(Ed. Note: Our formal written submission to the New York Public Service Commission is presented in this series of articles. Please note that any graphics included on Stopthecap.com were not included in the formal filing, but are presented here to make the material more reader-friendly. — PMD)

STATE OF NEW YORK

PUBLIC SERVICE COMMISSION

Joint Petition of Time Warner Cable Inc. and

Comcast Corporation For Approval of a                                       Case 14-M-0183

Holding Company Level Transfer of Control.

Statement of Opposition to Joint Petition
Phillip M. Dampier, Director and Founder: Stop the Cap!
Rochester, New York
August 1, 2014

Stop the Cap! is a not-for-profit group founded in Rochester in 2008 to fight against the introduction of artificial limits on broadband usage (usage caps, consumption billing, speed throttling) and for better broadband speeds and service for consumers. Our group does not solicit or accept funding from lobbyists, companies, or others affiliated with the telecommunications industry. We are entirely supported by individual donors who share our views.

Regulators cannot outsmart multi-billion dollar corporate giants with temporary merger mitigation strategies that end up not helping consumers for very long, if it all.

Introduction

Our opposition to the Joint Petition is based on our belief it does not meet the “public interest”  test established in Section 222 of the New York Public Service law, and must therefore be denied.

We are concerned the Commission may attempt a mitigation of Comcast’s failure to demonstrate a public interest benefit for New York residents in its application. The Commission may even attempt to negotiate a monetary public benefit adjustment to afford Comcast the opportunity to pay its way to approval of a merger the overwhelming majority of New Yorkers who have shared their views with the Commission ardently oppose. We submit that the recent change in New York law obligates the applicant alone to demonstrate its proposal is in the public interest. It is not the Commission’s responsibility to propose mitigation formulas that tip the balance in favor of an applicant.

Also lacking in the discussion is a careful analysis and comparison of Time Warner Cable’s existing products and services in contrast with Comcast and, more importantly, the impact of its own upgrade program now underway. It is our contention New York will be better served by retaining Time Warner Cable as the dominant cable provider and rejecting Comcast’s attempt to transfer Time Warner’s franchise agreements to itself. We are not opposed to Comcast independently entering New York and competing head-to-head with Time Warner Cable, although we believe it is unlikely.

Ultimately, we believe Comcast’s executive vice-president David Cohen made one of the strongest arguments why this merger simply does not make sense for New York:

“We are certainly not promising that customer bills will go down or increase less rapidly.”[1]

—

[1]https://arstechnica.com/tech-policy/2014/02/comcast-no-promise-that-prices-will-go-down-or-even-increase-less-rapidly/

Comcast has offered the Commission a vague preview of how it intends to improve cable television service for New York customers, but rarely discloses important details about the costs and limitations their “improvements” will bring.

While Comcast is excited about the proposition of transitioning Time Warner Cable customers away from the current mixed analog-digital platform to an all-digital lineup, Time Warner Cable customers have paid less and avoided costly, unwanted extra equipment as a result of the choices consciously made by Time Warner Cable.

Comcast and Time Warner Cable have different philosophies about how to best deliver the bulging cable television packages most cable systems now offer:

• Time Warner Cable adopted “Switched Digital Video” from BigBand Networks, a technology that lets Time Warner deliver only the digital signals that are being watched in a service group or node, instead of the entire lineup.[1] Since it is unlikely subscribers are watching every niche channel on offer, Time Warner has been able to reclaim unused bandwidth. As a result, customers using older cable-ready televisions can continue to access analog television channels without the use of a costly, often unwanted set top box.
• Comcast has more aggressively chosen a  path to all-digital television service, moving most of their television channels to encrypted digital technology that requires a Comcast set top box, a less costly Digital Transport Adapter (DTA) designed for secondary-use televisions, or a CableCARD. Customers must choose one of these technologies, usually at an added-cost to access their cable television service.[2]

Time Warner Cable also began deploying DTA equipment in certain areas to free up additional bandwidth on its cable systems while still leaving most analog channels intact. The DTA boxes are supplied free of charge during an introductory phase lasting up to a year, after which a $0.99 monthly charge for each box is imposed.[3] (That fee has recently been raised in certain markets, including New York City, to $1.50/mo.[4] [5])

In contrast, Comcast customers were initially entitled to receive up to three no-cost DTAs to install on televisions not equipped with a Comcast set top box.[6]

On January 1, 2013 Comcast began informing subscribers a new $1.99/month “additional outlet service charge,” now applied for each DTA installed. [7]

Public officials in Eagan, Minn., responding to consumer complaints about the new charge, suspected Comcast was attempting an end run around the Federal Communications Commission’s prohibition of “excessive fees for cable equipment.”[8] The additional outlet fee was deemed by Comcast to be a service fee, not an equipment charge.[9]

Attorney Mike Bradley was hired by a group of suburban Minneapolis cable commissions to investigate the legitimacy of Comcast’s new DTA service charge. If the fee were classified as an equipment charge, Comcast would charge 50 cents per DTA based on rate forms filed with the Minnesota cable commissions he represents, Bradley told The Pioneer Press.[10]

For the average Comcast subscriber, the result was another rate increase in return for digital television service. Subscribers with three DTA’s now pay up to $5.97 extra per month in order to continue to receive the exact same programming on the same number of televisions within their household – a $25 annual surcharge per DTA, $75 if the customer uses three DTA’s, complained Eagan, Minn. Mayor Mike Maguire in a letter to Sen. Amy Klobuchar.[11]

Comcast’s fees, in addition to being well in excess of the actual cost of the equipment, will earn the company at least $550 million annually in new revenue – all for equipment that costs the company around $50 per unit.[12] Because Comcast is encrypting its lineup, even televisions equipped with QAM tuners, capable of receiving digital television signals without a set top box, will also eventually need the new equipment to unscramble television signals.

—

[1]http://www.cedmagazine.com/news/2009/09/time-warner-cable-serves-up-sdv-in-n.y.,-dallas,-l.a.

[2]http://customer.comcast.com/help-and-support/cable-tv/how-bill-will-change-with-digital-migration

[3]http://www.cedmagazine.com/news/2012/01/time-warner-cable-wraps-up-all-digital-conversion-pilot-in-maine

[4]https://newsroom.charter.com/

[5]http://www.timewarnercable.com/en/residential-home/support/faqs/faqs-tv/basictvencryption/what-will-the-digital-adapter-cost.html

[6] http://www.twincities.com/ci_22617153/comcast-fee-plan-cause-confusion-controversy

[7]http://customer.comcast.com/help-and-support/cable-tv/how-bill-will-change-with-digital-migration

[8]http://transition.fcc.gov/Bureaus/Cable/News_Releases/nrcb4009.txt

[9]http://stopthecap.com/2013/02/21/comcast-calls-1-99-charge-for-digital-adapters-a-service-fee-to-avoid-fcc-complications/

[10]http://www.twincities.com/ci_22617153/comcast-fee-plan-cause-confusion-controversy?IADID=Search-www.twincities.com-www.twincities.com

[11]https://dl.dropboxusercontent.com/u/9008/pioneerpress/yourtechweblog/Eagan%20-%20Sen%20Klobuchar%20ltr%20re%20Cable%20Rate%20Concerns%203-5-13.pdf

[12]http://cisco-news.tmcnet.com/news/2011/04/25/5464600.htm

The most expensive set top box you will ever rent.

At all three public informational meetings, a Comcast representative promoted the benefits of Comcast’s new X1 set-top box/platform which can provide enhanced features and integrate with the Internet to provide more detailed programming information and social media interaction.

The Comcast representative did not mention that customers must pay up to a $99 upgrade fee for the privilege of renting Comcast’s X1 platform.[1] That is well in excess of the cost of an entire month of cable TV service.

Time Warner Cable does not charge an upgrade fee for its set top boxes, including the latest models.

—

[1]http://www.multichannel.com/news/content/comcast-details-x1-upgrade-fee/356207

You can still read a book instead of everything else.

Allowing Comcast to dominate New York’s cable television marketplace will deter future competitors from entering the market, particularly for television programming.

One of the arguments made by proponents of the merger is the possibility of decreased wholesale television programming costs won through volume discounts available to the largest nationwide providers. Unfortunately for consumers, Comcast has already declared customers will not benefit from those discounts in the form of lower cable bills.

A prospective new entrant considering providing cable television service will face competition with Comcast without any benefit of volume discounts on programming.[1] That makes it unlikely a provider will offer a competing television package.

This is not a theoretical problem.

In Ohio, independent cable company MCTV discovered that while large cable operators like Comcast were benefiting from volume discounts, it faced contract renewal prices more than 40 times the rate of inflation.[2] Cable ONE, owned by the Washington Post, had to drop more than a dozen Viacom owned channels for good because it could not afford the asking price.[3]

MCTV president Bob Gessner reminds us of just how concentrated the entertainment business has become, noting that nine media companies (Comcast is one of them) now control 95% of all paid video content consumed in the United States.[4]

MCTV’s survival plan includes membership in the 900-member National Cable Television Cooperative, the only way smaller providers can pool resources and win discounts of their own. It is no longer effective as mergers and acquisitions continue to consolidate the cable and telco-TV business. All 900 NCTC members serve a combined five million customers. Comcast has 21 million, DirecTV: 20 million, Dish Networks: 14 million, and Time Warner Cable: 11 million.[5]

AT&T confesses it cannot compete effectively with Comcast and other larger competitors for the same reason. AT&T’s solution, like Comcast, is to buy a competitor, in this case DirecTV.[6]

Frontier Communications faced a similar problem after adopting Verizon FiOS franchises in Indiana and the Pacific Northwest after purchasing Verizon landline networks in several states. When Frontier lost Verizon’s volume discounts on programming, Frontier’s solution was to begin a marketing campaign to convince its fiber customers to abandon the technology and switch to one of its satellite television partners.[7]

—

[1]https://www.fiercecable.com/cable/comcast-twc-deal-will-squeeze-programming-and-technology-vendors

[2]http://stopthecap.com/2014/06/05/independent-cable-companies-unify-against-cable-tv-programmer-rate-increases/

[3]http://online.wsj.com/articles/viacom-60-cable-firms-part-ways-in-rural-u-s-1403048557

[4]http://stopthecap.com/2014/06/05/independent-cable-companies-unify-against-cable-tv-programmer-rate-increases/

[5]http://stopthecap.com/2014/06/05/independent-cable-companies-unify-against-cable-tv-programmer-rate-increases/

[6]http://www.bloomberg.com/news/2014-05-02/dish-or-directv-need-deal-most-in-at-t-love-triangle-real-m-a.html

[7]http://stopthecap.com/2011/08/16/frontiers-fiber-mess-company-losing-fios-subs-landline-customers-but-adds-bonded-dsl/

Comcast has argued there should be no antitrust concerns over their merger with Time Warner Cable because the two companies do not directly compete with each other.

That is precisely the problem. Nothing has ever precluded Comcast from applying to provide service throughout New York in direct competition with Time Warner Cable, but that has never happened. If one accepts Comcast’s logic, nothing should preclude it from acquiring every cable company in the United States because in almost no cases do cable operators compete head-to-head for customers.

Comcast must not be convinced of its own argument, because it has voluntarily agreed to limit its television market share to less than 30 percent by selling groups of Time Warner Cable customers to Charter Communications.[1]

The lack of competition is profound in New York, particularly upstate, and will only grow worse if this merger is permitted.

While sections of the state enjoy competition from Verizon FiOS fiber to the home service, enormous regions, including metropolitan Rochester and Binghamton have no prospect of widely available fiber broadband speeds consistently above 10Mbps because Frontier Communications almost entirely relies on DSL and its variants in Rochester and Verizon suspended its fiber expansion before even contemplating upgrading Binghamton.

The cities of Buffalo and Syracuse can only find FiOS in wealthy suburban areas, while inner-city residents are left either choosing Time Warner Cable or Verizon DSL, if offered.

It is also critical to note both cable operators fiercely compete with each other for sports programming rights and advertising dollars, both of which have major implications in a large metropolitan market like New York. Both Comcast and Time Warner Cable have records of withholding sports programming from competitors or charging excessively for access.[2]

—

[1]http://time.com/79053/comcast-time-warner-cable-charter/

[2]http://judiciary.house.gov/_cache/files/665684a1-49d4-4aca-9bc1-79ae9ad387b9/grunes-testimony.pdf