Highlights:

• Company still losing video customers, but picking up phone customers (on the cheap), and winning with broadband;
• Broadband consumption pricing still CEO’s favorite flavor of Internet billing, but only for other people’s content;
• Broadband speed matters, as Time Warner continues to win over dissatisfied DSL customers;
• ‘If customers love our broadband, we can charge more for it;’
• Verizon/Time Warner’s cooperative marketing agreement starts with discounts but ends with “exclusive product enhancements.”
• The future of Time Warner Cable Wi-Fi.

Time Warner Cable reported unexpectedly strong profits in its first quarter as the company’s broadband services helped stem the losses from departing cable TV customers.

The cable operator told investors it boosted profits 18%, mostly from increasing revenue the company earns selling broadband access to the Internet and convincing customers to add more Time Warner services.

Time Warner Cable said goodbye to 94,000 residential video subscribers last quarter, higher than analysts expected. But that did little damage to earnings because the company picked up an additional 214,000 broadband customers over the same period, most switching from phone company DSL service.

Time Warner Cable’s increasingly aggressive bundled service promotions, particularly on its triple-play offer of cable, broadband, and phone service, even managed to attract 112,000 new landline customers — a significant accomplishment as Americans continue to disconnect traditional phone lines in favor of cell phones.  It also helped increase the average revenue earned per subscriber.  Time Warner Cable pitches double play promotions as low as $79.00 a month. For just $10 a month more, customers can add a third service, and many do.

Most discounts last for one year, but the operator now often sends letters to customers reaching the end of their promotion offering additional, but lower-value discounts going forward. This has limited bill shock for customers surprised by the company’s regular prices. It also might reduce the urge for customers to shop around for a better deal.

Judging from the company’s financial results, most customers hang on to Time Warner Cable’s broadband regardless of price, if the competition happens to be traditional DSL from the phone company. In fact, as phone and cable companies realize they have sold broadband to virtually every home in their service area that wants it, growth in subscriber numbers going forward largely depends on poaching customers from someone else.  Nobody makes that easier than phone companies trying to sell customers DSL with speeds under 10Mbps.  According to CEO Glenn Britt, Time Warner Cable picked up more new broadband customers than Verizon and AT&T combined.

Time Warner Cable broadband speeds give headaches to phone companies trying to sell traditional DSL.

While phone companies continue to argue that speeds don’t matter (at least for their DSL product line), Time Warner believes otherwise and apparently so do their new customers.  The company reports that almost two-thirds of those dumping DSL said their old service was too slow.

Much of the company’s growth in broadband revenue is also coming from the high end, as customers increasingly gravitate towards faster broadband speed tiers.

Britt

Residential DOCSIS 3 (Extreme/Ultimate) customers increased 50% to 218,000, and almost 66% of new broadband customers signed up for either Turbo (20Mbps), Extreme (30Mbps) or Ultimate (50Mbps) service.  Together, these customers now make up 20% of Time Warner’s broadband subscribers, up from less than 16% a year earlier.

Customers are willing to pay higher prices for faster service, a point not lost on Britt, who noted that once customers perceive broadband has more and more value, the company can charge more for it over time.

If Britt’s steadfast belief in Internet Overcharging-consumption billing schemes holds true, some customers might find they are charged substantially more if the company decided to discontinue offering unlimited Internet service.

For now, the company plans to continue its experiments in consumption billing through its Internet Essentials program, now testing in South Texas, which limits customers to 5GB of usage per month before overlimit fees kick in.  But going forward:

“I think we’ve been pretty clear about this, we do think over time, there will be consumption element to the tiers,” Britt said.

But Britt says he wants to keep unlimited access for customers willing to pay for it.

Time Warner's Hotspots in southern California.

“We retained our unlimited tier with no cap (I actually don’t like the term cap),” Britt added. “And I think we should always have that. So that this was not in any way coercive, people who wanted to save money, could. People who wanted to keep what they had have kept it, and they still have unlimited. So our plan is to roll that out further across [the country] as the year goes on.”

Britt noted the company’s own streamed video products would not drain customers’ usage allowances.  But Netflix and other online streamed video would.  Britt adopted the same argument Comcast has used to defend the practice.

“So there’s a set of standards called the IP, Internet Protocol, and those can be used for a wide variety of things in the world,” Britt explains. “There’s also something called the public Internet, which happens to use IP standards. That doesn’t mean those two things are exactly the same. So the application that we have on the iPad is over our closed-circuit network. It’s just a different standard than we’ve used traditionally for our video. But it’s not the public Internet.”

In other developments, the company’s controversial co-marketing agreement with Verizon Wireless has now expanded to four cities: Raleigh, N.C., Cincinnati and Columbus, Ohio, and Kansas City, Mo.

Time Warner Cable executives told investors the early stages of the cooperative marketing agreement will consist of a promotion that includes a $200 gift card when a customer buys both a Verizon Wireless plan and upgrades at least one service on their Time Warner Cable account.  But the company plans to gradually reduce discounts and instead offer unspecified “exclusive product enhancements” that will only be available to customers who subscribe to both services.

Lastly, expect Time Warner Cable to continue aggressive deployment of its Wi-Fi networks in New York and Los Angeles.  The company signaled it intends to construct similar Wi-Fi networks in other cities in serves, but most likely not during 2012.

Some of AT&T’s prepaid GoPhone customers are howling over the company’s “new and improved” data packages that now require customers to purchase a qualified voice package if they also want affordable wireless data.

AT&T’s press release:

AT&T today announced the following new data packages with double the data or more for the same price for GoPhone customers, available April 22.

• 1GB for $25
• 200MB for $15
• 50MB for $5

All data packages are available on the $50 Unlimited Talk & Text nationwide plan for GoPhone smartphones and the $25 Unlimited Text with 250 minutes nationwide GoPhone plan.

At first glance the new data plans seem to offer double the data allowance of AT&T’s older plans, which were available to any prepaid customer who wanted to avoid AT&T’s default data rate: 1 cent per 5KB.  While that amount seems tiny, in fact it’s not.  A gigabyte of usage without a data plan costs over $2,000. That is quite an incentive to enroll in one of AT&T’s data packages.

Only now AT&T’s most value-conscious customers can’t.

AT&T’s “new and improved” prepaid plans now require customers to first enroll in a $25 or $50 voice plan before they are allowed to purchase a data package.  That leaves AT&T’s “pay as you go” customers out in the cold.

A customer used to spending $15 a month on a data package with a 10c per voice minute plan with no daily access fee will now pay at least $50.  The required 250 minute voice plan with unlimited text runs $25 a month.  The data package costs an additional $25.

Rory Smith called that “rubbish.”

“Effectively this makes the service completely useless as I only need a small amount of data and rarely use my phone for voice calls or SMS messages,” Smith wrote.

“By doing this they are requiring you to enter a talk plan and pay for minutes you will never use, all just to force consumers into paying more,” another customer remarked. “It really seems like AT&T is trying to squeeze every penny they can out of their prepaid plans.”

AT&T's new prepaid pricing plans

Some analysts worry AT&T’s quest for data profits are pricing them out of the prepaid data-only market.

Current Analysis analyst Deepa Karthikeyan wrote in a report that AT&T will likely prompt customers to start shopping around and they are likely to encounter daily plan options that deliver somewhat better pricing at rival carriers.  Daily plan customers typically want the cheapest plan possible so they can pay a-la-carte for the specific features that interest them.  AT&T’s move forces customers to pay a $25 entry fee just to qualify for a data plan, which in some cases is the only reason the customer has the phone.

Some of AT&T’s competitors with comparable plans:

• T-Mobile: $3/day Pay As You Go – First 200MB at 3G speed -or- $30 up to 5GB at 4G speed plus 100 minutes, unlimited texting
• Virgin Mobile: $35 up to 2.5GB data, 300 minutes, unlimited texting
• Verizon: $50 unlimited talk, texting, minutes
• Straight Talk: $45 unlimited talk, texting, 2GB data with roaming on small GSM carriers
• Red Pocket: $60 unlimited talk, texting, 2GB data and 200 international minutes
• H20 Wireless: $60 unlimited talk, texting, 1GB data and $10 international calling

The home of Atlantic Canada’s largest hot air balloon festival is getting more than hot air from broadband providers promising better broadband in New Brunswick.  Bell Aliant announced this month it will spend $2 million to expand its FibreOp fiber to the home service to 3,000 homes and businesses in the town of Sussex.

“Access to the FibreOP network represents a tremendous growth opportunity for Sussex, and has huge potential to connect businesses and families,” said Andre LeBlanc, vice president of Residential Products for Bell Aliant. “We are excited to continue our expansion in New Brunswick, and to offer the best TV and Internet to our customers in the Sussex area.”

Bell Aliant’s FibreOp delivers broadband speeds up to 250/30Mbps and is marketed without data caps — a rarity from large providers in Canada.

The company was the first in Canada to cover an entire city with fiber-to-the-home and by the end of 2012, will have invested approximately half a billion dollars to extend it to approximately 650,000 homes and businesses in its territory. FibreOP builds are complete in Greater Saint John including Quispamsis, Rothesay, Grand Bay/Westfield, as well as Bathurst, Fredericton, Miramichi, and Moncton, including Riverview, Dieppe and Shediac. Customers in parts of Nova Scotia, Prince Edward Island, and Newfoundland & Labrador also enjoy fiber to the home service.

While Bell Canada owns a controlling stake in Bell Aliant, it allows the Atlantic Canada phone company to operate under its own branding and supports their aggressive fiber upgrade project across the relatively rural eastern provinces.  Even more remarkably, while Bell is one of Canada’s strongest proponents for usage-based billing and caps on broadband usage by its customers, Bell Aliant competes with cable operators by advertising the fact it delivers unlimited, flat rate service.  Bell Aliant is aggressively expanding fiber to the home service in Atlantic Canada while Bell relies on its less-advanced fiber to the neighborhood service Fibe TV in more populated and prosperous cities in Ontario and Quebec.

That is counter-intuitive to other providers who eschew fiber upgrades in rural communities, suggesting the cost to wire smaller towns is too high for the proportionately lower number of potential customers.  That does not seem to bother Bell Aliant, who considers fiber to the home its best weapon to confront landline cord-cutters.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/What is FibreOP.flv[/flv]

Bell Aliant introduces Atlantic Canada to its FibreOp fiber to the home service, delivering unlimited fiber-fast broadband.  No Internet Overcharging schemes here.  (2 minutes)

Hastings vents on his Facebook page.

As Stop the Cap! has warned Netflix for years, Internet Overcharging schemes like usage caps, usage-based billing, and speed throttles represent an end run around Net Neutrality. If a provider cannot openly discriminate against the competition, slapping usage limits on them (while exempting favored services from that cap) can eventually accomplish the same thing.

Netflix founder Reed Hastings is finally getting the message after a frustrating weekend watching his Comcast usage allowance bleed away while streaming video.  He shared his views on his Facebook page:

Comcast [is] no longer following net neutrality principles.

Comcast should apply caps equally, or not at all.

I spent the weekend enjoying four good internet video apps on my Xbox: Netflix, HBO GO, Xfinity, and Hulu.

When I watch video on my Xbox from three of these four apps, it counts against my Comcast internet cap. When I watch through Comcast’s Xfinity app, however, it does not count against my Comcast internet cap.

For example, if I watch last night’s SNL episode on my Xbox through the Hulu app, it eats up about one gigabyte of my cap, but if I watch that same episode through the Xfinity Xbox app, it doesn’t use up my cap at all.

The same device, the same IP address, the same wifi, the same internet connection, but totally different cap treatment.

In what way is this neutral?

Comcast says it is “neutral” by framing its own Xbox-streamed video as a “set top box replacement,” even though the video that flows to the Xbox console travels down the same last-mile network Comcast says it needs to “protect” with its 250GB monthly usage cap.

Comcast doesn’t actually need a 250GB usage cap, particularly after the company upgraded its broadband facilities to DOCSIS 3 technology.  That vast improvement in capacity at a comparatively low cost (easily recouped by the company’s latest round of rate increases) should be shared with customers.  Instead of “applying caps equally,” Comcast should abandon them altogether.

[Thanks to Earl, one of our regular readers, for sharing the story.]

A California woman is suing Verizon Communications for selling her faster Internet service, at a higher price, the company cannot actually deliver.

Patricia Allen of Santa Monica filed suit in Los Angeles after Verizon sold her an upgrade to her current DSL plan that turned out to be anything but.  Allen was paying $23.99 a month for 768kbps service, but in March, 2011 Verizon promised they could give her a speed upgrade to 1.5Mbps for $11 more per month.

Exactly one year later, Allen learned her “upgraded service” performed no better than her original Internet plan, which itself only managed around 500kbps, and called Verizon to complain.

Verizon technicians quickly responded Allen could never get the benefits of a faster speed plan because she lived at least two miles from her local Verizon central office.  DSL speeds degrade with distance and can also be impacted by the quality of the landline network Verizon maintains in southern California.  Because Allen lives too far away to receive anything better than 700kbps service, she was advised to downgrade her $34.99 DSL plan back to the one she started with.

Allen requested a refund for the extra $11 a month she was paying for the last year for promised speed improvements Verizon never delivered, but the company flatly refused her request.  Allen is now taking her case to the California courts, and her legal representatives are seeking to have the case designated a class action covering all Verizon landline customers in California who, like Allen, are paying for Verizon-marketed speed upgrades they actually cannot receive.

The suit claims Verizon is well aware it is selling speed upgrades to customers who live too far away from the company’s facilities to actually benefit from the enhanced service, and pockets the proceeds without delivering improved service.  The suit alleges Verizon is engaged in unethical, unscrupulous, immoral, and oppressive business conduct in violation of California state law.

Verizon’s spokesman Rich Young called the lawsuit “baseless and without merit.”

Verizon Class Action Copy