Susan Bitter Smith

To say Susan Bitter Smith is beholden to Arizona’s cable industry would be an understatement.

In addition to purportedly representing the citizens of Arizona on regulated utility matters, Bitter Smith is one of the state’s most powerful cable industry lobbyists, earning a salary that consumes 40 percent of the annual budget of the Southwest Cable Communications Association, which represents most cable operators in Arizona, New Mexico, and Nevada.

Despite clear ties to the telecommunications industry Bitter Smith has no intention of ending, in 2012 she ran for the chair of the Arizona Corporation Commission (ACC) — the state body that oversees and regulates phone, cable, and power utilities. Unlike many other states that appoint commissioners, Arizona voters elect them to office. Giving voters a direct election is written into the state constitution, and was designed to limit potential corporate influence and favoritism. Unfortunately for voters, the 2012 election cycle preoccupied by a presidential race and a rare open Senate seat left the mainstream media little time or interest exploring the backgrounds of candidates for the telecom regulator.

Bitter Smith never exactly hid her business relationship with Arizona’s largest cable companies, notably Cox Communications, the cable operator that dominates Phoenix. But she routinely downplayed the obvious conflict of interest, claiming the ACC dealt with regulated utilities, and cable companies were mostly deregulated. The Arizona Republic offered few insights into Bitter Smith’s background, failing to disclose her lobbying connections in their voter recommendations. Instead, the newspaper wrote a single sentence about Bitter Smith’s campaign in its editorial endorsements for the 2012 election: “Bitter Smith enjoys a great reputation as a strong-willed partisan, which seems a difficult fit for the Corporation Commission, at least as compared with the competition.”

Partisanship was exactly what a lot of voters apparently wanted, however, because the vote swung decidedly Republican in large parts of Arizona in the 2012 election. The turnout in Maricopa County, the largest in Arizona, was strongly anti-Obama and voters seemed content voting the party line down the ballot. Incumbents like Democrat Paul Newman did not exactly win an endorsement from the Republic either. The newspaper called him a “fierce and provocative partisan.”

“It is difficult to fathom work getting done at the commission with a microphone anywhere within Newman’s reach,” the newspaper added. The other Democratic incumbent, Susan Kennedy, was dismissed as an on-the-job trainee by the newspaper.

Broadband Issues Overshadowed by Arizona’s Solar Energy Debate

For most in Arizona, the 2012 election at the ACC was much more about energy issues than high cable bills and dreadful broadband. That year, investment in solar energy was the hot topic and it made the election of business-friendly candidates a high priority for the existing power-generating utilities and their friends at the American Legislative Exchange Council (ALEC). Both could claim a major victory if a state ready-made for solar renewable energy turned its back for the sake of incumbent fossil fuel power generators.

Bitter Smith was never a member of ALEC, not having been a state legislator, but many of her fellow Republicans serving on the ACC were, and some were not shy claiming the Obama Administration’s pro-solar energy policies were “reckless and dangerous.” ALEC and utility companies oppose requirements that mandate the purchase of excess power generated from solar and wind customers at market rates and also want to introduce surcharges for customers relying on solar energy. Their fear: if a large percentage of sun-rich Arizonans installed solar panels, revenue for the investor-owned utilities could plummet.

Against that backdrop, Bitter Smith’s close relationship with Cox Cable went unnoticed while the media focused their attention on incumbent Republican commissioner Bob Stump – dubbed by some “Trash Burner Bob” for successfully pushing approval of a permit for a 13 megawatt trash burning plant in West Phoenix. Despite a reputation for pollution, Stump sold trash burning as a better renewable energy source for Arizona than solar energy. Waste hauling companies were delighted. The campaign met with less opposition than some expected, in part because anonymous voting guides turned up conflating solar panels as fire hazards that were difficult to extinguish, exposed users to dangerous chemicals, and constituted a hazard to firefighters whose ‘neurons may be blocked‘ when they approached solar panel fires, allegedly caused by electricity inside the panel.

“Trash Burner Bob” Stump

Newcomer Robert Burns also won his election to the ACC that same year. His time at the Commission has also been rocky. This year, he faces an ethics complaint for remaining a registered lobbyist with the Arizona Telecommunications and Information Council, a group funded by the state’s largest telecom companies. After the complaint was filed, Burns claimed it was all a mistake. He later asked the group’s attorney to send a letter to the Arizona Secretary of State’s office requesting his lobbying connection be removed.

Some critics of the Commission have tolerated Burns’ alleged ethical lapse because he has demonstrated some independence from the energy companies he helps oversee.

Burns has argued the Arizona Public Service Company (APS) – a large investor-owned utility – must disclose how much it spent in campaign contributions and lobbying efforts to get its preferred candidates elected to the Corporation Commission. His demand for disclosure comes at the same time his fellow commissioner Stump is being investigated for exchanging text messages with APS officials during the 2014 election. Critics suggest he may have been illegally coordinating the campaigns of two of his closest allies — Tommy Forese and Doug Little. Both won seats on the ACC that year and have maintained a strong alliance with Stump, much to the chagrin of good government bloggers, who frequently refer to all three collectively as “Tommy Little Stump.”

Steve Muratore, editor of the Arizona Eagletarian, calls all three “shameless,” as they tirelessly fight to stop any investigation that could force open APS’ books to reveal what money, if any, was spent to help get both into office.

Utility giant APS will approach the Arizona Corporation Commission to win a 400% rate hike on special fees for solar panel users.

Forese claims the regulator has no business examining APS’ books.

“Commissioners attempting to influence elections in their official capacity through this relationship [as a result of their constitutional authority] would exceed the bounds of their constitutional mandate over public service corporations,” Forese argues.

While the political soap operas play out, in 2013, APA delivered its first Commission-approved blow against solar power, winning permission to apply a surcharge averaging $5 a month for using solar panels to generate electricity. APC successfully argued solar customers cheat other utility ratepayers by not contributing enough to the utility’s fixed costs.

This year, APC is seeking a 400%+ rate increase, proposing a surcharge averaging $21 a month for using solar panels. Customers served by the Salt River Project in Tempe faced even more onerous charges from that utility — a $50 a month fee for using solar panels. The new fees have effectively stopped residential solar power expansion in that utility’s territory, with the approval of ACC commissioners.

Flying Under the Radar

In the context of these other controversies, Bitter Smith’s own apparent conflicts of interest have largely flown under the radar from 2012 until earlier this year. Federal cable deregulation laws limit the Arizona regulator’s oversight of cable companies like Cox, Cable One, and Comcast. That has given Bitter Smith a defense for serving as both a lobbyist and a regulator. She claims she only lobbies for the cable television and broadband services sold by cable companies like Cox Communications and abstains from consideration of cases such as those involving Cox’s digital phone service, which is still subject to some regulatory scrutiny. Bitter Smith also claims it is easy to tell where the ethical line falls because companies like Cox run different aspects of its business under a variety of affiliated subsidiaries.

Arizona Attorney General Mark Brnovich was not impressed with that explanation and last week filed a Petition for Special Action to remove Bitter Smith from office for violating the state’s conflict of interest statute.

“Arizonans deserve fair and impartial regulators,” said Brnovich. “We filed this case to protect the integrity of the Commission and to restore the faith of Arizona voters in the electoral process. Arizona law clearly prohibits a Commissioner from receiving substantial compensation from companies regulated by the Commission.”

On Sept. 2, the Attorney General’s Office (AGO) launched an investigation into Bitter Smith after receiving a formal complaint against her. The AGO investigation found Bitter Smith receives over $150,000 per year for her trade association work, on top of her $79,500 salary as a Commissioner.  Arizona State Statute 40-101 prohibits Commissioners from being employed by or holding an official relationship to companies regulated by the Commission. The law also prohibits Commissioners from having a financial interest in regulated companies. Section 40-101 promotes ethics in government and prevents conflicts of interest.

“This isn’t one of these instances where this was maybe somebody skating too close to a line, or maybe somebody that had gone into a grey area. I think the law is very clear on this case,” Brnovich said.

KJZZ in Phoenix began raising questions about Bitter Smith’s apparent conflicts of interest last summer and carried this special report on Aug. 24, 2015. (7:18)

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Bitter Smith’s Shadowy and Scrubbed “PR Firm”

More troubling for Bitter Smith’s case is the “public affairs firm” Technical Solutions, jointly run by Bitter Smith and her husband. A careful scrubbing of the firm’s website “disappeared” the detailed description of the firm’s lobbying services, which counted Bitter Smith’s presence on the Commission a major asset for would-be telecom company clients. Google’s cache resolved that dilemma. Among those taking advantage of Technical Solutions’ services are AT&T, the former wireless company Alltel, and most of the state’s largest cable operators. Bitter Smith also claimed expertise setting up astroturf “grassroots” campaigns advocating her clients’ agendas and interests, but hiding any corporate connection. She also promoted her ability to plant stories with the media for her paying clients.

Scrubbed from the website, but retained by Google’s cache.

Reporters at KJZZ, a public radio station in Phoenix, have spent months following the fine line Bitter Smith has laid as a defense against conflict of interest charges.

Oopsy

Bitter Smith depends on cable and phone companies setting up different entities in name only to manage regulated and unregulated services. That means a cable company could approach the Commission under several different names, one for its phone, one for its television, and one for its broadband business. That distinction allows Bitter Smith to claim she is careful about conflicts of interest:

Bitter Smith said that, because the telecom entities are so separate, it’s OK to vote on telecom matters related to Cox, Suddenlink and other members at the commission. But she still tries not to.

“We thought about that, ‘Well, maybe just from the appearance sake it wouldn’t hurt,’” she said.

Since Bitter Smith took office in 2013, records show the commission has voted at least seven times on matters involving the telephone side of the cable association’s members.

She recused herself four of those times, such as last year when a tariff increase was approved for Cox.

But she didn’t recuse herself on three matters, which she said was accidental, including another tariff increase for Cox approved in 2013.

“Probably should have, just didn’t catch it,” she said.“It was on the consent agenda, I zoomed through.”

She also didn’t recuse herself in May from voting to rescind a $225,000-bond requirement for Mercury Voice & Data, an entity identified in public documents as doing business in Arizona as Suddenlink Communications. She said she missed that one accidentally as well.

“Suddenlink is my member, Mercury Voice & Data is not an entity that I’m familiar with,” Bitter Smith said. “If I had understood, I probably would have, you know, just for optics sake. There’s no legal reason I would need to do that but, had I understood that there was another entity that they now form with a new name, separate entity with a new name, I probably would have.”

[flv]http://www.phillipdampier.com/video/Corporation Commissioner Is Paid Lobbyist For Same Corporations She Regulates 12-3-15.mp4[/flv]

Real News AZ talked with attorney Thomas Ryan about the ethics of serving as a Corporation Commissioner while also employed as a paid lobbyist working for the interests of the companies regulated by that Commission. (7:08)

Ryan

Bitter Smith’s ‘oopsies‘ infuriate government watchdog and Arizona attorney Thomas Ryan, who has tangled with Arizona’s high-powered politicians before… and won.

“This will not go quietly in the night and whoever she retains will no doubt fight it tooth and nail,” Ryan said of Bitter Smith. “But the state of Arizona deserves a Corporation Commission that is not bought and paid for by the very people it’s supposed to regulate, the very industries it’s supposed to regulate.”

Ryan is particularly incensed that Bitter Smith’s apparent ethical lapses are costing Arizonans twice — taxpayers pay her nearly $80,000 salary as a Commissioner and the increasingly expensive cable and phone bills that grow as a result of some of the Commission’s pro-telecom decisions. But at least Bitter Smith is doing well, also collecting her six figure salary from the cable lobbying association she leads.

Pat Quinn, former director of the Residential Utility Consumer Office, or RUCO, which advocates for consumers at the ACC, isn’t moved by Bitter Smith’s fine line and he should know – he’s the former Arizona president of Qwest Communications (today CenturyLink).

Quinn said Bitter Smith’s explanation about the separateness of telecom entities from cable is making a “difference without a distinction.”

“While you may be able to, accounting wise, separate your expenses between what you put in phone and what you put in cable, how do you take out of your mind, ‘Oh, they’re paying me over here and we do good things for them over here, but I’m going to be fair and unbiased when I look at not only Cox on the phone side, but any of the other phone providers,’” Quinn told KJZZ.

How Bitter Smith helped kill rural community broadband in Arizona for the benefit of the state’s biggest cable companies. (6:43)

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Killing Community Broadband to Protect Arizona Cable Profits

The clearest cut evidence of Bitter Smith’s lobbying for Arizona cable companies while claiming to represent the public interest as a commissioner came in 2013, when Bitter Smith and Cox Communications lobbyist Susan Anable tried to pressure Galen Updike, a state employee tasked with mapping broadband availability in Arizona and advocating for solutions for the 80 percent of rural communities in the state that remain broadband-challenged to this day.

In February, Bitter Smith and Anable allegedly solicited the help of state employees to kill a state contract with GovNet, a firm that had previously received $39 million in federal dollars to bring broadband to rural Arizona.

Updike said Bitter Smith trashed GovNet’s reputation, claiming the provider walked away from earlier projects leaving them incomplete.

“‘There was a better alternative,'” Updike recalls Bitter Smith telling him. “‘You’ve got existing cable companies in the area that are having now to compete against these dollars that come in from the federal government. Can you help us get rid of GovNet’s contract?’ [was the request]. It took my breath away.”

Updike said Bitter Smith maintained a near-constant presence at their meetings, but she had no interest in solving Arizona’s rural broadband problems.

“The only reason for Bitter Smith to be there was to talk about telecommunications policy, broadband policy,” Updike said.

Updike’s efforts to make things better for broadband in rural Arizona met constant headwinds from Bitter Smith and lobbyists for the state’s cable and phone companies.

“All the broadband providers were cherry picking — going after the high easy places to put broadband into where there’s high concentration of population dollars,” Updike said. “And basically the low population areas, the rural areas of the state of Arizona, are sucking wind. They have no possibility for it.”

Efforts to develop the Arizona Strategic Broadband Plan were effectively sabotaged by the cable industry, especially Cox. Bitter Smith immediately objected to the contention the cable industry could collectively offer broadband to 96 percent of the state if it chose. She claimed that was invalid. She also criticized the proposal to begin a comprehensive broadband mapping program claiming it lacked proof it would be any real ongoing benefit to anyone.

At the center of the lobbying effort backed by Cox was an argument the state should not involve itself in expanding broadband networks. Instead, it should spend its funds promoting the broadband service already available from cable operators to those not yet signed up.

Things got much worse for Updike as Republicans cemented their grip on the Corporation Commission in 2013. Updike continued to voice concerns about Bitter Smith’s conflicts of interest and was eventually taken aside and told to be quiet about the issue.

“I was told to stop poking the bear. The bear was the combination of Cox, CenturyLink and Susan Bitter Smith,” Updike told the radio station.

By May 2013, the broadband planning council’s meetings began to be mysteriously canceled. No strategic broadband plan was ever adopted. That same month, Updike was told he no longer had a job at the Arizona Department of Administration.

Henry Goldberg, and independent consultant who helped draft the never-adopted state broadband plan has little to fear from Bitter Smith, so he was frank with KJZZ.

“To me when you stop discussions of the plan, disband this council, which is supposed to advise the governor on digital policy, there’s something inappropriate going on there. Something like this is critical for the citizens of Arizona.”

Once again, a writer from the corporate-funded Mercatus Center is back to shill for the telecom industry.

Eli Dourado landed space in Slate to write a ridiculous defense of Comcast’s expanding trials of usage caps. When we first read it, we assumed a Comcast press release somehow managed to find its way into the original article. It quickly became impossible to discern the difference.

Before we take apart Mr. Dourado’s nonsensical arguments, let’s consider the source.

Sourcewatch calls Mercatus one of the best-funded think tanks in the United States. And why not. Its indefatigable advocacy of pro-corporate policies is legendary. The Center itself was initially funded by the Koch Brothers to advocate against consumer protection and oversight and for deregulation.

With that kind of mission and money, it’s no surprise the authors coming out of Mercatus are in rigid lock-step with the corporate agendas of Comcast, AT&T, and other large telecom companies. The Center is also a friend of the American Legislative Exchange Council (ALEC), a group that counts Comcast and AT&T as dues-paying members. ALEC’s corporate members ghostwrite legislation that ends up introduced in state legislatures across the country.

We have never seen a Mercatus-affiliated author ever write a piece that runs contrary to the interests of Big Telecom companies. They oppose community broadband competition, Net Neutrality, and have defended wireless mergers that would have killed T-Mobile, turn Time Warner customers into Comcast customers, and believed AT&T’s buyout of DirecTV was just dandy and Charter’s buyout of Time Warner Cable is even more consumer-y.

They favor usage caps/usage pricing, defend higher bills, and laughingly claim Americans are probably underpaying for broadband compared to the rest of the world.

Life must be good on Broadband Fantasy Island, where those in favor of Comcast’s usage pricing experiments live. In a style that eerily resembles a Comcast corporate blog post, Dourado unconvincingly tells readers, “metered data is good for most consumers and for the Internet.”

Dourado’s defense of Comcast’s idea of reasonable pricing only had one slip-up, when he accidentally told the truth. He effectively derailed Comcast’s usual talking point that “it is only fair for heavy users to pay more” when he correctly noted, “broadband networks are composed almost entirely of fixed costs—costs that don’t vary very much with usage.”

(Image: Jacki Gallagher)

That ripping sound you hear is a corporate executive starting to tear up their contribution check to Mercatus Center for being off message. But hang on, Mr. Corporate Guy, Mercatus Center has always had your back before, let’s see if Dourado can pull his feet out of the fire.

“But when users pay for data use, cable companies have an incentive to make it easier than ever to use a lot of data—that is, to invest in speed upgrades. They want you to blow right by your habitual usage amounts, which you will probably do only if you are on a superfast connection. In this way, metered data encourages broadband network upgrades,” Dourado claims, back on message.

Dourado’s core argument is one we’ve heard from telecom companies for years: heavy users are responsible for the allegedly high fixed costs of delivering broadband to America. Because networks must be built to accommodate all users, those ‘data hogs’ force providers to charge top dollar to everyone to assure access to promised speeds, unfairly penalizing light users like grandma along the way just to satiate someone else’s desire for more downloading.

If that were true, broadband costs everywhere would be around the same and Frontier’s DSL service wouldn’t be so universally awful. Unfortunately for Dourado’s argument, we have the ability to look at broadband pricing and service quality beyond the monopoly/duopoly marketplace we have in North America. Fixed costs to deliver broadband service here are comparable in western Europe and Asia and somehow they manage to do a lot more for a lot less.

Closer to home, newly emerging competitors like Google Fiber, municipal/community broadband, and private overbuilders like Grande Communications and WOW! also manage to deliver more service for less money, without any need to gouge and abuse their customers. The fact Time Warner Cable, Verizon, Charter and Bright House have seen no need to impose compulsory usage caps or usage pricing (AT&T does not enforce their cap on U-verse service either) and also do business in the same states where Comcast is imposing caps is just the first of many threads that unravel Dourado’s poorly woven argument.

Let’s break Dourado’s other arguments down:

Phillip Dampier

Dourado’s Claim: “Broadband networks are composed almost entirely of fixed costs—costs that don’t vary very much with usage. Cable companies have to spend many billions of dollars to build and maintain their networks whether or not we use them. One way or another, users of the network have to collectively pay those billions of dollars.”

Stop the Cap!: This is true, but Mr. Dourado forgets to mention most of the costs to construct those networks were paid off years ago. DSL and fiber to the neighborhood services avoided incurring the most costly part of network construction — wiring the last mile to the customer’s home. Phone company broadband, excepting Verizon’s complete fiber-to-the-home service network overhaul, benefits from the use of an existing copper-based network built and paid for long ago to deliver basic telephone service.

The cable industry did even better. It used the same fiber-coax network last rebuilt in the early/mid-1990s to deliver more television channels to also deliver broadband, which initially took up about as much space as just one or two TV channels. The cable industry introduced broadband experimentally, spending comparatively little on network upgrades. This was important to help overcome skepticism by corporate executives who initially doubted selling Internet access over cable would ever attract much interest. It shows how much they know.

So while it is true to say the telecommunications industry spent billions to develop their infrastructure, for most it was primarily to sell different services — voice grade telephone service and cable-TV, for which it received a healthy return. Selling broadband turned out to be added gravy. For a service the cable industry spent relatively little to offer, it collected an average of $30 a month in unregulated revenue. That price has since doubled (or more) for many consumers. Cost recovery has never been a problem for companies like Comcast.

In 2014, Techdirt showed broadband investment wasn’t increasing at the rate the cable industry claimed. It has been largely flat, and not because of broadband usage or pricing.

It is easy for providers to show eye-popping dollar amounts invested in broadband improvements. Most providers routinely quote these numbers to justify just about everything from rate increases to further deregulation. When the numbers alone don’t sufficiently sell their latest argument, they lie about them. Adopting any pro-consumer policy like Net Neutrality or a ban on usage pricing would, in their view, “harm investment.” Only it didn’t and it won’t.

What these same providers never include on those press releases are their revenue numbers. Placed side by side with capital expenses/infrastructure upgrades, the clarity that emerges from showing how much providers are putting in the bank takes the wind right out of their sails. It turns out most providers are already earning a windfall selling unlimited broadband at ever-rising prices, while network upgrade expenses remain largely flat or are in decline. In short, your phone or cable company is earning a growing percentage of their overall profits from the sale of broadband, because they are raising prices while also enjoying an ongoing decline in the cost of providing the service. Despite that, they are now back for more of your money.

Dourado’s basic argument is the same one providers have tried for years — attempting to pit one customer against another over who is responsible for the high cost of Internet access. They prefer to frame the argument as “heavy users” vs. “light users.” Hence, it is isn’t fair to expect grandma to pay for the teen gamer down the street who also enjoys BitTorrent file sharing. Their hope is that the time-tested meme “someone is getting a free ride while you pay for it” will act like shiny keys to distract people from fingering the real perpetrator of high pricing — the same phone and cable companies laughing all the way to the bank.

It’s easy to prove and we’ve done it here at Stop the Cap! since 2008.

We have a BS detector that never fails to uncover the real motivation behind usage pricing. It’s simply this. If a provider is really in favor of usage billing, then let’s have a go at it. But it must be real usage pricing.

Here’s how it works. Just as with your electric utility, you will pay a monthly connection/facilities charge to cover the cost of the transport network and infrastructure, typically $15 or less per month (and it should be less because utilities have to maintain physical meters that cable and phone companies don’t). Next come usage charges, and because the industry seems to have adopted AT&T’s formula, we will use that.

Your broadband will now cost $15 a month for the connection charge and usage pricing will amount to $10 for each 50GB increment of usage. Because even Mr. Dourado admits there is no real cost difference supplying broadband at different speeds, you deserve the maximum. If you turn in average usage numbers, you will have consumed between 50-100GB each month. So your new broadband bill will be $25 if you consume 50 or fewer gigabytes, $35 if you consume between 50-100GB. Deal?

Considering what you are probably paying today for Internet access, you will fully understand that howling sound you hear is coming from telecom company executives screaming in opposition to fair usage pricing. That is why no provider in America is advocating for fair usage pricing. In reality, they want to charge current prices –and– impose an arbitrary usage allowance on you, above which they can begin to collect overlimit penalty fees. It’s just another rate hike.

Dourado is stuck with a bad hand trying to play the second part of the “usage pricing fairness” game. While claiming heavy users should be forced to pay more, he is unable to offer a real example of light users paying substantially less.

At this point, Dourado’s proverbial pants fall off, exposing the naked reality that few, if any customers actually pay less under usage pricing. That is because providers are terrified of the word “cannibalization.” In the broadband business, it refers to customers examining their options and downgrading their service to a cheaper-priced plan (shudder) that better reflects their actual usage. To make certain this happens rarely, if ever, Comcast offers customers scant savings of $5 from exactly one “Flexible Data Option” available only to those choosing the improbable Economy Plus plan, which offers just 3Mbps service. Customers agree to keep their usage at or below 5GB a month or they risk an overlimit fee of $1 per gigabyte. It’s like Russian Roulette for Bill Shock. Where can we sign up?

In fact, Time Warner Cable has already admitted a similar plan open to all of its broadband customers was a colossal flop, attracting only “a few thousand” customers nationwide out of 15 million qualified to choose it. We suspect the number of Comcast customers signed up to this “money-saving plan” is probably in the hundreds. Time Warner was smart enough to realize forcing customers into a massively unpopular compulsory usage plan would make them a pariah. For Comcast, “pariah” is a matter of “same story, different day.” Alienating customers is their specialty and despite growing customer dissatisfaction, executives have ordered all ahead full on usage pricing.

Dourado also can’t help himself, getting his own cheap shot in at government-mandated Lifeline-like discounts designed to make Internet access more affordable, calling it a “tax and spend program.” He omits the fact Comcast already offers its own affordable Internet plan voluntarily. But mentioning that would further undercut his already weak argument in favor of usage pricing.

Dourado: “If everyone paid equal prices for unlimited data plans, cable company revenues would be limited by the number of people willing to pay that equal rate.”

Stop the Cap!: Providers have already figured out they can charge higher prices for all sorts of things to increase revenue. General rate increases, modem fees, and charging higher prices for faster speeds are also proven ways companies are earning higher revenue from their existing customers.

Dourado: “But when users pay for data use, cable companies have an incentive to make it easier than ever to use a lot of data—that is, to invest in speed upgrades. They want you to blow right by your habitual usage amounts, which you will probably do only if you are on a superfast connection. In this way, metered data encourages broadband network upgrades.”

Stop the Cap!: Nice theory, but companies like Comcast have found an easier way to make money. They simply raise the price of service. Dourado should learn more about the concept of pricing elasticity. Comcast executives know all about it. It allows them, in the absence of significant competition, to raise broadband prices just because they can and not risk significant customer number defections as a result.

After they do that, the next trick in the book is to play games with usage allowances to expose more customers to overlimit fees or force them into more expensive usage plans. In Atlanta, Comcast even sells its own insurance plan to protect customers… from Comcast. For an extra $35 a month, customers can avoid being molested by Comcast’s arbitrary usage allowance and overlimit fees and get unlimited service back. As customers rightfully point out, this means they are paying $35 more a month for the same service they had just a few months earlier, with no improvements whatsoever. Is that innovative pricing or highway robbery?

What inspires companies to raise speeds and treat customers right is competition, something sorely lacking in this country. Just the vaguest threat of a new competitor, such as the arrival of Google Fiber was more than enough incentive for companies to begin investing in waves of speed upgrades, bringing some customers gigabit speeds. Usage pricing played no factor in these upgrades. The fact a new competitor threatened to sell faster Internet at a fair price (without caps) did.

Dourado: “The DOCSIS 3.1 cable modem standard, just now being finalized, will allow downloads over the existing cable network up to 10 Gbps (10 times faster than Google Fiber). Cable companies are now facing a choice as to how fast to roll out support for DOCSIS 3.1. As the theory predicts, Comcast, now experimenting with metering, is planning an aggressive rollout of the new multi-gigabit standard.”

Stop the Cap!: While Dourado celebrates Comcast’s achievements, he ignores the fact EPB Fiber in Chattanooga offers 10Gbps fiber broadband today, charging the same price Comcast wants for only 2Gbps service, and does not charge Comcast’s $1,000 installation and activation fee. EPB did not require the incentive of usage billing or caps to finance its upgrade. Dourado also conveniently ignores the fact almost every cable operator, many with no plans to add compulsory usage caps or usage pricing, are also aggressively moving forward on plans to rollout DOCSIS 3.1. It’s more efficient, allows for the sale of more profitable higher speed Internet tiers, and is cost-effective. Some companies want the right to gouge their customers, others want to do the right thing. Guess where Comcast fits.

Usage Cap Man

Dourado: “It’s not fun to continually calculate how much you are spending. But we all gladly accept metering for water and electricity with no significant mental accounting costs—why should broadband be so different? Both Comcast and Cox make it easy to track usage. And even if we can’t just get over our mental accounting costs, are they really so significant that we should cite them as an excuse for keeping the poor and elderly offline and letting our broadband networks stagnate?”

Stop the Cap!: Assumes facts not in evidence. First, once again Mr. Dourado’s talking points come straight from the cable industry and are fatally flawed. While Dourado talks about usage pricing for water and electricity — resources that come with the added costs of being pumped, treated, or generated, he conveniently ignores the one service most closely related to broadband – the telephone. The costs to transport data, whether it is a phone call or a Netflix movie, have dropped so much, phone companies increasingly offer unlimited local -and- long distance calling plans to their customers. When is the last time anyone bothered to think about calling after 11pm to get the “night/weekend long distance rate?” For years, broadband customers have not had to worry how much a Netflix movie will chew through a broadband usage allowance either. But now they might, because the cable industry understands that Netflix viewer may have cut his cable television package, cutting the revenue the cable company now wants back.

Second, heavy Internet users are not the ones responsible for keeping the poor and elderly offline and allowing broadband infrastructure to stagnate. The blame for that lies squarely in the executive suites at Comcast, AT&T and other telecom companies that make a conscious business decision charging prices that guarantee better returns for their shareholders (and their fat executive salary and bonuses).

But it isn’t all bad news.

Comcast’s Internet Essentials already exists today and is priced at $9.95 a month. Only Comcast’s revenue-cannibalization protection scheme keep it out of the hands of more customers. It limits the program to customers with school age children on the federal student lunch program and is off-limits to existing Comcast broadband customers even if they otherwise qualify. Why? Because if the program was available to everyone, it would quickly cut their profits as customers downgraded their service.

Comcast’s abysmal performance is legendary, and that isn’t a result of heavy users either. That is entirely the fault of a company that puts its own greed ahead of its alienated customers, something plainly clear from forcing captive customers into usage trials they don’t want or need. Verizon FiOS uses technology far superior to what Comcast is using, offers better speeds and better service. Customers are happy and routinely rate FiOS among the nation’s top providers. They don’t need usage pricing or caps to manage this. Comcast sure doesn’t either.

Mr. Dourado’s arguments for usage pricing are so weak and provably false, it is almost embarrassing. But we understood he was given the impossible challenge trying to mount a defense for Comcast’s latest Internet Overcharging scheme. Nobody can defend the indefensible.

If the Federal Communications Commission weighed comments for and against the merger of Charter-Time Warner Cable-Bright House Networks based on volume, it would likely be a done deal.

A major lobbying effort by the cable companies involved in the transaction has been underway to encourage politicians, business associations, non-profit groups, and programmers to write the FCC asking the deal be approved. Many are responding, including politicians receiving political donations and/or seeking expanded service for their communities, non-profits that depend on financial contributions from one or more of the companies involved, programmers that live or die based on winning carriage agreements with Charter, Bright House, and Time Warner Cable, and other groups with missions that seem miles away from a multi-billion dollar cable merger.

Stop the Cap! examined many of these curious letters of support. What, for instance, might motivate the New York Snowmobile Association to navigate the cumbersome comment filing systems of both the New York Public Service Commission and the Federal Communications Commission to express glowing support for a cable merger?

The International Soap Box Derby is all-in on the merger of Charter-TWC-Bright House.

What made the Maccabi World Union, the largest Jewish sports organization in the world, enthusiastic enough to dwell on a marriage of three cable companies?

How could the Montana Stockgrowers Association set aside their interest in helping state cattle ranchers to deliver safe and wholesome beef to American dinner tables to ponder modem fees in their letter to the Commission?

One Los Angeles non-profit organization contacted by Stop the Cap! shed some light on the subject, if we agreed to keep their name private.

“Like many non-profits, when Time Warner Cable makes a financial contribution to our organization, they attempt to find ways where both our organization and their company can benefit from goodwill generated by charitable contributions,” the director told Stop the Cap! “When the deal with Charter and Time Warner was announced, we received a gently worded request to participate in the public discussion about the merger.”

The group received information containing talking points about the deal’s benefits to consumers and businesses and was asked to consider using those points in a letter to state and federal regulators that would present a positive view of the deal.

“Non-profits need the contributions of large companies like Time Warner Cable and Charter, which both serve parts of Los Angeles County, to fund our programs,” the director said. “There isn’t any pressure on us to write the letters, but since they are in the public record, we know the cable companies know who wrote and who did not.”

The director of this particular organization had qualms about getting involved in a regulatory matter that did not involve the organization he leads, but he was overruled by his board of directors.

“Money is tight,” the director added. “I don’t want to comment on Charter Cable’s performance in Los Angeles except to say it is the main reason I use someone else.”

The director of the group would not comment when asked if it was uncomfortable signing a letter in support of a company who has failed to meet their personal expectations.

The fact non-profit groups spend time and resources writing letters on behalf of their donors bothers others as well.

Shawn Sheridan of Turlock, Calif. exhaustively researched over 250 pieces of correspondence the FCC has received in favor of the Charter acquisition, and he is not happy about what he found.

“The current public comments process has been infiltrated to purposely influence the independent review process,” Sheridan writes in a letter to the FCC. “I suggest to the Commission that conducting an independent analysis of the comments received from the public for [this merger] would reveal a nationwide campaign to improperly affect the Commission’s independent review of the applications, and reveal unique characteristics of who has and has not commented publicly.”

Sheridan categorized all the letters arriving from state/local representatives, Chamber of Commerce chapters, and non-profit groups:

Letters from different chapters of the Chambers of Commerce, which typically count Time Warner Cable, Charter Communications, and/or Bright House Networks as dues-paying members, were oddly uniform in their praise of the transaction.

The Minnesota Chamber of Commerce, for example, didn’t seem too interested in getting into the specifics of the deal, satisfied instead to request “the FCC approve all matters related to this merger promptly.”

Dozens of other chapters of the business association used similar language praising the merger proposal. Notice the references to “$2.5 billion” promised to be spent on commercial fiber optics and “one million new residential lines” mentioned in a handful of the filings with the FCC:

The Minnesota Chamber of Commerce advocates giving Charter whatever it wants.

• “The Missoula Area Chamber of Commerce is the voice of business in Missoula County….We are excited by New Charter’s commitment to invest $2.5 billion into networks in commercial areas.”
• “As a member-driven organization, the Montana Chamber of Commerce represents the interests of business, ranging from small mom-and-pop operations to large companies….The new company would commit $2.5 billion to the commercial sector and would build out residential lines, improving both industry competition and local infrastructure.”
• “With nearly 700 members that employ more than 12,000 people, the Fremont Chamber of Commerce represents a vibrant, regional business community in eastern Nebraska….Specifically, we are told, the greater financial strength of the unified operations would lead to investment of at least $2.5 billion to upgrade commercial lines to fiber-optics….Therefore, based on their assurances to us, we believe New Charter would be a great partner….”
• “The Florida Chamber of Commerce is pleased to support Bright House Network’s merger with Charter Communications and Time Warner Cable into New Charter….New Charter would be committed to infrastructure investment. It would devote at least $2.5 billion towards commercial networks, contributing important upgrades and competition into this influential market.”
• [Clearwater Regional Chamber of Commerce:] “We understand that New Charter plans to invest $2.5 billion toward commercial networks, contributing important upgrades and competition
• into this influential market and to provide substantial investment throughout the entire State.”
• [Lakeland Area Chamber of Commerce:] “For example, New Charter has committed to $2.5 billion in commercial networks and would build out one million residential line extensions.”
• [San Diego Regional Chamber of Commerce:] “The proposal promises to bring in at least $2.5 billion in new commercial infrastructure investment, much of which will be invested in areas
  where the Charter Communications currently does not operate.”
• “With more than 10,000 members, the Greater Cleveland Partnership (GCP) is a membership association of Northeast Ohio companies and organizations and one of the largest metropolitan
  chambers of commerce in the nation….Specifically, it would commit at least $2.5 billion to build out commercial network lines and put up one million new residential lines….”
• “The Buffalo Niagara Partnership is the region’s private sector economic development organization and regional chamber of commerce….In the near future, our state will benefit from
  a $2.5 billion expansion in the build-out of networks into commercial sectors.”
• “At the Finger Lakes Chamber of Commerce, we serve as the voice of our local business community….We have [been] made aware of a major change in the cable broadband industry. The potential merger of Charter Communications, Time Warner Cable, and Bright House Networks into New Charter….”

The language that implies these are not spontaneous, coincidental pieces of correspondence was couched using phrases like, “we are told,” “we understand,” and “we have [been] made aware.”

These talking points actually originate from Charter Communications’ Resource Center, which distributes pro-merger information to organizations in Time Warner Cable and Bright House Networks’ service areas. The references to $2.5 billion for commercial upgrades and line extensions to one million new residential customers originate in documents like this, tailored in this case to New Yorkers.

Some organizations devote more time to customizing their correspondence than others. The Business Council of New York State and the Orange County Partnership couldn’t be bothered, and essentially cut and paste nearly identical language in their “individual” letters of support:

“We recognize that the information and communications sector is an increasingly critical component of a healthy economy….The Business Council understands that access to a reliable 21st Century communications infrastructure—with competitive options for service—is essential for New Yorkers in their homes, schools and workplaces.“

“The Partnership recognizes that the information and communication sector is an increasingly critical component of a healthy economy….We also understand that access to reliable 21st Century communications infrastructure, with competitive options for service, is a necessity for Orange County residents in their homes, schools and workplaces.“

…and the chances of a multibillion dollar cable merger winning regulatory approval.

Dominic J. Jacangelo was so nice, he liked Charter Communications’ merger twice — once on the letterhead of the New York Snowmobile Association, where he serves as executive director, and in a nearly identical letter signed by Jacangelo as Supervisor of the Town of Poestenkill, N.Y. He cited the same talking points the various Chambers of Commerce did.

Representing the interests of 2.5 million people worldwide or its member Time Warner Cable?

Sheridan disputes how merger supporters often attempt to give their views more weight by implying their positions are shared by their constituents. The Orange County Business Council claimed in its letter it represented nearly 300 Southern California businesses employing over 250,000 in the region and more than two million globally. Sheridan doubts more than 2.25 million people, many working outside the country, support the cable merger as much as OCBC suggests.

A larger question is what motivates the letter writers to weigh in on a cable merger in the first place?

For the ranchers in Montana, the desire for more rural broadband is well known. Cable operators usually don’t provide service to large, expansive ranches where a herd of cattle often vastly outnumbers the local population.

For Mr. Jacangelo, his LinkedIn page cites his talents for developing “professional relationships with business sponsors and [supporters], which might be helpful as the town of Poestenkill, like many other rural communities in upstate New York, seek expanded broadband service.

In 2009, the Maccabi World Union partnered with Jewish Life Television to provide in-depth coverage of the Maccabiah Games, a global sporting event. U.S. viewers see coverage of those games over Jewish Life TV, a cable network that reaches Time Warner Cable and Bright House customers, but not Charter Cable customers. A takeover of Time Warner and Bright House by Charter Communications could risk the end of that carriage agreement. Supporting Charter at its time of need may establish enough goodwill to guarantee JLTV will be a part of the “New Charter” lineup.

Sheridan’s research also discovered, as of Oct. 9, 2015:

• With a total of 31 letters from politicians in the state of Texas, not one came from a local official. Eighteen Chambers of Commerce in Texas sent letters in support of the deal;
• No state-level representatives weighed in on the deal in New York either, although 30 local and county leaders gave their support;
• One third of the 28 states where Charter provides service had no comment on the merger, pro or con, hardly representing a nationwide groundswell of support;
• Charter Communications’ corporate headquarters, formerly in Missouri and now in Connecticut, also drew little hometown interest. Just one letter from a state-level politician in Missouri reached the FCC. There were no letters from Connecticut at all;
• Of 258 unique commenters sending letters in support of the merger, 211 (82%) claimed to represent the interests of their members and affiliates without providing supporting evidence that was true. Most of those organizations received direct financial support or in-kind contributions from one or more of the involved cable operators or counted them as dues-paying members;
• Not counting Time Warner Cable or Bright House’s combined 13+ million customers, only about 30 unique consumers submitted a comment to the FCC regarding the merger, representing 0.000005% of Charter’s six million customers.

Broadband for America is a front group funded by the telecom industry.

The Boston Globe has asked an industry-funded columnist to stop writing about broadband issues because he failed to disclose his conflicts of interest.

John E. Sununu is a former Republican U.S. Senator from New Hampshire and the son of former New Hampshire Governor John H. Sununu. Since leaving office, he has earned a significant sum representing the interests of large telecom companies while assisting the Republican presidential primary campaign of Ohio Governor John Kasich. He has used his column in the influential newspaper to help both, without any disclosure to readers he has direct financial and personal conflicts of interest.

Media Matters criticized the paper after it allowed the former Republican senator to complain about the “unnecessary regulation of the internet” without disclosing he has been paid over $750,000 by corporate interests.

Sununu: “Honorary co-chair”

In an August 17 column, Sununu attacked the Obama administration for reaching “ever deeper into the economy, pursuing expensive and unnecessary regulation of the Internet, carbon emissions, and even car loans.”

The editors of the Globe failed to tell readers Sununu has a dog in the fight over broadband regulation, serving as a board member for Time Warner Cable and a paid “honorary co-chair” for Broadband for America. As Stop the Cap! first reported in 2009 in an extensive two-part expose, almost every member of Broadband for America is either a cable or phone company, a lobbyist for the telecom industry, an equipment supplier relying on the industry to stay in business, or a non-profit group that receives direct financial contributions from cable and phone companies.

Sununu also failed to mention he serves as the chair of John Kasich’s presidential campaign in New Hampshire when he wrote a column on June 22 claiming Donald Trump was “running a race where both the chance of winning and the risk of losing are zero.”

The lack of proper disclosure of conflicts of interest is not limited to the Globe. Shills for AT&T’s interests routinely appear in “guest editorials” in newspapers across AT&T’s service areas. Newspapers rarely disclose the authors have direct financial ties to AT&T, appearing to the uninformed as “independent voices.”

Dan Kennedy, an associate professor of journalism at Northeastern University, wrote that Globe Editorial Page Editor Ellen Clegg stated “Sununu has told me he will avoid writing about issues pertaining to cable and internet access because of his seat on the Time Warner Cable board.” Clegg reaffirmed that the Globe is “posting bios for our regular freelance op-ed columnists online and linking those bios to their bylines” to provide “more transparency.”

One down, countless more to go.

Allen

Citing tissue-thin evidence to prove the allegation Comcast and Time Warner Cable conspired to racially discriminate against minority-owned cable channels, a California judge dismissed a $20 billion lawsuit brought by Byron Allen’s Entertainment Studios Networks.

Allen accused Comcast and Time Warner Cable of creating minority interest cable networks that were actually owned by white ex-cable executives and hedge fund operators. Allen charged Comcast with seeking to pass the minority networks off as fulfillment of a diversity agreement Comcast had with federal officials as a condition of approving the 2010 merger of Comcast and NBCUniversal.

Allen also claimed Comcast “brazenly stated that it does not want to create any more black billionaires, such as Bob Johnson, the African-American founder of Black Entertainment Television.” Allen also referred to Sharpton as “Comcast’s least expensive negro.”

Allen widened the list of defendants to include several minority groups that have close ties to Comcast, including Al Sharpton and his National Action Network, the NAACP, and the Urban League. All of the named defendants are regular promoters of Comcast’s ventures and business interests in letters to regulators.

U.S. District Judge Terry Hatter Jr. found Allen’s case less than compelling and dismissed it outright, ruling it lacked enough verifiable facts to show his court has jurisdiction over the defendants and lacked sufficient evidence to prove liability.

The ruling did not seem to bother Allen much.

“Knowing that our lawsuit helped the FCC and the DOJ deny Comcast’s bid to buy Time Warner Cable is already a big win for us,” said Allen in a statement. “We are going to immediately appeal this decision to the 9th Circuit Court of Appeals who I believe will deliver us a favorable decision.”

Comcast and the other defendants called the lawsuit offensive, frivolous and outlandish.