The Federal Cable-Protection Commission

Problem: Solved?

The Federal Communications Commission last Friday unanimously voted to free cable operators from their obligation to sell cable channels they own to rival satellite and phone companies.

In a bizarre justification, FCC chairman Julius Genachowski said ending the unambiguous rules would prevent anti-competitive activity in the market because the FCC would retain the right to review industry abuses on a case-by-case basis. Lawmakers called that an invitation for endless, time consuming litigation that will deprive consumers of competitive choice and favor the still-dominant cable television industry.

“The sunset of the program access rules could lead to a new dawn of less choice and higher prices for consumers,” said Rep. Ed Markey (D-Mass.), one of the original authors of the rules. “If we do not extend the program access rules, the largest cable companies could withhold popular sports and entertainment programming from their competitors, reducing the competition and choice that has benefited consumers. I urge Chairman Genachowski and the FCC commissioners to extend the program access rules that have helped to level the playing field in the paid television marketplace.”

The FCC’s decision could have profound implications on would-be competitors, particularly start-ups like Google Fiber that could find itself without access to popular cable networks at any price.

At a time when cable companies and programmers are constantly pitted against each other in contract/carriage disputes, the deregulatory spirit at the FCC is likely to irritate consumers even more.

Phillip “How nice of the FCC to think about poor cable companies” Dampier

The FCC claims it will continue to protect sports programming from exclusive carriage agreements — a potentially critical concession considering the history of “exclusive, only on cable” programming contracts was largely focused on regional sports channel PRISM.

Comcast successfully kept the popular Philadelphia-based network (today known as Comcast SportsNet Philadephia) off competing satellite services and cable operators by only distributing the network terrestrially. A controversial FCC rule (known as the “terrestrial exception”) states that a television channel does not have to make its shows available to satellite companies if it does not use satellites to transmit its programs. Cox Cable has its own implementation of that loophole running in San Diego.

Derek Chang, executive vice-president of DirecTV, says Comcast’s local market share dominance is a direct consequence of SportsNet. More importantly, Chang believes even if Comcast says it will sell the network to competitors, it is free to set prices for SportsNet as high as it wants.

“They win either way,” Chang said. “They’re either going to gouge our customers, or they’re going to withhold it from our customers.”

Verizon FiOS has secured the right to carry the channel on its system, but won’t say how much it pays.

The PRISM case is today’s best evidence that exclusive agreements do hamper competition — Philadelphia is hardly a hotbed of satellite dishes, with a 40-50% reduced satellite subscriber rate attributable to the lack of popular regional sports on satellite.

FCC Chairman Julius Genachowski’s cowardly lion act is back. Will anyone at the FCC stand up to Big Telecom companies while busy watering down pro-competitive policies?

Historically, satellite dish owners and wireless cable customers were the most likely victims of exclusive or predatory programming contracts, with some cable networks refusing to sell their programming to competing technologies at any price.  Others charged enormous, unjustified mark-ups that made the technology non-competitive. Today, wireless cable television is mostly defunct and home satellite dish service has largely been replaced with direct broadcast satellite providers DirecTV and Dish.

Today’s programming landscape is more complicated. The FCC would argue that unlike in the 1980s, most cable programmers are no longer directly controlled by yesteryear’s Tele-Communications, Inc. (TCI) and Time Warner (Time Warner Cable was spun off into an independent, unaffiliated entity in March, 2009), which collectively controlled dozens of popular cable networks. But programmers’ know their best customers remain cable operators which maintain a dominant market share in every major American city.

Friday’s ruling has implications for telco-TV providers and satellite dish companies that may find programming negotiations more complicated than ever. AT&T U-verse and Verizon FiOS may find access to cable-owned programming difficult or even impossible to obtain if cable operators decide their unwanted competition is harmful to their business interests.

But an even larger challenge looms for the next generation of video competition: Google Fiber TV and “over the top” online video.

Nobody is complaining about Google’s robust gigabit broadband offering, but Kansas City residents originally expressed concern about the company’s proposed television lineup. As originally announced, Google Fiber TV was missing HBO and ESPN.

A competing cable system without ESPN is dead in the water for sports enthusiasts.

Google has since managed to sign agreements that expand their channel lineup (although it is still missing HBO). But nothing prevents channel owners from dramatically raising the price at renewal. That is a concern for smaller cable operators as well, who want protection from discriminatory pricing that awards the best prices to giant multi-system operators like Comcast and Time Warner Cable.

The most important impact of the FCC’s decision may be for those waiting to launch virtual cable systems delivering online programming to customers who want to pick and choose from a list of networks.

The FCC’s “new rules” give programmers who depend on tens of millions of cable subscribers even more ammunition to kill competing distribution models like over the top video. Start-up providers who cannot obtain reasonable and fair access to cable programming will have to depend on the vague policies the FCC claims it will enforce to prevent egregious abuse. But the FCC is not known for its speed and start-up companies may face enormous legal fees fighting for fair access that is now open to subjective interpretation.

Shelly, a Time Warner Cable customer in New York City, ended up with a modem not on the company’s “approved for purchase” list, based on the recommendation of… Time Warner Cable.

Jon Weinberg has devoted more than six hours of his life trying to navigate around Time Warner Cable’s forthcoming $3.95 monthly modem rental fee, with no end in sight.

The 15-year Time Warner Cable customer is just about fed up and has started shopping around for another provider. The Staten Island resident tells Stop the Cap! asking for an additional $3.95 a month for a five year old cable modem is probably the last straw.

“Time Warner’s easy-to-miss postcard probably cost the company around 80 cents to print and mail, but their investment is going to cost them more than $1,500 a year they will shortly no longer be getting from me,” Weinberg said.

Weinberg, along with dozens of other Time Warner Cable customers in the Big Apple have been sharing their stories with Stop the Cap! since they learned the cable company was back for more of their hard-earned dough.

“This is simply ridiculous, because they have gotten enough money from me several times over to have paid for their modem,” Weinberg says. “I could understand if they wanted to charge new customers extra for a new modem ($2.50 a month), but demanding current customers pay $3.95 for equipment that is several years old is out of line.”

Many Time Warner Cable customers are choosing to purchase their own cable modems to avoid the fee, but the cable operator is making that as hard as possible. Customers are complaining about the very limited selection of “approved modems,” incredibly long hold times and delays activating new equipment, and impossibly long lines at the company’s store to return old equipment.

“I called seven times last week, always being left on hold for more than 30 minutes, trying to get my new Motorola 6141 modem activated,” Weinberg says. “When someone finally answers, it sounds like they are working out of a home and don’t understand what I am asking.”

Weinberg and several other readers, including your editor, also endured extended hold times and problems activating customer-owned modems. A supervisor earlier told Stop the Cap! a change to their billing system made it difficult to provision customer-owned modems last week. That problem appeared to be resolved by Saturday, but long hold times of 15-60 are not unusual after telling Time Warner’s automated  attendant you need to activate new equipment.

“Time Warner uses the same relentless hold music with a not-so-subtle prompt to use their online chat function, which connects you to India, Guatemala, or maybe the Philippines, with all of the frustrating results you can expect,” Weinberg says. “I tried that route while waiting on hold for 40 minutes and they told me I should call in because they could not handle my request.”

Krakow

Gary Krakow, senior technology correspondent for TheStreet, suspects this cable modem fee could turn out to be a giant nightmare for customers. Some customers, including Krakow, are initially being told it will take several days to provision customer-owned equipment:

After 5 interactive minutes [with Time Warner’s automated call attendant] I was transferred to Lina (that’s what it sounded like when she spoke into her headset). She’s one of Time Warner’s national advisers. I told her exactly what I wanted to do. She listened attentively and took down a lot of information. She then gave me a “case number” and told me to hold on to speak with someone on the Time Warner Provisioning Team.

After a minute or so I was speaking with Monica, who called herself a Customer Service agent. She began asking me to repeat all my information again, but I insisted that she could find all of that by searching the case number from Lina. After a minute or two (we all had to wait for Lina to exit the file) Monica had all the info she needed and began typing in a new  computer file.

In a minute or so she was done. She gave me a confirmation number (different from the case number) and told me that I’ll get a return call when they were ready. It turns out it will take as much as three days for a technician to make the change.

“But wait!” I exclaimed. “Your postcard had me go to your Web site, where I followed the instructions – installed the new modem – and called you to turn it on.”

Monica’s response: “Put back the old modem”.

Krakow is annoyed Time Warner gave New York-area customers just two weeks’ notice of the forthcoming fee and has so far dropped the ball helping out customers trying to avoid it.

“I can’t describe how pissed off I am with the cable company right now,” says Shelly, a Stop the Cap! reader from Manhattan. “I almost threw out their postcard because it looked like it was printed by someone on their personal ink jet printer. Time Warner has been totally unprofessional and unhelpful.”

Shelly ended up getting conflicting information from Time Warner about what modem to buy. A call center representative recommended modems from the company’s rental list, not the approved for purchase list.

“I bought and received the exact same modem Time Warner gave me a year ago for my service and then they told me they cannot activate it because it is not on their list,” Shelly says. “It’s the exact same modem so it must work, but they absolutely refused to help me and now I am out a 15% restocking fee and return postage to send this thing back.”

A supervisor offered her a $5 courtesy credit for the misunderstanding. Shelly was not impressed.

“It will cost me $15 in restock and shipping fees to deal with the problem they created with their money-grubbing.”

Verizon FiOS is not yet in her neighborhood, but Shelly says she will remember the modem fee when Verizon knocks on her door.

“This is an excellent example of how Time Warner treats customers,” she says. “They are in a real hurry to charge us more but can’t be bothered when customers want to avoid their crap.”

Weinberg finally managed to get his modem activated on Sunday, after another 45 minutes on hold. But his aggravation is not over.

“I decided to drop off my old equipment at the cable store and was told there would be at least a 90 minute wait with 20 people in line ahead of me, several with their own cable modems to return,” Weinberg reports. “They had two people working the desk while two others seemed to be doing paperwork. I left.”

Krakow ran into the same problem at the Time Warner Cable store on Manhattan’s Upper West Side.

“The line was out the door,” Krakow said. “I was told there was a one hour wait to ‘get a number and wait some more.'”

One strange side effect of the modem rental fee is that Time Warner Cable will allow you to keep your current cable (eMTA) modem if it is also used to support the company’s phone service. If you purchase your own cable modem, the company will deactivate the cable modem ports on the modem/eMTA they supplied and will not charge you a modem rental fee, even though you are still using their equipment.

Let the gouging begin. Here was the price being charged by an eBay vendor this past Tuesday for the SB6141 cable modem.

A few days ago, Stop the Cap! notified readers Time Warner Cable was planning to charge a $3.95/mo modem rental fee for current High Speed Internet customers planning to keep using company-supplied equipment.

With over $300 million in potential new revenue, this new surcharge from the folks living high on 1% Mountain is guaranteed to make the cable company a tidy sum for doing… absolutely nothing. Time Warner is not improving your broadband service — they are just charging you separately for a piece of equipment needed to use the service you already paid for. It would be like selling you a lamp and then start charging an extra monthly fee to keep the power cord.

We’ve had our own illuminating experience here at Stop the Cap! headquarters finding our way around this newest surcharge — by purchasing our own DOCSIS 3 cable modem and sending the soon-to-be $47.40 a year (until the end of time) Ubee modem packing back to Time Warner. Only we can’t.

I am unsure what bothers me more: Time Warner’s scanty “approved modems for purchase list” — mostly Cadillac-priced models that would fit in at Barney’s New York or Nordstrom, the bottom feeder eBay and Amazon Marketplace sellers who are capitalizing on the modem fee by increasing their prices for customer-owned equipment to gouging levels, or Time Warner’s failure to activate customer-purchased modems because it “changed its billing system this week” in preparation for the new modem fees “and can’t activate customer owned modems at the moment.”

As Time Warner Cable customers began ordering the SB6141 online, the price doubled. This is the same vendor that charged $99.95 two days earlier.

Out of the five “approved” models, the obvious best choice for those who do not require a modem-router combination is the Motorola SurfBoard SB6141 DOCSIS 3.0 Cable Modem. It features support for 8×4 DOCSIS 3 channels, which in non-technical terms means it will handle the best speeds Time Warner is likely to offer in the foreseeable future. We do not recommend customers invest in DOCSIS 2 modems, because that technology is closer to the end of its useful life and simply will not support broadband speeds customers will crave in the next few years.

Once Time Warner Cable made the announcement, the race was on… for the handful of online retailers carrying the SB6141 to jack up the price as quickly as possible. I predicted this was likely in the comment section of our earlier piece. When the nation’s second largest cable operator plans to subject millions of broadband customers to unnecessary modem rental fees and smart customers are clever enough to avoid them, demand is going to rise. Prices would rise much faster.

In the last 48 hours, the cost of the SB6141 has literally doubled from $99 to $200 thanks to some eBay sellers looking for quick profits. This unit is now barely available from Amazon.com Marketplace vendors, typically with a waiting list, for around $130. It was selling for as little as $89 just a few weeks earlier. We even found some refurbished units on eBay that formerly sold for less than $100 now selling for $199, just after Time Warner’s new fee hit the media.

Buying a refurbished unit won’t save you much. Two days ago, this eBay vendor was charging $100 for the same used cable modem.

Finding retailers for this particular model has proven difficult and because of the relentless price gouging, we are now recommending customers hold off on buying their cable modems, at least until Time Warner expands their list of approved models or a broader number of retailers start selling the model to help force prices back down to earth. Don’t pay an eBay gouger twice the usual price!

For customers who mistakenly ended up buying our earlier recommended model we quickly crossed off the list (the SB6121), we’ve found Amazon.com especially accommodating, even supplying a prepaid return shipping label, after explaining the modem model mess to Amazon’s customer service and requesting a free return. So yes, we got stuck with the wrong model too. Sending the 6121 back is our best recommendation as Time Warner Cable customer service explained as late as this evening they cannot activate customer-owned equipment not on their approved-for-purchase list (or anything else at the moment).

Our second order, for the SB6141 at the pre-gouge price of $99 arrived this afternoon, and that led to more frustration with Time Warner Cable, who ultimately failed to activate the modem.

After a very lengthy hold time, a Time Warner representative took my modem’s MAC address to activate the device, and it failed to register. A supervisor eventually explained Time Warner Cable updated their billing system to accommodate the forthcoming modem rental charge and in the process brought down the customer-owned equipment activation system (the one that will let Time Warner know who will not have to pay the fee) earlier this week. In other words, while adjusting their billing system to charge you more, a “glitch” made it impossible for customers across the eastern United States to prevent that from happening.

The problem, it was explained, was temporary and they expected to fix it by the end of the week. After explaining today is Thursday (the end of the week is already near), I was told to “call back this weekend or Monday” and “hopefully” the problem would be fixed. Hopefully before October 15th, when the fee kicks in for the Big Apple anyway. That was 40 minutes of my life I will never get back.

One would think if Time Warner was planning to throw a Money Party for themselves, they would at least take some of the forthcoming $300 million to invest in a better way to keep customers from long hold times and inconvenience to avoid the latest unnecessary fee, only to be told everything was broken and to call back some other time. This is why cable companies regularly earn the disdain of their customers.

Phillip “You Guys Need a Timeout” Dampier

AT&T and Time Warner Cable are complaining they have gotten a raw deal from Kansas City, Mo. and Kansas City, Ks., in comparison to the incentives Google was granted to wire both cities with gigabit fiber broadband.

“It’s time to modernize our industry’s rules and regulations…so all consumers benefit from fair and equal competition,” read a statement from AT&T.

“There are certain portions of the agreement between Google and Kansas City, Kan., that put them at a competitive advantage compared with not just us but also the other competitors in the field,” said Alex Dudley, a Time Warner Cable spokesman. “We’re happy to compete with Google, but we’d just like an even playing field.”

The Wall Street Journal seemed to suggest Google was getting the keys to both cities, with grants of free office space and free power for Google’s equipment, according to the agreement on file with the cities. The company also gets the use of all the cities’ “assets and infrastructure”—including fiber, buildings, land and computer tools, for no charge. Both cities are even providing Google a team of government employees “dedicated to the project,” says the Journal.

The Google Fiber project was so desired that the local governments rolled out the red carpet. In Kansas City, Mo., for instance, the city is allowing Google to construct “fiberhuts,” small buildings that house equipment on city land at no cost, according to a person familiar with the matter.

The cities are discounting other services, as well. For the right to attach its cables to city utility poles, Google is paying Kansas City, Kan., only $10 per pole per year—compared with the $18.95 Time Warner Cable pays. Both cities have also waived permit and inspection fees for Google.

The cities are even helping Google market its fiber build-out. And both are implementing city-managed marketing and education programs about the gigabit network that will, among other things, include direct mailings and community meetings.

Several cable executives complain that the cities also gave Google the unusual right to start its fiber project only in neighborhoods guaranteeing high demand for the service through pre-registrations. Most cable and phone companies were required by franchise agreements with regional governments to build out most of the markets they entered, regardless of demand.

But the Journal missed two key points:

1. Time Warner Cable has been granted the same concessions given to Google on the Missouri side, and AT&T presumably will also get them when it completes negotiations with city officials on the matter.
2. Both cable and phone companies have the benefit of incumbency, and the article ignores concessions each had secured when their operations first got started.

The Bell System enjoyed a monopoly on phone service for decades, with concessions on rights-of-way, telephone poles and placement. AT&T was a major beneficiary, and although the AT&T of today is not the same corporation that older Americans once knew, the company continues a century-long tradition of winning the benefit of the doubt in both the state and federal legislature. AT&T has won statewide video franchise agreements that give the company the power to determine where it will roll out its more advanced U-verse platform, and enjoys carefully crafted federal tax policies that helped them not only avoid paying any federal tax in 2011 — the company actually secured a $420 million “refund” subsidized by taxpayers.

Cable operators also won major concessions from local governments under pressure from citizens eager to buy cable television. At the time, cable companies were granted exclusive franchises — a cable monopoly — to operate, an important distinction for investors concerned about the value of their early investments. Local zoning and pole attachment matters were either negotiated or dealt with legislatively to allow cable companies the right to hang their wires on existing utility poles. Franchise agreements permitted the gradual roll-out of cable service in each franchise area, often allowing two, three, or more years to introduce service. It was not uncommon for neighborhoods on one side of town to have cable two years before the other side could sign up. That sounds awfully familiar to AT&T U-verse today.

Google’s proposal to build a revolutionary broadband network delivering 1Gbps deserved and got the same type of treatment then-revolutionary phone and cable service won back in the day.

Time Warner Cable also won much the same treatment Google is now getting, and the cable operator has gotten $27,000 in fees refunded and will avoid another $100,000 in permit fees going forward. Time Warner Cable and Google will both receive free traffic control services during network construction — not that Time Warner Cable plans much of a change for customers in either Missouri or Kansas.

AT&T will likely also receive the same treatment, although it would be hypocritical of them to complain that Google gets to pick and choose where it provides service. Large swaths of Kansas City and suburbs are still waiting for U-verse to arrive, and many areas will never get the service. Cable operators had to wire a little further, but also benefited from years of monopoly status and network construction expenses paid off years ago when there literally was no competition.

Those paragons of virtue at Goldman Sachs are appalled Google has such a good relationship with Kansas City officials more than happy to have the gigabit speeds neither AT&T or Time Warner Cable would even consider providing.

Google’s rights “appear to be significantly more favorable than those cable, Verizon or any other fiber overbuilders achieved when striking deals with local governments in the past,” Goldman Sachs analyst Jason Armstrong told the Journal. “We’re surprised Time Warner Cable hasn’t been more vocal in its opposition.”

But then the cable company has secured most of the same benefits Google has, so why complain at all?

In fact, city officials had to browbeat Time Warner to modernize its network in ways it would have not done otherwise without the new agreement.

Both AT&T and Time Warner have every right to be concerned. Their substandard networks and high prices (along with a lousy history of customer service, according to national surveys) put them at a competitive disadvantage if Google does not make any major mistakes. Neither cable or phone company has made any noise about upgrading service to compete, and should customers begin to leave in droves, then both companies may actually have something to cry about.

The Wall Street Journal’s report on the concessions granted to Google wanders off into the Net Neutrality debate for some reason, and misses several important facts reviewed above.  (3 minutes)

Suddenlink is throwing a hissyfit over Frontier’s aggressive advertising.

Now come on, you are both pretty… slow that is.

Suddenlink Communications is crawling mad that Frontier Communications has been hammering the cable company over their broadband speeds, which PC Magazine this week proclaimed were nothing to write home about. The cable operator successfully challenged some of Frontier’s ads with the National Advertising Division of the Council of Better Business Bureaus.

The group recommended Frontier cease making claims that its DSL service offers “dedicated” lines to the Internet in contrast to Suddenlink, which forces customers to share their connection with the whole neighborhood.

Frontier claims Suddenlink’s network can bog down during peak hours, while Frontier makes sure customers consistently get the speeds they pay for.

Many of the ads targeted customers in West Virginia, who regularly tell Stop the Cap! neither provider competing there offers particularly good service.

“Is Frontier kidding?,” says Shane Foster, a former Frontier customer in West Virginia. “I was supposed to be getting up to 6Mbps service and I was lucky to get 1.5Mbps at 2 am.”

Foster says he believes Frontier oversold its DSL network in his area, with speeds slowing even further during the evening and weekends when everyone got online. While Frontier may not require customers to share a line from their home to the company’s central office, congestion can occur within Frontier’s local exchange or on the connection Frontier maintains with Internet backbone providers.

“The technician sent to my house even privately admitted it,” Foster tells Stop the Cap!

Foster switched to Suddenlink, but he is not exactly a happy customer there either.

“Their usage caps suck, the service is slow, and their measurement tool is always broken,” Foster shares. “West Virginia doesn’t just get the bottom of the barrel, it gets the dirt underneath it.”

Frontier Communications says it has been making improvements in West Virginia and other states where it provides DSL broadband. Some areas can now subscribe to 25Mbps service because of network upgrades. Foster says he would dump Suddenlink and go back to Frontier, if they can deliver speeds the rest of the country gets.

“Sorry, but 1.5Mbps is not broadband and with their prices, tricky fees and contracts it is robbery,” says Foster. “They need to clean up their act and I’ll come back. I hate usage caps with a passion.”

Frontier says it will appeal the NAD’s decision. But Frontier might do better advertising its broadband service as usage cap free — something customers consistently value over those running Internet Overcharging schemes.