage cap)
  • Current speed 30Mbps increases to 50Mbps (250GB usage cap)
  • Current speed 50Mbps increases to 75Mbps (350GB usage cap)
  • Current speed 100Mbps increases to 300Mbps (500GB usage cap)
Suddenlink's sales website makes no reference to the company's broadband usage caps.

Suddenlink’s sales website makes no reference to the company’s broadband usage caps.

Suddenlink is also enforcing usage caps again, which most customers only learn about after signing up for service. Suddenlink makes no references to usage allowances on their sales or general support pages and information is difficult to find unless a customer uses a search engine to find specific information.

Suddenlink’s explanation for its usage caps is among the most cryptic we have ever seen from an ISP:

Consistent with our Acceptable Use Policy and Residential Services Agreement, Suddenlink has applied monthly usage allowances to residential Internet accounts in most of its service areas. To determine if there is a monthly allowance associated with your account – and what that allowance is – please set up or log in to an existing online account. See the related instructions under question #8.

While existing residential customers will quickly learn their usage allowance and find a usage measurement tool on Suddenlink’s website, that is not much help to a new or prospective customer. The overlimit fee, also difficult to find, is $10 for each allotment of 50GB.

Some customers have found a way around the usage cap by signing up for Suddenlink’s business broadband service, typically 50/8Mbps for around $75 a month. Business accounts are exempt from Suddenlink’s caps.

Charter Communications Quietly Eliminates Usage Caps That Were Rarely Enforced Anyway

charter spectrum logoCharter Communications has quietly dropped usage caps and allowances from the company’s terms and conditions, once again giving Charter broadband customers unlimited access to the Internet.

Like Cox Cable, Charter almost never enforced their usage caps, which were specified as 100GB for its “base” service, 250GB for “Plus” and “Max” tiers and 500GB for “Ultra” service. Customers threatening to cancel service over usage cap matters were assuaged with a commitment by retention specialists that the caps were just a “guideline” and would not be enforced except in the most egregious instances of customer “overuse” of the Internet.

In place of the caps, Charter has returned to boilerplate language found in almost every ISP’s Acceptable Use Policy:

Excessive use of bandwidth that in Charter’s sole opinion, places an unusually large burden on the network or goes above normal usage [is prohibited]. Charter has the right to impose limits on excessive bandwidth consumption via any means available to Charter.

Customers routinely exceeding a terabyte of usage a month have never been contacted by Charter, so such usage apparently does not place a burden on their network. However, Charter also reserves the right to cut your speeds through “reasonable network management tools,” some that may now be forbidden by the FCC’s Net Neutrality policy:

Charter uses a variety of reasonable network management tools and practices consistent with industry standards. In the event the periods of congestion necessitate such management, Charter has available the following tools and practices (without limitation and as may be adjusted over time): (i) use of an upper limit of bandwidth allocated for uploading of files during congested periods; (ii) Subscriber Traffic Management (STM) technology to temporarily lower the priority of traffic with the greatest impact on peak congestion; (iii) spam filtering and detection techniques; and (iv) measures to protect the security and integrity of its network, resources and subscribers. In limited instances if employed, these techniques may affect the throughput rate at which subscribers may send and receive data, the ability of users to establish session connections within the network, or result in the delay of certain traffic during times of peak congestion.

Charter has “simplified” their Internet offers down to two for most customers: 60/4Mbps for Spectrum Internet ($59.99) and 100/5Mbps for Internet Ultra ($109.99). A source at Charter tells Stop the Cap! the company is conducting very limited trials raising speeds to 100/25Mbps for its base package and boosting its Ultra tier to 300/50Mbps, in case fiber competitors arrive. Those tests are not expected to become widespread however as the prevailing view at Charter is to wait until it deploys DOCSIS 3.1 and then raise speeds to 300/50Mbps for its entry-level package and 500/300Mbps for Ultra.

Starting in January, Charter began notifying its broadband-only customers it was raising prices $5 a month (from $54.99 to $59.99).

CRTC Orders Northwestel to Cut Rates for DSL Service in the Northern Territories by 10-30%

northwestelMore than three years after Canadian regulators required Bell Canada’s northern subsidiary, Northwestel, to undertake a $233 million modernization and upgrade plan, the CRTC has ruled the company is overcharging consumers for Internet access and has ordered rate cuts.

Customers in Nunavut, the Northwest Territories and Yukon pay some of the highest prices in the world for DSL Internet access, more than three times higher than what comparable broadband costs in southern Canada. The CRTC has found those prices unjustifiable, especially after its 2011 finding that Northwestel enjoyed strong financial performance while chronically underinvesting in its network.

The CRTC decision requires the company to cut prices for its DSL Internet 5 (5Mbps/512kbps) and DSL Internet 16 (16Mbps/768kbps) in N.W.T. and Yukon by 30% this May. Northwestel’s budget plans DSL Internet Lite (768/128kbps) and DSL Internet 2 (2.5Mbps/384kbps) will be reduced in price by 10 percent.

Customers of Northwestel’s most popular DSL plans pay between $65-90 a month for 2.5 or 5Mbps service with usage caps of 40 and 125GB per month, respectively.

Customers will also no longer face a $20/month broadband-only surcharge if they don’t want landline service and Northwestel’s overlimit fee, now $2-3/GB in the Northwest Territories, will be cut by at least $0.50/GB.

“Although we recognize the exceptional situation that exists in Northwestel’s territory, we must not let these challenges hinder the development and affordability of telecommunications services in the North,” said Jean-Pierre Blais, the CRTC’s chairman, in a March 4 release. “Access to reasonably priced Internet services plays an essential role in the North’s economic and social development. With this decision, we are reducing the gap between what consumers pay for Internet services in the northern and southern parts of Canada.”

Because of the company’s past pricing practices, Northwestel will not be permitted to increase residential Internet rates until the end of 2017 at the earliest, and will need CRTC approval for any other rate increases.

northwestel-operating-map

Northwestel’s operating service area includes the Yukon, Northwest Territories, northern British Columbia and Nunavut.

 

Residents in the northwestern and north-central regions of Canada have complained for years about poor service and high prices charged by Northwestel for Internet access.

http://www.phillipdampier.com/video/CBC North Northwestel gets slammed in Whitehorse 6-20-13.flv

Back in the summer of 2013, Northwestel was the subject of a CRTC public hearing that got heated after customers and competitors complained the company had a de facto monopoly. (2:53)

At a 2013 hearing, Blais heard from a number of angry residents upset about Northwestel’s performance.

“I know you are frustrated; we heard it from the interveners, but we’ve pushed things considerably,” Blais said at the time.

kfn logo“The DSL package that I pay for out at Lake Lebarge is absolutely ridiculous in comparison to high-speed in town,” said Jeremy Jones. “[Northwestel charges] $90 for [5Mbps DSL with a usage cap of] 125GB. The only way to increase it would be to put in another phone line and second modem and that would have ended up being another $100+ per month. We’ve decided it is cheaper just to go over it if we need to.”

Customers are also frustrated by the fact the company receives over $20 million annually in federal subsidies, but those benefiting the most from Northwestel’s finances are its shareholders.

Native communities in isolated areas of northern Canada have learned it is better to build their own networks than wait for promises from Northwestel to be fulfilled.

The K’atl’Odeeche First Nation built its own fiber network on its reserve in Hay River, N.W.T. after Northwestel reneged on an agreement to improve existing DSL service. Today, the native community gets better Internet access than the rest of Hay River, and the community is willing to share their enhanced Internet connectivity with Northwestel for the benefit of others nearby if the company would agree to connect to it.

“We saved them millions of dollars in infrastructure upgrades and I think it’s only fair that they lease a small portion of that infrastructure for them to meet their CRTC mandate,” said Lyle Fabian, the IT manager for the First Nation.

Fabian believes other First Nations should strive for broadband self-sufficiency by also building their own networks to take control of their digital future. In almost every case, Fabian said, those networks will deliver better service than what is on offer from Northwestel.

While the CRTC-ordered rate cuts will help customers in the Yukon and Northwest Territories almost immediately, Internet access in satellite-based Nunavut will continue to be exorbitantly expensive until the CRTC completes a review of those rates. Nunavut residents pay $179.95 a month for 5Mbps/512kbps service with a 30GB usage cap.

http://www.phillipdampier.com/video/First Mile -- First Mile Community Stories Tour Katlodeeche First Nation Community Network 5-23-12.mp4

Henry Tambour from K’atl’odeeche First Nation in the Northwest Territories of Canada gives a 2012 tour of the first phase of the locally owned and operated fiber network. The community of 300 elected to take control of their broadband future back from Northwestel. (4:12)

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