Verizon Wireless quietly admitted Tuesday its much-vaunted LTE network is suffering speed slowdowns so serious, some customers in New York, Chicago, and San Francisco are being randomly kicked off Verizon’s 4G network to slower 3G service until congestion eases.

Fran Shammo, Verizon’s chief financial officer, volunteered that online video was the likely culprit and he was surprised by usage growth well in excess of what Verizon predicted.

Current estimates from the company suggest Verizon’s LTE customers are responsible for 64% of all data traffic on Verizon’s wireless network nationwide. But in large cities, Shammo said traffic numbers are much higher.

Shammo

“There are certain pockets where we’re absolutely going to experience that down tick from the LTE network to 3G because of capacity constraints,” Shammo admitted.

The sudden revelation Verizon now has insufficient capacity for its LTE service is a significant reversal for Shammo, who has repeatedly told investors Verizon has enough wireless spectrum for the next 4-5 years.

In May 2013, Shammo told investors attending the JPMorgan Global Technology, Media and Telecom Conference:

As I have said before, our spectrum position right now is very good, with the AWS transaction that we completed with the cable carriers last year, with the sale of the spectrum that we are doing with AT&T later this year, obviously giving that spectrum to someone who can utilize it better than we can at this point in time. So I think our holdings are exactly where we need to be. And I have said before we really don’t need spectrum for the next four to five years, with the way that we deployed CDMA and how we will utilize that spectrum from our CDMA deployment over to the 4G network as we need it.

Later that same month, Shammo confidently repeated his assertion Verizon was all set for spectrum at Barclays Global Technology, Media and Telecommunications Conference:

Well, we have — from where we sit today, we have a very good spectrum portfolio which is why we went after the AWS spectrum, which is really going to be used for our capacity of LTE. The 700 megahertz that we have contiguous across the United States is used for the coverage piece. So we’re in pretty good shape for the next four to five years, even with reallocating our 3G spectrum over to our 4G network. […] And we think, look, we think that there will be enough spectrum there. We think that technology change — I mean, people are already talking about LTE advanced. Well, LTE advanced is nothing more than creating a bit more speed on the network. But really LTE advances around being able to utilize the spectrum much more efficiently within the network.

Carriers can boost coverage with more cell towers, street level picocells, or in-building femtocells.

Some critics suggest Verizon is ginning up a spectrum crisis as new FCC chairman Tom Wheeler begins to look at the current state of wireless spectrum and competition in the wireless industry. They also point to the fact Verizon has so much unused, warehoused spectrum, it has tried to sell the excess off to third parties.

“We have A band [unused spectrum] in our pocket today that we put for auction a year and a half ago and we did not get what we thought it was worth,” Shammo said yesterday. “We brought it back into the portfolio. But we can use that as a trade for some different spectrum. We put it up for auction so obviously it was on the block [and was] never taken off the block. But obviously it is not for fire sale. If a transaction makes sense then we will execute the transaction. If it doesn’t, then we will deploy it.”

In the short-term, Shammo promised customers the congestion issues were already being dealt with by “lighting up” acquired AWS spectrum formerly owned by cable operators, and adding data systems and small cell-type antennas in high congestion areas.

Shammo added that since Verizon was finished expanding its wireless network out to new, unserved areas, future investments would be directed at improving service within current coverage areas.

“I think by year-end you’re going to see us [concentrate] all of our CapEx around densification and then you will start to see us talk about things like VoLTE (Voice over LTE) and multicast (video) and some of these LTE advanced technologies that will come in the next year,” said Shammo.

Cord-cutting is a real, measurable phenomena and is especially common among those under 30 who don’t care about traditional cable television service.

Those are the views of Verizon’s chief financial officer Fran Shammo, speaking this week at the Wells Fargo 2013 Tech, Media & Telecom Conference in New York.

Shammo told investors Verizon FiOS subscriber numbers showed the company has an excellent position in the broadband market because it is the only national provider other than Google offering fiber-to-the-home service.

Verizon TV customers are regularly encouraged to upgrade to 50Mbps Quantum service with a push of a button on their remote control.

“Broadband is absolutely key,” said Shammo. “Most of our customers are taking our 50Mbps [FiOS Quantum] or higher speed and part of that is because you need that speed inside the home [to support] your wireless devices that run off of Wi-Fi. If you’re running hot water with five people, you are eventually going to slow down the hot water and it is going to run cold. The same thing happens when you are running five wireless devices over your Wi-Fi network.”

Shammo said as more online video becomes available people will gradually shift more of their viewing time away from traditional television.

“We’re also seeing fewer people taking [our cable television] product,” said Shammo. “They really want the broadband speed and if you look at the demographics, those 30 and below don’t care if they have linear TV. They are looking at getting their content through other means.”

Shammo said he doesn’t necessarily have a problem with that because heavy online viewing will stimulate upgrades to faster Verizon FiOS Internet speeds.

“We invested in FiOS for broadband and for television and we think we have a superior product,” said Shammo. “But we’re smart enough to realize that the ecosystem will eventually change and people are bringing content in over-the-top. We want to make sure we have the fastest — the best broadband […] and we believe we have the best linear TV product but we know that over the top video is going to become more popular.”

Moffett

Wall Street is worried the cable industry will not be able to report major subscriber gains going forward because just about every middle/upper-income customer that wants broadband within cable’s footprint already has the service from either the phone or cable company.

Cable analyst Craig Moffett from MoffettNathanson Research predicts singing up the last 20% of Americans who don’t subscribe to broadband service will be challenging. As of today, 73% have the service, up 2.5% from last year. An increasingly anemic growth rate is a sign the marketplace is getting saturated, with only low-income Americans underrepresented, primarily because they can’t afford the asking price. Most of the rest don’t own or want computers or Internet access or live in a rural area where the service is unavailable.

Under these circumstances, it is no surprise broadband providers are reporting lower new customer gains. Time Warner Cable and Cablevision actually lost broadband customers in the third quarter, mostly to Verizon FiOS. For the last five years, the cable industry has picked up most of its broadband customers from phone companies offering only DSL service.

“To be sure cable is still taking share [from telco DSL] but it is doing so at a much more modest pace,” Moffett said.

The industry’s best chance for new subscriber growth appears to be bundling computers or tablets with an entry-level broadband offering targeting the poor.

Although cable companies are not supplying free PCs just yet, many are introducing relatively slow, budget-priced broadband tiers to attract lower-income subscribers.

Time Warner Cable introduced a $14.95 2/1Mbps broadband tier this month the company hopes will attract price-sensitive customers, especially those now subscribed to low-speed DSL.

Comcast has Internet Essentials, a $10 slow speed broadband service for families with children enrolled in the federal student lunch program. It is also rolling out a “prepaid Internet service” directly targeting low-income customers. Prepaid customers pay $69.95 for an activation kit containing a DOCSIS 3 modem and a month of broadband service. Renewals are priced at $15 for a week or $45 for a month for 3Mbps service with a 768kbps upload rate.

Most other cable providers offer entry-level broadband speeds, but usually only as a retention tool. Even if the industry custom-targets low-speed tiers to low-income homes, many customers may never make it past the cable industry’s credit check procedure. Comcast’s prepaid offering avoids that problem.

Behind the 8 ball.

Intel’s plan to launch a competing virtual cable television operation delivering programming over existing broadband connections is dead and the cable industry has tentative plans to bury the technology overseas.

OnCue was to feature dozens of popular cable networks and a large library of on-demand content using hardware that combined live, on-demand, and streaming video. The service was supposed to be up and running this year, but despite months of talks, Intel was unable to announce any significant carriage agreements with major cable networks. Cable programmers were reportedly fearful of alienating their biggest customers — large incumbent cable, telco and satellite companies — potentially leaving networks exposed to retaliation during contract renewal talks.

The cable industry has repeatedly warned that reselling programming to streaming providers dilutes the value of those networks. The clear implication: sell to our competitors and we will demand significantly discounted rates when our contracts come up for renewal.

Intel has reportedly been shopping the remnants of the service to new buyers. A late October rumor that Verizon Communications was a likely buyer has gone unconfirmed. Today, Bloomberg News reports Dr. John Malone’s Liberty Media has shown an interest (since denied by Liberty) in acquiring the service. Other media accounts suggest Verizon and Liberty could jointly buy the service, but Malone is loyal to the cable industry and is reportedly uncomfortable doing business with a telephone company.

Should Liberty Media acquire the technology, cable companies in the United States can stop worrying about OnCue as an online competitor. Liberty Media would only deploy the technology as an advanced set-top box offered through its owned and operated European cable systems.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Is Intel Abandoning Web-TV Project 10-30-13.flv[/flv]

Bloomberg senior West Coast correspondent Jon Erlichman reports that Intel may be turning over its web-TV project to Verizon and looks at possible reasons why the company may be abandoning the project and what it could mean for Verizon. He speaks on Bloomberg Television’s “Bloomberg West.” (2:28)

With snow on the ground in parts of southern Ontario this morning, seeing beautiful beaches and bathing suits on Grand Cayman, Puerto Plata, Holguin and St. Maarten isn’t necessarily a bad thing. Devoting a cable channel to covering one Canadian airline’s ground crews might be.

Rogers Cable this week announced the takeoff of WestJetChannel, a 24/7 network capturing baggage handlers tossing luggage into the airline’s fleet of Boeing 737 aircraft. If that isn’t enough, watch gripping live coverage of airplane wranglers with light sticks pushing a plane away from the terminal.

“This is an amazing opportunity to pull back the curtain and show people what we do and how we do it,” said David Soyka, WestJet’s director of marketing. “We’re looking forward to taking viewers behind the scenes at our airports as well as to some of our most spectacular destinations, without ever having to leave the comfort of their couch. We’re always in the air — and now we’re on the air, too.”

It’s another example of “Slow TV” Rogers has embraced with open arms, adding “real-time” coverage of mundane things to your cable TV lineup.

An early example of American “Slow TV”

If WestJetChannel doesn’t fly, viewers can sink or swim with the Aquarium Channel, showing nothing but tropical fish. If that is all wet, dry off by the fire — Swiss Chalet’s Rotisserie Channel, featuring slowly roasting chickens. Unable to get away on holiday? Rogers customers could instead spend quality time with The Cottage Channel. Now they can watch WestJet take other people to the places they wish to see, but can’t afford to visit after paying the cable bill.

Rogers isn’t responsible for inventing “Slow TV.” WPIX-TV’s “Yule Log” was one of the earliest examples, treating apartment-bound New Yorkers to a roaring fire at Gracie Mansion beginning Christmas Eve, 1966. The original three-hour program was actually a 17-second 16mm film loop accompanied by a simulcast of WPIX-FM, which provided accompanying traditional Christmas music. In 1970, the original worn-out film was replaced with a 7-minute 35mm film loop shot in California and still seen today.

Norsk rikskringkasting, the Norwegian Broadcasting Company has made “Slow TV” their own, much to the delight of Scandinavian viewers.

In 2011, NRK broadcast 134 hours non-stop of a cruise ship going up the Norwegian coast to the Arctic, winning the world record for the longest continuous TV program. Millions of Norwegians tuned in. In February, it aired a 12-hour show on firewood, featuring discussions about stacking and chopping and a debate on whether the bark should face up or down. At least 20% of Norwegians watched the event.

Last Friday, Norway’s biggest broadcaster aired 12 hours of knitting, complete with needle tips and a how-to on knitting a cover for a Harley Davidson motorbike. The event started with  sheep shearing in the studios of NRK2 followed by teams furiously trying to break the world record for the fastest knitted sweater.

“You can argue that the national knitting night is the feminine response to the firewood show,” said NRK spokeswoman Sidsel Mundal.

“We’ll dive deep into the world of knitting, then from midnight, we’ll turn down the pace, if that’s even possible,” said producer Rune Moeklebust. “We’ll watch the arm of a sweater get longer and longer; it will be fascinating, but pretty strange TV.”

Who needs 5-Hour Energy when you can watch that.

The National Knitting Evening turned out to be such a ratings smash, rights for the concept have been sold to U.S.-based LMNO Productions for reconceptualization.

Norwegians celebrate “Slow TV” partly as a backlash to artificial drama generated by the reality-TV craze that has swept across Europe and North America.

Flying until Feb. 2, 2014, WestJetChannel can be found on Ch. 206 on Rogers Cable in Ontario, New Brunswick, and Newfoundland.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WestJetChannel Promo 11-12-13.mp4[/flv]

A promo for WestJetChannel, now on your Rogers Cable lineup. (0:42)