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Stop the Cap! Files Formal Opposition to Charter-TWC Merger in California

stcStop the Cap! this week formally filed our opposition to the merger of Charter Communications and Time Warner Cable with the California Public Utilities Commission (CPUC), citing our concerns about data caps/usage-based pricing, Internet competitiveness, affordability, and quality of service.

Matthew Friedman, Stop the Cap!’s new director of our California branch, spoke in opposition to the transaction at a public meeting held by the CPUC in Los Angeles on Tuesday. Friedman authored our formal 10,500-word opposition, particularly focusing attention on Charter’s commitment not to cap or meter broadband usage for only three years after the deal is approved.

Charter’s temporary “good behavior” commitments open Time Warner Cable and Bright House Networks customers to the potential of the same kind of usage caps and usage pricing being tested by Comcast, with little likelihood imminent competition will give consumers alternative cap-free choices.

Stop the Cap! proposed a permanent ban on compulsory data caps with New York regulators, which was not adopted. In California, we are asking the CPUC to consider allowing Charter’s “good behavior” commitments to expire only when customers have access to near-equivalent competitors offering unlimited service options, either from resellers of Charter’s broadband network or from existing or new competitors.

It is our view usage caps and usage-based billing represent an end run around Net Neutrality and will be used to limit online video competition.

We also repeat our assertion that Charter’s commitments for Time Warner Cable customers are less compelling than the benefits of Time Warner Cable’s own ongoing upgrade program, dubbed “Maxx.” Charter has committed to providing Time Warner customers with broadband speeds up to 100Mbps. Time Warner Cable Maxx offers a maximum speed of 300Mbps — three times faster than Charter.

Time Warner Cable’s $14.99 Everyday Low Price Internet option, available to any customer without conditions or contracts would be terminated, with customers forced to spend just under $60 for entry-level broadband service. Charter’s offers remove customer choices from the marketplace in an attempt to “simplify” pricing. But that will also force customers into packages with services they don’t want or need.

Here is our formal filing in full, also available for download:

Before the CALIFORNIA PUBLIC UTILITIES COMMISSION

      

Re: Application 15-07-009

Charter/Time Warner/Bright House Transfer

Comments on Data Caps and Usage Based Pricing and Statement of Opposition

January 26, 2016

Stop the Cap! California Branch, Matthew Friedman

 

Stop the Cap! is a consumer group founded in 2008 to fight against the introduction of artificial limits on broadband usage (usage caps, usage based pricing, speed throttling) and to promote better broadband speeds and service for consumers. Our group does not solicit or accept funding from lobbyists, companies, or others affiliated with the telecommunications industry. We are entirely supported by individual donors who share our views.

Executive Summary

Part 1 of this document proposes a mitigation condition relating to data caps and usage based pricing (DC/UBP) that would not sunset after an arbitrary number of years. Instead, it would sunset based on the existence of actual competition in the wireline broadband marketplace.

This document details how data caps and usage based pricing present significant and numerous harms to consumers and competition in general, and why the CPUC’s approval of this transaction would make DC/UBP much more likely to be imposed on existing Time Warner Cable subscribers. We detail TWC’s long-standing, public, and vocal commitment against imposing DC/UBP. We explain why the Commission should be particularly suspect of Charter when it comes to DC/UBP. Finally, we show that Charter’s opening testimony actually supports the mitigation condition that is being proposed here.

Stop the Cap! believes that this transaction is clearly not in the public interest, and the Commission should deny the transfer. If however, for some reason the Commission decides to approve the transfer, we respectfully submit this mitigation condition to protect Californians from one of the severe harms this merger will certainly bring.

Part 2 of this document is a broader examination of why the transaction is not in the public interest. We detail how Time Warner Cable is stronger company with superior offerings to Charter, and we show why Charter is proposing a deal that is not only not in the public interest, but a large step backwards for consumers.

The Commission should deny this transfer.

The Proposed Transaction is Not in the Public Interest

Stop the Cap! strongly believes that it’s clear that the Commission should NOT approve this transaction. The testimony of the Intervenors has shown that the “benefits” Charter is claiming are tenuous at best, if even present at all. The only real benefit of this transaction appears to be to the applicants’ shareholders, and possibly not even them.

There are an immense amount of risks, potential harms, and even certain harms that will come to consumers if this transaction is allowed to proceed–more than were present even in the Comcast/TWC scenario. The certain harms far outweigh any potential benefits.

In these comments we focus on data caps and usage based pricing in particular. These practices are almost always detrimental to consumers, as TWC management has recognized, and they shouldn’t be imposed at all. One of the negative aspects of this proposed merger is that TWC customers would lose the “no data caps EVER” pledge from TWC. If for some reason the Commission decides to approve the transfer, the loss of TWC’s anti-data cap corporate attitude must be mitigated, and in a way that matches the permanence of TWC’s current pledge.

If, however, the Commission does decide to approve this transfer, the loss of TWC’s vocal commitment to NEVER impose DC/UBP must be mitigated, and it must be mitigated in a way that matches the permanence of TWC’s commitment. Mitigation conditions that are only temporary in nature are not sufficient to offset those harms.

Proposed Mitigation Condition

New Charter shall refrain from imposing data caps and/or usage-based pricing (DC/UBP) on all of its broadband offerings. New Charter will refrain from increasing prices on non-DC/UBP plans to compensate for this mitigation condition.

This mitigation condition shall sunset when ONE of the following scenarios comes to pass; however, the condition shall sunset only for those New Charter customers for whom one of the following scenarios is true. In all other New Charter areas where none of these scenarios exist, the mitigation condition shall remain in force.

  1. There are at least three (including New Charter) competing wireline broadband providers for the area in which New Charter wishes to sunset this mitigation condition. Resellers leasing lines from New Charter may be counted as competitors only if New Charter does not impose any sort of usage based billing or data caps on the resellers.
  1. There are at least three competing broadband providers (both wired and wireless) for the area in which New Charter wishes to sunset this mitigation condition, and the wireless providers offer a non-usage-based billing plan that is no more expensive than similar non-usage-based billing plans offered by the wireline providers. Providers that offer unlimited data but throttle speed after a certain amount of data is consumed shall be considered as utilising data caps for the sake of this evaluation.

Should a New Charter customer demonstrate that the competing wireless provider is unable to supply actual broadband speed to their physical address (for instance, due to poor reception), then New Charter shall continue to offer that customer data plans not subject to DC/UBP. Additionally, New Charter shall refrain from increasing the price of this non DC/UBP plan above the cost of the comparable DC/UBP plan (before considering any data overage fees).

  1. There is a functional community-owned broadband alternative available to the customers for which New Charter wishes to sunset this mitigation condition.

This condition defines “broadband” as providing the minimum broadband speed as set by the FCC at the time of evaluation for sunsetting.

What is DC/UBP?

“Usage Based Pricing” (sometimes referred to as “Metered Billing” or “Data Caps”) is when an Internet Service Provider places an upper limit on the amount of data a customer can use in a given month. Typically in wireline internet situations, if the customer goes over their monthly allowance, they are charged an additional fee for a set amount of additional data. If this additional data allotment is used, the customer is charged again for a second allotment, and so on until the monthly billing period ends. For instance, Comcast charges its data capped customers $10 for each additional 50GB used.[1] A good way to understand DC/UBP is to begin with what it is not.

DC/UBP is NOT about network management

This assertion has been debunked by scientific research for almost ten years,[2] and now even ISPs themselves are acknowledging the same. In January 2015, National Cable and Telecommunications Association president Michael Powell told a Minority Media and Telecommunications Association audience that while a lot of people had tried to label the cable industry’s interest in the issue as about congestion management, “That’s wrong,” he said. “Our principal purpose is how to fairly monetize a high fixed cost.”[3] However, even this explanation is myth-based. (See discussion next section.)

On 14 August 2015, Comcast’s Vice President of Internet Services, Jason Livingood, stated publicly that DC/UBP was not a network management decision, but a “business decision” that he had no part in making.[4]

Then, on 5 November 2015, an internal Comcast document instructing CS Reps how to answer questions about DC/UBP was leaked. That document instructs Comcast personnel “Do not say: The [DC/UBP] Program is about network management. (It is not.)[5]   (Emphasis added).

Time Warner Cable’s CEO Robert Marcus similarly has spoken about DC/UBP as a business decision (and is his opinion a bad one).[6]

DC/UBP is NOT about pricing fairness

If DC/UBP were truly about pricing fairness, subscribers would pay for exactly the amount of data they used, and no more. This model would be like water or power: there would be no monthly charge whatsoever (or perhaps only a miniscule one): if you used a kilobyte, you’d pay for a kilobyte. If you happened to be on vacation for a month and didn’t use any data, then your broadband bill would be zero. There would be no startup or termination charges. There would be no modem fees, just as there are no gas meter or electrical transformer fees. Tight government regulation over pricing would be beneficial as well.

None of these conditions is present in any of the wireline DC/UBP plans in the US currently, and none that I know of anywhere in the world, though I haven’t done an extensive search. Regardless, it’s clear that the purpose of DC/UBP is not to provide “pricing fairness.”

The GAO’s explanation of DC/UBP

In 2014, the U.S. Government Accountability Office performed a study on DC/UBP. The GAO determined that while it is possible for providers to employ DC/UBP to the consumers’ advantage, “providers facing limited competition could use UBP to increase profits, potentially resulting in negative effects, including increased prices, reductions in content accessed, and increased threats to network security. Several researchers and stakeholders that the GAO interviewed said that UBP could reduce innovation for applications and content if consumers ration their data.”[7]

Simply put: absent sufficient competition, the purpose is two-fold. First, DC/UBP allows cable providers to use their monopoly (or in some much rarer cases duopoly) powers to extract additional revenues from customers. Upon the imposition of DC/UBP, the vast majority of customers have no competing provider of wireline broadband to whom they can turn.[8]

Secondly, DC/UBP gives cable internet providers the ability to use their “terminating monopoly” power to quash competition to their core video offerings. For instance, SlingTV CEO Roger Lynch in early December accused Comcast of setting its data caps just low enough to prevent customers from replacing cable TV with online video streaming.[9]

To see how this terminating monopoly power works, consider one of the increasing number of “cord cutting” households. By some estimates, 1 in 7 Americans are currently television cord-cutters.[10] These consumers do not subscribe to cable television. Instead, they purchase broadband only and subscribe to services such as Hulu, Netflix, Vudu, YouTube, Crackle, Fandor, etc. These services offer direct competition to cable providers’ video offerings. The imposition of “usage based billing” can artificially increase the price of cord cutting so that it is no longer a viable option for consumers.

A typical “cord-cutting” home uses an average of 328GB/mo,[11] exceeding most data-capped plans’ initial allowances. In fact, in October the Associated Press reported that 8% (and rising) of Comcast customers regularly exceed their data allowances and are charged overage fees.[12] As the emergence of UHD and 4k video offerings by streaming services such as Netflix and Amazon continues, these percentages will rise dramatically.[13] Since cable operators’ core video offerings are excluded from a user’s data count, it can quickly become cheaper to subscribe to a bloated cable package than pay data overage fees in addition to a la carte streaming service subscriptions. Then consumers must pay still more additional fees for DVRs to replace streaming’s de facto “on demand” nature. And yet more fees for additional cable boxes. This then is the true purpose of DC/UBP: increasing revenue, in part from overage fees and in part from pushing consumers into traditional cable packages with additional fees.

Potential Public Harms from DC/UBP

DC/UBP financially harms ratepayers, especially lower income customers

The effect of the financial penalties that streaming Netflix (and other such services) carries under DC/UBP plans will push consumers to New Charter’s own, more expensive, subscription offerings since watching video through New Charter’s traditional cable network would not count against consumers’ data allotments. These services are bundled such that subscribers must pay for hundreds of channels they have no interest in in order to get the 10-20 that they actually want to watch, thus artificially inflating their cable bill. (For instance, a recent Civic Science survey found that 56% of pay-tv subscribers would drop ESPN from their lineup in order to save $8/mo on their cable bills.[14] Cable companies, however, do not offer this as an option.) When DC/UBP is not present, cord-cutting is cheaper than cable, sometimes significantly so depending on the type of television in which the cord-cutter is interested.[15] Lower income Californians will be hit especially hard as DC/UBP forces them into those bloated, expensive cable “bundles.” For lower income viewers, this money-saving alternative will no longer be accessible since their prices are artificially inflated by DC/UBP.

This in turn stifles demand for broadband, running counter to Section 706(a)’s mandate. The CPUC has a statutory duty to protect ratepayers from a monopoly player stifling competition and investment, and that mandate is not limited to an arbitrary number of years.

The Commission is correct to want to expand broadband access to underserved areas, but it must also protect against that same access being used to prevent lower-income Californians from saving money on television bills by “cord-cutting.”

New Charter can use DC/UBP to circumvent Net Neutrality rules

Comcast is currently attempting an end-run around net neutrality rules and strongly pushing customers to their new streaming service “Stream TV” over competitors such as Hulu and Netflix. Comcast is exempting their own (more expensive) cord-cutting streaming service from usage-based metering, while competing services count against subscribers’ data allotments. While this is illegal under net neutrality, Comcast is arguing that since Stream TV exclusively uses its own IP network, and not the internet per se, net neutrality doesn’t apply.[16] As Wired.com put it, “Comcast may have found a major net neutrality loophole.”[17] (Note that this example directly contradicts the testimony of Charter’s Dr. Scott Morton.[18])

This is a loophole that New Charter could also use in order to attempt to circumvent net neutrality regulations. However, if the CPUC bars New Charter from instituting DC/UBP, this end-run loophole would be closed, and New Charter would not be able to engage in the anti-competitive customer-harming behavior that Comcast is now attempting.

It’s important to note here that the Commission cannot rely on the federal government to provide this protection to Californians. A number of U.S. Congress members have filed briefs requesting that courts overturn the FCC’s net neutrality rules.[19] Further, at the time of this writing, a number of house members are attempting to insert a net neutrality defunding clause into the omnibus spending bill.[20]

Under a Republican president and Congress, it’s clear that California should expect the federal government to abandon any and all open internet and net neutrality regulations. But as with climate change and carbon emissions legislation, California has the opportunity to lead the country by ensuring net neutrality and protecting competition, in part by adopting this proposed mitigation measure.

DC/UBP also gives ISPs the ability to leverage sponsored data programs. Such programs pose an existential threat to net neutrality, but on a more basic level, harm consumers by increasing fees for the services that participate. Sponsored data programs also present a barrier to entry for new, innovative, and less well-funded competing services.[21]

DC/UBP facilitates anti-competitive behavior

As the GAO report put it,  “…fixed providers—many of whom also provide television video content—could use UBP as a means to raise the price for watching online streaming video services—a competitor to their video services—as households continue to substitute television with streaming video.”[22] New Street Research analyst Jonathan Chaplin points out that usage-based billing would be one of Charter’s strongest potential weapons against online video competitors.[23]

DC/UBP hinders innovation and investment

Again, from the GAO report:

“Because UBP can make it more expensive to watch data-heavy content such as streaming video, it may discourage people from accessing such content and, therefore, discourage them from eliminating their television service. This might adversely affect firms that provide online video streaming services and reduce competition and innovation in the market for providing streaming video content, thereby negatively affecting consumers.

In addition, two industry stakeholders we interviewed believe UBP could in general inhibit innovation that results from experimentation and unlimited access to the Internet. Greater innovation could result in the development of more content and applications that consumers demand and value. Some Internet users, such as heavy data users, may pay more for access under UBP. As a result, some of them may limit their Internet use—as mentioned earlier, some focus group participants said that they have reduced their mobile data usage as a result of UBP—particularly of data-heavy content and applications such as online learning and video. This could lead to reduced use of some beneficial Internet applications and innovation in such applications. For example, one public interest group said that the limits that UBP may impose on the market for innovative applications and content may limit the potential of new startups.”[24]

The report goes on to discuss additional ways DC/UBP might reduce innovation, and the above citation is worth reading in full.

These are the same concerns present in Commissioner Florio’s Alternate Proposed Decision in the Comcast proceeding.[25] The alternate PD discusses these concerns as potential harms of Comcast creating a bottleneck between retail subscribers and edge providers, however, the same concerns are equally applicable to an ISP instituting DC/UBP.

DC/UBP has negative effects on network security

According to a 2012 study, DC/UBP may result in consumers—in an attempt to reduce data usage—foregoing automatic security updates to their computers, which could have negative implications for network security.[26]

DC/UBP removes educational opportunities for lower income citizens

In a June 2014 article, US News and World Report explained how online education can provide a significantly lower-cost and more flexible path to a degree. The article cites a Georgia Institute of Technology announcement that it would be offering an online master’s degree in computer science for $6,600 – about $35,000 less than its on-ground program.[27]

The online education model can put a higher degree in reach for countless people who otherwise could not afford that opportunity. However, this model relies heavily on video teleconferencing and video lectures. DC/UBP could inflate the price of online education such that it too could be unaffordable for lower-income Californians, completely pricing them out of higher degrees that could move them out of poverty into the middle class.

Charter could use DC/UBP as a loophole to completely avoid providing “Lifeline” low cost internet service, thus increasing the digital divide.

Envision a worst-case scenario where New Charter agrees to carry on TWC’s existing $14.99 low-cost plan, but caps the data at 5GB, then charges (as Comcast is currently trialing) $10 for each additional 50GB the subscriber uses. For a typical cord-cutting household that uses approximately 330GB of data a month, that would make the price of this “low-cost lifeline” plan $79.95/mo. A “low-cost” internet option of $80/month will do nothing to close the digital divide.[28]

Mitigating the Loss of TWC’s Commitment Against DC/UBP

Time Warner Cable has frequently stated publicly that it will “NEVER” impose DC/UBP. Over time, TWC has demonstrated an extremely different corporate culture and attitude towards DC/UBP than Charter has demonstrated. TWC’s CEO Robert Marcus has time and again made it clear that compulsory usage caps are off the table at Time Warner Cable – a lesson TWC learned after customers pushed back and forced it to shelve a usage cap experiment planned for Rochester, N.Y., Greensboro, N.C., and Austin, San Antonio, and Beaumont, Tex. in April 2009.[29]

TWC subsequently admitted their flirtation with DC/UBP was a mistake. That story, along with the pledge to never impose usage-based billing, is still on Time Warner Cable’s official blog at the time of this writing.[30]

The company has never raised the possibility of compulsory usage limits or usage-based billing again. In fact, Marcus often seems to be evangelizing AGAINST DC/UBP in general. On an October 2014 Wall Street analyst conference call, Marcus stated “We have no intention of abandoning an unlimited product we think is something that customers value and are willing to pay for. The way we’ve approached usage-based pricing is to offer it as an option for customers who prefer to pay less because they tend to use less. And we’ve made those available at 5 gigabytes per month and 30 gigabytes per month levels.”[31]

It’s notable that while Comcast maintained the price point of the plans it converted from unlimited to mandatory UBP, TWC’s optional UBP plans came with a price discount. However, the discounts on those packages were minimal, and as of 11/21/2015 those packages are no longer advertised on the TWC website.

Marcus has continued to be publicly vocal about TWC’s decision to keep its non-usage-based pricing intact. He spoke to this point at the Deutsche Bank Media, Internet, and Telecom Conference in March of 2014,[32] and again in a July 2015 investor conference call.[33]

On an October 2015 investor call Marcus was questioned by analyst Jonathan Chaplin on TWC’s lack of DC/UBP. Marcus responded that the way to increase revenue was to deliver more utility. DC/UBP is the opposite of that, he said.[34]

If the CPUC approves this transaction without mitigation, it will be allowing for the destruction of the largest US wireline broadband entity dedicated to NEVER instituting compulsory DC/UBP in favor of a mere three year commitment. It would forever remove a policy competitor that subscribers to other wireline broadband providers could point to and say, “Yes, a cable company can be profitable without DC/UBP.” More directly, the loss of TWC’s corporate culture and belief that DC/UBP is a poor business decision would be an immense harm to current and future TWC customers.

Charter Is Particularly Suspect Concerning DC/UBP

This merger’s financing model gives New Charter every incentive to impose DC/UBP

Post-merger, New Charter will be in a precarious financial position.[35] One of the strongest incentives for rate increases is the level of debt Charter Communications will assume in this transaction. The New York Department of Public Service staff, in examining this transaction for that state, concluded that New Charter’s debt and lowered credit rating “represents the single most substantial risk of the proposed transaction.”[36]

Charter’s Mr. Fisher disagrees with this analysis in his opening testimony, stating that “New Charter will be financially healthy to the benefit of its shareholders and consumers throughout the State of California.”[37] [emphasis added]. If this is true, then this proposed mitigation will help ensure that consumers do in fact see some of those benefits, and that they are not all given only to shareholders, an occurrence that happens far too often in transactions such as the one currently under consideration. This is especially important since when Mr. Fisher later lists the benefits that will come from the merger, none of the benefits he lists are in the area of consumer pricing.[38] As we detail later in these comments, prices will actually go UP after the merger.

Charter has provided inaccurate information about their history with DC/UBP

Charter’s expert Dr. Fiona Scott Morton, a professor of economics at the Yale School of Management, stated in FCC testimony:

“For 3 years, New Charter will not charge consumers additional fees to use specific third-party Internet applications, or engage in zero-rating (discriminatory exemptions from a data cap).

These binding commitments provide further assurance beyond the economic reasoning I describe below — assurance that New Charter will not engage in these types of conduct: charging higher interconnection fees, using discriminatory data plans, or reducing the quality of OVD signals. (Note that Charter already does not have data caps for its residential broadband customers. Notwithstanding the dramatic but welcome rise in data usage by broadband customers, Charter has not had an active data cap since January 2012.)”[39]

But this statement is simply incorrect. As of November 2013 Charter had data caps ranging from 100-500GB.[40] Customers in some areas were called by Charter for exceeding their usage allowance,[41] and usage rationing remained in Charter’s Acceptable Use Policy until late 2014,[42] not January 2012 as Dr. Scott Morton claims. In fact, as of 21 November 2015, Charter’s AUP still allows it to define “excessive use of bandwidth” however it sees fit, and take any action that Charter in its sole opinion it deems reasonable.[43] Dr. Scott Morton does not believe Charter has any interest in imposing data caps on customers, despite the fact Charter quietly shelved existing caps on Oct. 1, 2014, just several months before unveiling its bid for both Time Warner and Bright House, neither of which have capped customer usage.[44]

The FCC is rightly concerned about this discrepancy, and has requested that Charter detail when it adopted bandwidth usage caps, when it dropped them, and why.[45] The CPUC would be right to be concerned as well.

Charter has a history of misleading customers and regulators.

For example, Charter advertises Spectrum TV Stream service at $12.99/mo, when most users will actually pay at least $20/mo, some more.[46] While some “padding” via fees is unfortunately normal, this is upwards of a 50% differential. Note that this is in direct contradiction to Mr. Fisher’s opening statement to the CPUC, in which he claims that Charter “does not separately charge users incremental fees that other providers in the industry commonly add on to the advertised price… As a result, consumers have a clearer understanding of… the price that they will see on their bill.”[47]

Another example: The FCC is concerned about 26% owner John Malone’s involvement with this merger, as he has engaged in anticompetitive behaviour in the past.[48] Malone, whom Senator Al Gore once referred to as “The Darth Vader of telecom,”[49] is currently best known as the owner of SiriusXM satellite radio. The two satellite companies merged in 2008 with a mitigation condition forbidding any rate hikes for three years.[50] Upon the expiration of that condition, SiriusXM promised investors an immediate price hike.[51] Based on past history, there’s no reason to believe that any mitigation conditions the CPUC imposes on this transaction won’t be discarded immediately upon expiration.

And a third example: on 20 January 2016 Charter released the results of a survey that it sponsored itself. Charter claims that the results show public support for the merger. However, the statements Charter used in the poll pertaining to data caps were extremely misleading. Respondents were told by the pollster that  “Charter has said that it will not impose data limits on customers after the merger.”[52] However, there was no mention of the incredibly brief 3 year time limit on this commitment, nor the fact that Time Warner has promised for years to never impose data limits on customers. It is definitely misleading, possibly deceitful, for Charter to use responses to this deceptive statement as “proof” of public support for this transaction.

A fourth example: Dr. Scott Morton’s November 2 statement is less than forthcoming in many regards. On Page 10 (Section 27) Dr. Scott Morton completely omits a fourth characteristic of a valuable MVPD partner: the commitment to refrain from implementing DC/UBP. Implementation of DC/UBP would artificially increase the cost of the OVD’s product to the consumer, thus decreasing demand for that service. This increased cost over which the OVD has no control is in effect a barrier to market entry, and therefore a disincentive to innovation and reduction of competition.

It’s also telling that Dr. Scott Morton’s conclusion in Part 49 is that Charter’s “technology” promotes entry of OVDs. Conspicuously absent is the statement that Charter’s “policies” promote entry of OVDs. Even more conspicuous is that as noted in Part 128, Charter promises a mere three years of refraining from disadvantaging OVDs. What Charter is promising is both flimsy and transparent: “You have nothing to worry about, but only hold us to it for three years.”

Still further, in Part 130, Dr. Scott Morton notes Netflix’s statement that “Charter’s new peering policy is a welcome and significant departure from the efforts of some ISPs to collect excess tolls to the Internet.” However, the CPUC must guard against New Charter shifting these “excess tolls” directly onto subscribers as the GAO report referenced earlier warned. DC/UBP would be a prime means for New Charter to do just that.

A fifth example: the opening testimony of Charter’s Mr. Falk is likewise misleading on a number of points. Mr. Falk claims that the merger will come with “no countervailing harms,”[53] however, according to his own statement, there are clearly price increases coming for many TWC customers.[54] Mr. Falk testifies about Charter’s “customer friendly billing practices,” but in reality those practices are not friendly to consumers at all.[55] Mr. Falk then goes on to make a claim that is flatly contradicted by his own expert’s testimony to the FCC,[56] makes misleading statements about the significance of wireline competition,[57] and a statement that is materially false regarding pricing of Charter’s base internet speed tier.[58]

Charter has flatly failed to comply with multiple Commission rulings.

Charter has refused to comply with certain requirements of DIVCA even though the company submitted an affidavit to the Commission swearing to do so.[59] More recently, Charter ignored the January 20 ALJ ruling of A.15-07-009, which required that “Charter and TWCIS shall provide notice to their respective customers not less than 5, nor more than 30 days, prior to” the

Los Angeles Public Participation Hearing scheduled for January 26.[60]  As of the morning of January 25, I had received no such notice either by email or postal mail, even though I hold not one but two California-based TWC accounts. Note that I did check my SPAM folder, and no notices had been diverted there.

The point being… both consumers and the CPUC should be extremely suspect of anything Charter says regarding the benefits of this merger, including their reasoning that DC/UBP is something that they have no interest in instituting. Mitigations should be designed to protect consumers against a potentially hostile and untrustworthy monopolistic player, particularly around an issue as nuanced and complex as usage based pricing.

Charter’s Opening Testimony Supports this Proposed Condition

New Charter should not object to this proposed mitigation condition, since it is substantially supported by Dr. Scott Morton’s November 2 statement, as well as the opening testimony from Mr. Fisher, the Senior VP of Corporate Finance at Charter, and Mr. Falk, Charter’s Senior VP for State Government Affairs.

In her November 2 testimony, Part 132, Dr. Scott Morton discusses New Charter’s open internet commitments. While not addressing DC/UBP directly, in her discussion of other conditions addressing issues such as paid prioritization, zero rating, throttling, etc, Dr. Scott Morton states that the fact these conditions have a finite life should not be cause for concern. She explains that in three years’ time market conditions would be such that “a strategy of foreclosure or otherwise trying to impede OVDs would be even more unprofitable for New Charter.”

Dr. Scott Morton then suggests that should New Charter decide to engage in anticompetitive behaviour in three years’ time, consumers could simply switch to an alternate broadband provider. However, as Dr. Scott Morton goes on to point out, there is currently a lack of competing broadband providers in most of New Charter’s proposed footprint. Other experts have also testified that the US market for fixed broadband is not effectively competitive, and this situation will persist for the foreseeable future.[61] This is true for New Charter’s proposed footprint in California as well.[62]

“Currently AT&T/Verizon have usage allotments that make it economically unattractive to use wireless as an in-home broadband service,” Dr. Scott Morton explains. “T-Mobile and Sprint do offer “unlimited” plans, however, they… de-prioritize traffic above usage thresholds…”[63] So even by her own testimony, wireless providers do not count as potential broadband competition for New Charter.

Dr. Scott Morton goes on to examine what little wireline broadband competition does exist, but as the CPUC is well aware, the companies she cites are not available in most of New Charter’s proposed footprint.

In summary, Dr. Scott Morton testifies that in three years time there will be adequate broadband competition present to prevent New Charter from behaving in an anti-competitive manner. If she is correct, then this proposed mitigation condition will sunset based on the existence of that very competition. If she is incorrect about the amount of time it takes for that competitive marketplace to form, then this mitigation will simply continue to protect consumers until the competition Dr. Scott Morton discussed does actually come into existence.

The mitigation condition being proposed here simply ensures that New Charter only has the ability to behave in an anticompetitive way when the “competing broadband provider[s]” Dr. Scott references are actually in existence. It’s designed in a way to be fair to both consumers, and New Charter.

Why Competition Must Be the Only Trigger for Sunsetting this Condition

The 2014 GAO report examined four mobile providers that impose DC/UBP. ALL OF THEM have increased the variety of plans offered, but even more significantly, ALL OF THEM have increased the amount of their monthly data allowances. That’s not true of the fixed internet providers studied. Some of those providers have introduced higher priced, higher speed plans that also come with increased allowances, but NONE of them have increased the data allowances without an accompanying price increase.[64]

The obvious difference between the wireless and wireline providers’ circumstances is the presence of competition in the mobile sphere, and the lack of competition in the wireline sphere. The GAO report affirms this analysis.[65] The report goes on to explain that without adequate competition (and much evidence proves that duopoly markets do not constitute effective competition[66]), wireline customers have fewer plan choices. Only two of the wireline providers examined even offered discounted UBP plans. The two that did offer discounted plans offered discounts far inferiour to the discounts offered by the more competitive wireless market.[67]

For further evidence, consider the example of Comcast’s usage-based pricing “trial.” Comcast’s DC/UBP policies have resulted in a deluge of FCC complaints, potentially upwards of 11,000.[68] Comcast customers report gross inaccuracies in the company’s data meter, resulting in erroneous overage charges.[69] Customers are also reporting that once they pay Comcast’s $35 add-on for truly unlimited service, speeds for services that compete with Comcast (such as Netflix and Hulu) actually DROP.[70] The company then uses these speed issues to attempt to force customers into renting a modem from Comcast. When pressed hard enough by customers with technical knowledge of modems and routers, however, Comcast reps finally do resolve the speed issues remotely.[71]

The logical action for these customers would be to leave Comcast for a different provider; however, for the vast majority of them there is no other provider available. While admittedly Comcast is a different company from Charter, this example underscores the absolute necessity to sunset mitigation conditions only when actual wireline competition exists in the market…  NOT after an arbitrary number of years. As Commissioner Florio’s Alternate Proposed decision stated:

“We find that conditions that only temporarily or incompletely mitigate identified harms to the public interest are not sufficient to offset those harms. Such conditions also do not ‘preserve the jurisdiction of the commission,’ as required by § 854(c)(7).[72]

Summary on DC/UBP

In the Comcast proceeding, the Proposed Decision offered a condition (specifically #17) which would have restricted Comcast from implementing either data caps or mandatory usage based pricing (DC/UBP) for a period of five years. However, as Commissioner Florio’s Alternate Proposed Decision noted, that condition would have been insufficient to effectively mitigate the underlying potential harm due to the condition’s temporary nature.

Many mitigation conditions in the Comcast PD had no sunset clauses at all, such as Conditions 11 and 12 expanding the Internet Essentials program. Just as a sunset for the expansion of IE would have been unreasonable, so the sunset clause for the prohibition on DC/UBP was inadequate. Additionally, it would have run afoul of the Commission’s mandate under § 854(c)(7).

The behaviour of companies in this industry in general, and Charter’s past behaviour specifically, makes it clear that the CPUC should not take a risk on Charter’s less-than-compelling offer of a mere three year delay of the institution of data caps and usage-based pricing.

Beyond this particular issue, we believe that there is overwhelming evidence that this merger clearly would not be in the best interest of Californians, and that the CPUC should deny the transfer of licenses. However, should the CPUC for some reason allow the transfer to take place, we’d strongly request that the CPUC tailor the mitigation condition concerning data caps and usage-based pricing as this paper has suggested. Only a mitigation condition designed in this way would truly protect Californians, yet also be fair to New Charter by allowing the condition to sunset when the competition that Charter’s experts have testified is so important actually comes into existence.

Part 2 — Additional Reasons This Transaction is Not in the Public Interest

Time Warner Cable’s Superior Recent Upgrade Performance

The most important question before the Commission is which cable operator is better positioned to deliver the services customers in this state want and need. We argue that that operator is Time Warner Cable, not Charter Communications.

Since the termination of the Comcast-Time Warner Cable merger, Time Warner Cable has responsibly invested in their infrastructure without assuming an irresponsible amount of debt. Time Warner Cable CEO Robert Marcus reported significant progress in their first quarter 2015 report to shareholders and customers, despite the distraction of the Comcast merger[73]:

Over the past 16 months, we’ve made significant investments to improve our customers’ experience:

  • Investing more than $5.2 billion to, among other things, improve the reliability of our network and upgrade customer premise equipment – including set-top boxes and cable modems – with the latest technologies and expand its network to additional residences, commercial buildings and cell towers;
  • Launching TWC Maxx, which features greater reliability, all-digital video, advanced TV services, standard tier of Internet speeds at 50 Mbps, and higher tiers of service up to 300 Mbps. New York, Los Angeles and Austin are complete; Dallas, San Antonio and Kansas City are underway; Charlotte, Raleigh and Hawaii are slated for later this year; and San Diego is expected to be done in early 2016;
  • Introducing Enhanced DVR, a six-tuner set-top box that allows customers to record up to six shows simultaneously and store up to 150 hours of HD content;
  • Increasing the number of Cable Wi-Fi hotspots available to our customers to 400,000;
  • Rolling out our cloud-based video guide to 8 million set-top boxes to date. The guide also makes it easier to browse our On Demand library, which now sits at 30,000 free and paid titles and continues to grow;
  • Expanding our industry-leading TWC TV app – which allows customers to watch live TV and On Demand content and control and program their DVR from inside and outside the home. TWC TV is now available on Xbox One, Xbox 360, Amazon Kindle Fire HD and HDX tablets, Android and IOS phones and tablets, Fan TV, PCs, Samsung TV and Roku;

Serving customers on their schedules rather than ours. We expanded one-hour appointment windows across the company and in Q1 met that window 97 percent of the time. We continue to add nighttime and weekend appointments.

Since that report, Time Warner Cable has announced new Maxx service upgrade areas – Greensboro and Wilmington, N.C. At least 45 percent of Time Warner Cable’s national footprint was serviced with Maxx upgrades by the end of 2015, and Marcus has indicated additional cities will receive upgrades in 2016.[74]

Marcus has indicated repeatedly he intends to see Maxx service upgrades extend even further. On the January 29, 2015 quarterly results conference call with investors, Marcus indicated Maxx upgrades delivered tangible benefits to the company, including increased customer satisfaction, higher network reliability, and a stronger product line. Based on those factors, it would be logical to assume Time Warner Cable would continue its upgrade project, and indeed Marcus confirmed this in his remarks:

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

At the rate Time Warner Cable has been rolling out Maxx upgrades, which were first announced on 30 January 2014[76], with 45% of its service area upgraded within 23 months, it is likely the company would complete its Maxx upgrade to all of its service areas within the next 24-30 months. Note that in Los Angeles these speed increases came with no corresponding price increase. In evaluating this transaction in New York, the NYDPS staff noted, “there is no indication that Petitioner’s plan for converting to all-digital in New York is any different from Time Warner’s existing plan.” The CPUC should examine this issue as well.

Charter, on the other hand, is saddled with debt servicing costs and more expensive credit, both of which are deterrents to investment and are likely to limit the scope of Charter’s ongoing system upgrades and maintenance, not to mention also placing upward pressure on the prices New Charter will charge consumers. Charter is a much smaller cable operator than Time Warner Cable, and is itself still in the process of repairing and upgrading its own cable systems and those it acquired in earlier acquisition deals. Time Warner Cable, in contrast, is in a much stronger financial position to carry out its commitments associated with the Maxx upgrade program.

Charter’s upgrade proposal is, in fact, both technically and generally inferior to what Time Warner Cable is accomplishing on its own. We strongly recommend the Commission carefully consider whether Charter’s proposal is as truly compelling as it claims.

Charter Communications’ Network Upgrade Proposal Is Not a Good Deal for California

Time Warner Cable Maxx offers 50/5 Mbps speeds under its most popular Standard plan. In contrast, Charter proposes to offer 60/5Mbps service under its most-popular Spectrum plan for a markedly higher price. The extra expense over the TWC 50Mbps plan does not justify a mere 10Mbps speed increase. (Currently in Los Angeles, TWC offers 200Mbps for $65/mo… roughly the same price as Charter’s 60/5 plan. TWC’s plan is over three times as fast as Charter’s for nearly the same amount). But perhaps more concerning, this 10Mbps increase comes at a high cost to customers looking for more budget-priced service than those seeking faster speeds.

Charter has no plans to continue Time Warner Cable’s $14.99 Everyday Low Price Internet service – a very important offer for low income residents and senior citizens who are unable to afford the nearly $60 regular price Charter charges for their 60Mbps tier, or those who have no interest in streaming media.

Time Warner Cable offers its $14.99 tier without preconditions, restricted qualifiers, contracts, or limits on what types of services can be bundled with it. Any consumer qualifies for the service and can bundle it with Time Warner Cable telephone service for an additional $10 a month, which offers a nationwide local calling area, as well as free calls to the European Union, Mexico, Puerto Rico, and several Asian nations.

The loss of a $25 plan that includes basic Internet access and a bundled, 911-capable telephone line would be devastating to low-income Californians and senior citizens. During the Comcast-Time Warner Cable hearings, no topic elicited as much interest as Internet affordability. Time Warner Cable clearly offers a larger, superior product line for less money at ALL speed levels in California. Charter would bring Californians fewer options at more expensive prices.

Charter’s proposed solution to serve low-income Californians is the adoption of Bright House Networks’ Connect2Compete program, which offers restricted access to $9.95/month Internet service for those who qualify.

Stop the Cap! investigated Bright House Networks’ existing offer in a report to our readers[77] in June 2015, and we urge the Commission to look much more closely at the specific conditions Bright House customers have had to endure to qualify to subscribe:

1) You must have at least one child qualified for the National School Lunch Program. They need not be enrolled now.

2) You cannot have been a Bright House broadband customer during the last three months. If you are a current customer, you must first cancel and go without Internet service for 90 days (or call the phone company and hope to get a month-to-month DSL plan in the interim.)

3) If you have an overdue bill older than 12 months, you aren’t eligible until you pay it in full.

4) Bright House does not enroll customers in discounted Internet programs year-round. From a Bright House representative:

“We do participate in this particular program, however, it is only around September that we participate in it. This is a seasonal offer that we have which can only be requested from the middle of August to the middle of September, which is when most start up with school again for the year.”

5) Bright House does not take orders for the Low-Income Internet plan over the Internet. You have to enroll by phone: (205) 591-6880.

Families fall into poverty every day of the year, and poverty-stricken families move from one school district to another every day of the year. So it’s horribly unfair to tell them they’d qualify for this program if only they had fallen into poverty sometime between the middle of August and the middle of September.

It has been our experience covering service providers across all 50 states that most design these low-cost Internet access programs with revenue protection first in mind. Charter Communications is no different. As with Comcast, Connect2Compete is only available to families with school age children. Applicants face an intrusive, complicated, and time-restricted enrollment process designed to dampen and discourage enrollment.

The interest in meeting the needs of low-income customers would be laudable if not for the insistence that otherwise-qualified existing customers cannot downgrade their regular price broadband plan to Connect2Compete unless they voluntarily go without Internet service for three months.

We strongly recommend Charter Communications be compelled to continue Time Warner’s $14.99 Internet plan, but at speeds no less than 25Mbps, the minimum definition of entry-level “broadband” by the FCC. We also recommend Charter be required to further discount this plan to $9.95 a month for qualified customers who meet a simple income test the Commission can define and establish. These discount programs should not just be available to families with school-age children. Everyone needs affordable Internet access, whether you are single and looking for your first job or a fixed income senior citizen.

All restrictions for existing customers or those with an outstanding balance must be prohibited and sign-ups must be accepted 365 days a year with re-qualification occurring not more than once annually.

Charter’s broadband offers for lower-income Californians are simply not adequate.

Charter Communications’ Cable Pricing Is More Expensive and Less Flexible than Time Warner Cable’s Pricing

Charter’s commitment to improve cable television does not offer any significant benefit to cable TV subscribers. Both Time Warner Cable and Charter propose to move to all-digital cable television to free up bandwidth to offer improved broadband.

While consumers clamor for smaller, less-costly cable television packages, Charter Communications’ CEO Thomas Rutledge is credited for inventing the “triple play” concept of convincing customers to package more services – broadband, television and telephone — together in return for a discount. Reuters cited his penchant for “simplified pricing,”[78] which is why Charter offers most customers only two options for broadband service and one giant television package dubbed Spectrum TV containing more than 200 channels.[79]

Unfortunately, any benefits from an all-digital television package are likely to be dismissed when customers get the bill. Currently, many Time Warner Cable customers watch analog television channels on television sets around the home without the need to rent a costly set top box. Any transition to digital television will require the rental of a set top box or purchase of a third-party device to view cable television programming. These can represent costly add-ons for an already high cable bill.

With approximately 99 percent of customers renting their set-top box directly from their pay-tv provider, the set-top box rental market may be worth more than $19.5 billion per year, with the average American household spending more than $231 per year on set-top box rental fees. These are some of the findings from Senators Edward J. Markey (D-Mass.) and Richard Blumenthal’s (D-Conn.) query of the top-ten pay-tv multichannel video programming distributors (MVPDs).[80]

Passed by Congress in December, the STELA Reauthorization Act of 2014 repealed the set-top box integration ban, which enabled consumers to access technology that allowed use of a set-top box other than one leased from their cable company. Without the integration ban, by the end of this year, cable companies will no longer be required to make their services compatible with outside set-top boxes, like TiVo for example, bought directly by consumers in the retail marketplace.

American cable subscribers spend, on average, $89.16 a year renting a single set-top box. The average set-top box rental fee for each company was used to calculate an overall set-top box rental cost average across companies: $7.43 a month, or $89.16 per year. Considering many homes rent a DVR box to make and view recordings and maintain less-capable boxes on other televisions, the total cost adds up quickly. The average household spends $231.82 a year on set-top box rental fees, according to Sens. Markey and Blumenthal.

Charter proposes to introduce a new generation of set top boxes but as far as we know, has not disclosed the monthly cost of these IP-capable boxes to subscribers. We anticipate they will cost more than the current equipment provided by Time Warner Cable, which has also been increasing the cost of its set top box rentals. However, Time Warner allows customers to effectively purchase their set top boxes in the form of the Roku device, giving consumers the ability to completely eliminate the set top box rental fee is they so wish.[81]

Other Points the Commission Should Consider in Reviewing This Transaction

  • California must receive ‘most favored state’ status, meaning that whatever conditions other state commissions get from Charter must automatically apply to all Californians as well.
  • The Commission must insist that rural California is treated equally to the Los Angeles market. If this transaction is approved, Charter must be compelled to commit to continue Time Warner Cable’s Maxx upgrade initiative across all of its service areas in California, to be completed within 30 months. Nothing less than that should be acceptable to the Commission. We agree with the New York DPS staff’s recommendation that Charter also be compelled to upgrade facilities to support gigabit broadband, and that should apply to California as well.This upgrade does not pose a significant challenge to any cable operator. With the upcoming introduction of DOCSIS 3.1 technology, cable operators even smaller than Charter will support 1Gbps broadband speeds as they drop analog television signals. Suddenlink[82], MidContinent[83], Cox[84], and Mediacom[85] already have gigabit deployment plans in the works. If Fargo, N.D. is getting gigabit broadband from MidContinent Communications in the near future, Charter should have no problem offering similar service to customers in the likes of Carlsbad, Hesperia, Jurupa Valley, and beyond.
  • The Commission must establish and enforce meaningful enforcement mechanisms should Charter fail to achieve its commitments as part of this transaction. Cable consolidation has never significantly benefited consumers. Charter is not guaranteeing Time Warner Cable customers will receive a lower bill as a result of this merger. Nor is it committing to pass along the lower prices it will achieve through negotiations for video programming volume discounts. Cable rates, especially for broadband, will continue to increase. Without meaningful competition, there is no incentive to give consumers a better deal or better service.

Again, we feel Commissioner Florio’s Alternate PD in the Comcast matter applies equally well here and that the application should be denied. If the Commission feels it must approve this transaction, however, the conditions that accompany it to achieve a true public interest benefit must be meaningful and ongoing. Any failure of New Charter to deliver on those commitments must include a direct benefit to customers, not just to the state government. If fines are imposed, customers should receive a cash rebate or equivalent service credit.
Conclusion

Cable operators know that once they secure a franchise or become the incumbent provider, no other cable company will negotiate with city officials to take over that franchise if the current provider’s application is denied during renewal. Once Charter (or any other cable company) establishes a presence, there is little to no chance that a community will be able to get rid of that provider if it fails to perform. That is why any franchise transfer that comes from an acquisition or merger must be treated with the utmost seriousness. Customers will likely live with the decision that this Commission makes for the next 20 years or more.

As the Commission must realize, this transaction does not involve just entertainment. Several months ago the Obama Administration declared broadband Internet access a “core utility:”[86]

“Broadband has steadily shifted from an optional amenity to a core utility for households, businesses and community institutions,” according to the report from the administration’s Broadband Opportunity Council. “Today, broadband is taking its place alongside water, sewer and electricity as essential infrastructure for communities.”

Our group strongly believes that California should not take a risk on Charter’s less-than-compelling offer when Time Warner Cable has demonstrated it is in a better financial position and has a proven track record of delivering on its commitments to improve service with its Maxx upgrade project. Time Warner Cable has superior options for low-income Californians, offers more broadband options and faster speeds, and has committed to providing unlimited Internet access – a critical prerequisite for consumers choosing to drop cable television’s one-size-fits-all bloated video packages.

[1] Comcast XFinity website: http://goo.gl/OlWFu3

[2] For instance: “Internet traffic is growing fast — but capacity is keeping pace” Telegeography. 3 September 2008. https://goo.gl/OFBPHX; and Bode, Karl. “The ‘Bandwidth Hog’ is a Myth” DLSreports. 30 November 2011. https://goo.gl/lv6jE5

[3] DSLreports.com (https://goo.gl/0sZasc)

[4] Brodkin, Jon. “Comcast VP: 300GB data cap is ‘business policy’ not ‘technical necessity’ Ars Technica.  14 August 2015. http://goo.gl/1lAFwJ

[5] Morran, Chris. “Leaked Comcast Doc Admits: Data Caps Have Nothing To Do With Congestion” Consumerist. 6 November 2015. http://goo.gl/Uq9o5c

[6] TWC 2014 Q3 Earnings Call. http://goo.gl/Oz9hnL

[7] U.S. Government Accountability Office. “FCC Should Track the Application of Fixed Internet Usage-Based Pricing and Help Improve Consumer Education. November 2014. http://www.gao.gov/products/GAO-15-108

[8] Reply Testimony of Lee L. Selwyn. 15 January 2016. Pages 75-77.

[9] Brodkin, Jon.  “Sling CEO: Comcast data caps so low they hurt competing video providers” Ars Technica. 7 December 2015. http://goo.gl/w98cqJ

[10] Pew Research Center “Home Broadband 2015” report. Page 19, as cited in NHMC reply testimony.

[11] Brodkin, Jon. “Watch out for data caps: Video hungry cord-cutters use 328GB a month” Ars Technica. 14 May 2014.  http://goo.gl/0O8vtR

[12] Arbel, Tali. “How Comcast wants to meter the internet” Associated Press. 27 October 2015. http://goo.gl/tnc66p

[13] Horn, Leslie. “You can burn through your entire broadband data cap in one long weekend” Gizmodo. 18 February 2014. http://goo.gl/Z0yQfY; and also Reply Testimony of Lee L. Selwyn, 15 January 2016, page 114.

[14] Frankel, Daniel. “Survey: 56% of pay-tv customers would ditch ESPN in order to save $8 every month.” FierceCable. 13 Jan 2016. http://goo.gl/CQRCpp

[15] Heisler, Yoni. “How much money does cutting the cord really save?” BGR.  12 November 2015. https://goo.gl/tmiQL2; also Jones, Stacy. “Cost of cable TV vs internet streaming” Bankrate. 24 November 2014. http://goo.gl/tGJqK5

[16] Brodkin, Jon. “Comcast launches streaming TV service that doesn’t count against data caps” Ars Technica. 19 November 2015. http://goo.gl/ITJusN

[17] Finley, Klint. “Comcast may have found a major net neutrality loophole” Wired. 20 November 2015. http://goo.gl/zyFJku

[18] 2 November 2015 Statement of Dr. Scott Morton, Parts 132-133, pages 48-49.

[19] Brodkin, Jon. “House Republicans urge court to throw out net neutrality rules” Ars Technica.

11 November 2015. http://goo.gl/TBV56e

[20] Fung, Brian. “Republicans are trying to defund net neutrality. Will it work?” Washington Post. 24 July 2015.  https://goo.gl/Shk99e

[21] Ravenscraft, Eric. “Sponsored Data Is The Newest, Biggest Threat to Net Neutrality” Lifehacker. 20 January 2016. http://goo.gl/SXtl9C

[22] GAO “Report to the Ranking Member, Subcommittee on Communications and Technology, Committee on Energy and Commerce, House of Representatives” (GAO-15-108) page 26. http://www.gao.gov/assets/670/667164.pdf

[23] Dampier, Phillip. “Wall Street: Usage Caps Are an Important Weapon in Fight Over Cord-Cutting.” Stop the Cap!  18 January 2016. http://goo.gl/FKhsFO

[24] GAO “Report to the Ranking Member, Subcommittee on Communications and Technology, Committee on Energy and Commerce, House of Representatives” (GAO-15-108) page 26.

[25] CPUC A.14-04-013, A14-06-012 Alternate Proposed Decision, pages 71-72.

[26] Marshini Chetty, Richard Banks, A.J. Bernheim Brush, Jonathan Donner, and Rebecca E. Grinter. “‘You’re Capped!’ Understanding the Effects of Bandwidth Caps on Broadband Use in the Home.” ACM Conference on Human Factors in Computing Systems. May 2012.

[27] Haynie, Devon. “Why Online Education May Drive Down the Cost of Your Degree” US News and World Report.  3 June 2014.  http://goo.gl/HSH1Pp

[28] Kehl, Danielle and Lucey, Patrick. “Artificial Scarcity: How Data Caps Harm Consumers and Innovation”  Open Technology Institute. 30 June 2015. https://goo.gl/zt5Jj9

[29] Yao, Deborah. “Time Warner Cable shelves some Internet cap plans” ABC News. 18 April 2009.  http://goo.gl/YynOiM

[30] Simmermon, Jeff. “Launching An Optional Usage-Based Broadband Pricing Plan In Southern Texas” TWC “Untangled” Blog. 27 February 2012.  http://goo.gl/PoS5nR

[31] Dampier, Phillip. “Time Warner Cable Recommits: No Mandatory Usage Caps As Long As Company Remains Independent” Stop the Cap! 30 October 2014.  http://goo.gl/6vxXNx

[32] Dampier, Phillip. “Time Warner Cable Admits Usage-Based Pricing is a Big Failure; Only Thousands Enrolled” Stop the Cap! 13 March 2014. http://goo.gl/lCqp4k

[33] Q2 2015 Time Warner Cable Results-Earnings Call. 30 June 2015. http://goo.gl/JINiwn

[34] Q3 2015 Time Warner Cable Earnings Call. 29 October 2015. https://goo.gl/piDDDc

[35] Media Alliance Reply Testimony to Joint Applicants Opening Testimony, pages 2-3. 15 January 2015.

[36] “Redacted Comments of the New York State Department of Public Service Staff” September 16, 2015. Page 39. http://goo.gl/C1Xpph

[37] Opening Testimony of Charles Fisher, page 6.

[38] Id at 7-8.

[39] “Statement of Dr. Fiona Scott Morton re the Merger of Charter, TWC, and BHN” 2 November 2015. Page 48. http://goo.gl/eEtY5Z

[40] Higginbotham, Stacey. “Want to know if your ISP is capping data? Check our updated chart.” GigaOm. 15 November 2013. https://goo.gl/owGq96

[41] DSL Reports: https://goo.gl/1RXjgm

[42] DSL Reports: https://goo.gl/aoFvuT

[43] “Charter Residential Internet Acceptable Use Policy.” https://goo.gl/8ICMe1

[44] Testimony of Laura Blum Smith, 15 January 2016. Page 14.

[45] Eggerton, John. “FCC Seeks Data Dump from Charter, TWC, Brighthouse” Multichannel News. 23 September 2015.  http://goo.gl/nJEazB

[46] Dampier, Phillip. “Charter and Time Warner Cable Try Internet-Only TV Service to Combat Cord-Cutting, Cord-Nevers” Stop the Cap! 26 October 2015.  http://goo.gl/doimuR

[47] Opening Testimony of Charles Fisher, page 4.

[48] Shields, Todd. “Cable Magnate Malone’s Stakes Scrutinized in Charter-TWC Deal” Bloomberg News. 9 November 2015. http://goo.gl/s6VTMw

[49] Kang, Cecilia and Fung, Brian. “The Darth Vader of Telecom is Back” Washington Post. 26 May 2016.  https://goo.gl/qWS480

[50] Lasar, Matthew. “Sirius/XM merger approved with new conditions” Ars Technica. 28 July 2008. http://goo.gl/LO4aaQ

[51] Lieberman, David. “Sirius XM CEO Mel Karmazin Vows Big Vows Big Consumer Price Hike (If the FCC Allows It)” Deadline Hollywood. 3 May 2011.  https://goo.gl/tTYZE3

[52] Cox, Kate. “Poll Sponsored By Charter Says Charter Is Great, More Charter is Greater” Consumerist. 20 January 2016. http://goo.gl/Xp0wsJ

[53] Opening Testimony of Adam Falk, page 2.

[54] Charter currently charges just under $65/mo for its 60Mbps tier of standalone internet with wireless gateway (outside of promotions). In Los Angeles, though, Time Warner Cable offers for that exact same amount 200Mbps also with a wireless gateway. Time Warner provides over three times the speed Charter does for the same price. That certainly is a countervailing harm to consumers.

[55] Unlike Time Warner, Charter bakes its modem fee into the internet plan. So every single customer is paying that modem fee… even if they own their own modem (like many Time Warner customers do). Not only is that not a “customer friendly billing practice,” but it’s another countervailing harm as well. Later on page 18 of his opening statement, Mr. Falk says “New Charter will bring base speed tiers from 15 Mbps to Charter’s current standard of 60 Mbps at uniform pricing within a year of closing.” Those unfortunate consumers get to take a double hit: not only will Charter be increasing the price of the comparable tier, but they will be taking away even the option to have a cheaper tier should the customer want it. It’s a massive price hike with fewer options available. That certainly doesn’t sound like the “customer friendly billing practices” Mr. Falk is touting, nor does it make his claim that consumers will face no harms from this merger ring particularly true.

[56] On page 3 of his opening statement, Mr. Falk claims that New Charter will face “other forms of competition (e.g., wireless providers).” But as described above, Dr. Scott Morton admits that wireless providers are actually NOT competition for New Charter’s internet offerings.

[57] Also on page 3, Mr. Falk states that “New Charter will face significant competition from wireline competitors (e.g., AT&T and Frontier).” But in reality, the areas where AT&T and/or Frontier (or even Verizon) actually overlap New Charter territory is extremely limited. And at any rate, this proposed mitigation condition would sunset where that overlap is present.

[58] Mr. Falk’s states: “Charter offers its base 60 Mbps service at lower prices than other providers for comparable service, without modem fees…” This simply isn’t true. Currently, Time Warner offers a 50 Mbps off contract for $45/mo. That’s comparable and significantly less expensive than Charter. TWC also offers 100Mbps at $55/mo… still less than Charter’s price for the slower 60Mbps. Mr. Falk’s statement is simply false.

[59] Testimony of Marc Puckett on behalf of Intervenor Town of Apple Valley, page 2. 15 January 2015.

[60] CPUC ALJ Ruling A.15-07-009 page 2.

[61] Testimony of Martyn Roetter on behalf of the County of Monterey. 15 January 2015. Page 1.

[62] Reply Testimony of Lee L. Selwyn. 15 January 2016. Page 116.

[63] Statement of Dr. Scott Morton. 2 November 2015. Page 51, footnote 187.

[64] USGAO. “Report to the Ranking Member, Subcommittee on Communications and Technology, Committee on Energy and Commerce, House of Representatives” (GAO-15-108). November 2014. Page 11. http://www.gao.gov/assets/670/667164.pdf

[65] Id. at 23.

[66] Reply Testimony of Lee L. Selwyn. 15 January 2016. Page 132.

[67] Id pages 24-25.

[68] Brodkin, Jon. “Complaint Factory: Angry Internet subscribers tee off against Comcast, Verizon, AT&T.” Ars Technica. 29 December 2015.  http://goo.gl/484NYO

[69] Dampier, Phillip. “Comcast Customers Buy $35 Usage Cap Insurance, Report ‘Unlimited’ is Slower Than Ever.” Stop the Cap! 28 December 2015.  http://goo.gl/SMfsOg

[70] Id.

[71] Id.

[72] CPUC A.14-04-013, A14-06-012 Alternate Proposed Decision, page 77.

[73] TWC Untangled Blog. 30 April 2015. http://goo.gl/6gp3er

[74] TWC Untangled Blog. 14 July 2015. http://goo.gl/eWZEGl

[75] TWC Q4 2014 Earnings Call Transcript on Seeking Alpha. http://goo.gl/c8QZtR

[76] TWC Untangled Blog. 14 July 2015. http://goo.gl/jafclZ

[77] Dampier, Phillip. “Bright House’s Mysterious Internet Discount Program Charter Wants to Adopt Nationwide” 25 June 2015. http://goo.gl/DVlwpF

[78] Baker, Liana. “Analysis: Charter’s bid for Time Warner Cable hinges on Rutledge’s skill. Reuters. http://goo.gl/QndjSd

[79] Charter Channel Lineup. https://www.charter.com/browse/content/tv#/channel-lineup

[80] Senator Ed Markey Press Release. 30 July 2015. http://goo.gl/PNy2b0

[81] Mlot, Stephanie. “Replace your Time Warner Cable Box with a Roku” PC Magazine. 10 November 2015. http://goo.gl/GkSbu7

[82] Baumgartner, Jeff. “Suddenlink Boots Up 1-Gig Broadband” Multichannel News. 9 July 2015. http://goo.gl/U2SK4X

[83] Midco Press Release. 17 November 2014. https://goo.gl/pKmChH

[84] Baumgartner, Jeff. “Cox Plots DOCSIS 3.1 Plans” Multichannel News. 22 September 2015. http://goo.gl/LDIFsR

[85] Baumgartner, Jeff. “Mediacom Sets Residential 1-Gig Rollout” Multichannel News. 9 September 2015. http://goo.gl/MGFQ02

[86] Trujillo, Mario. “Obama administration declares broadband ‘core utility’ in report” The Hill. 21 September 2015. http://goo.gl/5vazOL

Stop the Cap! Reflects on 2015; Looking Ahead to 2016

Phillip Dampier January 5, 2016 Editorial & Site News 1 Comment

logo

Dear Readers,

It was another great year at Stop the Cap! and we are very grateful for our growing readership and your involvement in the fight against data caps and for better broadband.

Phillip Dampier

Phillip Dampier

Since 2008, Stop the Cap! has exposed the lies about the need to limit your unlimited broadband. We tirelessly check what company executives tell their investors and Wall Street and what they tell consumers and the press about the successes and challenges providing broadband Internet access. The chasm between the two is wide. While companies like Comcast have spent years telling shifting stories that usage caps are not usage caps at all, that limits are needed to ensure fair access to broadband by all of its customers, and that usage-based billing is only designed to force heavy users to subsidize the investments Comcast makes in faster broadband, company officials tell Wall Street a much simpler (and honest) story: usage caps are about monetizing broadband usage to boost profits.

There has never been anything fair about “fair usage policies” for wired broadband. Rationing Internet usage at a time when fiber optic lines are being installed at a rate not seen since the dot.com boom and the arrival of the next generation standard for delivering broadband over cable television lines simply does not make sense. But it makes a lot of dollars.

Customers continue to make it quite clear to all who choose to listen: usage caps and the industry’s version of usage-based billing are both unacceptable.

Tens of thousands of complaints about usage caps arrived at the FCC in 2015, while the agency continued to drag its feet on a much-needed review of their impact on competition. “Cord cutting” is no longer just a theory. While providers openly engage in wound licking over video subscriber losses, they also quietly appreciate the fact they own the broadband pipes that their new online competitors depend on. Worried that Hulu, Netflix, and Sling TV are stealing your customers? With a crafty usage cap, customers learn soon enough the money “saved” cutting the cord will instead be spent covering overlimit fees incurred using broadband to watch television. Heads they win, tails you lose.

Comcast is by far the biggest menace we will fight in 2016. Their multi-year “experiment” in Internet rationing continues to spread like a virus into new markets, mostly in the deregulatory/hands-off states in the southern and western U.S. The “free market” paradise that was supposed to bring robust competition has too often brought higher bills and usage limits instead. To observers, Comcast’s decision to cap its customers in Chattanooga, Tenn., seems crazy. Comcast faces robust competition from EPB Fiber Optics and AT&T. EPB doesn’t cap its customers and AT&T U-verse wouldn’t dare. But Comcast has decided to cap anyway.

In 2015, consumers continued to despise Comcast (while also throwing Time Warner Cable under the bus for lousy service and high prices), despite CEO Brian Roberts’ reflexive promise he was solidly committed to improving Comcast’s image with customers. Capping customers’ usage while creating a $30-35 “insurance plan” to protect customers from Comcast’s overlimit fees would seem counter-intuitive, or at least ironic, to improving customer relations. Yet Roberts continues to tell investors with a straight face customer reaction to caps remains “neutral to slightly positive.” (Perhaps at the online equivalent of Mistress Raisin’s S&M Club, but likely nowhere else).

In addition to fighting usage caps, Stop the Cap! also taught consumers how to fight for a better deal. We attracted over two million visitors to Stop the Cap! in 2015, many looking to cut their cable and phone bills. We showed them how. These articles were among the most visited for 2015:

#5: How to Get a Better Deal for Verizon FiOS; $79.99 Triple-Play Offer With $300 Rebate Card (14 comments, originally published in December, 

#4: How to Get Verizon Wireless’ 4G $30 Unlimited Use Hotspot Feature Added to Your Account (47 comments, originally published in July, 2011 and no longer timely)

#3: Source: FCC Will Get Serious About Data Caps if Comcast Moves to Impose Them Nationwide (149 comments, first appearing in May, 2015)

#2: Updated! How to Score a Better Deal From Time Warner Cable and Save Over $700 a Year: 2015 Edition (150 comments and first updated in March, 2015 and again over the summer)

#1: How to Score a Better Deal With AT&T U-verse; $28/Mo for 18Mbps, $33/Mo for 24Mbps (112 comments and originally published in December 2013)

Our audience is global. Most of our readers are located in the United States, Canada, and the United Kingdom, but we recorded visitors from 209 countries in 2015.

The interconnection wars between cable and phone companies and online video providers like Netflix also helped bring readers to Stop the Cap! In fact, our busiest day in 2015 came on June 23rd when 14,362 unique visitors arrived to read our story: AT&T, Verizon, Time Warner Cable Implicated In Content Delivery Network Slowdowns.

In 2015, Stop the Cap! published 452 news stories. Since 2008, we’ve archived 4,494 original articles here.

How do people hear about us? The top five referring websites in 2015:

Once people hear about us, many become regular readers and participants. We recognize our top-five participants who frequent the comment section found at the bottom of every Stop the Cap! article:

#5: Limboaz, with 23 comments in 2015

#4: AC, with 27 comments

#3: BobinIllinois, with 27 comments

#2: Paul Houle, with 28 comments

#1: Joe V, with a whopping 67 comments in 2015.

Welcome to 2016. The fight continues.

We appreciate your financial support and you will find a donate button on the right that allows you to make contributions with a credit card or bank account. Stop the Cap! does not accept industry money and is fully funded with contributions from readers like you. Your donations allow us to subscribe to news-gathering and research services, pay costs to support this website, fund software upgrades, and help cover expenses involving testimony before regulatory bodies. Providers may be getting rich, but we certainly are not, which is why making a regular contribution to Stop the Cap! will make a big difference in how far we can take this fight.

Thanks for your support!

P.S. – You can follow breaking stories from us on Twitter (@stopthecap) and Facebook (https://www.facebook.com/stopthecap/). You can follow my own views on broadband and other matters via my Twitter account (@phillipdampier). We intend to beef up our social media presence this year so stay tuned!

Sincerely,

Phillip Dampier – Your Editor

The Peaceful War Against Comcast’s Data Caps: Don’t Like ‘Em? Get Off Your Butt

Licensed to print money

Licensed to print money

In 2008, Stop the Cap! was launched because the telephone company that serves our hometown of Rochester, N.Y., decided on a whim that it was appropriate to introduce a usage allowance of 5GB per month for their DSL customers. Frontier Communications CEO-at-the-time Maggie Wilderotter defended the idea with the usual claim that the included allowance was more than enough for the majority of Frontier customers. DSL customers already have to endure a lot of issues with Internet service and data caps should certainly not be one of them.

Stop the Cap! drew media attention and focus on the issue of data capping, organized customers for a coordinated pushback, and sufficiently hassled Frontier enough to get them to make the right decision for their customers by quietly rescinding the “allowances.”

As it would turn out, Frontier’s correct decision to suspend usage caps would prove an asset to them less than one year later when Time Warner Cable made it known it would trial its own usage caps in Austin and San Antonio, Tex., Greensboro, N.C., and yes… Rochester, N.Y. starting in the summer of 2009.

Time Warner Cable was slightly more generous with its arbitrary allowance — 40GB of usage for $55 a month. Customers already paying a lot for Internet access would now also have an arbitrary usage allowance and overlimit penalty fees with no service improvements in sight. Frontier’s decision the year before to rescind data caps played to their advantage and the company quickly launched advertising in Rochester attacking Time Warner Cable for its data caps, inviting customers to switch to cap-free Internet with Frontier.

Data caps are here!

Data caps are here!

Time Warner Cable’s experiment lasted less than two weeks and was permanently shelved, never to return. Four years later, Comcast began its own usage cap trial that not only continues to this day, but has expanded to cover more than 1,000 zip codes. Capped service areas typically live with a 300GB usage allowance with an overlimit fee of $10 per 50GB.

Yesterday at the investor-oriented UBS Global Media and Communications Brokers Conference, Comcast chief financial officer Mike Cavanagh assured Wall Street and shareholders Comcast’s desire to boost revenue from monetizing broadband usage remained an “important contributor” to the company’ goal of “demonstrat[ing] value and derive value from that pricing.”

Cavanagh said the company is using the line ‘heavy users should pay more’ to justify its caps.

“It’s been an experiment that we are using that the key data point behind it is kind of intuitive – ‘10% of our client base uses 50% of capacity.'”

While not ready to announce Comcast’s cap plan would be introduced nationwide, Cavanagh assured investors the experiments will continue as Comcast makes sure that over time it is “compensated for the investments that today’s marketplace requires us to make.”

The difference that makes it possible for Comcast to carry its usage cap experiments forward while Time Warner Cable had to quickly end theirs comes down to one thing: organized customer pushback. Time Warner Cable got heat from relentless, organized opposition in the four cities where caps mattered the most to consumers. Comcast, for the most part, is getting about as much heat as it usually does from customers. It’s time to turn the heat up.

protest

In fighting this battle for the last seven years, I can share with readers what works to force change and what doesn’t:

In 2009, Time Warner Cable faced protesters opposed to usage limits at this rally in front of the company's headquarters in Rochester, N.Y.

In 2009, Time Warner Cable faced protesters opposed to usage limits at this rally in front of the company’s headquarters in Rochester, N.Y.

Generally Useless

  • Complaining about usage caps in the comment sections of websites;
  • Signing online petitions;

Impotent But Potentially Useful in Large Numbers

  • Calling the provider to complain about usage caps;
  • Complaining about usage caps to a provider’s social media team (Facebook, Twitter, etc.);
  • Writing complaints on a company’s open support forum;

Useful, But Unlikely to Bring Immediate Results

  • Writing a letter or making a call complaining to elected officials about usage caps;
  • Advocating for more competition, especially from public/municipal broadband;
  • Filing formal complaints with the FCC and Better Business Bureau;
  • Complaining to state telecom regulators and your state Attorney General (they have no direct authority but can attract political attention);
  • Canceling or downgrading service, blaming usage caps for your decision.

Gasoline on a Lit Fire

  • Organizing a protest in front of the local cable office, with local media given at least a day’s notice and invited to attend;
  • Contacting local newsrooms and asking them to write or air stories about usage caps, offering yourself as an interview subject;
  • Sending local press clippings or links to media coverage to your member of Congress and two senators. Suggest another media-friendly event and invite the elected official to attend and speak, which in turn generates even more media interest.
In 2009, Time Warner Cable planned to implement mandatory usage pricing starting in Rochester, N.Y., Greensboro, N.C., and San Antonio and Austin, Tex.

In 2009, Time Warner Cable planned to implement mandatory usage pricing starting in Rochester, N.Y., Greensboro, N.C., and San Antonio and Austin, Tex.

In the battle with Time Warner Cable, we did all the above, but especially the latter, which quickly spun the story out of control of company officials sent to distribute propaganda about usage cap “fairness” and “generous” allowances. We were so relentless, we managed to get under the skin of at least one company spokesperson caught on camera being testy in an on-air interview, which backfired on the company and angered customers even more.

In the case of Comcast, very few of these techniques have been used in the fight against their endless data cap experiment. Customers seem satisfied writing angry comments and signing online petitions. Some have filed complaints with the FCC which are useful measures of hot button issues on which the FCC may act in the last year of the Obama Administration. But there is no detectable organized opposition on the ground to Comcast’s data caps. That may explain why Comcast’s CEO has repeatedly told investors your reactions to Comcast’s caps have been “neutral to slightly positive.” Many Wall Street analysts obviously believe that, because some are advocating the time is right to raise broadband prices even higher. After all, if your reaction to data caps was muted, raising the price another $5 a month probably won’t cost you as a customer either.

It would be very different if these analysts saw regular news reports of small groups of angry customers protesting in front of Comcast offices in different areas of the country. That would likely trigger questions about whether broadband pricing has gotten out of hand. Coverage like that often attracts politicians, who cannot lose opposing a cable company. Once Congress gets interested, the fear regulation might be coming next is usually enough to get companies to pull back and reconsider.

comcast sucksIf you are living with a Comcast data cap and want to see it gone, you can do something about it. Consider organizing your own local movement by tapping fellow angry customers and recruiting local activist groups to the cause. In Rochester, there was no shortage of angry college students and groups ready to protest. Google local progressive political groups, technology clubs, and technology-dependent organizations in your immediate area. Some are likely to be a good resource for building effective public protests, sign-making, and other TV-friendly protest techniques. Contact town governments, the mayor’s office of your city, technology-oriented newspaper columnists, radio talk show/computer support show hosts, etc., to build a mailing list for coordinated announcements about your efforts. Many local officials also oppose data caps.

If a local news reporter has covered tech or consumer issues in the past, many station websites now offer direct e-mail options to reach that reporter. If you give them a good TV-friendly story to cover, they will be back for more coverage as your local protest grows. We helped coordinate and share news about efforts against Time Warner in the cities that were subject to experiments, which also gave us advance notice of their talking points and an ability to offer a consistent response. Several stations carried multiple stories about the cap issue, supported by calls to TV newsrooms to thank them for their coverage and to encourage more.

We realize Comcast’s responsiveness to customers is so atrocious it approaches criminal, but Comcast does respond to Wall Street and shareholders who do not want the company under threat of fact-finding hearings, FCC regulatory action, or Congressional attention. They also don’t want any talk of municipal broadband alternatives. Sidewalk protests in front of the local cable office on the 6 o’clock news is a nightmare.

In the end, Time Warner Cable didn’t want the hassle and got the message — customers despise data caps and want nothing to do with them. Time Warner hasn’t tried compulsory usage caps again. If you want Comcast to get the same message, those living inside Comcast service areas (especially customers) need to lead the charge in their respective communities. We remain willing to help.

Comcast Steamrolls Arkansas, Louisiana, Tenn. and Virginia With More Usage Caps Starting 12/1

comcast gunComcast is accelerating its rollout of compulsory usage caps, adding new markets in the southern U.S. to its three-year old “trial” of what it calls its “data usage plan.” DSL Reports received a tip Comcast is now sending e-mail to affected customers.

Little Rock, Ark., Houma, LaPlace, and Shreveport, La., as well as Galax, Va., will be treated to Comcast’s 300GB usage cap with a $10 per 50GB overlimit fee beginning Dec. 1. These three states join Florida, Alabama, Kentucky, Georgia, Maine, Mississippi, South Carolina and Arizona, which now face Comcast’s form of usage rationing.

In Tennessee, Comcast is introducing its 300GB cap in Johnson City, Gray, and Greenville. The cable operator is also risking customers by introducing caps in Chattanooga, where it already faces serious competition from gigabit provider EPB, which has no usage limits, and AT&T U-verse, which doesn’t dare enforce its own 250GB cap.

Comcast began rapidly expanding its usage cap trial this fall, with new markets being announced for usage limits about once a month.

Chattanooga resident Ron Rogers called to cancel his Comcast service this afternoon. He’s giving up a good promotional discount Comcast offered to keep him a customer back in January and is headed to EPB Fiber.

“This was the last straw for Comcast,” Rogers tells Stop the Cap! “I am tired of being abused by these people. They must be crazy to think anyone who seriously uses the Internet is going to tolerate this when there are two other providers smart enough to realize usage caps are ridiculous in this day and age. Comcast can shove it.”

data trialsComcast’s spreading usage caps are not popular with customers. Within hours of the news Comcast would be expanding its cap “trial,” more than 900 negative comments appeared on Reddit slamming the company.

“It is just staggering that despite all the bad press, publicity and truly awful service, Comcast is actually taking calculated measures to make things worse,” wrote one Reddit commenter.

Comcast’s frequent defense of its usage plan is that the majority of its customers will never be affected by it, consuming less than 40GB a month. But those with experience living under Comcast’s cap tell Stop the Cap! anyone playing downloadable video games or using online video are at serious risk of being charged penalty overlimit fees.

“It is very easy to hit 100GB just downloading game updates and if you watch your shows online, you will come uncomfortably close to the cap,” said Pat Kershaw in Kentucky. “Leaving a live video stream running overnight one night by mistake after I fell asleep meant a Netflix-free weekend for me last month, because it would have put me past my allowance. Hulu’s autoplay feature is also very dangerous.”

courtesy-noticeHans says any household with kids will quickly learn Comcast isn’t being honest claiming usage caps only affect a “few customers” after they start getting warning messages injected into their web browser.

“What is worse is every time I call support about the messages that I am getting on the 18th of the month because I have already burned through my limit with my kids watching all their online content, support keeps putting me back on the queue for the next person or dropping the line,” Hans writes. “No one wants to deal with it!”

Those web warning messages also become intrusive for many customers, because some claim they never go away until the end of the billing cycle.

“I made sure to go over the 300GB cap this month to see what would happen and I received a phone call telling me I’ve went over and now I receive a popup from Comcast on my computer about every 30 seconds telling me I’ve went over as well,” writes Gldoorii. “The popups never stop. I have to deal with them until the end of the month as they keep interrupting my work.”

Other Comcast customers have grown suspicious about the company’s usage measurement tool, which in some cases reported spikes in usage only after the cap began to be enforced.

comcastdatausagemeter“I checked my data usage on Oct. 21 and it said I only used 162GB,” writes Sharon. “I even have [a screenshot] and saved it as I had a feeling Comcast would pull something. [On] Oct. 23, I had a pop-up on my computer that says ‘you have used 292 of 300GB’ and I went to the data usage and it shows that. Nobody in my house downloaded any huge files the past two days. So, is Comcast artificially pumping up our usage to make us go over or what? It is impossible that I only used 162GB for 21 days and then used 130GB the past two days.”

Sharon is lucky her usage meter is working. Other customers report Comcast’s meter often stops working for weeks.

“My data usage meter still does not work and it has been 19 days,” says Gldoorii. “No chat or support person has been able to figure out why it doesn’t work and that I need to call or chat whenever I want to ask what my usage is.”

Customers who want out also get the Comcast treatment as they head for the exit.

“We were charged a $150 early termination fee because Comcast does not consider imposing a usage cap to be a material change to our contract, which is unbelievable,” writes Anna Lu in Ft. Lauderdale. “These guys are nothing less than crooks and they only forgave it after my roommate complained to the Better Business Bureau. They said they were doing us a favor forgiving the charge. No wonder everyone hates Comcast.”

But not everyone is unhappy about Comcast’s usage caps.

“Our call center volumes are way up ever since Comcast brought caps to Atlanta and Florida,” reports an AT&T sales representative who agreed to talk to Stop the Cap! if we kept his identity private. “It’s common knowledge we do not enforce any caps on U-verse although we cannot tell customers that officially, but most never even ask. We’re signing up ex-Comcast customers right and left. They are not happy we cannot give them the same speeds Comcast does, but they won’t have to worry about a cap from us, at least for now.”

Other customers are waiting impatiently for Google Fiber or other competitors.

“In Atlanta Comcast now offers an unlimited data option add on to your plan for additional $35,” writes a customer on Comcast’s support forum. “So now we get to pay over $100 for 25Mbps service whereas Google Fiber [in] Atlanta [charges] $70 for one gigabit service and no data cap.”

In July, Comcast CEO Brian Roberts downplayed the impact of the company’s usage caps with investors, suggesting some customers actually supported the usage plans.

“We do have a few trials going on in different markets,” Roberts said. “The responses have been neutral to slightly positive. We don’t have any plans on expanding that to other market/bases anytime soon.”

Stop the Cap Files Opposition to Charter-TWC-Bright House Merger With FCC

charter twc bhFEDERAL COMMUNICATIONS COMMISSION

_______________________________________

Applications of Charter Communications, Inc., Time
Warner Cable Inc., and Advance/Newhouse
Partnership for Consent to the Transfer of                        MB Docket No. 15-149

Control of Cable Television Relay Service
Applications         

_______________________________________

Statement of Opposition

(Click here to download a copy in PDF format.)

October 10, 2015

Stop the Cap! is a Rochester, N.Y.-based consumer group founded in 2008 to fight against the introduction of artificial limits on broadband usage (usage caps, consumption billing, speed throttling) and to promote better broadband speeds and service for consumers. Our group does not solicit or accept funding from lobbyists, companies, or others affiliated with the telecommunications industry. We are entirely supported by individual donors who share our views.

Introduction

It is our view that the application of Charter Communications to effectively acquire Time Warner Cable and Bright House Networks offers no compelling public interest benefit and is therefore not in the public interest.

Our organization represents the interests of consumers and customers who face ever-growing broadband and television bills. Since its founding in 2008, we have witnessed a gap between the promised benefits of telecom mergers and what actually materializes for customers. Our conclusion is that consumers rarely benefit from these transactions. Prices continue to rise, customer service does not significantly improve, competition suffers, and conditions imposed by regulators to protect consumers or improve service are either not meaningfully met, expire too soon, or are too limited to be useful.

Charter’s claimed public interest benefits from its acquisitions are woefully inadequate and will, in fact, harm consumers if this merger is permitted.

The proposal asks the Commission to approve Charter’s acquisition of not one, but two established cable providers, one considerably larger than Charter itself:

  • Time Warner Cable, the second largest U.S. cable operator with more than 11 million residential and business customers[1];
  • Bright House Networks, the sixth largest U.S. cable operator with approximately 2.5 million customers.[2]

Charter Communications is about half the size of Time Warner Cable.[3]

Charter's broadband customer satisfaction scores are nothing to write home about.

Charter’s broadband customer satisfaction scores are nothing to write home about. Time Warner is no prize either, especially in areas where Maxx upgrades are not yet available.

In the 2015 J.D. Power U.S. Residential Television Service Provider Satisfaction Study, Charter rated poor — second to last place behind five other providers in the North West region, fourth from last behind six others in the South region, and third from last behind five other providers in the West. In fact, at no time did Charter rank anything higher than “about average” for television, broadband, and telephone service and often scored worse.[4]

This is a critical measurement of how Charter is likely to perform in areas currently served by Time Warner Cable and Bright House, should the merger be approved.

“The ability to provide a high-quality experience with all wireline services is paramount, as performance and reliability is the most critical driver of overall satisfaction,” said Kirk Parsons, senior director and technology, media & telecom practice leader at J.D. Power. “The fact that households continue to choose to upgrade their wireline connection to digital service is a testament to its improved performance and benefits, such as higher quality video and faster Internet speeds.”

FCC Chairman Thomas Wheeler has publicly stated his four preferences for telecommunications policies that promote competition and foster enhanced service.[5]

  1. “First, where competition exists, the Commission will protect it,” Wheeler said. “Our effort opposing shrinking the number of nationwide wireless providers from four to three is an example. As applied to fixed networks, the Commission’s Order on tech transition experiments similarly starts with the belief that changes in network technology should not be a license to limit competition.”
  2. “Communications policy has always agreed on one important concept: the exercise of uncontrolled last-mile power is not in the public interest,” Wheeler said. “This has not changed as a result of new technology. When network operators have unrestrained last-mile power, public policy can step in to protect consumers and innovators. When cable companies, for instance, were accused of using their control over the last-mile distribution of video programing to harm competition by keeping content from others, Congress stopped that practice in the 1992 Cable Act. There are two important lessons from this: First, last-mile power cannot be a lever for gaining an unfair advantage. Second, rules of the road can provide guidance to all players and, by restraining future actions that would harm the public interest, incent more investment and more innovation.”
  3. “Where meaningful competition is not available, the Commission will work to create it. For instance, our efforts to expand the amount of unlicensed spectrum create alternative competitive pathways. And we understand the petitions from two communities asking us to pre-empt state laws against citizen-driven broadband expansion to be in the same category, which is why we are looking at that question so closely.”
  4. “Where competition cannot be expected to exist, we must shoulder the responsibility of promoting the deployment of broadband. One thing we already know is the fact that something works in New York City doesn’t mean it works in rural South Dakota. We cannot allow rural America to be behind the broadband curve. Our universal service efforts are focused on bringing better broadband to rural America by whomever steps up to the challenge—not the highest speeds all at once, but steadily to prevent the creation of a new digital divide.”

We will return to these four themes in our statement to see if Charter’s application helps or hinders these priorities. It is our contention Charter’s application does not meaningfully advance the stated goals of the Chairman or the Commission. In fact, Charter’s proposal impedes achievement of some of these goals significantly.

In our presentation, we will regularly refer to Charter’s existing product suite, usually referred to as “Charter Spectrum.” We will also refer to two different types of service from Time Warner Cable.

Wheeler

Wheeler

On January 30, 2014, Time Warner Cable announced its new TWC Maxx initiative that substantially improved broadband speeds for customers without a corresponding rate increase. The upgrade also introduced a new class of cable equipment for video customers offering an enhanced viewing experience, increased plant/service reliability, improved customer support – including more options for in-home service calls, and retained and improved existing budget-priced broadband tiers for fixed and low-income customers.[6]

We will therefore refer to both Time Warner Cable Maxx-upgraded service areas defined above and “legacy service areas” that are currently awaiting Maxx upgrades and now offer slower top Internet speeds ranging from 50-100Mbps.

It is our contention that Charter’s proposal to bring improved broadband speeds, better set-top boxes, faster upgrades, and a three-year commitment to voluntarily adhere to Net Neutrality/Open Internet policies and not impose usage caps on residential broadband service offers little because Time Warner Cable Maxx already offers consumers a more compelling offer on an upgrade timeline nearly equivalent to that proposed by Charter Communications.

Time Warner Cable has also never been credibly accused of violating Net Neutrality principles, is unlikely to do so in the future, and has repeatedly insisted it will not impose compulsory usage caps on its customers. We also argue Charter Communications’ heavy indebtedness as a result of this transaction will likely pose a challenge to complete the company’s promised upgrade plan and its ongoing operations.

In short, consumers are much better off remaining Time Warner Cable and Bright House Networks customers as opposed to Charter Communications customers.

Should the FCC ultimately disagree with our contention, we urge you to impose our ideas for strong and meaningful conditions to protect consumers. Without this, we fear the executives of both companies and their shareholders will be the only ones to actually benefit from this transaction. Consumers will be left with little more than a higher bill.

Discussion

charter spectrum logoCharter Communications’ proposition to the Commission and customers is to deliver a more compelling product suite offering faster Internet speeds, better set-top equipment, and a three-year commitment to adhere to the Commission’s Open Internet principles and not impose usage caps or modem rental fees on customers.

While on the surface these commitments may seem laudable, when they are closely examined it quickly becomes apparent they offer little to Time Warner Cable customers, particularly the approximately 45% of which will have been upgraded to “Maxx” service by the end of 2015.[7]

Charter customers can generally choose from two tiers of Internet service, according to Charter’s website[8]:

We offer two different Charter Internet connection packages:

Plus – up to 30Mbps Download and 4Mbps upload

Ultra – up to 100Mbps Download and 5Mbps Upload

With Charter Internet Ultra, network speeds can reach up to 100 Megabits per second (Mbps). Your exact speed will depend on the service level to which you subscribe.

Charter charges new customers an introductory monthly price ranging from $29.99 (when Internet service is bundled with video/phone service) to $39.99 (Internet-only service) for its 60Mbps Standard broadband tier.[9] It is this promotional rate Charter is proposing to extend to Time Warner Cable and Bright House Networks customers. But Charter does not commit to a specific time frame under which this promotional rate will apply to these customers. According to Charter’s disclaimer, the promotional rate expires after one year, after which the rate resets to a “standard rate,” currently $59.99 a month.[10]

speed-plan-chart-2014In contrast, Time Warner Cable offers a much larger variety of Internet tiers, starting at $14.99 a month and generally increasing in $10 increments, based on offered speed.[11] In legacy service areas, Time Warner Cable’s pricing can be more compelling, even with the slower Internet speeds, because income-challenged consumers may feel a need to buy service based on price, not performance. Charter all but eliminates these lower-cost options, except in limited circumstances where a customer manages to meet onerous requirements to qualify for a low-income broadband discount plan.

Achieving faster Internet speeds is another priority for Chairman Wheeler. At a speech last fall at 1776, the Chairman said, “a 25Mbps connection is fast becoming ‘table stakes’ in 21st century communications.”[12]

Both Time Warner Cable and Charter Communications will deliver twice or more that minimum speed as their Standard tier offering. Time Warner already achieves this goal in their Maxx service areas, where 50Mbps is the new Standard speed tier. Charter proposes to take more than two years to upgrade Time Warner Cable customers to an incrementally faster 60Mbps speed tier. Additionally, Time Warner Cable Maxx customers are assured they can further upgrade that speed in increments up to 300Mbps. Charter, in contrast, offers most customers a maximum of 100Mbps.[13]

The most important question before the Commission is which cable operator is better positioned to deliver the services customers want and/or need. We argue Time Warner Cable and Bright House, not Charter Communications, are both in a stronger position to deliver.

Since the termination of the Comcast-Time Warner Cable merger, Time Warner Cable has responsibly invested in their infrastructure without assuming an irresponsible amount of debt. Bright House Networks’ owners have taken the company private, but their ongoing investments in a robust Wi-Fi platform, their high consumer satisfaction scores, and their investments in ongoing upgrades to meet challenges of competitors like Verizon FiOS suggest the company is in healthy financial shape.

Time Warner Cable CEO Robert Marcus reported significant progress in their first quarter 2015 report to shareholders and customers, despite the distraction of the Comcast merger[14]:

Over the past 16 months, we’ve made significant investments to improve our customers’ experience:

  • Investing more than $5.2 billion to, among other things, improve the reliability of our network and upgrade customer premise equipment – including set-top boxes and cable modems – with the latest technologies and expand its network to additional residences, commercial buildings and cell towers;
  • Launching TWC Maxx, which features greater reliability, all-digital video, advanced TV services, standard tier of Internet speeds at 50 Mbps, and higher tiers of service up to 300 Mbps. New York, Los Angeles and Austin are complete; Dallas, San Antonio and Kansas City are underway; Charlotte, Raleigh and Hawaii are slated for later this year; and San Diego is expected to be done in early 2016;
  • Introducing Enhanced DVR, a six-tuner set-top box that allows customers to record up to six shows simultaneously and store up to 150 hours of HD content;
  • Increasing the number of Cable Wi-Fi hotspots available to our customers to 400,000;
  • Rolling out our cloud-based video guide to 8 million set-top boxes to date. The guide also makes it easier to browse our On Demand library, which now sits at 30,000 free and paid titles and continues to grow;
  • Expanding our industry-leading TWC TV app – which allows customers to watch live TV and On Demand content and control and program their DVR from inside and outside the home. TWC TV is now available on Xbox One, Xbox 360, Amazon Kindle Fire HD and HDX tablets, Android and IOS phones and tablets, Fan TV, PCs, Samsung TV and Roku;

Serving customers on their schedules rather than ours. We expanded one-hour appointment windows across the company and in Q1 met that window 97 percent of the time. We continue to add nighttime and weekend appointments.

Marcus

Marcus

Since that report, Time Warner Cable has announced new Maxx service upgrade areas – Greensboro and Wilmington, N.C. Marcus has indicated additional cities will receive upgrades in 2016.[15]

On the January 29, 2015 quarterly results conference call with investors, Marcus indicated Maxx upgrades delivered tangible benefits to the company, including increased customer satisfaction, higher network reliability, and a stronger product line.[16] Based on those factors, it would be logical to assume Time Warner Cable would continue its upgrade project, and indeed Marcus confirmed this in his remarks:

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

At the rate Time Warner Cable has been rolling out Maxx upgrades, which were first announced on January 30, 2014[17], with 45% of its service area upgraded within 23 months, it is likely the company would complete its Maxx upgrade to all of its service areas within the next 24-30 months. Notably, the staff of the New York Department of Public Service found, while investigating this deal, “there is no indication that Petitioner’s plan for converting to all-digital in New York is any different from Time Warner’s existing plan.”[18]

Charter’s upgrade proposal is, in fact, generally inferior to what Time Warner Cable is accomplishing on its own. We strongly recommend the Commission carefully consider whether Charter’s proposal is as truly compelling as they claim.

twc maxxWe are also very concerned about Charter’s plans to deliver affordable Internet access. Chairman Wheeler expressed his concerns about the digital divide in broadband. The cost of access is perhaps the most important factor for getting broadband service in income-challenged households. If Charter’s price is too high, many will go without service.

Charter has no plans to continue Time Warner Cable’s $14.99 Everyday Low Price Internet service – a very important offer for low income residents and senior citizens who are unable to afford the nearly $60 regular price both companies charge for their 50 or 60Mbps tiers. Time Warner Cable offers this $14.99 tier without preconditions, restricted qualifiers, contracts, or limits on what types of services can be bundled with it. Any consumer can buy the service and bundle it with Time Warner Cable telephone service for an additional $10 a month, which offers a nationwide local calling area, as well as free calls to the European Union, Mexico, Puerto Rico, and several Asian nations.

The loss of a $25 plan that includes basic Internet access and a bundled, 911-capable telephone line would be devastating to low-income households and senior citizens. During the Comcast-Time Warner Cable merger hearings in New York, no topic elicited as much interest as Internet affordability and the onerous restrictions cable operators place on their income-qualified budget Internet plans.[19] The same concerns exist today with Charter’s application. Time Warner Cable clearly offers a superior product line for these customers, including two other Internet service tiers offering stepped up Internet speeds in $10 increments. These options would be unavailable from Charter.

Charter’s proposed solution to serve low-income customers is adoption of Bright House Networks’ Connect2Compete program, which offers restricted access to $9.95/month Internet service for those who qualify.

connect2competeStop the Cap! investigated Bright House Networks’ existing offer in a report to our readers in June 2015, and we urge the Commission to look much more closely at the specific conditions Bright House customers have had to endure to qualify to subscribe[20]:

1) You must have at least one child qualified for the National School Lunch Program. They need not be enrolled now.

2) You cannot have been a Bright House broadband customer during the last three months. If you are a current customer, you must first cancel and go without Internet service for 90 days (or call the phone company and hope to get a month-to-month DSL plan in the interim.)

3) If you have an overdue bill older than 12 months, you are not eligible until you pay that bill in full.

4) Bright House does not enroll customers in discounted Internet programs year-round. From a Bright House representative:

“We do participate in this particular program, however, it is only around September that we participate in it. This is a seasonal offer that we have which can only be requested from the middle of August to the middle of September, which is when most start up with school again for the year.”

5) Bright House does not take orders for the Low-Income Internet plan over the Internet. You have to enroll by phone: (205) 591-6880.

Families fall into poverty every day of the year, and poverty-stricken families move from one school district to another every day of the year. So it’s horribly unfair to tell them they’d qualify for this program if only they had fallen into poverty sometime between the middle of August and the middle of September.

It has been our experience covering service providers across all 50 states that most design these low-cost Internet access programs with revenue protection first in mind. Charter Communications is no different. As with Comcast, Connect2Compete is only available to families with school age children. Applicants face an intrusive, complicated, and time-restricted enrollment process that threatens to dampen and discourage participation.

Charter’s claimed interest to meet the needs of low-income customers might be more honorable if not for their insistence otherwise-qualified existing customers cannot downgrade their regular price broadband plan to Connect2Compete unless they voluntarily go without Internet access for three months.

Time Warner Cable goes out of its way to advertise "No Data Caps."

Time Warner Cable goes out of its way to advertise “No Data Caps.”

We strongly recommend Charter Communications be compelled to continue Time Warner’s $14.99 Internet plan, but at speeds no less than 25Mbps, the minimum definition of entry-level broadband by the FCC. We also recommend Charter be required to further discount this plan to $9.95 a month for qualified customers who meet a simple income test the Commission can define and establish. These discount programs should not just be available to families with school-age children. Everyone needs affordable Internet access, whether you are single and looking for your first job or a fixed income senior citizen.

All restrictions for existing customers or those with an outstanding balance must be prohibited and sign-ups must be accepted 365 days a year with re-qualification occurring not more than once annually.

Charter’s broadband offer for lower-income Americans is inadequate, and so is their plan for customers who need enhanced service.

Time Warner Cable Maxx delivers a more compelling offer for consumers and small businesses that need much faster Internet access. Charter’s upgrade will offer customers two choices: 60 or 100Mbps service. Time Warner Cable Maxx offers considerably more[21]:

chartersucksCharter Communications’ commitment to not impose “usage caps” for three years is inadequate. As we have learned from Comcast, the industry definition of a “usage cap” differs widely from the definition understood by most consumers.

Charter’s commitment must be expanded to prohibit all forms of usage pricing, such as those similar to what Comcast is market testing in several of its service areas.[22] In these markets, Comcast has established an arbitrary usage allowance and charges punitive overlimit fees to customers that exceed it. Comcast has repeatedly denied it has “usage caps” because its so-called ‘data plans’ allow customers to voluntarily exceed their usage allowance, at a cost. Without a commitment Charter will also not impose usage-based pricing, its commitment to regulators not to impose “usage caps” is largely meaningless.

More concerning, Charter Communications has a history of capping their customers’ usage. Less than three months before announcing it would acquire Time Warner Cable, Charter Communications quietly dropped usage caps in place on its broadband plans since 2009, without explanation.[23] The FCC itself is investigating this and other related issues as part of this proceeding.[24]

internet limitConsumers have shown no interest in usage-based pricing or usage-capped wired Internet and strongly prefer unlimited access. One only need look at Time Warner Cable’s own results when offering an optional discounted Internet plan for customers volunteering to limit their usage.

Time Warner Cable CEO Rob Marcus noted customers strongly want to keep their unlimited use plans, even if they cost more. Speaking at the Deutsche Bank Media, Internet, and Telecom Conference, Marcus noted:

“If you take the 30GB a month and compare it to what median usage is, let’s say high 20s — 27GB a month, that would suggest a whole lot of customers would do well by taking the 30GB service,” Marcus said. “Notwithstanding that, very few customers — in the thousands — have taken the usage based tiers and I think that speaks to the value they place on unlimited — not bad because we plan to continue to offer unlimited for as far out as we can possibly see.”[25]

Marcus has repeatedly made it clear compulsory usage caps are off the table at Time Warner Cable – a lesson they learned after customers pushed back and forced them to shelve a usage cap experiment planned for Rochester, N.Y., Greensboro, N.C., and Austin, San Antonio, and Beaumont, Tex. in April 2009[26]. The company has never raised the possibility of compulsory usage limits or usage-based billing again.

“We have no intention of abandoning an unlimited product we think that something that customers value and are willing to pay for,” said Time Warner Cable CEO Robert Marcus. “The way we’ve approached usage-based pricing is to offer it as an option for customers who prefer to pay less because they tend to use less. And we’ve made those available at 5 gigabytes per month and 30 gigabytes per month levels.[27]

A deal with Charter would mean Time Warner Cable's bonds would be downgraded to junk status.

A deal with Charter would mean Time Warner Cable’s bonds would be downgraded to junk status.

Time Warner Cable again offers a superior choice for Americans, and it is an important one. Chairman Wheeler said “last-mile power cannot be a lever for gaining an unfair advantage.” With many consumers having no practical choice for an alternative broadband provider, allowing Charter to impose usage limits or forcing customers into even higher-priced usage billing plans would deliver a major unfair advantage into the hands of the cable operator, always concerned with protecting its cable television package from emerging online video competition.

In fact, almost all of Charter’s so-called customer-friendly commitments and policies have a very unfriendly expiration date of just three years, which should be unacceptable to the Commission. There is no reason Charter cannot extend its commitments to not charge modem fees, adhere to the basic principles of Net Neutrality, and not impose usage caps or other forms of usage billing permanently. Without such a commitment, consumers could soon pay much higher prices for broadband service, and without robust competition unlikely to develop over the next three years, there will be every incentive for Charter to further boost earnings by imposing modem fees and usage pricing on its customers.

One of the strongest incentives for rate increases is the level of debt Charter Communications will assume in this transaction. The Department of Public Service staff in New York concluded New Charter’s debt and lowered credit rating “represents the single most substantial risk of the proposed transaction.”[28]

Debt servicing costs and more expensive credit are both deterrents to investment and are likely to limit the scope of Charter’s ongoing system upgrades and maintenance. Charter is a much smaller cable operator than Time Warner Cable, and is itself still in the process of repairing and upgrading its own cable systems and those it acquired in earlier acquisition deals. Time Warner Cable, in contrast, is in a much stronger financial position to carry out its commitments associated with the Maxx upgrade program.

Charter’s general offer to consider expanding service into unserved areas is vague, or has been redacted. We remind the Commission the past history of winning expansion commitments from cable operators who rely on Return On Investment (ROI) formulas to determine which homes and businesses they will serve have met with limited success.

The pervasive problem of rural broadband availability is unlikely to be resolved substantially by this transaction without the strongest buildout requirements. But even that is unlikely to be of much help for large areas outside of existing video franchise areas.

Compelling Charter Communications to adopt universal service obligations within all existing Time Warner Cable and Bright House franchise areas may be a good start. Under such a requirement, any consumer or business that wants cable service and lives within the geographic boundaries of an existing franchise area would receive it upon request without construction fees, surcharges, or other passed-along fees to reach that customer, regardless of their distance from the existing cable plant or ROI formula. The largest impact of this would be to extend cable service into business parks and commercial buildings, which often lack cable service, but many suburban and exurban residential customers would also benefit. This also would achieve the Chairman’s goal to facilitate rural broadband where incumbents have generally failed to provide the service.

consumer reportsThe Commission must carefully consider Charter’s financial capacity to meet these obligations as well. No commitment is worth much if a company ultimately fails to deliver on it.

An overburdened cable operator is also unlikely to make substantial investments in improving customer service, and that makes the risk of depending on Charter Communications to improve Time Warner Cable’s already poor customer service rating doubtful. It also risks the much higher scores Bright House customers have given to that company for its superior customer service.

Competition is the biggest incentive to improve customer service and responsiveness, and that is unlikely to deliver much pressure on cable companies like Charter over the next few years. In fact, we argue customer service is likely to deteriorate in the short term because of the disruptiveness of any ownership change and eventual billing system integration.

Consumer Reports already rates Time Warner and Charter’s Internet Service poorly[29]:

  • Charter: 63 (Reader Score), Poor Value, Fair Reliability, Good Speed, Mediocre Phone/Online Support, Fair In-Home Support
  • Time Warner Cable: 57 (Reader Score), Poor Value, Fair Reliability, Fair Speed, Mediocre Phone/Online Support, Fair In-Home Support

Charter Communications’ proposed benefits to Time Warner Cable and Bright House cable television customers are also weak and not compelling. Both Time Warner Cable and Charter proposed to move to all-digital cable television to free up bandwidth to offer improved broadband before the merger deal was announced. Bright House was also headed in the same direction.

badbillWhile consumers clamor for smaller, less-costly cable television packages, Charter Communications’ CEO Thomas Rutledge is credited for inventing the “triple play” concept of convincing customers to package more services – broadband, television and telephone — together in return for a discount. Reuters cited his preference for “simplified pricing,”[30] which is why Charter offers most customers only two options for broadband service and one giant television package dubbed Spectrum TV containing more than 200 channels.[31]

Unfortunately, any benefits from an all-digital television package are likely to be diluted when customers get the bill. Currently, many Time Warner Cable customers watch analog channels on television sets around the home without the need to rent a costly set top box. Any transition to digital television will require the rental of a set top box or purchase of a third-party device to view cable television programming. These can represent costly add-ons for an already high cable bill.

With approximately 99 percent of customers renting their set-top box directly from their pay-tv provider, the set-top box rental market may be worth more than $19.5 billion per year, with the average American household spending more than $231 per year on set-top box rental fees, according to findings from Senators Edward J. Markey (D-Mass.) and Richard Blumenthal’s (D-Conn.) query of the top-ten pay-tv multichannel video programming distributors (MVPDs).[32]

Passed by Congress in December, the STELA Reauthorization Act of 2014 repealed the set-top box integration ban, which enabled consumers to access technology that allowed use of a set-top box other than one leased from their cable company. Without the integration ban, by the end of this year, cable companies will no longer be required to make their services compatible with outside set-top boxes, like TiVo for example, bought directly by consumers in the retail marketplace.

American cable subscribers spend, on average, $89.16 a year renting a single set-top box. The average set-top box rental fee for each company was used to calculate an overall set-top box rental cost average across companies: $7.43 a month, or $89.16 per year. Considering many homes rent a DVR box to make and view recordings and maintain less-capable boxes on other televisions, the total cost adds up quickly. The average household spends $231.82 a year on set-top box rental fees, according to Sens. Markey and Blumenthal.

Charter proposes to introduce a new generation of set top boxes but as far as we know, has not disclosed the monthly cost of these IP-capable boxes to subscribers. We do note the current generation of digital set-top boxes leased by Charter cost customers $6.99 a month each, slightly less than the national average.[33] We anticipate this fee may rise after the introduction of more advanced equipment. We note Charter also charges its television customers in a city like St. Louis an extra $6.05 a month for the “Broadcast TV Service Charge” and $4.99 a month for “Whole House Wire Maintenance.”[34]

Other points the Commission should consider in reviewing this transaction:

  1. While it is true Charter and Time Warner don’t compete for the same customers, it is inaccurate to suggest the transaction will not alter competition. Cable industry consolidation is underway, in part, to help larger combined operators secure better volume discounts for increasingly expensive video programming.AT&T’s primary motivation to acquire satellite provider DirecTV was to secure better prices for video programming, both for DirecTV customers but more importantly for its own, much smaller, U-verse TV operation.[35]The cost barrier for new, directly competing entrants into the cable television business is well-recognized, especially by smaller independent cable television providers that lack the ability to secure similar volume discounts for themselves. The American Cable Association, representing small operators, warned the FCC “existing providers of both broadband and MVPD services and new entrants will be deterred from expanding their broadband networks or otherwise undertaking new builds” as a result of increasing programming costs.[36]As a result, it is unlikely a new provider will be able to develop a sustainable business model that includes cable television while paying wholesale programming costs that are dramatically higher than what combined companies like New Charter will pay.
  2. The Commission must insist that Time Warner Cable customers in legacy service areas be treated the same as those already upgraded to Maxx service. If the deal is approved, Charter must be compelled to commit to continue Time Warner Cable’s Maxx upgrade initiative across the entire footprint of Time Warner Cable’s former service areas, to be completed within 30 months. We also agree with the staff recommendation of the N.Y. Department of Public Service that Charter also be compelled to upgrade its facilities to support gigabit broadband, but this should be extended to include all of its service areas, not just the largest cities.This does not pose a significant challenge to cable operators. With the upcoming introduction of DOCSIS 3.1 technology, operators even smaller than Charter will support 1Gbps broadband speeds as they drop analog television signals. Suddenlink[37], MidContinent[38], Cox[39], and Mediacom[40] already have gigabit deployment plans underway.
  3. The Commission must establish and enforce meaningful enforcement mechanisms should Charter fail to achieve its commitments as part of this transaction. Cable consolidation has never significantly benefited consumers. Charter is not guaranteeing Time Warner Cable or Bright House customers will receive a lower bill as a result of this merger. Nor is it committing to pass along the lower prices it will achieve through negotiations for wholesale video programming volume discounts. Cable rates, especially for broadband, will continue to increase. Without meaningful competition, there is no incentive to give consumers a better deal or better service.That is why if the Commission feels it must approve this transaction, the conditions that accompany it to achieve a true public interest benefit must be meaningful, directly relevant to the majority of customers, and ongoing.

Cable operators know once they secure a franchise or become the incumbent provider, no other cable company will negotiate with city officials to take over that franchise if the current provider’s application is denied during renewal. Once Charter (or any other cable company) establishes a presence, there is little or no chance a community will be able to get rid of that provider if it fails to perform. That is why any franchise transfer that comes from an acquisition or merger must be treated with the upmost seriousness. Customers will likely live with the decision the Commission makes for the next 10-20 years or more.

just_say_noAs the Commission must realize, this transaction does not just involve entertainment. Recently, the Obama Administration declared broadband Internet access a “core utility.”[41]

“Broadband has steadily shifted from an optional amenity to a core utility for households, businesses and community institutions,” according to a report from the administration’s Broadband Opportunity Council. “Today, broadband is taking its place alongside water, sewer and electricity as essential infrastructure for communities.”

Our group strongly believes regulators should not take a risk on Charter’s less-then-compelling offer when Time Warner Cable and Bright House have both demonstrated a better financial position. Time Warner has a proven track record of delivering on its commitments to improve service with its Maxx upgrade project. Time Warner Cable has superior options for low-income consumers, offers more broadband options and faster speeds for entrepreneurs in the digital/information economy, and has committed to providing unlimited Internet access – a critical prerequisite for consumers choosing to drop cable television’s one-size-fits-all bloated video package and watch only the shows they want to see and pay for online.

At the start of our presentation, we referred to the Chairman’s four stated goals for improving broadband and competition. At this point, it should be obvious that shrinking the number of companies providing service has not delivered significant service improvements. In fact, for many customers, Charter’s offer is worse.

Allowing further marketplace consolidation widens the gap for cable television programming costs, which could deter new competitors from entering the market. Small providers pay dramatically higher programming costs while the largest receive substantial volume discounts. That is contrary to the Chairman’s goal of protecting last-mile competition.

Online video has created the “cord-cutting” effect, allowing consumers to shop for better video values beyond the local cable company. Without a permanent ban on usage caps and usage pricing, providers like Charter (that maintained usage caps until a few months before this application was filed) have a strong incentive to resume them after the deal’s token three-year commitment expires. Without also closing the obvious loophole of “usage pricing,” nothing precludes Charter from imposing usage-based pricing on consumers immediately after the deal is approved.

Promoting expanded rural broadband, another priority of the Commission, does little if the incumbent providers refuse to offer it. We see nothing in Charter’s public application that commits them to extending service to specific areas Time Warner Cable or Bright House do not service today. In fact, before this application was filed, Charter’s willingness to provide service to unserved areas in their own existing franchise areas was not always evident.[42] It is hard to believe Charter will voluntarily disregard their own Return On Investment formula to provide the service many rural customers eagerly hope might be forthcoming if the provider was somebody other than Time Warner Cable or Bright House.

We urge the FCC to deny Charter’s application. If it sees fit to make a different choice, we strongly recommend you demand Charter meet, at the minimum, the same level of service Time Warner Cable Maxx provides across the entire existing Time Warner franchise area, achieve the same customer service standard well-regarded Bright House manages for its customers, and a better deal for consumers that continue to face spiraling cable bills, few competitive choices, and no new alternatives on the horizon.

  • [1] http://dealbook.nytimes.com/2014/02/13/the-comcast-time-warner-deal-by-the-numbers/?_r=0
  • [2] https://brighthouse.com/about/about-us/about-us.html
  • [3] https://www.charter.com/browse/content/about-charter
  • [4] http://www.jdpower.com/press-releases/2015-us-residential-television-internet-telephone-service-provider-satisfaction
  • [5] http://arstechnica.com/business/2014/09/most-of-the-us-has-no-broadband-competition-at-25mbps-fcc-chair-says/
  • [6] http://www.theverge.com/2014/1/31/5365816/time-warner-cable-maxx-plans-broadband-cable-improvements-in-nyc-la
  • [7] http://www.fiercecable.com/story/twc-promises-maxx-reach-45-customers-end-year-tivo-support-apples-airplay/2015-07-14
  • [8] https://www.myaccount.charter.com/customers/support.aspx?supportarticleid=59
  • [9] https://www.charter.com/browse/content/packages
  • [10] http://stopthecap.com/wp-content/uploads/2015/09/psc-staff-recommend-charter-twc-15-m-0388.pdf
  • [11] http://www.timewarnercable.com/en/plans-packages/internet/internet-service-plans.html?iid=internet-lob:1:1:compareplans
  • [12] http://arstechnica.com/business/2014/09/most-of-the-us-has-no-broadband-competition-at-25mbps-fcc-chair-says/
  • [13] https://www.myaccount.charter.com/customers/support.aspx?supportarticleid=59#speedoptions
  • [14] http://www.twcableuntangled.com/2015/04/twc-gains-momentum-with-best-ever-subscriber-growth-customer-enhancements/
  • [15] http://www.twcableuntangled.com/2015/07/twc-maxx-expands-rollout-in-2015/
  • [16] http://seekingalpha.com/article/2864536-time-warner-cables-twc-ceo-rob-marcus-on-q4-2014-results-earnings-call-transcript?
  • [17] http://www.twcableuntangled.com/2014/01/get-the-details-on-twcs-plan-to-transform-ctv-internet-experience/
  • [18] http://stopthecap.com/wp-content/uploads/2015/09/psc-staff-recommend-charter-twc-15-m-0388.pdf
  • [19] See e.g., Case 14-M-0183, Joint Petition of Comcast Corporation and Time Warner Cable, Inc. for Approval of a Transfer of Control of Subsidiaries and Franchises, Information Forum/Public Statement Hearing (dated June 19, 2014) Tr. 29-33.
  • [20] http://stopthecap.com/2015/06/25/bright-houses-mysterious-internet-discount-program-charter-wants-to-adopt-nationwide
  • [21] http://www.timewarnercable.com/en/enjoy/better-twc/internet.html
  • [22] http://customer.xfinity.com/help-and-support/internet/data-usage-trials/
  • [23] http://stopthecap.com/2015/09/23/fcc-demands-details-about-charters-suddenly-retired-usage-caps/
  • [24] https://www.fcc.gov/document/request-information-sent-charter-communications-inc-0
  • [25] http://stopthecap.com/2014/03/13/time-warner-cable-admits-usage-based-pricing-is-a-big-failure-only-thousands-enrolled/
  • [26] http://abcnews.go.com/Technology/story?id=7368388
  • [27] http://stopthecap.com/2014/10/30/time-warner-cable-recommits-mandatory-usage-caps-long-company-remains-independent/
  • [28] http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={C60985CC-BEE8-43A7-84E8-5A4B4D8E0F54} (p.39)
  • [29] http://www.consumerreports.org/cro/electronics-computers/computers-internet/telecom-services/internet-service-ratings/ratings-overview.htm
  • [30] http://www.reuters.com/article/2014/01/30/us-charter-timewarnercable-rutledge-anal-idUSBREA0T01D20140130
  • [31] https://www.charter.com/browse/content/tv#/channel-lineup
  • [32] http://www.markey.senate.gov/news/press-releases/markey-blumenthal-decry-lack-of-choice-competition-in-pay-tv-video-box-marketplace
  • [33] https://www.charter.com/browse/content/rate-card-info (city of St. Louis, Mo.)
  • [34] https://www.charter.com/browse/content/rate-card-info (city of St. Louis, Mo.)
  • [35] http://www.usatoday.com/story/money/2015/07/24/fcc-approves-ts-acquisition-directv/30626421/
  • [36] http://www.americancable.org/node/5229
  • [37] http://www.multichannel.com/news/technology/suddenlink-boots-1-gig-broadband/392087
  • [38] https://www.midco.com/PressRoom/2014/midcontinent-bringing-gigabit-internet-access-to-the-northern-plains/
  • [39] http://www.multichannel.com/news/distribution/cox-plots-docsis-31-plans/393996
  • [40] http://www.multichannel.com/news/cable-operators/mediacom-sets-residential-1-gig-rollout/393585
  • [41] http://thehill.com/policy/technology/254431-obama-administration-declares-broadband-core-utility-in-report
  • [42] http://www.dslreports.com/forum/r28864058-Why-won-t-Charter-come-another-1-2-mile-for-more-customers

Stop the Cap!’s Formal Testimony to N.Y. PSC Opposing Charter/Time Warner Cable Merger

charter twc bhSTATE OF NEW YORK

PUBLIC SERVICE COMMISSION

_______________________________________

Joint Petition of Charter Communications and Time

Warner Cable for Approval of a Transfer of Control

of Subsidiaries and Franchises, Pro Forma                                Case 15-M-0388

Reorganization, and Certain Financing Arrangements.                               

_______________________________________

Statement of Opposition to Joint Petition and

Response to Redacted Comments of DPS Staff

Phillip M. Dampier, Director and Founder: Stop the Cap!

Rochester, New York

September 25, 2015

Stop the Cap! is a Rochester-based consumer group founded in 2008 to fight against the introduction of artificial limits on broadband usage (usage caps, consumption billing, speed throttling) and to promote better broadband speeds and service for consumers. Our group does not solicit or accept funding from lobbyists, companies, or others affiliated with the telecommunications industry. We are entirely supported by individual donors who share our views.

Introduction

Our opposition to the Joint Petition is based on our belief it does not meet the “public interest”  test established in Section 222 of the New York Public Service law, and must therefore be denied.

For the sake of brevity, we wish to associate ourselves with most of the views of the DPS Staff contained in their redacted comments regarding this case, published on the DPS website on September 16, 2015. Most of our testimony will seek to expand on their findings or add additional information to the record for the Commission’s consideration.

As we stated in our remarks regarding the Comcast-Time Warner Cable merger, New York law obligates the applicant alone to demonstrate its proposal is in the public interest. If the Commission finds the application does not meet the public interest or provide sufficient public benefits, it should be rejected. The DPS staff has reported to you Charter Communications and Time Warner Cable have not met their burden. We agree.

The DPS staff then proposes a mitigation strategy in an effort to tip the balance in favor of the applicant. It remains our view it is not the Commission’s responsibility to help tip the balance in favor of an applicant that has failed to meet its burden.

Nevertheless, we offer the Commission our insight about Charter Communications, its proposals, and the DPS staff recommendations with the hope it will be useful to win commitments from Charter should the Commission choose to proceed with approval, enforcing modifications to deliver the public interest benefits consumers across New York tell us they actually want and need from their providers.

Discussion

Phillip Dampier

Phillip Dampier

New York State, particularly across the upstate region, is not well positioned to take advantage of next generation broadband networks. Just two providers deliver telecommunications services to the majority of New York: Verizon Communications and Time Warner Cable. Although Frontier Communications and Cablevision also deliver service, their service areas are much smaller than the two dominant incumbents. The decisions Verizon and Time Warner Cable make about their investments in broadband and telephone service affect millions of New Yorkers.

Many New York residents have only one choice for Internet service that meets the Federal Communications Commission’s definition of broadband: 25Mbps download speed and at least 3Mbps upload speed.[1] In areas where Verizon FiOS is not available, Time Warner Cable is the only significant provider consistently providing service options at or above 25Mbps. The most common alternative is DSL, which rarely meets the FCC’s minimum definition of broadband.

With this in mind, the FCC reported 53 percent of rural Americans lack access to broadband service achieving speeds of 25Mbps or better. As much as 20 percent still lack access to broadband at speeds achieving the FCC’s old benchmark of 4Mbps. Upstate New York, in particular, is a long way away from achieving the goals of 100Mbps broadband set by Gov. Cuomo, unless you have access to a cable broadband provider.

In Rochester, the majority of residents have only one choice for a provider that meets the FCC’s definition of broadband: Time Warner Cable. While Frontier Communications has made investments to improve their wireline network, only a small minority of customers qualify for DSL service that can meet the FCC’s benchmarks.

While Verizon Communications has done an admirable job delivering its fiber to the home service FiOS to portions of New York, the company has suspended expansion of the service and has not even met its service obligations in cities like New York.[2]

Even more concerning is the fact none of the significant incumbent providers serving New Yorkers have expressed any interest in providing residential gigabit speed service. Google Fiber has not announced any expansion into New York State and other significant gigabit speed providers, including AT&T, do not provide wireline service in New York.

In contrast, in states including Texas, North Carolina, Georgia, Missouri, and Tennessee, many consumers have the option of choosing at least two gigabit service providers (Google or AT&T) as well as municipal or public broadband providers such as EPB, which serves the Chattanooga area. Time Warner Cable has focused much of its upgrade activity on these communities to remain competitive, delivering 300Mbps broadband service for the price it used to charge for 50Mbps speeds.

In western New York, the fastest broadband speed most residential customers can buy is just 50Mbps. Charter Communications proposes to increase that speed in some areas to a maximum of 100Mbps, along with their entry level 60Mbps plan. Although helpful, that offers little solace to residents and small businesses that would like the option to purchase considerably faster Internet speeds that are now becoming available in other parts of the country.

The Commission’s decision will have an enormous impact on what kinds of telecommunications services will be available to New Yorkers for years to come. Verizon has shown no interest in resuming fiber service upgrades, so most customers will continue to purchase Internet access from the incumbent cable operator to obtain the broadband speeds they require. Today that usually means Time Warner Cable. Sometime next year, that could be Charter Communications.

Time Warner Cable vs. Charter Communications

The most important question before the Commission is which cable operator is better positioned to deliver the services customers in this state want and/or need. We argue that operator is Time Warner Cable, not Charter Communications.

Since the termination of the Comcast-Time Warner Cable merger, Time Warner Cable has responsibly invested in their infrastructure without assuming an irresponsible amount of debt.

twc maxxTime Warner Cable CEO Robert Marcus reported significant progress in their first quarter 2015 report to shareholders and customers, despite the distraction of the Comcast merger[3]:

Over the past 16 months, we’ve made significant investments to improve our customers’ experience:

  • Investing more than $5.2 billion to, among other things, improve the reliability of our network and upgrade customer premise equipment – including set-top boxes and cable modems – with the latest technologies and expand its network to additional residences, commercial buildings and cell towers;
  • Launching TWC Maxx, which features greater reliability, all-digital video, advanced TV services, standard tier of Internet speeds at 50 Mbps, and higher tiers of service up to 300 Mbps. New York, Los Angeles and Austin are complete; Dallas, San Antonio and Kansas City are underway; Charlotte, Raleigh and Hawaii are slated for later this year; and San Diego is expected to be done in early 2016;
  • Introducing Enhanced DVR, a six-tuner set-top box that allows customers to record up to six shows simultaneously and store up to 150 hours of HD content;
  • Increasing the number of Cable Wi-Fi hotspots available to our customers to 400,000;
  • Rolling out our cloud-based video guide to 8 million set-top boxes to date. The guide also makes it easier to browse our On Demand library, which now sits at 30,000 free and paid titles and continues to grow;
  • Expanding our industry-leading TWC TV app – which allows customers to watch live TV and On Demand content and control and program their DVR from inside and outside the home. TWC TV is now available on Xbox One, Xbox 360, Amazon Kindle Fire HD and HDX tablets, Android and IOS phones and tablets, Fan TV, PCs, Samsung TV and Roku;

Serving customers on their schedules rather than ours. We expanded one-hour appointment windows across the company and in Q1 met that window 97 percent of the time. We continue to add nighttime and weekend appointments.

Marcus

Marcus

Since that report, Time Warner Cable has announced new Maxx service upgrade areas – Greensboro and Wilmington, N.C. At least 45 percent of Time Warner Cable’s national footprint will be serviced with Maxx upgrades by the end of this year, and Marcus has indicated additional cities will receive upgrades in 2016.[4]

Marcus has indicated repeatedly he intends to see Maxx service upgrades extend even further. On the January 29, 2015 quarterly results conference call with investors, Marcus indicated Maxx upgrades delivered tangible benefits to the company, including increased customer satisfaction, higher network reliability, and a stronger product line. Based on those factors, it would be logical to assume Time Warner Cable would continue its upgrade project, and indeed Marcus confirmed this in his remarks:

“Our aim is to have 75% of our footprint enabled with Maxx […] by the end of [2016], and my guess is we’re continuing to roll it out beyond that,” said Marcus[5]. “So the only question is prioritization, and obviously as we think about where to go first, competitive dynamics are a factor. So that includes Google, although it’s not explosively dictated by where Google decides to go. In fact I think we announced the Carolinas before Google did their announcement this week. So competitors are certainly relevant obviously.

At the rate Time Warner Cable has been rolling out Maxx upgrades, which were first announced on January 30, 2014[6], with 45% of its service area upgraded within 23 months, it is likely the company would complete its Maxx upgrade to all of its service areas within the next 24-30 months. The DPS staff also notes, “there is no indication that Petitioner’s plan for converting to all-digital in New York is any different from Time Warner’s existing plan.”

Charter’s upgrade proposal is, in fact, generally inferior to what Time Warner Cable is accomplishing on its own. We strongly recommend the Commission carefully consider whether Charter’s proposal is as truly compelling as they claim.

Charter Communications’ upgrade proposal is not a good deal for New York.

We agree with the DPS staff’s conclusion Time Warner Cable, on its own, would likely complete its Maxx upgrade program across upstate New York at or around the same time Charter’s proposed upgrades would be complete. Therefore, when comparing Charter’s proposal with Time Warner Cable’s existing service, we urge you to use Time Warner Cable Maxx service as the benchmark, not the existing level of service provided in upstate New York today.

chartersucksTime Warner Cable Maxx offers 50/5 Mbps speeds under its most popular Standard plan. In contrast, Charter proposes to offer 60/5Mbps service under its most-popular Spectrum plan. While Charter’s offer is superior at first glance, it comes at a cost to customers looking for more budget-priced service or those seeking faster speeds.

Charter has no plans to continue Time Warner Cable’s $14.99 Everyday Low Price Internet service – a very important offer for low income residents and senior citizens who are unable to afford the nearly $60 regular price both companies charge for their 50 or 60Mbps tiers. Time Warner Cable offers this tier without preconditions, restricted qualifiers, contracts, or limits on what types of services can be bundled with it. Any consumer qualifies for the service and can bundle it with Time Warner Cable telephone service for an additional $10 a month, which offers a nationwide local calling area, as well as free calls to the European Union, Mexico, Puerto Rico, and several Asian nations.

The loss of a $25 plan that includes basic Internet access and a bundled, 911-capable telephone line would be devastating to low-income New Yorkers and senior citizens. During the Comcast-Time Warner Cable hearings, no topic elicited as much interest as Internet affordability. Time Warner Cable clearly offers a superior product line for these customers, including two other Internet service tiers offering stepped up Internet speeds in $10 increments. These options would be unavailable from Charter.

Charter’s proposed solution to serve low-income New Yorkers is adoption of Bright House Networks’ Connect2Compete program, which offers restricted access to $9.95/month Internet service for those who qualify.

Stop the Cap! investigated Bright House Networks’ existing offer in a report to our readers[7] in June 2015, and we urge the Commission to look much more closely at the specific conditions Bright House customers have had to endure to qualify to subscribe:

1) You must have at least one child qualified for the National School Lunch Program. They need not be enrolled now.

2) You cannot have been a Bright House broadband customer during the last three months. If you are a current customer, you must first cancel and go without Internet service for 90 days (or call the phone company and hope to get a month-to-month DSL plan in the interim.)

3) If you have an overdue bill older than 12 months, you are not eligible until you pay that bill in full.

4) Bright House does not enroll customers in discounted Internet programs year-round. From a Bright House representative:

“We do participate in this particular program, however, it is only around September that we participate in it. This is a seasonal offer that we have which can only be requested from the middle of August to the middle of September, which is when most start up with school again for the year.”

5) Bright House does not take orders for the Low-Income Internet plan over the Internet. You have to enroll by phone: (205) 591-6880.

connect2competeFamilies fall into poverty every day of the year, and poverty-stricken families move from one school district to another every day of the year. So it’s horribly unfair to tell them they’d qualify for this program if only they had fallen into poverty sometime between the middle of August and the middle of September.

It has been our experience covering service providers across all 50 states that most design these low-cost Internet access programs with revenue protection first in mind. Charter Communications is no different. As with Comcast, Connect2Compete is only available to families with school age children. Applicants face an intrusive, complicated, and time-restricted enrollment process designed to dampen and discourage enrollment.

The interest in meeting the needs of low-income customers would be laudable if not for the insistence otherwise-qualified existing customers cannot downgrade their regular price broadband plan to Connect2Compete unless they voluntarily go without Internet service for three months.

We strongly recommend Charter Communications be compelled to continue Time Warner’s $14.99 Internet plan, but at speeds no less than 25Mbps, the minimum definition of entry-level “broadband” by the FCC. We also recommend Charter be required to further discount this plan to $9.95 a month for qualified customers who meet a simple income test the Commission can define and establish. These discount programs should not just be available to families with school-age children. Everyone needs affordable Internet access, whether you are single and looking for your first job or a fixed income senior citizen.

All restrictions for existing customers or those with an outstanding balance must be prohibited and sign-ups must be accepted 365 days a year with re-qualification occurring not more than once annually.

Charter’s broadband offers for lower-income New Yorkers are not adequate, and neither are their plans for customers who need enhanced service.

Time Warner Cable Maxx delivers a more compelling offer for consumers and small businesses that need much faster Internet access. Charter’s upgrade will offer customers two choices: 60 or 100Mbps service. Time Warner Cable Maxx offers considerably more[8]:

SpeedChart

Charter Communications has only committed to provide customers with unlimited Internet access for three years. Time Warner Cable CEO Robert Marcus has repeatedly made it clear compulsory usage caps are off the table at Time Warner Cable – a lesson they learned after customers pushed back and forced them to shelve a usage cap experiment planned for Rochester and other cities in April 2009[9]. The company has never raised the possibility of compulsory usage limits or usage-based billing again.

“We have no intention of abandoning an unlimited product we think that something that customers value and are willing to pay for,” said Time Warner Cable CEO Robert Marcus. “The way we’ve approached usage-based pricing is to offer it as an option for customers who prefer to pay less because they tend to use less. And we’ve made those available at 5 gigabytes per month and 30 gigabytes per month levels.[10]

Time Warner Cable again offers a better choice for New Yorkers. With many New Yorkers having no practical alternatives, imposing usage limits or forcing customers into even higher-priced usage billing plans would only make New York even less attractive for those who need high quality Internet access for education, telecommuting, or to assist in running a small business. Google Fiber, in contrast, offers 1,000Mbps service with no usage caps at all. Many other providers also have no plans to introduce usage caps.

Charter Communications has a history of capping their customers’ usage. Less than three months before announcing it would acquire Time Warner Cable, Charter Communications quietly dropped usage caps in place on its broadband plans since 2009, without explanation and the FCC now wants to know why, as they also contemplate the impact of the merger[11] [12]. In addition to the anti-consumer practice of placing customers on an unnecessary usage allowance, such usage limits may also be established for anti-competitive reasons to limit exposure to online video streaming, which competes directly with cable television. Customers who watch a lot of online video are those most likely to face service suspension or find overlimit usage fees applied to their bill.

junk3Almost all of Charter’s so-called customer-friendly commitments and policies have a very unfriendly expiration date of three years, which should be unacceptable to the Commission. There is no reason Charter cannot extend its commitments to not charge modem fees, adhere to the basic principles of Net Neutrality, and not impose usage caps or other forms of usage billing permanently. Without such a commitment, consumers could soon pay much higher prices for broadband service, and without robust competition unlikely to develop in most of New York over the next three years, there will be every incentive for Charter to further boost earnings by imposing modem fees and usage pricing on its customers.

One of those incentives is the level of debt Charter Communications will assume in this transaction. DPS staff is correct when they noted New Charter’s debt and lowered credit rating “represents the single most substantial risk of the proposed transaction.”[13]

Debt servicing costs and more expensive credit are both deterrents to investment and are likely to limit the scope of Charter’s ongoing system upgrades and maintenance. Charter is a much smaller cable operator than Time Warner Cable, and is itself still in the process of repairing and upgrading its own cable systems and those it acquired in earlier acquisition deals. Time Warner Cable, in contrast, is in a much stronger financial position to carry out its commitments associated with the Maxx upgrade program.

consumer reportsSpecifics about Charter’s commitments to expand service into unserved areas of New York were either vague and non-specific or redacted. The past history of winning expansion commitments from cable operators who rely on Return On Investment (ROI) formulas to determine which homes and businesses they will serve have met with limited success.

The pervasive problem of rural broadband availability is unlikely to be resolved substantially by this transaction without the strongest buildout requirements. But even that is unlikely to be of much help for large sections of New York outside of existing video franchise areas. Compelling Charter Communications to adopt universal service obligations within all existing Time Warner Cable franchise areas may be a good start. Under such a requirement, any consumer or business that wants cable service and lives within the geographic boundaries of an existing franchise area would receive it upon request without construction fees, surcharges, or other passed-along fees to reach that customer, regardless of their distance from the existing cable plant or ROI formula. The largest impact of this would be to extend cable service into business parks and commercial buildings, which often lack cable service, but many suburban and exurban residential customers would also benefit.

But the Commission must look carefully at Charter’s financial capacity to meet these obligations after assuming control of a company much larger than itself. No commitment is worth much if a company ultimately fails to deliver on it.

An overburdened cable operator is also unlikely to make substantial investments in improving customer service, and that makes the risk of depending on Charter Communications to improve Time Warner Cable’s already poor customer service rating doubtful. Competition is the biggest incentive to improve customer service and responsiveness, and that is unlikely to prove much of a factor for large sections of New York over the next few years. In fact, we argue customer service is likely to deteriorate for New Yorkers in the short term because of the disruptiveness of any ownership change and eventual billing system integration. Again, Charter’s proposal offers no compelling public interest benefit to New Yorkers. The fact DPS staff is proposing a performance incentive mechanism to compel service improvements illustrates absent punitive measures, Charter Communications is unlikely to offer any improvement over Time Warner Cable, and may in fact perform worse.

Consumer Reports rates both companies’ Internet Service poorly[14]:

  • Charter: 63 (Reader Score), Poor Value, Fair Reliability, Good Speed, Mediocre Phone/Online Support, Fair In-Home Support
  • Time Warner Cable: 57 (Reader Score), Poor Value, Fair Reliability, Fair Speed, Mediocre Phone/Online Support, Fair In-Home Support

Virtually nothing Charter Communications has offered as a public interest benefit meets that criteria. Its commitment to improve cable television does not offer any significant benefit to New York cable TV subscribers. Both Time Warner Cable and Charter propose to move to all-digital cable television to free up bandwidth to offer improved broadband.

Rutledge

Rutledge

While consumers clamor for smaller, less-costly cable television packages, Charter Communications’ CEO Thomas Rutledge is credited for inventing the “triple play” concept of convincing customers to package more services – broadband, television and telephone — together in return for a discount. Reuters cited his penchant for “simplified pricing,”[15] which is why Charter offers most customers only two options for broadband service and one giant television package dubbed Spectrum TV containing more than 200 channels.[16]

Unfortunately, any benefits from an all-digital television package are likely to be dismissed when customers get the bill. Currently, many Time Warner Cable customers watch analog television channels on television sets around the home without the need to rent a costly set top box. Any transition to digital television will require the rental of a set top box or purchase of a third-party device to view cable television programming. These can represent costly add-ons for an already high cable bill.

With approximately 99 percent of customers renting their set-top box directly from their pay-tv provider, the set-top box rental market may be worth more than $19.5 billion per year, with the average American household spending more than $231 per year on set-top box rental fees. These are some of the findings from Senators Edward J. Markey (D-Mass.) and Richard Blumenthal’s (D-Conn.) query of the top-ten pay-tv multichannel video programming distributors (MVPDs).[17]

Passed by Congress in December, the STELA Reauthorization Act of 2014 repealed the set-top box integration ban, which enabled consumers to access technology that allowed use of a set-top box other than one leased from their cable company. Without the integration ban, by the end of this year, cable companies will no longer be required to make their services compatible with outside set-top boxes, like TiVo for example, bought directly by consumers in the retail marketplace.

American cable subscribers spend, on average, $89.16 a year renting a single set-top box. The average set-top box rental fee for each company was used to calculate an overall set-top box rental cost average across companies: $7.43 a month, or $89.16 per year. Considering many homes rent a DVR box to make and view recordings and maintain less-capable boxes on other televisions, the total cost adds up quickly. The average household spends $231.82 a year on set-top box rental fees, according to Sens. Markey and Blumenthal.

Charter proposes to introduce a new generation of set top boxes but as far as we know, has not disclosed the monthly cost of these IP-capable boxes to subscribers. We anticipate they will cost more than the current equipment provided by Time Warner Cable, which has also been increasing the cost of its set top box rentals.

Time Warner Cable’s entry level Digital Transport Adapters, which convert digital/HD signals for older analog-only television sets, almost tripled in price over just one year. Originally introduced for $0.99 a month, the rental fee increased this year to $2.75 a month for customers in Rochester.[18]

Other points the Commission should consider in reviewing this transaction:

  1. DPA staffers claim the transaction is unlikely to alter the competitive landscape because Charter Communications and Time Warner Cable do not have overlapping service areas. While it is true Charter and Time Warner don’t compete for the same customers, it is inaccurate to suggest the transaction will not alter competition. Cable industry consolidation is underway, in part, to help larger combined operators secure better volume discounts for increasingly expensive video programming.

    AT&T’s primary motivation to acquire satellite provider DirecTV was to secure better prices for video programming, both for DirecTV customers but more importantly for its own, much smaller, U-verse TV operation.[19]

    The cost barrier for new, directly competing entrants into the cable television business is well-recognized, even by smaller independent cable television providers that are having difficulty staying profitable and maintaining investments in broadband as they lack the ability to secure similar volume discounts for themselves. The American Cable Association, representing small operators, warned the FCC “existing providers of both broadband and MVPD services and new entrants will be deterred from expanding their broadband networks or otherwise undertaking new builds” as a result of increasing programming costs.[20]

    As a result, it is unlikely a new provider will be able to develop a sustainable business model that includes cable television while paying wholesale programming costs that are dramatically higher than what combined companies like New Charter will pay.

  2. The Commission must insist that upstate New York is treated equally to the New York City market. If the deal is approved, Charter must be compelled to commit to continue Time Warner Cable’s Maxx upgrade initiative across all of its service areas in New York State, to be completed within 30 months. Nothing less than that should be acceptable to the Commission. We agree with the DPS staff’s recommendation that Charter also be compelled to upgrade facilities to support gigabit broadband, but this should be extended to include all of its service areas in New York, not just the largest cities.

    This does not pose a significant challenge to any cable operator. With the upcoming introduction of DOCSIS 3.1 technology, cable operators even smaller than Charter will support 1Gbps broadband speeds as they drop analog television signals. Suddenlink[21], MidContinent[22], Cox[23], and Mediacom[24] already have gigabit deployment plans in the works. If Fargo, N.D. is getting gigabit broadband from MidContinent Communications in the near future, Charter should have no problem offering similar service to customers in Jamestown, Penn Yan, Watertown, Binghamton, and beyond.

  3. The Commission must establish and enforce meaningful enforcement mechanisms should Charter fail to achieve its commitments as part of this transaction. Cable consolidation has never significantly benefited consumers. Charter is not guaranteeing Time Warner Cable customers will receive a lower bill as a result of this merger. Nor is it committing to pass along the lower prices it will achieve through negotiations for video programming volume discounts. Cable rates, especially for broadband, will continue to increase. Without meaningful competition, there is no incentive to give consumers a better deal or better service.

    That is why if the Commission feels it must approve this transaction, the conditions that accompany it to achieve a true public interest benefit must be meaningful and ongoing. Any failure to deliver on those commitments must include a direct benefit to customers, not just to the state government. If fines are imposed, customers should receive a cash rebate or equivalent service credit for services not provided as part of any agreement.

Cable operators know once they secure a franchise or become the incumbent provider, no other cable company will negotiate with city officials to take over that franchise if the current provider’s application is denied during renewal. Once Charter (or any other cable company) establishes a presence, there is little or no chance a community will be able to get rid of that provider if it fails to perform. That is why any franchise transfer that comes from an acquisition or merger must be treated with the upmost seriousness. Customers will likely live with the decision the Commission makes for the next 10-20 years or more.

dpsAs Time Warner Cable customers loudly reminded the Commission in the Comcast merger proceeding, there is such a thing as a cable operator even worse than Time Warner Cable, already one of the lowest rated companies in the country. Comcast’s reputation preceded its intended entry into New York on a massive scale and the application was eventually withdrawn.

As the Commission must realize, this transaction does not just involve entertainment. Last week the Obama Administration declared broadband Internet access a “core utility.”[25]

“Broadband has steadily shifted from an optional amenity to a core utility for households, businesses and community institutions,” according to a report from the administration’s Broadband Opportunity Council. “Today, broadband is taking its place alongside water, sewer and electricity as essential infrastructure for communities.”

Unfortunately, the federal government has seen to it that this core utility is provided without the ability of local and state governments to properly deliver needed oversight. While the Public Service Commission lacks the authority to enforce consumer protections and quality of service standards for Internet access, it retains the very powerful ability to determine whether a company seeking to make a fortune selling consumers broadband service in a monopoly/duopoly market for many New Yorkers is a good or bad thing for consumers.

Our group strongly believes New York should not take a risk on Charter’s less-then-compelling offer when Time Warner Cable has demonstrated it is in a better financial position and has a proven track record of delivering on its commitments to improve service with its Maxx upgrade project. Time Warner Cable has superior options for low-income New Yorkers, has a large number of New York-based call centers providing valuable employment for our residents, offers more broadband options and faster speeds for entrepreneurs remaking themselves in the digital/information economy, and has committed to providing unlimited Internet access – a critical prerequisite for consumers choosing to drop cable television’s one-size-fits-all bloated video package and watch only the shows they want to see and pay for online.

We urge the Public Service Commission to deny Charter’s application. If it sees fit to make a different choice, we strongly recommend you demand the best possible deal for New York consumers and businesses that, as the DPS staff wrote, deserve best-in-class communications services.

  • [1] http://stopthecap.com/2015/02/03/fcc-now-defines-minimum-broadband-speed-25mbps-everything-less-now-slowband/
  • [2] http://www1.nyc.gov/office-of-the-mayor/news/415-15/de-blasio-administration-releases-audit-report-verizon-s-citywide-fios-implementation
  • [3] http://www.twcableuntangled.com/2015/04/twc-gains-momentum-with-best-ever-subscriber-growth-customer-enhancements/
  • [4] http://www.twcableuntangled.com/2015/07/twc-maxx-expands-rollout-in-2015/
  • [5] http://seekingalpha.com/article/2864536-time-warner-cables-twc-ceo-rob-marcus-on-q4-2014-results-earnings-call-transcript?
  • [6] http://www.twcableuntangled.com/2014/01/get-the-details-on-twcs-plan-to-transform-ctv-internet-experience/
  • [7] http://stopthecap.com/2015/06/25/bright-houses-mysterious-internet-discount-program-charter-wants-to-adopt-nationwide/
  • [8] http://www.timewarnercable.com/en/enjoy/better-twc/internet.html
  • [9] http://abcnews.go.com/Technology/story?id=7368388
  • [10] http://stopthecap.com/2014/10/30/time-warner-cable-recommits-mandatory-usage-caps-long-company-remains-independent/
  • [11] http://stopthecap.com/2015/09/23/fcc-demands-details-about-charters-suddenly-retired-usage-caps/
  • [12] http://www.multichannel.com/news/fcc/fcc-seeks-data-dump-charter-twc-bright-house/394010
  • [13] http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={C60985CC-BEE8-43A7-84E8-5A4B4D8E0F54} (p.39)
  • [14] http://www.consumerreports.org/cro/electronics-computers/computers-internet/telecom-services/internet-service-ratings/ratings-overview.htm
  • [15] http://www.reuters.com/article/2014/01/30/us-charter-timewarnercable-rutledge-anal-idUSBREA0T01D20140130
  • [16] https://www.charter.com/browse/content/tv#/channel-lineup
  • [17] http://www.markey.senate.gov/news/press-releases/markey-blumenthal-decry-lack-of-choice-competition-in-pay-tv-video-box-marketplace
  • [18] http://stopthecap.com/2014/12/22/time-warner-cable-deck-halls-8-modem-fees-fa-la-la-la-la-la-la-la-la-2-75-dta-fee/
  • [19] http://www.usatoday.com/story/money/2015/07/24/fcc-approves-ts-acquisition-directv/30626421/
  • [20] http://www.americancable.org/node/5229
  • [21] http://www.multichannel.com/news/technology/suddenlink-boots-1-gig-broadband/392087
  • [22] https://www.midco.com/PressRoom/2014/midcontinent-bringing-gigabit-internet-access-to-the-northern-plains/
  • [23] http://www.multichannel.com/news/distribution/cox-plots-docsis-31-plans/393996
  • [24] http://www.multichannel.com/news/cable-operators/mediacom-sets-residential-1-gig-rollout/393585
  • [25] http://thehill.com/policy/technology/254431-obama-administration-declares-broadband-core-utility-in-report

Cable Operators Told to Get Ready for a Gigabit, But Will Rationed Usage Make It Meaningless?

Phillip Dampier: A cable trade publication is lecturing its readership on better broadband the industry spent years claiming nobody wanted or needed.

Phillip Dampier: A cable trade publication is lecturing its readership on better broadband the industry spent years claiming nobody wanted or needed.

Remember the good old days when cable and phone companies told you there was no demand for faster Internet speeds when 6Mbps from the phone company was all you and your family really needed?

Those days are apparently over.

Multichannel News, the largest trade publication for cable industry executives, warns cable companies gigabit broadband speeds are right around the corner and the technological transformation that will unleash has been constrained for far too long.

Say what?

Proving our theory that those loudest about dismissing the need for faster Internet speeds are the least equipped to deliver them, the forthcoming arrival of DOCSIS 3.1 technology and decreasing costs to deploy fiber optics will allow cable providers to partially meet the gigabit speed challenge, at least on the downstream. Before DOCSIS 3.1, consumers didn’t “need those speeds.” Now companies like Comcast claim it isn’t important what consumers need today — it’s where the world is headed tomorrow.

Comcast 2013:

Comcast executive vice president David L. Cohen writes that the allure of Google Fiber’s gigabit service doesn’t match the needs or capabilities of online Americans.

“For some, the discussion about the broadband Internet seems to begin and end on the issue of ‘gigabit’ access,” Cohen says, in a nod to Google Fiber. “The issue with such speed is really more about demand than supply. Our business customers can already order 10-gig connections. Most websites can’t deliver content as fast as current networks move, and most U.S. homes have routers that can’t support the speed already available to the home.” Essentially, Cohen argues that even if Comcast were to deliver web service as fast as Google Fiber’s 1,000Mbps downloads and uploads, most customers wouldn’t be able to get those speeds because they’ve got the wrong equipment at home.

Comcast 2015:

“We’ve consistently offered the most speeds to the most homes, but with the current pace of tech innovation, sometimes you need to go to where the world is headed and not focus on where it is today.”

“The next great Internet innovation is only an idea away, and we want to help customers push the boundaries of what the Internet can do and do our part to inspire developers to think about what’s possible in a multi-gigabit future.  So, next month we will introduce Gigabit Pro, a new residential Internet service that offers symmetrical, 2-Gigabits-per-second (Gbps) speeds over fiber – at least double what anyone else provides.”

Nelson (Image: Multichannel News)

Nelson (Image: Multichannel News)

Rich Nelson’s guest column in Multichannel News makes it clear American broadband is behind the times. The senior vice president of marketing, broadband & connectivity at Broadcom Corporation says the average U.S. Internet connection of 11.5Mbps “is no longer enough” to support multiple family members streaming over-the-top video content, cloud storage, sharing high-resolution images, interactive online gaming and more.

Nelson credits Google Fiber with lighting a fire under providers to reconsider broadband speeds.

“Google’s Fiber program may have been the spark to light the fuse — Gigabit services have fostered healthy competition among Internet and telecommunications providers, who are now in a position to consider not ‘if’ but ‘when and how’ to deploy Gigabit broadband in order to meet consumer’s perceived ‘need for speed’ and maintain their competitive edge,” Nelson wrote.

But the greatest bottleneck to speed advances is spending money to pay for them. Verizon FiOS was one of the most extravagant network upgrades in years among large American telecom companies and the company was savaged by Wall Street for doing it. Although AT&T got less heat because its U-verse development costs were lower, most analysts still instinctively frown when a company proposes spending billions on network upgrades.

Customer demand for faster broadband is apparent as providers boost Internet speeds.

Customer demand for faster broadband is apparent as providers boost Internet speeds.

The advent of DOCSIS 3.1 — the next generation of cable broadband technology — suggests a win-win-win for Wall Street, cable operators, and consumers. No streets will have to be torn up, no new fiber cables will have to be laid. Most providers will be able to exponentially boost Internet speeds by reallocating bandwidth formerly reserved for analog cable television channels to broadband. The more available bandwidth reserved for broadband, the faster the speeds a company can offer.

Many industry observers predict the cable line will eventually be 100% devoted to broadband, over which telephone, television and Internet access can be delivered just as Verizon does today with FiOS and AT&T manages with its U-verse service.

The benefits of gigabit speeds are not limited to faster Internet browsing however.

Nelson notes communities and municipalities are now using gigabit broadband speeds as a competitive tool selling homes and attracting new businesses to an area. According to a study from the Fiber to the Home (FTTH) Council, communities with widely available gigabit access have experienced a positive impact on economic activity — to the tune of more than $1.4 billion in GDP growth. Those bypassed or stuck in a broadband backwater are now at risk of losing digital economy jobs as businesses and entrepreneurs look elsewhere.

The gigabit broadband gap will increasingly impact the local economies of communities left behind with inadequate Internet speeds as app developers, content producers, and other innovative startups leverage gigabit broadband to market new products and services.

The Pew Research Center envisioned what the next generation of gigabit killer apps might look like. Those communities stuck on the slow lane will likely not have access to an entire generation of applications that simply will never work over DSL.

But before celebrating the fact your local cable company promises to deliver the speed the new apps will need, there is a skunk that threatens to ruin your ultra high speed future: usage-based pricing and caps.

At the same time DOCSIS 3.1 will save the cable industry billions on infrastructure upgrade costs, the price for moving data across the next generation of super high-capacity broadband networks will be lower than ever before. But cable operators are not planning to pass their savings on to you. In fact, broadband prices are rising, along with efforts to apply arbitrary usage limits or charge usage-based pricing. Both are counter-intuitive and unjustified. It would be like charging for a bag of sand in the Sahara Desert or handing a ration book to shoreline residents with coupons allowing them one glass of water each from Lake Ontario.

skunkCox plans to limit its gigabit customers to 2TB of usage a month. AT&T U-verse with GigaPower has a (currently unenforced) limit of 1TB a month, while Suddenlink thinks 550GB is more than enough for its gigabit customers. Comcast is market testing 300GB usage caps in several cities but strangely has no usage cap on its usage-gobbling gigabit plan. Why cap the customers least-equipped to run up usage into the ionosphere while giving gigabit customers a free pass? It doesn’t make much sense.

But then usage caps have never made sense or been justified on wired broadband networks and are questionable on some wireless ones as well.

Stop the Cap! began fighting against usage caps and usage pricing in the summer of 2008 when Frontier Communications proposed to limit its DSL customers to an ‘ample’ 5GB of usage per month. That’s right — 5GB. We predicted then that usage caps would become a growing problem in the United States. With a comfortable duopoly, providers could easily ration Internet access with the flimsiest of excuses to boost profits. Here is what we told the Associated Press seven years ago:

“This isn’t really an issue that’s just going to be about Frontier,” said Phillip Dampier, a Rochester-based technology writer who is campaigning to get Frontier to back off its plans. “Virtually every broadband provider has been suddenly discovering that there’s this so-called ‘bandwidth crisis’ going on in the United States.”

That year, Frontier claimed most of its 559,300 broadband subscribers consumed less than 1.5 gigabytes per month, so 5GB was generous. Frontier CEO Maggie Wilderotter trotted out the same excuses companies like Cox and Suddenlink are still using today to justify these pricing schemes: “The growth of traffic means the company has to invest millions in its network and infrastructure, threatening its profitability.”

Just one year later, Frontier spent $5.3 billion to acquire Verizon landline customers in around two dozen states, so apparently Internet usage growth did not hurt them financially after all. Frankly, usage growth never does. As we told the AP in 2008, the costs of network equipment and connecting to the wider Internet are falling. It still is.

“If they continue to make the necessary investments … there’s no reason they can’t keep up” with increasing customer traffic, we said at the time.

We are happy to report we won our battle with Frontier Communications and today the company even markets the fact their broadband service comes without usage caps. In many of Frontier’s rural service areas, they are the only Internet Service Provider available. Imagine the impact a 5GB usage cap would have had on customers trying to run a home-based business, have kids using the Internet to complete homework assignments, or rely on the Internet for video entertainment.

So why do some providers still try to ration Internet usage? To make more money of course. When the public believes the phony tales of network costs and traffic growth, the duped masses open their wallets and pay even more for what is already overpriced broadband service. Just check this chart produced by the BBC, based on data from the Organization for Economic Co‑operation and Development. Value for money is an alien concept to U.S. providers:

_70717869_countries_with_high_speed_broadband

The usual method of combating pricing excess is robust competition. With a chasm-sized gap between fat profits and the real cost of the service, competitors usually lower the price to attract more customers. But the fewer competitors, the bigger the chance the marketplace will gravitate towards comfort-level pricing and avoid rocking the boat with a ruinous price war. It is one of the first principles of capitalism — charging what the market will bear. We’ve seen how well that works in the past 100+ years. Back in 2010, we found an uncomfortable similarity between broadband prices of today with the railroad pricing schemes of the 1800s. A handful of executives and shareholders reap the rewards of monopolistic pricing and pillage not only consumers but threaten local economies as well.

special reportThe abuses were so bad, Congress finally stepped in and authorized regulators to break up the railroad monopolies and regulate abusive pricing. We may be headed in the same direction with broadband. We do not advocate regulation for the sake of regulation. Competition is a much more efficient way to check abusive business practices. But where an effective monopoly or duopoly exists, competition alone will not help. Without consumer-conscious oversight, the forthcoming gigabit broadband revolution will be stalled by speed bumps and toll booths for the benefit of a few giant telecommunications corporations. That will allow other countries to once again leap ahead of the United States and Canada, just as they have done with Internet speeds, delivering superior service at a lower price.

China now ranks first in the world in terms of the total number of fiber to the home broadband subscribers. So far, it isn’t even close to the fastest broadband country because much of China still gets access to the Internet over DSL. The Chinese government considers that unacceptable. It sees the economic opportunities of widespread fiber broadband and has targeted the scrapping of every DSL Internet connection in favor of fiber optics by the end of 2017. As a result, with more than 200 million likely fiber customers, China will become the global leader in fiber infrastructure, fiber technology, and fiber development. What country will lose the most from that transition? The United States. Today, Corning produces 40% of the world’s optical fiber.

Global optical fiber capacity amounted to 13,000 tons in 2014, mainly concentrated in the United States, Japan and China (totaling as much as 85.2% of the world’s total), of which China already ranked first with a share of 39.8%. Besides a big producer of optical fiber, China is also a large consumer, demanding 6,639 tons in 2014, 60.9% of global demand. The figure is expected to increase to 7,144 tons in 2015. Before 2010, over 70% of China’s optical fiber was imported, primarily from the United States. This year, 72.6% of China’s optical fiber will be produced by Chinese companies, which are also exporting a growing amount of fiber around the world.

John Lively, principal analyst at LightCounting Market Research, predicts China could conquer the fiber market in just a few short years and become a global broadband leader, “exporting their broadband networking expertise and technology, just like it does with its energy and transportation programs.”

Meanwhile in the United States, customers will be arguing with Comcast about the accuracy of their usage meter in light of a 300GB usage cap and Frontier’s DSL customers will still be fighting to get speeds better than the 3-6Mbps they get today.

Microsoft’s Windows 10 Updates Cost Some Users Hundreds of Dollars in Internet Overlimit Fees

badbillAbbes Nacef was not very happy when he opened his web browser a few days ago to see a message inserted at the top of his screen.

“Your Internet service has reached the maximum limit of allowable overage charges. If you wish to continue service, please contact our business office to discuss your account.”

Nacef, who lives in Monastir, a Tunisian city best known for its tourism, was surprised because it was the first sign his Internet account had gone over the limit.

“While you can get uncapped DSL in Tunisia, it is not very good service and in my area it is not offered,” Nacef told Stop the Cap!. “Most in our neighborhood rely on a wireless ISP service which is less costly than 3G or 4G mobile service, but is capped and charges roughly $25 for each extra gigabyte allotment.”

Nacef’s call to his provider was not pleasant. He had already accumulated almost $180 in charges for the month of August, most in overlimit fees. The culprit was quickly identified — Microsoft Windows 10, which took several attempts to reach Nacef’s computer over a challenging Internet connection. But Nacef also learned his computer was repeatedly requesting updates from Microsoft, including three software patches that would not complete and were sent over and over for almost two weeks.

“It was the fifth call my ISP had received about this problem, and they were very annoyed also because Microsoft Windows 10 assumes you will use their Edge browser which defeats the early warning messages from my ISP that usage limits are approaching,” Nacef said. “When I switched back to my old browser the bad news was there, but it was too late.”

Windows-10His ISP has agreed to cut the charges in half and has warned all of its customers if they want Windows 10, the ISP will offer them a copy on a returnable USB memory device for free.

Nacef thinks the huge multiple download attempts to receive Windows 10 itself was responsible for most of the extra usage, but he is wary about the frequent software updates and the fact they are shared with other users by default.

That is what may have tripped up Rob DuGrenier who paid an exorbitant $150 this month for 1.5Mbps Internet service just to get a 75GB usage allowance for his immediate family in far northern Québec. The alternative was an overlimit fee of $20 for each 5GB allotment of usage over the usual 30GB allowance granted to “Power” users.

“Internet is not an option for our family for medical reasons, but this hurts,” DuGrenier writes. “It is definitely Windows 10 and there is something wrong with it because our ISP reports we are sending a lot more data than we are receiving, and there are no viruses or malware on the computers.”

Internet access is northern Québec is slow and costly.

Internet access is northern Québec is slow and costly.

His ISP now suspects Microsoft is using his connection to distribute software updates to a number of other users across northern Canada. When DuGrenier’s family disabled the option that opted them in to distributing Microsoft updates to other customers, upstream traffic dropped 98%.

“Were we sending Windows 10 itself all over northern Quebec and Nunavut? We just don’t know and Microsoft has not responded,” DuGrenier reports. “They have billions, I do not. They should be paying my Internet bill this month.”

The worst of the reported problems of bill shock are occurring in remote areas where Internet service can be a mixture of wired and wireless connections that are often slow and usually usage-limited. Windows 10 was designed to reduce bandwidth demand on wireless connections, assuming they would be metered. But how Microsoft detects which networks are wireless and metered and which may only partly be so is apparently a work in progress.

This morning, the Sydney Morning Herald reports at least one customer on a Pacific island was slammed with a catastrophically high Internet bill. Maureen Hilyard in the Cook Islands owes her ISP $390 this month, all because of automatic updates from Microsoft for Windows 10.

“In this context, where Internet access is both painfully slow and seriously expensive, these forced updates are almost literally forcing people off the Internet and are resulting in massive excess data charges,” EFA executive officer Jon Lawrence told the newspaper.

cook islands

The Cook Islands

Hilyard is a customer of Bluesky, primarily a satellite Internet Service Provider that dominates the Cook Islands, which have no other options for Internet access. A basic account costs $31.50 a month, but that provides just 3.5GB of data for the entire month. Automatic overlimit charges of $0.03 per megabyte accrue after the allowance is used up.

The most likely victims of Windows-induced bill shock subscribe to usage-limited wireless or satellite Internet services. While many providers throttle the speeds of customers who reach the usage limit, others charge penalty rates. Microsoft has no way to know which is true. Instead, the company claims it looks for evidence of a wireless connection before performing updates and when it finds one, it assumes it to be metered. But wired connections stay firmly in the unmetered category, whether they are usage-capped or not. Customers are invited to choose by digging through confusing settings menus.

Even more problematic is the built-in peer-to-peer technology that gives Microsoft’s servers a break and uses your Internet connection to share the latest Windows software updates with other Windows users across town and beyond. Microsoft has offered no provision to track this usage, but users can opt out with this advice from the Sydney Morning Herald:

Users can tweak their Windows 10 system settings by enabling a “metered connection” by searching for “Change Wi-Fi settings” in the start menu, clicking on “Advanced Options” and enabling “Metered connection.” This lets Windows 10 know the Wi-Fi connection you’re on is capped, so instead of forcing a software update onto your PC or tablet, it will notify you first. You can then choose to delay the upgrade until you are on an uncapped connection, or until you’ve rolled over into a fresh month of data.

This workaround only applies to Wi-Fi connections, however, not Ethernet connections.

A second workaround actually comes in an update which Microsoft itself released. It’s a bit more fiddly though, as it involves manually uninstalling driver updates and then downloading a special troubleshooter app to prevent them from installing again automatically. The full instructions are available online.

Uproar Over Eastlink’s 15GB Usage Limit Brings Call to Ban Data Caps in Rural Canada

EastlinkLogoA plan to place a 15GB monthly usage cap on Eastlink broadband service in rural Nova Scotia has led to calls to ban data caps, with a NDP Member of the Legislative Assembly of Nova Scotia leading the charge.

NDP MLA Sterling Belliveau is calling on the Liberal government to prohibit Eastlink from placing Internet data caps on rural broadband.

“This newly announced cap really sends us back to the 1990s when it comes to technology,” Belliveau said in a news release Tuesday. “The province paid $20 million to bring this service to rural communities, and as such, the Minister of Business needs to tell Eastlink this can’t stand.”

Belliveau’s office is being flooded with complaints from residents and business owners upset about Eastlink’s data cap, which includes a $2/GB overlimit fee, up to a maximum of $20.

“Only rural customers get penalized for using the Internet,” complained Angel Flanagan on Twitter. “We can’t have Netflix or YouTube. Eastlink, stop this cap and upgrade your services and give us better Internet. We don’t need to use it less.”

“I am so angry about the Internet capping,” said Emma Davis. “Eastlink you are out of your goddamn minds. Rural Nova Scotia is entering the Dark Ages.”

rural connect

Eastlink’s Rural Connect package is a wireless service, delivering speeds up to 1.5Mbps at a cost of $46.95 a month. The service is provided where wired providers are generally not available, including Annapolis, Hants, Digby, Yarmouth, Queens, Lunenburg, Shelburne and Kings counties. Eastlink says its new usage cap was designed to accommodate “intended usage like surfing the web, reading/sending emails, social media, e-commerce, accessing government services, etc. — and NOT video streaming, for which the service was not intended.”

Belliveau

Belliveau

Eastlink’s continued dependence on a low capacity wireless network platform has conflicted with the changing needs of Internet users, who increasingly use high bandwidth applications like streaming video that can quickly clog wireless ISP traffic.

When the service was designed, the popular video streaming service “Netflix was shipping DVDs by mail,” says Eastlink spokesperson Jill Laing.

The cap was implemented to “address Internet traffic, which we believe will help provide equal access to the service and deliver a better overall rural Internet experience for customers,” Laing wrote.

Eastlink says the average customer uses about 12GB of traffic, excluding video streaming. Setting a usage cap at 15GB should not be a problem for customers who stay off Netflix, argues the ISP.

“Those who are using the service as it was intended to be used should not be impacted by monthly usage,” she wrote.

The fact Eastlink labeled some traffic legitimate while video streaming was discouraged did not go over well with customers.

“Who made them Internet Gods when our provincial tax dollars helped finance their Internet project,” asks Al Fournier. “The very fact they would suggest a 15GB cap with a straight face in 2015 should be ringing alarm bells in Ottawa about the rural broadband crisis in Canada.”

nova scotiaFournier suspects Eastlink has not invested enough to keep up with a growing Internet because the service originally advertised itself as a way to listen to online music and watch video. But he also wonders if the data cap is an attempt to force the government to fund additional upgrades to get Eastlink to back down.

“This is why wireless ISPs suck for 21st century Internet,” Fournier argues. “They are incapable of keeping up with growing traffic and bandwidth needs and need to be retired in favor of fiber.”

But at least one wireless provider in Nova Scotia does not understand why Eastlink is making a fuss over data caps.

Cape Breton’s Seaside Wireless Communications offers Internet access in Antigonish, Cape Breton, Colchester, Cumberland, Guysborough, Inverness, Pictou, Richmond and Victoria counties, along with rural parts of Halifax County, and has no data caps.

“It is not even on our radar,” said Loran Tweedie, CEO of Seaside Wireless. “This is a differential we are proud of.”

Some Nova Scotians are also questioning why their Internet service is being capped while rural Eastlink customers in Newfoundland, Labrador and Ontario can continue to use the Internet cap-free, at least for now. Others are suspicious about the future of Eastlink’s maximum cap on overlimit fees, currently $20. Canadian providers have a history of raising the maximum cap, subjecting customers to greater fees.

“It’s hard to speak to what will happen over time. We’ll certainly evaluate where we’re at later in the fall,” said Laing.

Liberal provincial Business Minister Mark Furey said he was aware of Eastlink’s rural broadband data cap but only promised to monitor the situation for now.

Starting next month, Eastlink’s rural Internet packages will be capped at 15 gigabytes of usage per month. CBC Radio Nova Scotia’s “Information Morning” program speaks with Eastlink and Port Royal resident Gary Ewer about the impact the usage cap will have. (10:15)

You must remain on this page to hear the clip, or you can download the clip and listen later.

Charter Communications Starts Advertising Blitz: Its Internet Service Has “No Data Caps,” AT&T U-verse Does

No data caps.

No data caps.

Charter Communications is now heavily advertising the fact its Internet service “has no data caps,” in an attempt to leverage customers away from AT&T DSL (150GB cap) and AT&T U-verse (250GB cap).

Charter quietly shelved its softly enforced usage caps several months ago and is now using its cap-free experience as a marketing tool to convince customers to switch from AT&T and other phone company broadband options that often include usage limits.

“They used it with me to convince me to drop U-verse for Charter,” writes Stop the Cap! reader Jennifer in Tennessee. “I hate usage caps.”

Charter is also using its cap-free broadband as a key argument in favor of its merger deal with Time Warner Cable and Bright House (which have no usage caps either).

“Charter’s slowest speed tier (60Mbps downstream) is considerably faster and less expensive than TWC’s comparable tiers, with no data caps or usage based pricing,” Charter argued in its merger presentation this morning.

AT&T has unevenly enforced usage caps on its DSL and U-verse services. A standard overlimit fee of $10 for each 50GB applies, but only in some markets.

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