Big, Bigger, Biggest… Bigger Still

Comcast has plenty of available bandwidth to indefinitely expand its High Speed Internet services at speeds up to 3Gbps and believes it has won the legal right to grow its cable business as large as it likes.

Comcast executives admitted Wednesday they have more than enough network capacity to meet the demands of customers, both now and well into the future.

“With regard to usage and capacity, we feel the network is flexible and has plenty of opportunity to grow in capacity,” said Neil Smit, president and CEO of Comcast Cable Communications. Smit was responding to a Wall Street analyst asking about future capacity during a quarterly financial results conference call.

Smit noted that some of the biggest bandwidth users served by Comcast are businesses, and the cable operator was well-positioned to service them by extending fiber or deploying its Metro Ethernet product. Residential customers get increased bandwidth through neighborhood node splitting or DOCSIS 3 channel bonding that combines several channels together to increase speed and capacity.

Brian Roberts, CEO of Comcast Corporation, agreed with Smit, adding, “the more the consumer desires speed, the better that is for our company.”

Roberts noted DOCSIS 3.1 — the next generation of cable broadband — was “promising technology.”

“At the cable convention, we demonstrated 3Gbps” over Comcast’s existing cable infrastructure, said Roberts.

Smit

Comcast is easily the country’s largest cable operator, but many believe it is restrained from growing larger through mergers and acquisitions because of antitrust concerns. But thanks to a number of lawsuits initiated by Comcast, the company believes it can now grow as large as it likes.

Roberts admits the question of cable industry consolidation remains a gray area, particularly for Comcast. But he told investors he does not believe there are any remaining legal hurdles preventing Comcast from buying out other cable operators, despite earlier FCC rulemakings limiting the maximum size a cable company can grow through buyouts.

Comcast yesterday announced its last buyout — NBCUniversal — helped fuel a 29% increase in net income in the second quarter, thanks in part to strong results from film and television.

But many of Comcast’s largest gains came from its cable business.

Despite continued losses of video subscribers (159,000 in the second quarter), Comcast’s cable revenue increased 5.8% to $10.47 billion, and operating cash flow grew 5.7% to $4.3 billion. Comcast, which also owns several NBC broadcast affiliates, is playing for both sides of the retransmission consent wars. Its owned and operated television stations have demanded higher fees to be carried on cable systems, many owned by Comcast itself. The increased programming costs fuel subscriber rate increases, which also boost revenue.

Broadband is way up, although the company keeps losing video customers to cord-cutting.

Comcast’s broadband revenue has continued to grow dramatically. Customer additions for High Speed Internet access were up more than 20% in the quarter — the best second-quarter growth in five years — even as subscribers paid more for the service because of rate increases. Customer growth and price hikes delivered 8% growth in broadband revenue. In the last quarter alone, Comcast earned $2.6 billion from its broadband business.

Comcast is not spending a significant percentage of that revenue on enhanced broadband network upgrades. Instead, the company has increased investments to wire office parks and businesses to entice commercial customers, which account for a substantial amount of new customer growth. Comcast is also investing in research and development of new products and services, such as set-top boxes. The company also expects to pay 10% more in programming costs than it did a year earlier.

Year-to-date cable communications capital expenditures have increased 7.1% to $2.3 billion representing 11.3% of cable revenue. Comcast expects that for the full-year of 2013, cable capital expenditures will increase by about 10% over 2012.

Some other highlights from the quarter:

• In the last six months, Comcast completed broadband speed increases for 70 percent of its customers;
• High Speed Internet revenue was again the largest contributor to Comcast’s cable revenue growth;
• At the end of the quarter, 33% of Comcast’s residential high-speed customers take a higher speed tier above its primary service;
• Comcast has pushed Wi-Fi hard, installing more than four million wireless gateways and boosted Wi-Fi coverage to 250,000 hotspots through both cable partnerships and its home hotspot initiative;
• Comcast’s new X1 cloud-based set-top platform has been introduced to more than half of its national service area and will be available everywhere by the end of 2013. By the end of the year, Comcast also expects to push a firmware update to installed boxes to upgrade them to its new X2 platform;
• The average Comcast subscriber now pays the company $160 per month, up 7.4% from last year. Rate hikes, speed upgrades and growing programming packages account for the higher price;
• 77% of Comcast video customers took at least two products and among those, 42% took phone, broadband and television service.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Comcasts Cable and Media Units Grow 7-31-13.flv[/flv]

Bloomberg reports Comcast is still having trouble holding on to its video-only customers, but broadband customer growth continues to explode. Comcast also does well because it owns a number of cable networks and entertainment properties. Expect Comcast to continue evolving its products to bring them closer to the things people do online.  (3 minutes)

Although cable and phone companies love to declare themselves part of a fiercely competitive telecommunications marketplace, it is increasingly clear that is more fairy tale than reality, with each staking out their respective market niches to live financially comfortable ever-after.

In the last week, Time Warner Cable managed to alienate its broadband customers announcing another rate increase and a near-doubling of the modem rental fee the company only introduced as its newest money-maker last fall. What used to cost $3.95 a month will be $5.99 by August.

The news of the “price adjustment” went over like a lead balloon for customers in Albany, N.Y., many who just endured an 18-hour service outage the day before, wiping out phone and Internet service.

“They already get almost $60 a month from me for Internet service that cuts out for almost an entire day and now they want more?” asked Albany-area customer Randy Dexter. “If Verizon FiOS was available here, I’d toss Time Warner out of my house for good.”

Alas, the broadband magic sparkle ponies have not brought Dexter or millions of other New Yorkers the top-rated fiber optic network Verizon stopped expanding several years ago. The Wall Street dragons complained about the cost of stringing fiber. Competition, it seems, is bad for business.

In fact, Verizon Wireless and Time Warner Cable are now best friends. Verizon Wireless customers can get a fine deal — not on Verizon’s own FiOS service — but on Time Warner’s cable TV. Time Warner Cable originally thought about getting into the wireless phone business, but it was too expensive. It invites customers to sign up for Verizon Wireless service instead.

This is hardly a “War of the Roses” relationship either. Wall Street teaches that price wars are expensive and competitive shouting matches do not represent a win-win scenario for companies and their shareholders. The two companies get along fine where Verizon has virtually given up on DSL. Time Warner Cable actually faces more competition from AT&T’s U-verse, which is not saying much. The obvious conclusion: unless you happen to live in a FiOS service area, the best deals and fastest broadband speeds are not for you.

Further upstate in the Rochester-Finger Lakes Region, Time Warner Cable faces an even smaller threat from Frontier Communications. It’s a market share battle akin to United States Cable fighting a war against Uzbekistan Telephone. Frontier’s network in upstate New York is rich in copper and very low in fiber. Frontier has lost landline customers for years and until very recently its broadband DSL offerings have been so unattractive, they are a marketplace afterthought.

Rochester television reporter Rachel Barnhart surveyed the situation on her blog:

Think about this fact: Time Warner, which raked in more than $21 billion last year, has 700,000 subscribers in the Buffalo and Rochester markets. I’m not sure how many of those are businesses. But the Western New York market has 875,000 households. That’s an astounding market penetration. Does this mean Time Warner is the best choice or the least worse option?

That means Time Warner Cable has an 80 percent market share. Actually, it is probably higher because that total number of households includes those who either don’t want, need, or can’t afford broadband service. Some may also rely on limited wireless broadband services from Clearwire or one of the large cell phone companies.

In light of cable’s broadband successes, it is no surprise Time Warner is able to set prices and raise them at will. Barnhart, who has broadband-only service, is currently paying Time Warner $37.99 a month for “Lite” service, since reclassified as 1/1Mbps. That does not include the modem rental fee or the forthcoming $3 rate hike. Taken together, “Lite” Internet is getting pricey in western New York at $47 a month.

Retiring CEO Glenn Britt believes there is still money yet to be milked out of subscribers. In addition to believing cable modem rental fees are a growth industry, Britt also wants customers to begin thinking about “the usage component” of broadband service. That is code language for consumption-based billing — a system that imposes an arbitrary usage limit on customers, usually at current pricing levels, with steep fees for exceeding that allowance.

Rochester remains a happy hunting ground for Internet Overcharging schemes because the only practical, alternative broadband supplier is Frontier Communications, which Time Warner Cable these days dismisses as an afterthought (remember that 80 percent market share). Without a strong competitor, Time Warner has no problem experimenting with new “usage”-priced tiers.

Time Warner persists with its usage priced plans, despite the fact customers overwhelmingly have told the company they don’t want them. Time Warner’s current discount offer — $5 off any broadband tier if you keep usage under 5GB a month, has been a complete marketing failure. Despite that, Time Warner is back with a slightly better offer — $8 off that 5GB usage tier and adding a new 30GB usage limited option in the Rochester market. We have since learned customers signing up for that 30GB limit will get $5 off their broadband service.

In nearby Ohio, the average broadband user already exceeds Time Warner’s 30GB pittance allowance, using 52GB a month. Under both plans, customers who exceed their allowance are charged $1 per GB, with overlimit fees currently not to exceed $25 per month. That 30GB plan would end up costing customers an extra $22 a month above the regular, unlimited plan. So much for the $5 savings.

Unfortunately, as long as Time Warner has an 80 percent market share, the same mentality that makes ever-rising modem rental fees worthwhile might also one day give the cable company courage to remove the word “optional” from those usage limited plans. With usage nearly doubling every year, Time Warner might see consumption billing as its maximum moneymaker.

In 2009, Time Warner valued unlimited-use Internet at $150 as month, which is what they planned to charge before pitchfork and torch-wielding customers turned up outside their offices.

Considering the company already earns 95 percent gross margin on broadband service before the latest round of price increases, one has to ask exactly when the company will be satisfied it is earning enough from broadband service. I fear the answer will be “never,” which is why it is imperative that robust competition exist in the broadband market to keep prices in check.

Unfortunately, as long as Wall Street and providers decide competition is too hard and too unprofitable, the price increases will continue.

A senior IT manager at Bright House Networks used his broadband account to download kiddie porn, authorities allege.

James E. Cooper, 49, of Pinellas County, Fla., faces three counts of child pornography, according to the Florida Department of Law Enforcement.

Authorities confiscated numerous computers and hard drive storage units from Cooper’s home under a search warrant. Authorities from the St. Petersburg Police, the Pasco County Sheriff’s Office, and the Department of Homeland Security coordinated in the investigation and subsequent arrest of Cooper.

Cooper was being held at the Pinellas County Jail in lieu of $15,000 bail. The Pinellas-Pasco State Attorney’s Office is expected to prosecute the case in criminal court.

Comcast is in hog heaven thanks to Pennsylvania’s generous handouts from its corporate welfare system.

This week, Philadelphia residents are pondering why the city is hounding entrepreneurs and middle class, at-home workers with new taxes and fees while the nation’s largest and richest cable company, Comcast, is receiving enormous tax breaks and government handouts.

Welcome to the United Corporations of America, where taxpayers front at least $80 billion in corporate welfare handouts, according to the New York Times. Comcast is the fourth biggest recipient of corporate welfare in Pennsylvania, dwarfed only by a giant oil company and two Hollywood studios that have learned how to cash in by filming movies inside the Keystone State. The average Pennsylvanian contributes $381 in taxes per year that gets diverted to multi-billion dollar corporations. At least 18 cents of every dollar in the state budget is now spent on corporate welfare programs.

The budget busting handouts have continued without interruption, even during The Great Recession. Elected officials believe the only way to keep big business from picking up and moving to another city or state is to keep making them offers they cannot afford to refuse. But local taxpayers can’t afford to make up the difference. While the economy was melting down from 2008-2010, Philadelphia-based Comcast scored $18 million in tax abatements, credits, and other government handouts. At the same time, local officials faced with upside down city budgets enacted controversial new taxes and business fees on some of the city’s smallest businesses, ranging from bloggers, freelance writers, to independent contractors and consultants.

Pennsylvania is easily among the top-tier of states handing out corporate welfare. In 2011, the Commonwealth collected $4.89 billion in business taxes. But it promptly returned $4.84 billion in tax credits to the state’s biggest businesses. Government benefits for Philadelphia for-profits totaled over $200 million that year alone. Many of the state’s biggest companies receive nearly as much in tax credits, grants, and other benefits that they pay in state and local taxes. Some incentive programs are so broadly written, businesses doing “business as usual” qualify for enormous tax breaks.

Take, for example, Comcast subsidiary QVC. Pennsylvania’s “film incentive program” handed the home shopping network $7.05 million in tax credits just for hawking jewelry from studios inside Pennsylvania. It did not matter QVC had been pitching products from those studios before, during and after the subsidy program handed out the award. Comcast had no plans to move the studios either, but it pocketed the corporate welfare just the same.

While Comcast was building up enough financial resources to acquire NBC-Universal, Philadelphia’s city budget was in tatters. Officials looking for creative ways to boost the local tax base didn’t tap Comcast for the money. Instead, they declared bloggers were now required to get a “business license” to operate within city limits. In fact, the city argued, every person, partnership, association and corporation engaged in a business, profession or other for-profit activity within the city of Philadelphia must now file a Business Privilege Tax Return. The cost just to apply for the business license? $300. Sorry Nathanial, the lemonade stand has to close because you didn’t cough up the $300 before erecting the card table in the front yard.

The “blogger tax” appeared to be sufficiently overreaching (thanks to excoriating coverage in the local media) to provoke the city to begin to phase it out, but no worries — Philadelphia has since found another source of revenue — Comcast? No, of course not. The real money is in taxing strippers. From The Philly Post:

So Mayor Nutter’s effort to tax lap dances—which reached its, er, climax last week in a Philadelphia courtroom — might be somewhat sympathetic if it had been cast as a way to crack down on the general level of skeeviness in the city. After all, it’s a fairly common rule of economics that if you want less of something, just tax it. That’s the logic behind Nutter’s anti-obesity effort to put a tax on sugary drinks, after all.

But nobody’s making that argument. (To be fair, City Hall hasn’t made much of a public argument of any sort, with officials saying they can’t comment on pending litigation.) So we’re forced to assume that the city, always desperate for revenue, is simply finding new ways of taxing its citizens — going after strippers the way you and I might check the folds of the couch for loose change.

And since strip club attendees already pay the city’s amusement tax just to enter the strip club, it seems reasonable to conclude that asking them to pay again when they witness actual stripping is thus a direct tax on stripping itself. It’s a tax on work.

There probably are not enough deep-pocketed lap dancers inside the City of Brotherly Love to cover Comcast’s tax tab. Just for building its new headquarters in Center City Philadelphia, the company was awarded an extra $42.75 million in government subsidies. But it did not stop there. In 2011, the cable company received an extra $18 million in miscellaneous gratitude corporate welfare categorized generally as “assorted grants and credits.” No other Philadelphia business came close to competing with Comcast’s taxpayer-provided gift basket. In return, Comcast showed its gratitude to Pennsylvania by declaring itself a Delaware-based corporation that was exempt from paying the state’s corporate income tax.

AT&T has continued its efforts towards wireless industry consolidation with today’s announcement it has acquired Iowa-based Long Lines Wireless (formerly Cellular One of Iowa) for an undisclosed amount.

“We concluded that Long Lines could best serve our customers by focusing our attention and investing our resources in providing new features for our non-wireless services including voice, broadband services, and cable TV, and in expanding our fiber optic network to reach more communities and customers,” said Long Lines CEO Brent Olson.

The rural telecom company has served Siouxland since 1941 and today provides wireless, landline service, cable television and broadband to residents in Iowa, Minnesota, Nebraska, and South Dakota.

Customers have not suffered doing business with a small independent provider like Long Lines. The company operates a fiber optic network providing business customers up to 40Gbps broadband and residential customers up to 100Mbps Internet service. Those services are not available from the much larger telephone companies that also serve these states, including AT&T, Frontier, and CenturyLink.

Despite the availability of infrastructure that can rival any large city, Long Lines concluded it could simply not succeed in its wireless business.

“Regional wireless providers have limited access to the latest smartphones and other devices, and it has become increasingly difficult to for Long Lines Wireless to meet the digital mobile needs of our customers,” Olson said.

The sale to AT&T means Long Lines wireless customers will eventually be a part of AT&T’s wireless network, with access to its 4G network and a wider selection of phones.

Long Lines intends to invest its resources in providing new features for non-wireless services including voice, broadband services, and cable TV, and in expanding its fiber optic network to reach more communities and customers.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KCAU Sioux City Long Lines Sold to ATT 7-25-13.mp4[/flv]

KCAU in Sioux City reports on the sale of Long Lines Wireless to AT&T Mobility. (1 minute)