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Bloomberg News’ Alex Sherman and Porter Bibb, managing partner at Mediatech, break down the background and potential moves in the cable industry involving Comcast, Charter Communications and Time Warner Cable and the regulatory hurdles in their way on Bloomberg Television’s “Market Makers.” One interesting development will be the future of Cablevision, which will be an obvious takeover target for Comcast should Time Warner Cable be sold and split up. (9:14)

AT&T’s investment in U-verse expansion is expected to peak this year as part of its “Project VIP” effort to bring the fiber to the neighborhood service to more areas and offer faster broadband speeds to current customers.

AT&T is spending $6 billion over three years to broaden the footprint of U-verse, which now earns AT&T 57% of its total consumer revenues. In 2013, AT&T earned $13 billion in revenue from U-verse, up 28%.

AT&T’s investment in U-verse is dwarfed by the company’s efforts to benefit shareholders. In the last quarter of 2013, AT&T realized $6.9 billion in profits on revenue of $33.2 billion. For 2013, AT&T repurchased 366 million shares of its own stock for around $13 billion and paid out another $10 billion in shareholder dividends. Together, the total return for shareholders for the year was $23 billion and in the last two years AT&T achieved a new record benefiting shareholders with $45 billion in returns. In contrast, AT&T will spend just $6 billion on the current round of U-verse upgrades, with those markets left out likely pushed to wireless-only service if the company succeeds in winning approval to decommission its rural landline network.

Most of AT&T’s revenue growth is coming from its wireless business, particularly wireless data. After AT&T eliminated its flat rate plans, monetizing data usage has become very profitable — $23 billion per year and growing at 17% annually. Because increasing wireless usage forces customers to upgrade to higher cost plans offering more generous usage allowances, AT&T’s average revenue per customer increased by 3.9% — the highest in the wireless industry and the 20th consecutive quarter of customers collectively paying higher cell phone bills.

“The next steps are to make our networks even more powerful and layer on services that will drive new growth in the years ahead,” said AT&T CEO Randall Stephenson.

AT&T is counting on even higher customer bills as the company moves forward on several revenue-enhancing initiatives:

1. Moving an increasing number of customers away from subsidized handsets. AT&T Next allows wireless customers to get a new handset every year, but in return AT&T no longer subsidizes equipment purchases. Instead, most Next customers finance their current phone and will finance their next one, assuring AT&T of a constant revenue stream for equipment. AT&T expects to gradually move away from phone subsidies altogether;
2. Data plans for cars are forthcoming, as auto manufacturers install wireless capability in new vehicles. Many are signing agreements with AT&T that will make it easy for current customers to add vehicles to their existing plan, but customers of other carriers may find signing up for a new plan prohibitively expensive;
3. Internet-connected home security systems are getting a major marketing push in 2014 with advertising blitzes and other promotions. The alarm systems are connected to and use AT&T’s wireless data network;
4. AT&T customers are being pushed to wireless data plans with much higher data allowances than they need, delivering extra profits for AT&T with no impact on its wireless network;
5. AT&T wants to begin selling “sponsored data” services to companies willing to foot the bill for accessing preferred websites. AT&T calls it “toll-free data” but Net Neutrality advocates complain it monetizes data usage and establishes a unlevel playing field where deep pocketed companies can help customers avoid AT&T’s usage meter while others have to contend with customers worried about their data allowance.

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AT&T explains its Next program, which lets customers upgrade to a new smartphone every 12 or 18 months. AT&T doesn’t tell you the plan is effectively a lease that benefits them by not having to pay a phone subsidy worth hundreds of dollars to discount a phone they will eventually refurbish and resell after you return it. AT&T Next, as intended, is an endless installment payment plan that never stops as long as you keep upgrading your phone. You also can’t leave AT&T until you pay your current phone off. (1:30)

A new way for AT&T to end phone subsidies.

Despite fierce competition from T-Mobile, AT&T so far has seen little impact from T-Mobile’s aggressive marketing. AT&T added 566,000 new contract customers in the last quarter and sold 1.2 million smartphones to its customer base. AT&T’s customer churn rate — the number of customers coming and going — remains very low despite T-Mobile’s latest offer to cover AT&T’s early termination fees to encourage customers to switch.

Stephenson says AT&T’s superior wireless 4G LTE network and its larger coverage area make customers think twice about taking their business to a smaller carrier.

In 2014, AT&T laid out these plans during its quarterly results conference call this week:

• U-verse will get an expanded TV Everywhere service allowing customers to view programming on smartphones and tablets inside their home and out;
• U-verse broadband speed enhancements should be available to at least two-thirds of customers, with speeds up to 45Mbps;
• LTE coverage expansion targets are expected to be ahead of schedule;
• AT&T will begin a “big effort” on network densification — adding overlapping cell towers and small cell technology in current coverage areas — to handle network congestion;
• AT&T will focus on improving its wired and wireless networks to prioritize video delivery;
• If approved by the government, AT&T will use its acquired Leap/Cricket brand for aggressive new no-contract plans marketed to customers with spotty credit without tainting or devaluing the AT&T brand;
• AT&T will use its agreements with GM, Ford, Nissan, Audi, BMW, and Tesla to offer AT&T wireless connectivity in new 2015 model year vehicles.

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Bloomberg notes AT&T’s latest financial results are ahead of analyst expectations. Despite competition from T-Mobile, AT&T’s customer defection rate is at a historic low. (2:03)

Behind the 8 ball.

Intel has sold its never-launched Intel Media OnCue system, which planned to compete for cable TV viewers using online video, for a deeply discounted $200 million to Verizon Communications, according to media reports.

The would-be virtual cable competitor had initially put its technology up for sale for $1 billion but dramatically reduced its asking price to make a quick sale.

Intel proposed to launch its online competing cable system sometime this year, but pulled back after determining its business plan was untenable. The problem was programming costs — entrenched satellite, cable and phone company competitors receive substantial volume discounts off cable programming but an upstart like Intel would face much higher pricing.

The ongoing effort to establish usage caps or metering Internet usage has also been cited by other would-be competitors as a major deterrent to launch competing video ventures online which can chew up usage allowances.

Variety reports Verizon will use the Intel platform to launch a new TV Everywhere concept for its customers that will deliver the FiOS TV lineup online.

Intel also gets to solidify its working relationship with Verizon’s wireless unit.

A U.S. appeals court today ruled the FCC’s Net Neutrality policy requiring all Internet Service Providers to treat Internet traffic equally lacks legal authority.

The court found the FCC relied on an untenable foundation for its Net Neutrality policy that lacked legal standing, handing a victory to Verizon Communications that claimed its free speech rights were being violated.

The three judge panel were unanimous, finding the FCC could not regulate the Internet under the existing regulatory formula, in place since 2011 under the chairmanship of Julius Genachowski.

“Even though the commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates,” Judge David Tatel said.

Many analysts predicted the FCC had a shaky case from the outset, relying on a controversial classification of broadband as an “information service” that was unlikely to survive a court challenge.

“Given that the commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the commission from nonetheless regulating them as such,” Tatel wrote.

Many consumer groups argued the FCC should have reclassified broadband as a “telecommunications service” before implementing Net Neutrality. Today’s court decision seems to agree.

Wheeler

“The FCC — under the leadership of former Chairman Julius Genachowski — made a grave mistake when it failed to ground its open Internet rules on solid legal footing,” said Craig Aaron, president of Free Press. “Internet users will pay dearly for the previous chairman’s lack of political will. That’s why we need to fix the problems the agency could have avoided in the first place.”

FCC chairman Tom Wheeler expressed disappointment in today’s ruling and suggested the court would not have the last word.

“I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment,” Wheeler said in a statement. “We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans.”

“We’re disappointed that the court came to this conclusion,” said Aaron. “Its ruling means that Internet users will be pitted against the biggest phone and cable companies — and in the absence of any oversight, these companies can now block and discriminate against their customers’ communications at will.”

But the cable industry denies it will attempt to interfere with Internet traffic.

Former FCC chairman Michael Powell, who helped design the “information service” framework for Internet oversight during the Bush Administration, said the cable industry he now represents as president of the National Cable and Telecommunications Association will maintain a “hands-off” approach to Internet traffic.

“The cable industry has always embraced the principles of an open Internet and the Court decision will not change that,” Powell said. “Consumers have always been entitled to enjoy the legal web content of their choosing and they will continue to do so. An open Internet is good for our customers, and good for our business. The cable industry has always made it clear that it does not – and will not – block our customer’s ability to access lawful Internet content, applications or services.”

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CNBC reports today’s Net Neutrality decision could impact online services like Netflix with an Internet “toll road” for video content. (1:48)

AT&T has got your number.

AT&T wants to know what you are doing on the Internet.

If you agree to share your browsing history and view targeted contextual advertising from AT&T and its partners, the company will give you a monthly discount off the price of its new GigaPower gigabit fiber network.

Now launching in Austin, AT&T GigaPower charges $99 a month for 300Mbps standard service (speeds will be raised to 1,000Mbps in 2014 at no extra cost — equipment, installation and activation fees are extra). But customers can knock $30 off the monthly price and skip the new customer fees by enrolling in AT&T’s new “Premier” package, which runs $70 a month.

GigaOm discovered some interesting language in AT&T’s fine print about its Premier service: “[The discount] is available with your agreement to participate in AT&T Internet Preferences. AT&T may use your Web browsing information, like the search terms you enter and the Web pages you visit, to provide you relevant offers and ads tailored to your interests.”

Exactly how AT&T intends to implement its contextual advertising program remains largely a mystery. Google includes contextual ads in its Gmail service, its search engine results, and in online advertising from participants in Google’s AdWords program. AT&T lacks an advertising platform as large as Google or Microsoft’s Bing, so questions are being raised about how exactly AT&T will be able to find enough places to present online ads.

GigaOm suspects AT&T might use deep packet inspection to monitor customers’ web traffic to collect browsing information for contextual ads. Others suspect AT&T will replace certain existing third-party ads found on independent websites with its own advertising. Either is likely to bring the company scrutiny, both from Internet Privacy advocates and website owners that find their advertising replaced by ads from AT&T and its partners.

AT&T’s response to GigaOm left a number of questions unanswered:

We use various methods to collect web browsing information, and we are currently reviewing the methods we may use for the Internet Preferences program. Whichever method is used, we will not collect information from secure (https) or otherwise encrypted sites, such as online banking or when a credit card is used to buy something online on a secure site. And we won’t sell your personal information to anyone, for any reason.

[…] We won’t sell your personal information. Rather, AT&T may use your personal information to direct another advertiser’s ad to you, but that advertiser would never have access to your Personal Information. For example, after you browse hotels in Miami, you may be offered discounts for rental cars, but that rental company doesn’t know who you are.

AT&T is experimenting with consumer acceptance of discounting service in return for giving up some privacy. It says it is giving customers the choice to opt out by signing up for the more expensive “standard” service.

U-verse television service is also available to customers of both packages for an extra $50 a month. Telephone service adds another $30 a month.

AT&T has started rolling out its GigaPower service in the French Place, Mueller, Zilker, and Onion Creek neighborhoods and will select future places to expand based on interest registered by local residents on AT&T’s GigaPower website.

“We’ve already received great input from thousands of Austinites eager for the fastest speeds,” said Dahna Hull, general manager of Austin’s AT&T Services, Inc. “These votes are helping us identify where the need for speed and advanced TV services is the greatest and will help guide our future GigaPower expansion plans.”

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Options for super high-speed Internet are heating up in Austin as AT&T introduces AT&T U-verse with GigaPower this week. KXAN reports the service will initially launch with 300Mbps service in a handful of neighborhoods, but upgrade to 1,000Mbps speeds in more locations next year. (2:30)