‘Disloyal Cablevision customers looking for discounts are dead to us.’

Cablevision is fed up with disloyal customers bouncing between the cable company and other providers when promotional discounts expire.

After losing 13,000 broadband, 18,000 voice, and 37,000 television customers, Cablevision CEO Jim Dolan said the company has stopped offering any further discounts to customers that received them once before.

“The customer that has been bouncing from one company to another on promotional/repetitive discounts has hit a dead-end with us,” Dolan told Wall Street analysts during a conference call.

All customers with promotions will now be tracked to prevent extensions or further discounts once the special rates expire. Dolan confirmed the ban will also extend to customer retention offers.

Customers who shop primarily on price in Cablevision’s service area have traditionally flipped between AT&T U-verse, Verizon FiOS and the cable company every few years, usually switching after a promotion expires or rates are increased. Because of fierce price competition, new customers can receive a triple play package of broadband, phone, and television service — including equipment, for less than $85 a month for at least one year. Regular prices are considerably higher.

Cablevision lost most of its departing New York and New Jersey customers to Verizon FiOS, but has been more successful fending off competition in Connecticut, where AT&T has the least capable broadband network among the three providers.

All three companies have attempted price increases over the last few years with mixed results. Cablevision’s eight percent rate hike on broadband this year may have been too much for some customers who shopped around and found a better deal with the phone company.

Despite the loss in customers, Dolan remains firmly committed to more rate hikes, especially for broadband service, noting its speed and features (including an extensive Wi-Fi network) deliver enough value to sustain further price increases.

Cablevision clearly hopes competitors follow its lead and end promotional rate double-dipping as well. If they do, customers will find themselves locked in with regular pricing regardless of the provider they choose.

Some analysts are skeptical Cablevision’s hard-line will last, especially if subscriber losses mount. Cable operators have attempted to restrict promotions in the past but tend to ease them if market share suffers. Despite the third quarter customer retreat, Cablevision’s rate hikes delivered $336 million in broadband revenue during the last three months, an increase from $308 million earned the same time last year.

Cruz Control

Sen. Ted Cruz (R-Tex.) has blocked the Senate from voting to confirm Tom Wheeler, the Obama Administration’s pick for the next chairman of the Federal Communications Commission.

Cruz, a Tea Party favorite, does not object to Wheeler’s credentials. He’s upset Wheeler might support a regulatory implementation of portions of the Disclose Act, a bill requiring full disclosure of who pays for political advertising. The bill would require corporations, super PACs, astroturf groups and other special interests to report to the Federal Election Commission when they spend more than $10,000 on airtime for campaign ads.

Cruz and several other Republican senators wrote the FCC in April to warn the bill violates corporate First Amendment speech rights and was unconstitutional.

With no chance the legislation will pass a Republican-controlled House and deadlocked Senate, the bill’s supporters have turned to the FCC with the idea the agency could act independently to require campaign ad disclosures, a suggestion that infuriated conservative Republicans who disapprove of any enhanced oversight powers for the regulator.

Cruz placed a formal hold on Wheeler’s nomination last week as the Senate prepared to vote an end to the 16-day federal government shutdown.

A spokesman from Cruz’s office made it clear as long as Wheeler continued to vacillate on a commitment not to regulate campaign ads, he will not get an up or down vote on his nomination in the Senate.

Observers suggest Cruz’s hold will stall spectrum auctions and, if extended beyond the fall, could eventually freeze Internet expansion programs for schools and libraries.

Acting FCC chairwoman Mignon Clyburn will continue in that role until Wheeler gets confirmed or another appointee is nominated and approved.

LightSquared, the ill-fated venture to bring nationwide 4G wireless broadband to the masses may be all but gone and forgotten in bankruptcy reorganization proceedings, but the wireless spectrum it controls and the drama surrounding it is not.

A battle between billionaires and the hedge funds they support has broken out over who will ultimately control the failed venture — a hedge fund manager deep in LightSquared debt or the richest man in Colorado that often finds a way to get his way.

Harbinger Capital Partners’ Phil Falcone

Falcone

Phil Falcone earned his first fortune trading junk bonds in the 1980s. In 2001, he launched Harbinger Capital Partners and by 2007, Falcone and his investors were well-positioned for a blizzard of cash betting against sub-prime mortgages just before the housing collapse and credit crisis that followed. Falcone took home $1.7 billion in compensation that year while an epidemic of foreclosures and upside down mortgages was just getting started.

In late 2008, when the economy was in free-fall, Falcone suspended or limited withdrawals from his largest funds, upsetting investors who couldn’t get their money out. But Falcone reportedly gave special treatment to certain large investors (sources say Goldman Sachs is among them) who were able to clear out their exposed accounts before the losses piled up.

By 2009, Falcone was again making money — so much he vastly underestimated his federal and state tax bills. What’s a cash-strapped billionaire to do? Quietly loan himself $113.2 million from one of his investment funds at a favorable interest rate and keep it a secret from investors for five months. When they eventually found out, they were understandably disturbed. Falcone had barred those same investors from cashing out of the fund he borrowed from.

The Securities and Exchange Commission was not happy either and filed charges against Falcone.

“Today’s charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully,” Robert Khuzami, director of the S.E.C.’s division of enforcement, said in a statement. “Clients and market participants alike were victimized as Falcone unscrupulously used fund assets to pay his personal taxes, manipulated the market for certain bonds, favored some clients at the expense of others, and violated trading rules intended to prohibit manipulative short sales.”

Despite the publicity generated by the SEC, investors who appreciated Falcone’s ability to earn them money allowed them turn a blind eye to the ethics questions and pour money into Falcone’s latest venture — a wireless network known as LightSquared.

LightSquared was preparing to launch a unique nationwide 4G LTE mobile broadband network powered by satellites and ground-based cell towers, selling wholesale access to third-party wireless companies able to market the service under their own brand. Falcone’s funds poured nearly $3 billion dollars into the venture while getting a waiver from the government to operate high-powered transmitters on the “L” band — 1525-1559 MHz. LightSquared’s plans alarmed the next door neighbors — GPS satellites facing interference issues that would hurt the accuracy of precise location information provided to millions of tracking devices on the “L1” band — 1559 to 1610 MHz.

Initial testing showed that significant interference from the prototype ground-based transmitters would occur and potentially could cripple aviation and public safety GPS users. The FCC eventually withdrew permission for LightSquared to run its network as planned, a potential death-blow to the venture.

Creditors grew anxious wondering how LightSquared would be in a position to repay its loans when it was unable to launch its wireless network.

In May 2012, creditors forced the issue and LightSquared filed for bankruptcy protection, listing assets of $4.48 billion and debts of $2.29 billion. Falcone claimed the bankruptcy filing would give the company more time to overcome the FCC’s objections to its network operations plan. Falcone estimated it would take two years to secure a resolution. Analysts familiar with the FCC suggested Falcone might die of old age before the agency gave way.

Falcone’s subsequent efforts to win back control of the venture have been made more difficult because one man has been quietly buying up large amounts of LightSquared’s debt with designs on the venture’s spectrum.

Dish Networks’ Charles Ergen

With LightSquared’s debt trading at around 50 cents on the dollar, Charlie Ergen went shopping.

Ergen has been involved in the satellite business for decades. Today, he controls and runs Dish Network, a satellite television provider that has seen the back of high customer growth. Dish and DirecTV are both locked out of the “triple play” business most cable and phone companies offer customers. Neither company can offer broadband or telephone service without partnering with another provider. As cord-cutting continues to take hold, customers willing to pay for increasingly expensive television packages are in decline. That likely explains Ergen’s interest in acquiring wireless spectrum — to build Dish into a broadband, television, and telephone service provider.

In May, Dish publicly bid $2.2 billion for certain spectrum assets from LightSquared. But for more than a year earlier, Ergen was quietly buying up LightSquared’s debt through holding companies and hedge funds.

Ergen created an opaque investment entity named “SP Special Opportunites, LLC” a/k/a “Sound Point” to buy LightSquared debt. Separately, Ergen asked Stephen Ketchum, a former investment banker with close ties to Ergen, to buy over $1 billion in LightSquared debt securities through Ketchum’s hedge fund. From April 2012 until May 2013, Sound Point allegedly spent $1,013,082,326.30 to purchase secured debt for Ergen’s personal benefit and without the knowledge of Dish or its board of directors. Secured debt held by creditors is paid first in a bankruptcy proceeding, and Ergen quietly because LightSquared’s largest single secured creditor.

That puts Charlie Ergen in a major ethical dilemma.

The more Dish offers to pay for LightSquared, the more money Ergen will be paid to cover the shares of LightSquared’s secure debt. Ergen has a controlling interest in Dish, which means he can order Dish to overpay for LightSquared, personally pocketing the proceeds.

Bloomberg’s Matt Levine explains the shady deal:

“An executive going around and buying up an asset for cheap, then convincing his company to buy all of that asset for a higher price – doesn’t come up a lot because it’s so obviously shady,” Levine wrote. “If you’re supposed to be devoting your time and energy to finding opportunities for your company, it looks pretty bad to steal those opportunities for yourself.”

Falcone was outraged when he learned of Ergen’s stealthy acquisitions.

Ergen

In July, Harbinger accused Ergen of “fraudulently” becoming a creditor to block efforts by LightSquared to reorganize and emerge intact from bankruptcy. Instead, Harbinger accused Ergen of seeking to acquire the company’s assets “on the cheap.” Harbinger also points to provisions in a LightSquared debt agreement that forbids certain competitors from buying the company’s debt.

Also upset are several major Dish Network shareholders who are not pleased Ergen’s private deal could make him a lot of money while costing shareholders plenty should Dish overpay for LightSquard’s assets or worse, end up with everything but the spectrum Dish covets.

At least five lawsuits have been filed since August, accusing Ergen and other board members of casting their fiduciary duties to the wind and wasting money along the way. They are also upset Ergen and his connections purchased $1 billion in LightSquared debt at a substantial discount and will likely be repaid the full face value of those debts with Dish Network’s money. That means nearly $300 million in personal profits for Ergen.

The latest shareholder lawsuit was filed by the Louisiana Municipal Police Employees’ Retirement System. It along with the suit filed by the City of Daytona Beach Police Officers’ and Firefighters’ Retirement System claim Ergen’s near-total control of Dish’s board of directors makes it impossible for the board to meet its obligation of representing shareholder interests first.

“Ergen’s control over the company and the board is highlighted by the numerous transactions he has caused Dish to enter into with members of his family,” the lawsuit states.

Ergen and Dish’s efforts to insulate themselves from charges of conflict of interest didn’t fly with many investors.

One lawsuit noted Tom Ortolf, one of the directors on the supposedly independent committee reviewing Dish’s bid, has a daughter that works at Dish; the other, George Brokaw, chose Mr. Ergen’s wife, Cantey Ergen—a Dish director named in the shareholder suit—to be the godmother of his son.

The discomfort level at Dish reached high enough to prompt one board member, Gary Howard, to suddenly resign in early September. Howard was also on the committee formed to vet the LightSquared deal because of the potential conflict of interest on Ergen’s part.

Before Falcone could claim the high road at Ergen’s expense, this week New York’s top financial regulator banned Falcone from managing Fidelity & Guaranty Life Insurance Company of New York for seven years. Harbinger Group bought Fidelity & Guaranty, the U.S. life and annuity unit of London-based Old Mutual Plc, for $350 million in 2011.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg LightSquared 9-5-13.flv[/flv]

Bloomberg News discusses the high drama between LightSquared and Dish Network. (4 minutes)

Time Warner Cable CEO Glenn Britt considers value conscious customers a nuisance, so much so the company has changed its promotions to make them less attractive to ‘big bang for the buck’-discount hunters.

Speaking at the Bank of America/Merrill Lynch Global Telecom & Media Conference in London, Britt said the company had to beef up its in-house customer retention specialists to try and keep frugal customers who signed up for aggressive triple-play promotions in the last two years that the company now wants to reset to a higher price.

“It’s easy to generate a lot more customers by being very aggressive on price,” Britt said. “It isn’t clear that those customers are profitable. They tend to be lower income — people who tend to rent as opposed to own their dwelling unit. They move a lot and sometimes they don’t pay very well. The real trick is to create the optimum profitability.”

“Going back to fourth quarter of 2011, we pushed too hard on volume and we had very aggressive offers in the marketplace,” Britt explained. “These typically stepped up in price after a year and we kept those offers in place through most of 2012. So we got a lot of customers – particularly voice customers. That seemed good at the time. What we found is as we try to step them up to higher prices, that they are not very sticky. They have worse/bad pay characteristics than our average customers. So that’s all been a problem. Quite frankly we did not prepare our retention centers for the volume of people who are in this. We’ve changed our offers so they are less rich and we’ve stood up and enhanced our retention centers.”

As a result of the changes, Time Warner Cable lost more voice customers than it gained for the first time. That does not bother Britt, who sees selling faster broadband to customers more profitable than discounting phone service to keep phone customer numbers up.

Britt: The Sale is Over

Chief operating officer Rob Marcus told investors this week the company was hiring more in-house customer service representatives in the retention department to keep customers from defecting after their promotional price expires. Time Warner used to outsource many of those last-ditch retention calls, but has now staffed at least 500 new customer service representatives in four retention centers around the country. At least 400 additional hires are expected by the end of the year.

“What that enables us to do is route a greater portion of calls from customers likely to disconnect to these specialists, as opposed to sending them to either our care queue or outsourced reps who we think are less effective at handling those kinds of calls,” Marcus said.

Britt said the biggest segment of customers threatening to disconnect are TV customers who can no longer afford the cable package due to increasing programming costs. Britt does not believe online video cord-cutting is a major threat.

Back in the fall of 2010, British billionaire Alki David fired a salvo against major broadcast networks in the United States and United Kingdom with the introduction of FilmOn, an online cable system offering unlimited viewing of broadcast networks from both countries for around $10 a month. By early 2011, lawsuits from various networks forced the removal of the most-watched channels, and most of the incentive for subscribers to keep paying for the service.

But David has never given up on FilmOn, and borrowing a page from Aereo’s business plan, he has brought back most of the major American networks on his relaunched platform, dubbed AereoKiller.

The company claims it is now using individual over-the-air antennas to receive broadcast stations from the New York or Washington, D.C. area, selling 24/7 streaming access for $9.99 per month or $99 a year. DVR service is sold at prices ranging from $2.95 a month to $190 a year, depending on the number of hours recorded.

Among the stations included:

New York

• WCBS (CBS)
• WNBC (NBC)
• WNYW (FOX)
• WABC (ABC)
• Bounce TV (via WWOR subchannel)
• WPIX (CW)
• WNET (PBS)/WNET-Kids
• WNJU (Telemundo)

Washington, D.C.

• WRC (NBC)
• WTTG (FOX)
• WJLA (ABC)
• WUSA (CBS)

There seem to be no geographic restrictions to prevent out of area viewers from subscribing, and FilmOn offers viewing on the desktop, as well as through iOS and Android apps.

David

FilmOn may have avoided streaming west coast stations because a California court found in favor of broadcasters who sued to shut down the operation three years earlier. But it ultimately will not keep David’s upstart service out of the courts in the east.

Last week, three major television networks and Washington, D.C. station owner Allbritton Communications filed suit against FilmOn for streaming signals from the nation’s capital without permission.

Based on the track record of earlier ventures, customers may want to avoid subscribing at the annual package price. Historically, broadcasters have fought and won temporary restraining orders that block the streaming services until the case makes its way through legal proceedings. Aereo, which streams New York area television stations exclusively to New York City customers has proven the exception and continues to run, at least for now.

Broadcasters consider stopping “dime-sized” antenna farm streaming services like Aereo and AereoKiller a top priority, because networks and local stations earn lucrative retransmission consent rights fees from cable, satellite, and telco-TV providers used by at least 90 percent of the viewing audience. Should these alternative technologies be found legal and not in violation of copyright, pay television providers could potentially license and incorporate similar technology into their respective set-top boxes and avoid paying license fees to station and network owners.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/FilmOn Introduction 5-13.mp4[/flv]

FilmOn’s introductory promotional video features some boastful claims from founder Alki David that are perhaps more wishful thinking than reality, but PlayOn has persisted despite broadcaster lawsuits by creating and distributing original live and recorded programming.  (8 minutes)