Comcast will increase capital spending in the first half of 2014 to hasten the rollout of its advanced X1 set-top boxes and new wireless gateways that provide public Wi-Fi from customer homes.

Comcast told investors Tuesday its increased spending will likely be offset by increased earnings from more subscribers and room for further price hikes over the course of the year.

First quarter consolidated revenue increased 13.7% to $17.4 billion over the past three months. Almost $11 billion of that comes from Comcast’s cable business. The company boosted cable earnings by 5.3% in the first quarter. Most of that came from a 4.5% increase in the average customer’s cable bill. Comcast subscribers, on average, pay $134 per month. They will pay even more by the end of the year.

Although Comcast’s head of its cable division Neil Smit noted the company implemented lower rate increases during the first quarter, there is room to boost prices further.

“I wouldn’t read any trends into it,” Smit said. “We took rate increases across the smaller percentage of our footprint this quarter than last year as well, but we target different offers to different customers and I don’t think we’re seeing it topping out. In the competitive arena, the offers are in the same ballpark, the promo prices go up and down, but the destination pricing is fairly similar across these various competitors.”

Roberts

Comcast continued to buck cord-cutting trends and added 24,000 new video customers in the quarter, a major improvement over the 25,000 it lost at the same time last year. Comcast believes its new X1 platform and aggressive customer retention efforts are responsible for winning and keeping cable television customers. Ongoing speed enhancements in Comcast’s broadband division won the company 383,000 new Internet customers in the last three months. Broadband is Comcast’s biggest money-maker, and revenues increased a further 9% during the quarter owing to customer growth, rate hikes, and customers choosing higher-speed tiers. By the end of the quarter, 38% of Comcast’s residential customers subscribed to at least 50Mbps service, showing growing demand for higher speed Internet.

Sources tell Stop the Cap! Comcast intends to further expand its trial of usage caps (Comcast prefers to call them “usage thresholds”) to more markets this year. Comcast has settled on 300GB usage allowances for most broadband products in current test markets, charging $10 for each additional allotment of 50GB as an overlimit fee. Comcast has avoided trials of usage caps in areas where Verizon FiOS delivers significant competition. Verizon has no usage caps on either their DSL or fiber broadband products.

Comcast also picked up 142,000 new phone customers in the quarter, mostly from those subscribing to aggressively priced triple play service bundle promotions. Around 155,000 new triple play customers signed up over the last three months.

At the end of the first quarter, 68% of Comcast customers took at least two products and 36% took three products, compared to 33% at the end of last year’s first quarter.

Brian Roberts, CEO of Comcast, said there were several factors that fueled Comcast’s growth during the quarter, starting with its advanced X1 set-top box platform, which offers a better television experience and makes finding things to watch easier. If customers have an X1, Roberts told investors, they are less likely to drop cable television service.

X1

“These positive early results reinforce our decision to accelerate our X1 deployment this year, and we are now adding 15,000 to 20,000 X1 boxes per day, which is double our rate of deployment from just six months ago,” Roberts told analysts. “Additionally, we are now rolling out a new XFINITY TV app, which enables our customers to live stream virtually their entire television lineup on any IP device in the home and watch DVR recordings in the home or on the go.”

Although usage caps remain controversial, Comcast has been aggressive about increasing broadband speeds at least once a year.

“In broadband, we recently increased speeds again for the 13th time in 12 years,” Roberts offered. “Doubling speeds in our Blast products to 105Mbps, while our Extreme tier moved up to 150Mbps for customers in the northeast. And we’re not stopping there. Our focus on wireless gateway deployment is adding utility to our customers while at the same time helping us create the largest Wi-Fi footprint in the U.S. with over one million public Wi-Fi hotspots currently available to our customers.”

Although Comcast’s first quarter capital expenditures increased $51 million (or 4.6%) to $1.1 billion (10.6% of cable revenue versus 10.7% in the first quarter of 2013), the cable company returned even more money to shareholders. In the first quarter, the company boosted return of capital by 35% to $1.3 billion. Comcast repurchased its own shares of stock totaling $750 million and paid $508 million in dividends for the quarter.

In 2014, Comcast will invest 14% of cable revenue (compared to 12.9% in 2013) to accelerate the deployment of X1 and wireless gateways, increase network capacity and continue to invest in expansion of business services and XFINITY Home. But it will spend far more than that placating shareholders. If Comcast wins support to buy Time Warner Cable, Comcast intends to increase its stock repurchase plan by $2.5 billion. The company earlier committed it would spend $3 billion on repurchasing its own shares, for an expected total of $5.5 billion during 2014.

When a company repurchases its own shares, it reduces the number of shares held by the public. That in turn means that if profits remain the same, the earnings per share increase. It also boosts the value of the massive portfolios of Comcast stock held by executives as part of their compensation packages.

[flv]http://www.phillipdampier.com/video/Comcast Introducing the X1 Platform from XFINITY 4-14.mp4[/flv]

Comcast produced this video showing off its X1 platform and new set-top boxes. (1:47)

At least 46 percent of AT&T’s wireless customers are now paying at least $100 a month for a Mobile Share account with at least a 10GB usage allowance, a dramatic increase of more than 11 million customers during the last three months alone. AT&T customers used to pay a flat rate of $30 a month for unlimited wireless data. Now they pay much, much more for much less usage.

AT&T’s Mobile Share plans start at $20 a month (plus the cost of the device) and include just 300MB of data. Prices escalate from there (all prices don’t include the cost of the device)

• $20 for 300MB
• $25 for 1GB
• $40 for 2GB
• $70 for 4GB
• $80 for 6GB
• $100 for 10GB
• $130 for 15GB
• $150 for 20GB
• $225 for 30GB
• $300 for 40GB
• $375 for 50GB

AT&T is banking on growing mobile data use to earn the company perpetually accelerating revenue and dramatically higher average revenue per customer. The average AT&T customer does not come close to exceeding their current allowance, but the company’s sales force has proven exceptionally adept at convincing customers to upgrade to higher allowance plans whether the customer needs one or not.

Phillip “The circus is in town” Dampier

Yesterday afternoon I got to experience both the pain of having a tooth pulled and watch Comcast and Time Warner Cable defend its merger for more than three hours before the Senate Judiciary Committee. The Festival of Nonsense from Comcast’s top lobbyist David Cohen and Time Warner Cable’s chief financial officer Arthur Minson hurt more.

Despite the $45 billion dollar deal, the real powers that be couldn’t be bothered to turn up at the hearing. Comcast’s chief executive was nowhere to be found — perhaps he was playing golf with President Obama again. Comcast’s top lobbyist David Cohen showed up instead, wearing an outfit that looked like it was stuffed with cash waiting to fall from his pockets into the hands of his “friends” on Capitol Hill. Cohen is a well-known Democratic money bundler who raised $1.44 million for the president’s reelection campaign in 2011 and 2012, and $2.22 million since 2007. (Obama spent time in Cohen’s Philadelphia home as well, part of a DNC fundraising party.)

Perhaps Time Warner Cable CEO Robert Marcus was unavailable because he was too busy counting the $8.52 million he was paid before agreeing to sell the company. Don’t expect him at the next hearing either, because he is shopping for a bigger safe to hold the $80 million he will receive for agreeing to change Time Warner Cable’s name to Comcast.

The other usual suspects were also missing in action. Not a peep from the major networks or cable programmers at the hearing. Instead, the Senate endured a guy with a golf channel nobody ever heard of using the hearing to try to get his calls returned by Time Warner and a wireless provider who believes his technology is faster than fiber. Sure it is.

Brought to you in part by America’s cable industry.

I suppose it’s also worth mentioning Christopher Yoo – Comcast’s intellectual sock puppet straight out of the cable company’s home town of Philadelphia. He serves at the pleasure of the “Center for Technology, Innovation & Competition” (cough) at the University of Pennsylvania. The “center” is financially supported by the cable industry. David Cohen just happens (by sheer coincidence) to chair the university’s Board of Trustees. Yoo’s testimony could be boiled down to a nod in Cohen’s direction with an affirming, “whatever he said.”

The Cohen and Minson Comedy Hour began with opening statements extolling the virtues of supersizing Comzilla, with dubious claims about its benefits for consumers.

Without laughing, read the following out loud:

“We welcome this opportunity to discuss the proposed transaction between Comcast Corporation (“Comcast”) and Time Warner Cable Inc. (“TWC”), and the substantial and multiple pro-consumer, pro-competitive, and public interest benefits that it will generate, including through competitive entry in segments neither company today can meaningfully serve on its own,” the two companies wrote in their joint opening statement.

Cohen

“Comcast and TWC do not compete for customers in any market – either for broadband, video, or voice services. The transaction will not reduce competition or consumer choice at all. Comcast and TWC serve separate and distinct geographic areas. This simple but critically important fact has been lost on many who would criticize our transaction, but it cannot be ignored – competition simply will not be reduced. Rather, the transaction will enhance competition in key market segments, including advanced business services and advertising.”

To emphasize just how little this merger will impact the current state of non-competition in the broadband marketplace, Comcast repeatedly emphasized you can’t subscribe to a competing cable company today and still won’t tomorrow:

“Consumers in Comcast’s territories cannot subscribe to TWC for broadband, video, or phone services. And TWC customers cannot switch to Comcast. For that reason, this is not a horizontal transaction under merger review standards, and there will be no reduction in competition or consumer choice,” said the written statement.

In other words, since there was no competition between cable companies before, making sure consumers still don’t have a choice is not anti-competitive.

Watch the entire hearing on the Senate Judiciary Committee website.

(The hearing begins at the 24 minute mark.)

Here are some other “benefits” promised by Cohen and Minson:

Post-transaction, Comcast intends to make substantial incremental upgrades to TWC’s systems to migrate them to all-digital, freeing up bandwidth to deliver greater speeds. For example, Comcast typically bonds 8 QAM channels together in its systems, and Comcast’s most popular broadband service tier offers speeds of 25/5Mbps upstream across its footprint. In comparison, TWC bonds 4 QAM channels in nearly half of its systems, and its most commonly purchased service tier offers speeds of 15/1Mbps. Comcast’s fastest residential broadband tier offers speeds of 505/100Mbps; TWC’s current top speeds are 100/5Mbps. Comcast’s investments in the TWC systems will also improve network reliability, network security, and convenience to TWC customers.

Minson

Of course, nothing prevented either company from boosting speeds without a $45 billion merger deal. In fact, Comcast is doing exactly that this week. Marcus’ own revival plan for TWC, dubbed TWC Maxx, promised Time Warner Cable customers would get even faster speeds than Comcast offers most of its customers.

Time Warner Cable now advertises it does not have usage caps on broadband. Comcast cannot say the same, although it tries very hard to tapdance around the matter by calling the 300GB monthly cap spreading into more and more Comcast territories a “data threshold.”

Comcast’s speed upgrades for TWC customers are likely to come with a big catch — an arbitrary usage allowance that limits their usefulness. By the way, that 505Mbps service is available only from Comcast’s extremely limited fiber network that the overwhelming majority of customers cannot get.

The transaction will similarly speed the availability of advanced Wi-Fi equipment in consumers’ homes. The quality of broadband service depends not only on the “last-mile” infrastructure but also the delivery of the signal over the last few yards. Comcast has led the entire broadband industry in rolling out advanced gateway Wi-Fi routers to approximately 8 million households and small businesses, giving these customers faster speeds (up to 270 Mbps downstream as compared to 85 Mbps downstream from the prior generation devices) and better performance over their home and business wireless networks. In contrast, TWC only recently began deploying advanced in-home Wi-Fi routers. With the greater purchasing power and economies of scale resulting from the transaction, Comcast can not only offer TWC customers access to today’s best routers, but also invest in and deploy next-generation router technologies for all of the combined company’s customers.

Comcast doesn’t like to mention that “advanced Wi-Fi” equipment costs customers $8 a month… forever. Comcast is also using it to boost its own Wi-Fi service by sharing it with the neighbors. This merger “benefit” will cost customers almost $100 a year. Customers can do better buying their own equipment and don’t need a merger to make that decision.

The transaction will give Comcast the geographic reach, economies of scale, customer density, and return on investment needed to massively expand Wi-Fi hotspots across the combined company’s footprint, including in the Midwest, South, and West, particularly in areas like Cleveland/Pittsburgh, the Carolinas, Texas, and California, where there will be greater density and clustering of systems. Our goal is to provide greater Wi-Fi availability that allows the combined company’s customers to access the Internet in more places, more conveniently, and at no additional charge.

Your usage allowance will likely apply to this “free Wi-Fi” that most customers cannot access because they live in an area where neither company offers it now and likely won’t anytime soon.

The transaction will also enable Comcast to invest in network expansions and last-mile improvements that provide an even stronger foundation for innovative applications, including education, healthcare, the delivery of government services, and home security and energy management. And with greater coverage and density of systems, Comcast will also have the ability and incentive to build out and make available interconnection points in more geographic regions. This will be especially beneficial to companies like Google, Netflix, and Amazon, which aggregate massive data traffic when they deliver their own and others’ services to consumers.

For the right price. Nothing precluded Comcast or Time Warner Cable from investing some of their lush profits into improvements for customers. But why bother when your only serious competitor is usually DSL. Investment in broadband networks has declined for years in favor of profit-taking. Making Comcast bigger introduces no new market forces that would provoke it to improve service. In fact, Comcast’s massive size and reach would likely deter would-be competitors from entering a market where Comcast can use predatory pricing and retention offers to keep customers from switching.

Helping people successfully cross the digital divide requires ongoing outreach. To increase awareness of the Internet Essentials program, Comcast has made significant and sustained efforts within local communities. To date, those outreach efforts have included:

• Distributing over 33 million free brochures to school districts and community partners for (available in 14 different languages).
• Broadcasting more than 3.6 million public service announcements with a combined value of nearly $48 million.
• Forging more than 8,000 partnerships with community-based organizations, government agencies, and elected officials at all levels of government.

Cohen does not mention the company planned to offer Internet Essentials earlier than it did, but held it back for political reasons.

“I held back because I knew it may be the type of voluntary commitment that would be attractive to the chairman” of the Federal Communications Commission, Cohen said in a 2012 interview. Comcast’s generosity was limited. It specifically designed its discount Internet program to make it difficult to qualify and protect its regular-priced broadband offerings. The goodwill from handing out Comcast sales brochures and getting free exposure in the media offers little to customers. Comcast also has a way of getting the community-based organizations it “partners” with to advocate for Comcast’s business interests.

“Sometimes we need a kick in the butt.” — Cohen

If only the government got out of the way and approve the merger, Comcast will improve on its already amazing customer service:

Improving the customer experience is a top priority at Comcast. We are investing billions of dollars in our network infrastructure and are developing innovative products and features to make it easier and more convenient for our customers to interact with us. While our satisfaction results are beginning to rise, we know we still have work to do and are laser-focused on continuing to improve our customers’ experiences in a number of ways.  Comcast has improved its customer satisfaction ratings significantly. Since 2010, Comcast has increased its J.D. Power’s Overall Satisfaction score by nearly 100 points as a video provider, and close to 80 points in High Speed Data – more than any other provider in our industry during the same period.

Twice nothing is still nothing. Cohen even admitted at the hearing Comcast’s progress at improving customer service is not as rosy as his written testimony might suggest.

“It bothers us we have so much trouble delivering high quality of service to customers on a regular basis,” Cohen said. “Sometimes, we need a kick in the butt.”

That has never worked before. Comcast has kicked its customers around since at least 2007 when it also promised major customer service improvements that turned out to be figments of a press release. Comcast’s “laser-focused” efforts to improve instead won it the 2014 Consumerist Worst Company in America award this week and more than 100,000 consumers signing petitions vehemently opposing the merger.

Comcast has a long record of improving consumers’ online experiences and working cooperatively with other companies on interconnection, peering and transit.

Just ask any Comcast customer about their Netflix viewing experience lately and how it took a checkbook to improve matters. Ask any online video competitor whether Comcast is a good neighbor when it exempts its own video traffic from its “usage threshold” while making sure to count competitors’ traffic against it.

Comcast also likes to suggest Americans are awash in competitive options for broadband service. Why there is DSL, satellite broadband, fiber, wireless Internet, public libraries, and books.

In fact, Comcast’s filing points to various “competitors” that don’t even exist yet, if they ever will. Comcast suggests Google Fiber is popping up everywhere, despite the fact Google announced it was delaying its fiber rollout in Austin, and most of its latest expansion plans lack firm commitments to deploy and are framed only in the context of opening a dialogue with targeted communities.

Satellite Internet speeds are severely limited and usage-capped. The same is true for exorbitantly expensive mobile broadband. Comparing a $40 unlimited broadband offering from Time Warner Cable to Verizon Wireless’ 4GB for $50 mobile wireless Internet package is silly.

Comcast characterizes the competitive telecom marketplace as a veritable dogfight, but it looks a lot more like a well-executed dog and pony show. Just how rabid are these dogs?

• Verizon’s pit bull zeal to compete has more bark than bite. Verizon Wireless customers can sign up for Comcast or Time Warner Cable service in Verizon stores (woof);
• Comcast’s rottweiler isn’t supposed to get along well with others, but it manages pretty well pitching Verizon Wireless service (grrr).

An hour into the hearing, it was clear there was some bipartisan discomfort with the merger, with Sen. Al Franken (D-Minn.) leading the charge with pointed questions cutting through Comcast’s government relations fluff.

“I’m against this deal,” Franken concluded. “My concern is that as Comcast continues to get bigger, you’ll have even more power to exercise that leverage — to squeeze consumers.”

Like an orange.

Sprint has begun decommissioning its increasingly obsolete 4G WiMAX network with definitive plans to shut off the service completely by the end of 2015.

While most Sprint customers with smartphones have long since moved away from WiMAX, Sprint has resold access to the 2.5GHz network for some prepaid Boost, Sprint, and Virgin Mobile customers as well as third parties including FreedomPop and Earthlink.

WiMAX was the first 4G network in the United States, launching first in Baltimore in the fall of 2008. Sprint customers were offered the HTC Evo 4G smartphone to access WiMAX’s faster speeds. Separately, Clearwire marketed access to WiMAX as a wireless home and business broadband solution. WiMAX was often promoted as a longer distance alternative to Wi-Fi, and was initially capable of 30-40Mbps speeds.

In practice, WiMAX in the United States never achieved great success. Sprint and Clearwire’s network was never built out sufficiently to provide nationwide coverage, and because it relied on very high frequencies, even customers inside claimed service areas often dealt with reception problems, especially indoors. Clearwire’s home broadband replacement often required reception equipment be placed near a window, preferably one without a thermal coating that could block or degrade the signal.

As soon as Sprint and Clearwire added a significant number of customers to the network, speeds deteriorated. Neither company invested enough in upgrades to keep up with demand. Instead, Clearwire’s home broadband customers, originally promised unlimited service, were routinely speed throttled for “excessive use.”

The same year WiMAX was introduced in Baltimore, Network World was already warning the technology was in trouble. By 2011, the magazine had officially declared WiMAX dead.

“There was way too much hype surrounding WiMAX (like the White Spaces today, it was marketed as ‘Wi-Fi on steroids’ and a replacement for Wi-Fi; such was, of course, complete nonsense)”, the magazine wrote.

Other American wireless carriers showed little interest in WiMAX, particularly as competing 4G technologies including HSPA+ and LTE were nearing deployment.

Despite the promise of greatly enhanced data speeds with the next generation of WiMAX, dubbed WiMAX 2, many of the world’s largest wireless carriers were already preparing to move on. In particular, China Mobile (and its 600 million customers) became the decisive factor that turned WiMAX 2 into a bad bet. China Mobile decided the better choice was TD-LTE, a variant of LTE technology. With China Mobile providing service to 10 percent of the world’s mobile users all by itself, support for TD-LTE grew and attracted equipment manufacturers that saw the earnings potential from selling tens of millions of base stations.

TD-LTE is an excellent upgrade choice for WiMAX operators because it was designed to work best at high frequencies ranging from 1850-3800MHz — the same frequency bands that WiMAX already uses.

Sprint expects to decommission at least 6,000 of its 17,000 WiMAX cell sites. Another 5,000 of those sites have already gotten TD-LTE technology, a part of Sprint’s broader LTE network upgrade. Sprint will combine its FDD-LTE network in its 800MHz and 1.9GHz spectrum with a TD-LTE network in its 2.5GHz spectrum. Sprint Spark customers are being offered tri-band equipment that can access either technology. Sprint can use its massive expanse of 2.5GHz spectrum to offload data usage from its lower frequency spectrum, especially in large cities.

Another 5,000 legacy Clearwire cell sites will be upgraded to TD-LTE between now and the end of next year. Sprint expects to deploy TD-LTE more widely than WiMAX, potentially serving 100 cities and 100 million base stations by 2016.

Sprint has protected much of its postpaid customer base from the transition by repeatedly encouraging customers to upgrade to LTE service, now being rolled out as part of its Network Vision plan. But firms like FreedomPop and others that now lease access to the WiMAX network will leave their customers with a shorter upgrade path when WiMAX equipment stops working, requiring users to upgrade to LTE equipment.

[flv]http://www.phillipdampier.com/video/Sprint Spark – Today is already the future 10-30-13.mp4[/flv]

Sprint hypes its new tri-band Sprint Spark network, which combines two different LTE networks to deliver faster data speeds. (1:18)

Time Warner Cable has introduced a new marketing message to potential customers, promoting the fact its broadband service has “no data caps.”

The new ads, appearing for the first time earlier this month, break from the usual tradition of avoiding telling customers they can use broadband service as much as they like. The cable industry advertised “unlimited access” in its broadband offer for years to compete against dial-up Internet. More recently some have redefined the term to mean “you can use the service anytime day or night,” but not consume unlimited amounts of data.

Of course, with Comcast attempting to claim they have “no data caps” either, only “data thresholds,” Time Warner Cable still has some wiggle room should it impose usage-based billing. Technically, under that scheme users don’t have a “data cap,” just a usage allowance above which they will face overlimit penalties.

Still, it is a nice change for at least one major cable company to be willing to market service without data caps. Time Warner’s most likely intended target for the campaign is AT&T U-verse, which has increasingly cracked down on customers exceeding its own usage caps — 150GB a month for DSL, 250GB a month for U-verse. Customers pay a overlimit penalty of $10 for each 50GB allotment above those allowances.