“Comcast isn’t looking to make a $50 billion purchase.”

Stephen Burke, Comcast Chief Operating Officer

Now that Comcast has been freed from that pesky provision of the 1992 Cable Act, authorizing the Federal Communications Commission to set a maximum size for large corporate cable operators, the nation’s largest cable operator is now considering breaking out the checkbook and going on a shopping spree.  That is likely to spark a merger and acquisition frenzy among several players in the industry which could dramatically reduce America’s choices for telecommunications services.

Bloomberg News this evening quotes Stephen Burke, Comcast’s Chief Operating Officer, that it will consider buying other cable operators at a “good price.”

“If there is a way to acquire cable systems for what we consider a good price, ones that are well managed, we would certainly look at whatever is out three,” Burke, 51, said today at a Bank of America Corp. conference in Marina del Rey, California. Still, the company “isn’t waking up every morning” evaluating how it can become bigger, he said.

The Wall Street Journal calls the decision by the U.S. Court of Appeals in Washington, freeing Comcast from its limits, the start of “the coming cable consolidation.”

Martin Peers, writing for the Journal, said that when the dust settles, phone companies might own satellite TV providers and cable companies might end up consolidating into one or two super-sized providers blanketing the entire country with service.

Consumers would be left with a handful of providers for all of their communications needs, from telephone to broadband to television, if the courts open the door with more decisions favorable to the industry and antitrust reviews aren’t aggressively undertaken.

Starting with Comcast, Burke thinks Comcast’s first priority might be to buy up more programmers.  Comcast already has ownership interests in several cable networks, and Burke feels “content channels are good businesses, and we wouldn’t be doing out job if we didn’t try to figure out a way to get bigger in those businesses.”

With Comcast and Cablevision joining forces to sue their way out of the cable network exclusivity ban, owning and controlling those networks, and what competitors get access to their programming, could be an important asset in an ever-consolidating marketplace.  Imagine if U-verse or FiOS was denied access to ESPN, The Weather Channel, CNN, and other popular cable channels.  Would subscribers be compelled to switch providers if they could no longer get the channels they want to watch?

The Journal ponders the coming consolidation frenzy:

Comcast and other cable companies will probably need to consider more consolidation — if not now, in the next couple of years. They are still losing market share to satellite and phone rivals. Comcast lost nearly 700,000 basic subscribers in the year to June. Time Warner Cable has fallen to No. 4 among TV providers, behind satellite firms DirecTV Group and Dish Network.

Cable operators are more than offsetting video losses by selling phone and Internet-access. Eventually, though, those opportunities will peter out. And phone companies’ competitive threat in video could be enhanced by a combination with satellite TV.

The newspaper speculates about this kind of marketplace in the near future:

Today's pay television marketplace

AT&T DirecTV: The Journal ponders an AT&T buyout of DirecTV resulting in a reduction in AT&T’s investment in U-verse, pushing consumers to its newly-acquired satellite service and redirecting investment into the overburdened AT&T mobile phone network.

VerizonDISH: A Verizon buyout of DISH would allow the phone company to push more rural customers to DISH satellite service, and reduce the expense of wiring all but the nation’s largest cities with fiber optics.

Comcast (formerly Comcast & Time Warner Cable, if not others): A supersized Comcast absorbs Time Warner Cable and becomes an even more dominant cable operator, leveraging its investment in Clearwire to offer a  wireless data option to stay competitive with the mobile phone companies like AT&T and Verizon Wireless.

That would leave most Americans with just three choices for telecommunications services capable of bundling multiple products together.  Wouldn’t such a merger-mania trigger antitrust implications and government review?

The Journal doesn’t think so:

Would such a deal pass antitrust scrutiny, even absent the ownership cap? There is a good chance, say several antitrust lawyers. A major focus of antitrust law is whether a merger reduces competition in a way that could raise prices or otherwise hurt consumers. As cable operators generally don’t compete with one another, merging wouldn’t cut competition.

But what kind of benefits would be found for consumers?  If one resides in a city too small to be judged worthy of fiber optic deployment, consumers could be told to get the satellite television service and live with the copper wiring the phone companies provide today.

Cable operators would be in a fine position to compete, as they traditionally have, against satellite television because of the technical limitations of satellite service, ranging from consumer objections to having a dish on their home, to a limit on the number of sets that can be wired, to the inability to get a clear view of the satellite because of nearby trees or other obstructions.

Who pays for the debt likely incurred from a bidding war during a merger frenzy?  Guess.

Back in the mid-1980s, I first got involved in the fight against the cable television industry’s consumer abuses.  Cable had gotten cocky, and began to use their monopoly position to extract ever-increasing amounts of money from consumers, providing lousy service and engaged in anti-competitive abuse all over the marketplace.  Back then, competition for the overwhelming majority of consumers came from just one place – giant 10-12 foot satellite dishes.  These were the days before Direct Broadcast Satellite providers like Echostar/DISH and DirecTV (and PrimeStar, the cable industry’s own satellite provider that claimed to ‘compete’ with cable) provided competition to cable.

In the mid and late 1980s, your choice was a giant TVRO (TV-Receive-Only) satellite dish in the backyard or you hooked up to cable.  A tiny handful of communities had wireless cable, a service that was supposed to compete with cable but was seriously limited in channel capacity (in many communities, wireless cable ended up providing access to ‘adult’ content that cable wouldn’t carry as their biggest selling point) and quickly faded from view by the mid 1990s.

The abusive practices were all over the place back then:

• Cozy arrangements between cable companies and local governments resulting in outright bans of satellite dishes for aesthetic reasons, using zoning laws either prohibiting their installation or requiring landscaping to hide them from view (to the neighbors and to the satellites they were trying to receive, making them useless), or requiring expensive permit fees;
• A rush to scramble/encode satellite signals and then require consumers to purchase, outright, a costly descrambler from General Instruments called the VideoCipher II for $399 (or have it incorporated within a satellite receiver that typically cost $800-1000 and was available only for purchase), only to be replaced a few years later by the VideoCipher II+ (which consumers were also forced to purchase).
• Cable companies, which had ownership interests in most cable networks (which was nearly a pre-condition for getting your network on cable systems), often had exclusive rights to sell that programming, and frequently provided it “only on cable” or to satellite customers who could not subscribe to cable.  Some networks refused to sell to competitors, including dish owners, at any price.
• Anti competitive pricing was by far the biggest problem.  Prices for programming packages encrypted on satellite were sold to consumer dish owners in small or large bundles at pricing comparable or above what cable subscribers paid, despite the fact all of the costs to provide, install, and service reception equipment were borne by consumers.  No cable TV company overhead, no infrastructure or staffing and support costs, yet satellite dish owners were expected to pay the same high costs that cable subscribers paid, and also purchase their own equipment.  That was quite an investment: a 12 foot dish, satellite reception equipment, decoder, and installation routinely ran well over a thousand dollars, depending on the equipment and installation complexity, and that was before programming costs were factored in.

Rural consumers really got the short end of the cable stick, not able to buy cable even if they wanted to, and forced to spend big money, upfront, just to get satellite TV.

That inspired the consumer groundswell of support for legislation to stop the abuses, which overrode a White House veto by President George H.W. Bush.  Among other things, the Cable Act of 1992 put a stop to exclusive programming contracts which denied competitor access to cable networks.

Without that legislation, there would be no DirecTV or DISH today.

Now the cable industry is back, high-fiving over their victory to have the 30% ownership cap dispensed with, and are now taking on the next provision of the 1992 Cable Act they don’t like — the ban on exclusive programming contracts.

That’s right, it’s Back to the Future as Comcast and Cablevision take their legal business to the same friendly DC Court of Appeals that savaged the 30% cap, now seeking an immediate repeal of the exclusivity ban as well.

Oral arguments start September 22nd.

Most amusing of all is the argument made by Comcast and Cablevision, who claim despite the time and attention they are spending on overturning the law, not to mention the legal expense, the practical effect of an end to exclusivity bans would be… absolutely nothing.

“Widespread withholding is now implausible,” said the attorneys in the filing. “[T]here are proportionally fewer services to withhold. The limited withholding that may still occur will not threaten competition: most vertically integrated services have closely similar substitutes, and, when competitive MVPDs [multichannel video programming distributors] have sunk massive investments, withholding can no longer cause market exit.”

That’s right.  Big cable companies throw money away on attorneys who will presumably fight this case and the inevitable appeals for the next few years for no practical change whatsoever in the current competitive landscape.  The believe people will accept that an industry that had to be forced by regulation to compete on a level playing field will continue to respect that playing field once they plow it up.

Just trust us.  We’re your cable company.  You love us.

So it could be “nothing” as they suggest, or it could be a defensive response to challenges of their business plans from telephone company TV and online video competition.  Would you subscribe to a competitor that didn’t offer the networks you wanted to see because they were “exclusively” available only from the cable company?

Be it usage caps, consumption billing, exclusive contracts, “price protection agreements” that hold customers in place for 12-24 months (or longer), the war to keep consumers from choosing when, where, and how they access content is becoming fully engaged.

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Satellite television in the mid-1980s was highlighted by Granada Television

It’s bad enough when service providers overcharge us for service we use, but it’s even worse when they bill you for services you don’t.

Verizon Wireless may be looking at millions of dollars in refunds for customers who got dinged $1.99 monthly fees on their Verizon Wireless bills labeled mysteriously as “Usage Charges, Data.”

Two dollars on a phone bill that typically exceeds $50 or more is likely to be missed by a lot of consumers skimming the fees, surcharges, taxes and other impenetrable charges that get tacked on to your monthly service.  Even worse, since Verizon charges a fee for a printed bill, most customers never even bother to look at the electronic online bill beyond the general e-mail notification received each month letting you know it has arrived.  But some Cleveland-area residents did bother to take a look, and they didn’t like what they saw:

The Money Matters column chronicled the writer’s six-month ordeal with $1.99-per-month data charges and the possible causes given by Verizon’s customer service workers. All, it turned out, were wrong or only partly true.

More than 400 Plain Dealer readers responded to the newspaper with complaints similar to the ones in the column. The readers collectively pay for more than 1,000 phone lines. In addition, calls to customer service and visits to Verizon stores increased noticeably after the column.

Take a look at your bill

Where to look for the data usage charge: The first page of your bill should have a section labeled “Quick Bill Summary.” Look under the summary for “Usage Charges, Data.”

What to do if you spot an error
Call Verizon customer service (800-922-0204) or visit a full-service store to investigate the charges and ask for a credit.

If Internet usage is the issue, ask technical support to track down the Web sites visited, and dates and times.

If premium text messages are the issue, determine whether you have applications that are downloading information automatically. Go to your “menu,” then click “media center.” You may need Verizon’s help determining what applications cost money.

You can block features you don’t use and don’t want to be charged for by accident, such as Internet access or the weather forecast. Access your account online, call customer service or visit a store.

At a minimum, thousands of customers apparently have been charged $1.99 per month for Internet “data usage” even though they had not tried to go online. In some cases, customers were charged when their phones were off, the batteries were dead, the phone’s Internet access was blocked or even when the phones didn’t have the software to go online.

One clue might be customers who inadvertently accessed the Internet browser just for a few seconds by mistakenly pressing the wrong keys on the phone.  Even a momentary activation of a Mobile Web service could generate the access fee, even if you hit the “end” key on the phone within seconds.

Frustrated customers catching the charge on their bills each month then have to pursue the ordeal of contacting customer service to have the charge removed, and frequently run into misinformed customer service representatives who argue the fees are valid for services customers don’t even have, or are offered free of charge by Verizon Wireless.

Some readers say they’ve been battling the charges for more than a year. Most said they’re tired of calling Verizon month after month. Some were irate because they’d punished their children because they wrongly believed the kids had gone on the Internet. One reader said his mom’s phone was charged for Internet access – weeks after the mother had died and her phone sat idle in her empty home.

Karen Fullerman of Twinsburg is typical of customers who complained to The Plain Dealer last week.

Fullerman has three phone lines; two are for her 23-year-old twin daughters. Fullerman has been charged $1.99 on one or two phones every month. And sometimes there’s an extra $9.99 download fee. Fullerman, who recently lost her job, said every dollar counts these days.

She insists that none of the three has gone on the Internet. And she said Verizon has told her repeatedly that the company has blocked the phones’ ability to go on the Internet – yet the Internet charges continue.

The same is true for James Grega of Brunswick, whose four phone lines with Verizon have been getting charged sporadically for about four months.

“The phones are still being charged after I had them blocked,” Grega said. “Their assurance that the $1.99 charges would stop has been a joke.”

Now, some customers who have repeatedly been credited for erroneous charges are being denied for future requests, and that is partly what prompted The Plain Dealer to get involved.

Verizon Wireless claims to be investigating the problem and promises customers full credit, assuming they specifically request it.  Therein lies a major problem for consumers, one that benefits providers with billing problems.  Consumers frustrated by long hold times or the aggravation of requesting credits may forego doing so, providing a windfall for the service provider based on a billing error.

Roger Tang, a regional vice president for Verizon, told The Plain Dealer it would resolve accidental web browser access when consumers hit the wrong buttons on their phones.  The default home page for most Verizon phones is Verizon’s own web page.  The company will make visits to that page exempt from Internet time charges “as soon as possible.”

[flv width=”320″ height=”240″]http://www.phillipdampier.com/video/WMAR Baltimore Verizon Wireless 199 Mystery Fee 9-8-09.flv[/flv]

WMAR Baltimore ran a Scam Alert on Verizon Wireless Overcharging (9/8/09)

ABC - Australia's National Public Broadcaster

The Australian Broadcasting Corporation has called on the federal government to have its online video service exempted from Internet Service Provider usage caps.

Mark Scott, ABC’s Managing Director, called on the government to intervene as part of Australia’s development of a National Broadband Network (NBN).  In comments directed to legislators drafting the regulatory framework for the NBN, Scott argued that “publicly-funded content and services carried over the NBN, including those of the ABC, should be available free to the Australian people.”

Scott is referring primarily to the ABC’s iView portal, which allows Australians to watch ABC-TV programming online.  Scott is worried that without an exemption, Australians simply won’t take advantage of the service, fearing they’ll exceed their monthly usage allowance.

The majority of Australia’s ISPs have strict usage limits on their services, blaming the expensive and limited underseas fiber connections Australia has with the rest of the global Internet.  Scott argues that since ABC content will be domestically distributed, there is no valid argument to cap it.

Only a small handful of ISPs, iiNet, Internode, iPrimus, Westnet and Adam Internet among them, provide the content without it counting against your usage allowance.

Phillip "Doesn't Derive a Paycheck From Writing This" Dampier

I see it took all of five minutes for George Ou and his friends at Digital Society to be swayed by the tunnel vision myopia of last week’s latest effort to justify Internet Overcharging schemes.

Until recently, I’ve always rationalized my distain for smaller usage caps by ignoring the fact that I’m being subsidized by the majority of broadband consumers.  However, a new study from Robert Shapiro and Kevin Hassett at Georgetown University is forcing me to reexamine my personal bias against usage caps.

There’s a shock, especially after telling your readers caps “were needed.”

As I predicted, our astroturfing and industry friends would have a field day over this narrowly focused report that demands readers consider their data, their defined problem, and their single proposed solution.  The real world is, of course, slightly more complicated.

I used to debate some of my economist friends on why I thought metered pricing or more restrictive usage caps were a bad idea, but I couldn’t honestly say that my opinion was entirely objective.  My dislike for usage caps stems from the fact that I am a heavy broadband user and an uncapped broadband service is very beneficial to me since everyone else pays a little more so that I can pay a lot less on my broadband service.  But beyond self interest, I can’t make a good argument why the majority of broadband users who don’t need to transfer a lot of data should subsidize my Internet requirements.

Your opinion is still not entirely objective, George.  Your employer has industry connections.

Our readers, many of whom are hardly the usage piggies the industry would define anyone who opposes these overcharging schemes, all agree whether it’s 5GB or 150GB per month, they do not want to watch an Internet “gas gauge” or lose their option of flat rate broadband pricing that has worked successfully for this industry for more than a decade.  George and his friends assume this is an “us vs. them” argument — big broadband users want little broadband users to subsidize their service.

That’s assuming facts not in evidence.

What is in evidence are studies and surveys which show that consumers overwhelmingly do not want meters, caps, usage tiers, or other such restrictions on their service.  They recognize that a provider who claims to want to “fairly charge” people for service always means “everyone pays more, some much more than others.”  To set the table for this “fairness,” they’ve hired Washington PR firms to pretend to advocate for consumers and hide their industry connections.  Nothing suspicious about that, right?

Although George can’t make a good argument opposing usage caps, that doesn’t mean there aren’t any.  Among the many reasons to oppose caps:

• Innovation: Jobs and economic growth come from the online economy.  New services created today by U.S. companies, popular here and abroad, would be stifled from punitive usage caps and consumption billing.  Even the broadband industry, now in a clamor to provide their own online video services, sees value from the high bandwidth applications that would have never existed in a capped broadband universe, and they are the ones complaining the loudest about congested networks.
• Consumer Wishes: Consumers overwhelmingly enjoy their flat rate broadband service, and are willing to pay today’s pricing to keep it.  The loyalty for broadband is much greater than for providers’ other product lines – television and telephone.  That says something important — don’t ruin a good thing.
• The Fantasy of Savings: As already happened across several Time Warner Cable communities subjected to “experimentation,” the original proposals for lower consumption tier pricing offered zero savings to consumers who could already acquire flat rate “lite” service for the same or even lower prices.  Even when tiers and usage allowances were adjusted after being called out on this point, consumer outrage continued once consumers realized they’d pay three times more for the same broadband service they had before the experiment, with absolutely no improvement in service.  Comcast and other smaller providers already have usage caps and limits.  Pricing did not decline.  Many combine a usage allowance -and- lower speed for “economy” tiers, negating the argument that lower pricing would be achieved with fast speeds -and- a usage allowance.
• Justifying Caps Based on Flawed Analysis: The report’s authors only assume customer adoption at standard service pricing, completely ignoring the already-available “economy” tier services now available at slower speeds.
• Speed Based Tiers vs. Consumption Based Tiers: Consumers advocate for speed-based tiering, already familiar to them and widely accepted.  New premium speed tiers of service can and do already generate significant revenue for those who offer them, providing the resources for network expansion providers claim they need.
• Current Profits & Self Interested Motives: Broadband continues to be a massively profitable business for providers, earning billions in profits every year.  Now, even as some of those providers reduce investments in their own networks, they claim a need to throw away the existing flat rate business model.  Instead, they want paltry usage allowances and overlimit penalties that would reduce demand on their networks.  That conveniently also reduces online video traffic, of particular concern to cable television companies.
• Competition & Pricing: A monopoly or duopoly exists for most Americans, limiting competition and the opportunity for price savings.  Assuming that providers would reduce pricing for capped service has not been the result in Canada, where this kind of business model already exists.  Indeed, prices increased for broadband, usage allowances have actually dropped among some major providers like Bell, and speed throttles have been introduced both in the retail and wholesale markets.

More recently, building our colocation server for Digital Society has made me realize that usage caps not only has the potential to lower prices, but it can also facilitate higher bandwidth performance.  Case in point, Digital Society pays $50 per month for colocation service with a 100 Mbps Internet circuit, and at least $20 of that is for rack space and electricity.  How is it possible that we can get 100 Mbps of bandwidth for ~$30 when 100 Mbps of dedicated Internet bandwidth in colocation facilities normally costs $1000?  The answer lies in usage caps, which cap us to 1000 GBs of file transfer per month which means we can only average 3 Mbps.

One thousand gigabytes for $30 a month.  If providers were providing that kind of allowance, many consumers would consider this a non-issue.  But of course they are not.  Frontier Communications charges more than that for DSL service with a 5GB per month allowance in their Acceptable Use Policy (not currently enforced.)  Time Warner Cable advocated 40GB per month for $40-50 a month.  Comcast charges around $40-45 a month for up to 250GB.  Not one of these providers lowered their prices in return for this cap.  They simply sought to limit customer usage, with overlimit fees and penalties to be determined later.

Of course, web hosting is also an intensively competitive business.  There are hundreds of choices for web hosting.  There are also different levels of service, from shared web hosting to dedicated servers.  That is where the disparity of pricing is most evident, not in the “usage cap” (which is routinely more of a footnote and designed to keep Bit Torrent and high bandwidth file transfer services off their network). There is an enormous difference in pricing between a shared server environment with a 1000GB usage cap and a dedicated rack mount server located in a local facility with 24 hour security, monitoring, and redundancy/backup services, even with the same usage cap.

So the irony of a regulation intended to “protect” the little guy from “unfair usage caps” would actually force our small organization onto the permanent slow lane.

Actually, the Massa bill has no impact on web hosting usage caps whatsoever.  George’s provider friends would be his biggest risk — the ones that would “sell” insurance to his organization is he wanted assurance that his traffic would not be throttled by consumer ISPs.  I’d be happy to recommend other hosting providers for George if he felt trapped on a “slow lane.”  That’s because there is actual competition in web hosting providers.  If the one or two broadband providers serving most Americans had their way, it would be consumers stuck on a permanent slow lane with throttled service, not organizations like his.

So, who is in agreement with George on this question?  None of his readers, as his latest article carries no reader responses.  But fellow industry-connected astroturfers and providers themselves share their love:

• “This is the story that ISP’s have failed to tell effectively — that consumption-based billing may, in fact, be fairer for consumers.” — Michael Willner, CEO Insight Communications
• “Ars Technica reports on an interesting theory being floated by former Clinton economic advisor Robert J. Shapiro and Federal Reserve economist Kevin A. Hassett” — Brad, astroturfer Internet Innovation Alliance
• “The only way … is to introduce some form of equitable pay-as-you-use pricing.  And I could not agree more.” — Ulf Wolf, Digital Communities Blogs (sponsored by AT&T, Qwest, etc.)

PC Magazine reported even Robert Shapiro, one of the report’s authors, is not advocating for usage caps:

“We’re not talking about a bandwidth cap,” Shapiro said during a call with reporters. “We were looking simply at the different pricing models and their impact on the projections of broadband uptake based on these income sensitivities.”

The report does not specify how ISPs should implement pricing, Shapiro said. “The most important thing to me as an economist is the flexibility – that is, Internet Providers can better determine than I can the particular model that works best.”

That’s not the message astroturfers are taking forward, as they try and sell this as “pro-consumer.”