Comcast and Charter Communications have no real interest in competing head-to-head in wireless with AT&T, Verizon, T-Mobile, or Sprint. Instead, the two cable companies hope to trap you in a bundled package of services too inconvenient to cancel.

Jeff Kagan, a longstanding telecommunications analyst specializing in the cable industry, believes Comcast, Charter, and other cable operators entering the wireless business have no intention of being a serious competitor to the country’s four largest mobile companies.

“The goal of XFINITY Mobile [from Comcast] is to offer their customers another service and to create a sticky bundle,” Kagan said. “It’s not to lead the wireless wars. It’s not to increase their market share for traditional reasons. It is simply to create a sticky bundle to stabilize and grow their customer base.”

Kagan

XFINITY Mobile and Spectrum Mobile (from Charter), both require customers to be signed up for their respective internet services. If a customer cancels internet service, they will lose their mobile service. That could prove to be a major hassle for wireless customers, because they will have to properly port out their existing phone number(s) to another provider before dropping broadband.

Kagan believes cable operators will use mobile service to further strengthen their bundle by tying discounts to the number of services each customer takes through the cable company.

“Customers who use one service find it easy to switch away to a competitor,” Kagan said. “However, when they use multiple services and get a discount for the bundle, they become sticky and generally stay put. And the more services a customer uses, the larger the discount, the stickier they get and the less likely they are to wander.”

That is also likely to be true with Altice, which operates Optimum (Cablevision) and SuddenLink and has partnered with Sprint to offer cell service.

Sprint and T-Mobile, which are planning to merge, have repeatedly argued cable operators will be aggressive new players in the mobile business, giving the potentially combined carrier fierce new competitors. But Kagan doubts that will prove true.

“The problem is, the sticky bundle is not a low-cost solution,” Kagan offered. “With that said, the higher cost to the cable television companies is less than that of losing their customer base. So, the cost makes sense as simply a cost of doing business.”

The challenge cable operators face is that none plan to own and operate their own traditional cellular network. Comcast and Charter have partnered with Verizon Wireless to resell access to its 4G LTE network and Altice will rely on Sprint. Leasing access on an ongoing basis is likely to be more expensive that relying on your own network, but beyond offering Wi-Fi calling and experimental access to future 5G-type services in the emerging CBRS band, cable operators will remain almost completely dependent on their wireless provider partners, limiting their effective ability to compete.

Kagan believes the goals of the two industries are different. Wireless operators are trying to monetize their networks through usage, while cable operators are trying to find new services that will keep customers loyal and are willing to ignore monetizing their wireless side businesses to achieve that goal.

Epix, the newest premium movie channel on the block, is giving up on exclusive pay television distribution and has launched a new $5.99/mo direct-to-consumer subscription service, beating anticipated services from AT&T WarnerMedia and Disney.

Epix Now streaming subscribers will have access to “thousands of movies” and original series, with full download availability and a growing catalog of titles available for 4K/Ultra HD streaming.

Epix, now wholly owned by MGM, has struggled to attract subscribers from its traditional cable and satellite TV partners, as consumers ditch premium channels to reduce their bill or drop cable TV service altogether. Charter Communications recently dropped Epix from Spectrum’s bundled pay television tier, now requiring customers to buy the network a-la-carte, likely resulting in a dramatic loss of subscribers.

Epix Now is currently available with a 7-day free trial on Apple TV, as well as iOS and Android phones and tablets, and is expected to arrive soon for Roku and Amazon Fire TV owners. The service is also sold through The Roku Channel, but will shortly be transitioned to a standalone app on that platform.

Launched in October 2009, Epix began as a partnership between MGM, Lionsgate, and Viacom. It was known for airing movies more quickly after leaving theaters than its competitors. But the network has been limited by a lack of exclusivity to first-run content from larger studios. Lionsgate largely lost interest in Epix after acquiring competing premium movie service Starz in mid-2016. A year later, Viacom made it known it wanted to exit the venture to concentrate on Showtime, its primary pay television network, and use the sale proceeds to pay down Viacom’s high debt load.

Despite the growing impact of cord-cutting, Comcast is following companies like Charter Spectrum by cutting back customer retention discounts that savvy subscribers negotiate to keep their cable bill reasonable. Despite losing more than 344,000 cable television customers in 2018, almost twice as many as it lost in 2017, Comcast has lost interest in cutting prices to keep customers.

Traditionally, customers using the word “cancel” with a customer service representative would quickly be offered deeply discounted service if they agreed to stay. Customers willing to stand their ground in tough negotiations with the cable company could win promotional pricing indefinitely, often saving several hundred dollars a year without losing channels or services. In 2016, after Charter Communications completed its merger with Time Warner Cable and Bright House Networks, Charter CEO Thomas Rutledge vowed to impose “pricing discipline” on Time Warner Cable’s “Turkish bazaar of promotional deals” after Charter took control of the company.

Rutledge called out the ‘madness’ of offering customers fire sale prices on internet and television service at a MoffettNathanson Media & Communications Summit in May 2017.

“Time Warner wanted to make a video number, and there were data packages that cost less if you took video than if you didn’t,” Rutledge said. “And a lot of those were churning out. And a lot of them were basic-only. So on the margin, at the end – in the last year, I think they were selling 40% of their connects as basic-only. [TWC had] 90,000 different promotional offers, many of them deeply discounted and piled on top of each other.”

Rutledge said Time Warner Cable represented the worst of an industry practice that gave unprecedented power to customers to get what they wanted, at least for awhile.

“You’d call in, bargain … And so there’s a lot of that out there. And they’re also exploding packages. Meaning, at the end of the term, they go back to full price,” Rutledge complained.

Rutledge called an end to negotiations by offering customers the opportunity of keeping their current package, but gradually raising it to a price that was often higher than Spectrum’s own non-negotiable packages and pricing. Regardless of what package a customer chose, it was a win for Charter because regular pricing ensured the company was making money either way.

Comcast has apparently been won over by Rutledge’s message to the industry and is now gradually moving in a similar direction.

Strauss

Matt Strauss, executive vice president of XFINITY Services, told Business Insider Comcast will now attempt to keep and win back its cord-cutting customers not by discounting prices, but by creating much smaller cable TV packages with fewer channels — a practice known as slimming down packages into “skinny bundles.” Comcast also plans to stop pushing customers into its “best value” triple-play packages of television, phone, and internet services, understanding many customers have no interest in some of those services.

“Our strategy is very focused on segmentation and getting more sophisticated in putting together the right video offering for the right customer at the right time in their life,” Strauss said, not by offering deep discounts on bloated packages (including a landline or hundreds of unwanted TV channels) that would reduce profitability.

Charter is already offering an ultra-slim, a-la-carte local TV package combining Music Choice with the customer’s pick of 10 national cable channels for $21.99 a month. The package is targeted to those with internet-only service and is accessed through a Roku set-top box. DVR service is available, if a customer was willing to pay a steep DVR service and box rental fee.

Comcast’s new strategy will market internet packages that include the added-cost option of a super-slim TV package of local channels and a handful of cable networks.

Strauss disagrees with some industry pundits who have suggested cable companies are planning to abandon selling cable television altogether in favor of internet-only service.

“We continue to be very bullish on video, but you’re just going to see us be more focused on how we go to market with video,” Strauss said.

Spending less, charging more in 2019.

Despite repeated claims from some in Washington that eliminating net neutrality would stimulate U.S. telecommunications companies to invest more in their networks, Charter Communications has announced a dramatic $1.9 billion cut in capital expenditures (CapEx) spending on its Spectrum cable systems for 2019.

Charter posted 2018 revenue of $43.6 billion (up 4.9 percent over 2017), with especially healthy returns for its internet service, which grew 7.1%. Charter earned $11.2 billion in revenue, up 5.9% in the fourth quarter of 2018 alone, partly from rate increases, reduced costs, and additional broadband customers.

Republican FCC commissioners have repeatedly argued that deregulating the internet by sweeping away net neutrality would stimulate companies to invest more in their networks. But it now appears the reverse is true. In 2017, Charter spent $8.7 billion on network investments; in 2018 the company spent $9.1 billion. But this year, with net neutrality no longer the law of the land, the cable company is planning to dramatically cut investments in 2019 to just $7 billion. The combined company, which now includes Time Warner Cable (TWC) and Bright House Networks (BH), has never spent this little on capital expenditures. The 2016 merger between Charter and TWC and BH forced a 189.4% spike in spending after the deal was completed, as Charter began a cable system overhaul and upgrade.

Charter is expecting it can distribute more of its revenue to shareholders, share buybacks, and debt payments as a result of the completion of its all-digital conversion project, which eliminated analog television signals from cable systems to make more room for revenue-enhancing internet service. The company also gets to lease more set-top boxes to customers seeking to view digital television signals on older analog TV sets.

Charter also reports it has successfully completed its DOCSIS 3.1 internet upgrade to more than 99% of its cable systems, allowing the introduction of premium-priced gigabit internet speed.

Charter executives signaled investors earlier this month Charter expects to post greater revenue and profits as a result of the spending reductions, but these new-found gains will have no effect on the company’s ongoing plans to continue mildly aggressive rate increases in 2019.

Charter has not disclosed how much it plans to spend on its new mobile business in 2019. The company is marketing its mobile phone service more aggressively this year as it prepares to accept customers bringing existing phones to its cellular service, powered by Charter’s in-home and in-business Wi-Fi and Verizon Wireless’ 4G LTE network.

Stop the Cap! today appealed to New York’s Freedom of Information Law Officer to force Charter Spectrum to unredact customer complaint statistics on Charter Communication’s performance in New York since its 2016 merger with Time Warner Cable.

“Charter Spectrum’s merger with Time Warner Cable was only approved in New York after the company agreed to certain conditions that would allow the merger to be considered in the public interest,” said Stop the Cap! president and founder Phillip Dampier. “An annual review and at least a 17.5% reduction in the company’s video services complaint rate was part of that deal, but Charter won’t publicly state exactly how much of a reduction the company has achieved, claiming that information is ‘confidential’ and ‘secret.'”

“But Charter had no problem sharing its damage control explanation for why it is still dealing with a lot of angry customers annoyed about the increasing cost of doing business with Spectrum as a result of withdrawing promotions, forcing customers to rent expensive equipment, and deal with pricing and package changes that deliver fewer channels for more money,” Dampier added.

An example of the redactions (for public viewing) in Charter’s Feb. 4, 2019 letter to the NY State Department of Public Service (DPS).

Stop the Cap! argues the public has a right to know how well Charter is meeting its public interest commitments, especially after the state regulator voted last summer to kick the company out of New York (a decision that has been effectively stalled as Charter and DPS staff continue ongoing private settlement discussions.)

“Keeping complaint rates secret is an incentive for Charter to not invest adequately to deliver service improvements and its claim competitors will be able to exploit that information is laughable, as many New Yorkers have no other choice for high-speed internet service. It isn’t as if other cable companies are forcing their way into the state to offer customers another choice,” Dampier argued. “Charter is almost exclusively responsible for its complaint rate, based on how it chooses to conduct business. Had the company adopted more customer-friendly packages, services, and pricing, their complaint rate would have dropped like a rock.”

The letter in full:

February 6, 2019

Records Access Officer
Department of Public Service
Three Empire State Plaza
Albany, New York 12223

To Whom It May Concern:

We are requesting the release of an unredacted version of Charter’s 2018 PSC Video Complaint Data Report (three page letter dated 2/4/2019). Charter’s claim that this “sensitive” and “proprietary” information is useful to competitors is unproven and specious. Complaint rates are effectively modulated by a company’s choice of how it conducts its business, with or without the presence of an effective competitor. In this case, Charter admits its own business decisions, not competition, played a key role in the complaint rate, as shown below.

More importantly, this information was required to be submitted as part of the DPS Merger Approval Order granting Charter’s request to merge with Time Warner Cable. That merger was approved only after Charter agreed to certain obligations that would deliver sufficient pro-consumer benefits to meet the state’s requirement that the merger was in the public interest. A periodic review of Charter’s compliance is part of that process.

Charter is asking to keep such compliance information confidential, unreviewable, and unavailable to third party scrutiny. It also prevents organizations like ours, a party in the proceedings, from reviewing the data and submitting informed views to DPS commissioners and staff about the performance of Charter Communications under the Merger Approval Order.

Further, there is no demonstrable causal link shown between competitive injury and disclosure of video customer complaint rates that are the direct result of poor service experiences with Charter Communications. Charter is effectively asking the DPS to prohibit the public’s access to data that is part of a public interest test.

Allowing Charter to suppress public disclosure of raw data while leaving unredacted its damage control explanations for customer complaints also gives Charter an unfair advantage to explain away those complaints.¹

Requiring Charter to disclose customer dissatisfaction numbers is in the public interest and provides a strong incentive for Charter to provide better, more customer-responsive service to customers in New York, likely reducing the number of complaints from unhappy customers in the first place.

Therefore, we appeal to the FOIL Officer to release an unredacted version of the three-page compliance letter.

¹ “As the Commission is aware, changes—including improvements—can sometimes trigger complaints as customers adjust to new service options, promotions, and packages. Despite the increased level of activity and customer interaction related to integration and product advancement, Charter is pleased to report that both initial and escalated complaints have declined significantly compared to 2014 complaint numbers….” — 2018 PSC Video Complaint Data Submission, Charter Communications, 2/4/2019

Very truly yours,

Phillip M. Dampier
President and Founder