An innovative plan to rent New Yorkers a dime-sized over-the-air antenna housed in a Brooklyn data center to receive and stream local broadcasters could be the end of broadcast TV as we know it, at least if you believe the claims being made by network executives in their high-powered lawsuit.

Aereo, which charges $12 a month to an invitation-only customer base, is the target of serious legal action brought by the major broadcast networks and local TV stations that believe Aereo’s disruptive business model could allow cable operators to avoid paying retransmission consent fees for free, over the air television signals.

Aereo only streams local broadcasters in the New York metropolitan area to residents within viewing range of the signals. The company argues it operates legally because of a time-tested, sound legal principle: the Communications Act of 1934, which offers broadcasters a license to use the public airwaves in return for operating in the public interest. Aereo only rents its tiny antennas to one customer at a time, and provides them with streamed video received by that antenna. The company charges a nominal monthly fee to cover the costs of operating its data center and to cover streaming expenses.

The monthly subscription fee grants viewers access to watch one channel while recording another on a cloud-based DVR “storage locker.” Viewers can watch the signals on just about any device, as long as they are located within the New York metropolitan area. Travelers and those who live outside of the area cannot watch programming or subscribe to the service.

The threat to the nation’s pay television operators and broadcasters is obvious. Over the air television broadcasters increasingly rely on so-called “retransmission consent payments” collected from pay television operators in return for permission to place their signals on the cable, telco, or satellite TV dial. Broadcasters bank on that growing revenue. Pay television providers grudgingly agree to the payments and promptly pass them on to already rate-increase-weary subscribers, who want a way out of paying for hundreds of channels they don’t care to watch.

Aereo's over the air antenna is about the size of a dime.

Aereo breaks the business models of both broadcasters and the cable industry. Cord cutters can get reliable and cheap reception of over-the-air stations without dealing with cumbersome in-home antennas (or paying local cable companies for HD-quality local stations and a DVR box). Goodbye $70 cable-TV bill. Broadcasters also lose every time the local pay television company drops a subscriber. Aereo does not pay retransmission consent fees, nor do their subscribers.

But Aereo is not all bad news for pay television providers. If Aereo can survive the legal onslaught from broadcast interests, nothing stops local cable companies from licensing Aereo technology (or constructing their own system) that would bypass retransmission consent fees as well. That could save cable operators millions.

Ridiculous? Not according to Matt Bond, an executive vice-president at Comcast/NBC who told a New York federal court the risk is real.

“It makes little economic sense for cable systems and satellite broadcasters to continue to pay for NBCU content on a per-subscriber basis when, with a relatively modest investment, they can simply modify their operations to mirror Aereo’s ‘individual antenna’ scheme and retransmit, for free, over-the-air local broadcast programming,” Bond said. “I know for a fact that cable companies have already considered such a model.”

Diller

Broadcasters revile Aereo’s disruptive innovation.  Bond called the service “piracy.” Other network executives say it steals their content and resells it at a profit. Some are even predicting the destruction of broadcast television as we know it if Aereo is found to be legal. Virtually every network is on board for the lawsuit, which seeks an immediate injunction that would shut the service down.

Barry Diller, a veteran broadcast executive, has invested in Aereo and calls the broadcasters’ fears rubbish.

“It’s not the beginning of the destruction of anybody,” Diller told New York Magazine. “TV wasn’t the destruction of the movie business. Television wasn’t the destruction of radio. Cable wasn’t the destruction of broadcast networks. What happens is new alternatives come, and they live alongside whatever existed.”

“You have an antenna that has your name on it, figuratively … and it’s one-to-one. It is not a network,” Diller told members of the Senate Commerce Committee during a recent hearing. “It is a platform for you to simply receive, over the Internet, broadcast signals that are free and to record them and use them on any device that you like.”

Aereo is not a pioneer in the video streaming of over the air signals. iCraveTV launched in 1999 streaming broadcast stations from Buffalo, N.Y. and Ontario, Canada from its home base in Toronto. Broadcasters filed suit and quickly shut the service down. ivi-TV tried a similar venture in 2011 and was also shut down. Even companies experimenting with IPTV technology have run into trouble with some networks that feel threatened by a possible precedent that could be mistakenly established, starting a flood of similar services.

To date, only services that agree to broadcaster sanctions (Slingbox) or who have retransmission consent contracts with providers (such as the cable industry’s TV Everywhere project) have survived, but all have limitations imposed on their functionality that reduce their usefulness to consumers.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Aereo TV Demo May 2012.flv[/flv]

Aereo TV was demonstrated by the company CEO Chet Kanojia at the New York Tech Meetup May 9.  (21 minutes)

Time Warner Cable's old branding for broadband

Time Warner Cable is nearing the end of a licensing deal that has allowed the company to use a familiar Warner Bros. animated character to promote their broadband service.

The company has spent at least a year transitioning customers away from the Road Runner brand name, now simply referring to their broadband product as “Internet” or, in some markets, “HSI” — High Speed Internet.

The “brand refresh” comes as Time Warner tries to associate all of its products and services around its traditional “eye-ear” logo, according to company spokeswoman Jeannette Castaneda.

Licensing the Road Runner character as the broadband service’s mascot has also been expensive, and the continued need to use the character to educate consumers about the speed benefits of cable broadband over DSL has diminished in importance.

The new look

The transition away from the Road Runner brand has been ongoing since last summer, but Broadband Reports notes numerous markets will see the brand and logo eliminated completely effective May 19th.  The company is also using the occasion to adjust pricing and tiers of its broadband service.  Hardest hit will be standalone broadband-only customers, who will now pay $53.95 a month for Time Warner’s standard 10/1Mbps Internet service. New customers will also pay a modem rental fee of $2.50 a month. Standalone Turbo (20/2Mbps) customers will pay $73.95 for their Internet service.

Time Warner Cable’s a-la-carte pricing for broadband is designed to make their bundled service offerings more attractive in comparison. The company will sell you Internet-only service for $73.95, or sell you a triple play package of phone, Internet, and television service for just $16.04 per month more on a 12-month promotion.

Broadband Reports‘ source lists pricing for one unspecified market:

• $53.95 for Time Warner’s 10/1Mbps Standard Internet
• $20.00 additional for 20/2 Turbo
• $30.00 additional for 30/5 Extreme
• $50.00 additional for 50/5 Ultimate
• $29.95 for 1/1 Lite (Usually a retention only offer)
• $42.95 for 3/1 Basic

Customers can avoid paying regular pricing by bundling multiple services together, getting a customer retention deal when threatening to cancel service, or bouncing between a six-month new customer promotion available from Earthlink over Time Warner Cable and the cable company’s own broadband promotional offer, good for 12 months. Both cost $29.99 a month in many markets.

Time Warner Cable's marketing machine pushes customers towards multi-service bundles. New customers pay even less.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/Road Runner 2002 Ad.mp4[/flv]

A Time Warner Cable Road Runner advertisement from 2002.  (1 minute)

Your contract with Sprint ends in June, but why wait, beckons the cell phone company, when you can upgrade your phone today (with a new two-year service agreement).

Two years earlier, providers wheeled and dealed upgrade-reluctant customers, particularly those considering their first smartphone, thanks to the bill shock that results when customers see a $30 mandatory data plan added to their monthly bill.  Sprint went one step further, handing 4G-capable customers Clearwire WiMAX — a technology even Russian cell phone companies can’t wait to abandon — and added a $10 premium data surcharge for the privilege.

In Sprint’s favor: their willingness to deal discounts on phone upgrades and their truly unlimited data plans. But while Sprint continues to bank on unlimited data, the bill on cheap phone upgrades may now be coming due.

The American wireless industry is increasingly taking a page from the airlines, adopting irritating fees and surcharges while curtailing the perks and rewards that used to come with customer loyalty and family plans that routinely run into the hundreds of dollars.

Equipment Upgrade Fees

Sprint, Verizon, AT&T, and T-Mobile all have a nasty surprise in store for customers who have not upgraded their smartphones in the last year or so: the equipment upgrade fee.  Sprint and AT&T both charge $36 per phone, Verizon Wireless now charges $30, T-Mobile $18.

Verizon customers are especially peeved because that wireless company used to reward loyal customers with a $50 credit off any new phone at contract renewal time. Today, instead of getting “New Every Two” discounts, Big Red will charge you $30 for every new phone when you renew your contract.

Verizon’s excuse is that the new fee will be used to offer customer “wireless workshops” and “online educational tools,” according to Verizon spokeswoman Brenda Rayney. The company also claims the fees will cover more sophisticated consultations with “company experts” that are trained to provide advice and guidance on today’s sophisticated smartphones. In other words, these fees are supposed to compensate Verizon’s store and kiosk employees.

For people like my cousin, upgrading to a new Sprint phone at contract renewal time is an exercise in frustration. In addition to the $149-199 subsidized equipment price, Sprint now tacks on a $36 upgrade fee (per phone).  What miffs him is that Sprint is treating new customers better than existing ones, willing to waive one-time activation fees (coincidentally the same $36) for new customers, but steadfastly refusing to credit equipment upgrade fees for existing loyal customers.

Sprint will tell you they are not alone charging upgrade fees, and they would be right. All four major national carriers now charge the fees, effectively a penalty when customers decide to upgrade their phones.

Many also find it nearly impossible to get companies like Verizon Wireless to waive the fees, even when some of their best customers ask.

“Verizon Wireless was willing to throw away my 12 year account, earning them more than $500 a month in revenue, over the upgrade fee issue,” reports Stan Dershau. “Our contract expired this month and it was time for new phones, and Verizon absolutely insisted that we pay $150 in upgrade fees for new equipment on our account, even after the $600 they’ll collect from the smartphones we intended to buy.”

Dershau found absolutely nobody willing to relent on Verizon’s upgrade fees. Even supervisors told him the company has a no-waiver policy that is strictly enforced, and they could do little more than offer a token service credit even if Dershau threatened to take his business somewhere else.

“I haven’t decided what to do yet, but I canceled my upgrade plans for now,” he reports.

Dershau was always able to get Verizon to waive earlier fees because of the monthly business he brings them, but those days are over.

“It’s a whole different attitude with them now,” Dershau says. “They just want money.”

AT&T's fine print.

Ben Popken recently wrote about his efforts to avoid Verizon’s $30 upgrade fee, with mixed results.

Verizon’s suggested solution is to sell your old phones back to the company through their trade-in program, using the money to offset the equipment upgrade fee. But unless you own an iPhone, Verizon’s trade-in offers are strictly low-ball, often under $30 on non-Apple phones. That leaves you with a slightly lower upgrade fee and the loss of your old phone, which Verizon may recycle or resell refurbished to someone else.

Popken explains he found one convoluted way around Verizon’s fees:

First, start a new line of service with the new phone you want. Then, port your old phone number to a 3rd party service, like Google Voice (here’s a guide from Lifehacker on doing so). Lastly, cancel the line with the old phone and port the old phone number back onto the new phone, thus keeping the new phone, the old number, and dodging the fee. But there’s a catch. It only works if you wait three months to port the number back. If you do it before then, Verizon’s system treats it like you’re continuing the same service, and they hit you with the $30 upgrade fee. Curses.

Popken forgets, however, that Google itself charges a $20 fee to port cell phone numbers to Google Voice, eliminating 2/3rds of your potential savings.

In fact, outside of purchasing a phone at the full, unsubsidized price from a third party, Verizon’s $30 fee will be visiting your phone bill sooner or later, if you decide to upgrade.

The Phone Subsidy: Slaying North America’s Sacred Cow Wireless Business Model

Consumers who crave the newest smartphones should thank their lucky stars they live in Canada or the United States, where the wireless industry heavily discounts the upfront cost of the phone when customers sign a service contract. But phone companies like AT&T and Verizon are not giving you a gift. In return for fronting a discount of as much as $400, companies set their monthly rates higher to recoup that subsidy over the life of your two-year contract.

That worked fine when cell phone companies only paid a few hundred dollars for basic phones. But today’s most popular smartphones can cost companies $400 each, and that upfront revenue hit has annoyed Wall Street for years. Even worse, while providers hand you a discounted phone, they’ve already paid the asking price to companies like Apple and Samsung, who book that revenue immediately and never have to worry about a customer skipping out on their contract.

Wall Street has been putting pressure on companies to do something about the expensive phone subsidies, and companies are responding. The equipment upgrade fee, increased activation fees, and rising monthly service charges are all a part of a greater plan to discourage customers from upgrading their phones and increase profits.

Wall Street analysts love every part of it, especially if companies can do away with equipment subsidies -and- maintain today’s pricing:

“Optimism has increased that we are witnessing the leading edge of a more disciplined, and more profitable, future,” Craig Moffett, a telecom analyst at Bernstein Research, wrote in a recent research note. The question now, he wrote, is how much carriers can increase their profits thanks to “increased discipline and pricing power.”

The answer could be quite a lot. A marketplace experiment in Spain is being closely watched by wireless phone companies worldwide and could be coming to Canada and the United States before your next two-year contract is up for renewal.

In March, Telefónica SA, Spain’s largest cell phone company, stopped subsidizing smartphones for new customers. Vodafone, which co-owns Verizon Wireless, quickly followed.

As a result, Spanish customers looking for an iPhone will now pay $800 to purchase the phone at full price, or they can sign up for an “installment plan” that will add $45 a month to their cell phone bill for the next 18 months. Both companies say the new policy won’t apply to existing customers, in an effort to discourage them from switching companies.

Telefónica anticipates the changes will slash as least 25% off of their spending. Instead of fronting subsidies to attract new customers, the phone company will increase subsidies for existing customers who agree to stay. Unfortunately for Telefónica, early results are not promising. More than 500,000 customers left the same month the new policy was announced.

A handful of smaller Spanish players see the move by both major companies as a competitive opportunity to win over new customers. Orange, for example, has not stopped offering subsidies and as a result Telefónica has lost potential new customers who signed with Orange instead. The “churn rate” of customers coming and going remains a concern for company executives. But so far, Telefónica considers getting rid of phone subsidies more important than the customers they have forfeit over the new policy.

“We are pretty firm on our strategy of trying to change the paradigm of the sector, […] devoting the bulk of our efforts to our existing customers and, therefore, trying to move away from incentivizing churn of our customers either from us or from the others,” said company CEO Cesareo Alierta Izuel. “We are very firm on this new handset strategy. We need to fight to see if the trend is going to the right direction. And again, we think it is.”

The Wall Street Journal reports Telefónica’s bold plan has caught the attention of Verizon CEO Lowell McAdam, who sees it as a potential profit booster, and McAdam expects Verizon may cautiously follow the Spanish company’s lead.

“We’ll probably offer some things like that, and then we’ll see what the adoption is like,” McAdam said. “You can’t push this on customers before customers are ready for it.”

For now, some customers are not even ready for equipment upgrade fees. My cousin’s upgrade plans remain on hold for now, as are those of the Dershau family.

“I am not going to be browbeaten into paying these unjustified fees,” Dershau said. “Where does it stop?”

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/WSJ Dodging Verizon’s New 30 Upgrade Fee 5-9-12.flv[/flv]

Ben Popken talks about trying to avoid Verizon’s $30 equipment upgrade fee.  (3 minutes)

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WCPO Cincinnati Thousands receiving fake Verizon bill 5-11-12.mp4[/flv]

Thousands of Verizon Wireless customers are getting phony e-Bills that claim to be from the wireless phone company, but in fact come from one of the most sophisticated phishing scams seen yet. The Better Business Bureau reports scores of complaints from across the country, with bills looking nearly identical to e-mails sent directly from Verizon Wireless.  Only the amounts have been changed — boosted in some cases to more than $1,200.  Unwitting customers who click on the e-mail link are invited to make payment arrangements with any major credit card, which ends up in the hands of the scammer. WCPO in Cincinnati reports this scam almost fooled some Verizon Wireless customers. If the scammer was a little less greedy, it might have worked. (2 minutes)

Vidéotron, Quebec’s largest cable operator, is secretly filming some of their technicians on fake service calls to verify they are providing professional service to the company’s customers.

But instead of keeping the results to themselves, the company is publishing the resulting videos to their website for customers to enjoy.

A total of 21 technicians were put to the test, and the company set up some outrageous challenges for them to overcome, starting with a single woman trying to convince her mother the technician was her boyfriend, with comical results.

While we are unlikely to see the Vidéotron technicians that failed the tests, the company has launched a publicity campaign to praise itself for excellent service.

“Our conscientious technicians are ambassadors for Vidéotron and its values,” said Manon Brouillette, president of consumer markets. “We are very proud of them. They have achieved an impressive 96% customer satisfaction rate and this campaign is a tip of the hat to their great work.”

Putting technicians to the test, especially those working for third-party subcontractors, might not be a bad idea for some U.S. cable companies to try, especially after some of those technicians were later arrested for sexual assault, theft, and other crimes.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Videotron – The technician trap.flv[/flv]

Watch Vidéotron’s first edition of its hidden camera trap for company technicians, when a single woman gets in over her head with a little white lie.  (2 minutes)