Comcast has been a part of life in Muskegon, Mich. for decades, thanks in part to an unusually long 25-year franchise agreement signed when President Reagan was serving his last year in office. In 1988, the Berlin Wall was still in place, Mikhail Gorbachev formally implemented glasnost and perestroika, Snapple appeared on store shelves nationwide, and compact discs finally outsold vinyl records for the first time.

All good things must come to an end and Comcast’s contract to serve will finally expire Aug. 2. City officials want residents to understand that after two plus decades, it is appropriate to take some time to consider all the options. But a 2007 law has cut that time of reflection down to a month, and removed most of the powers Michigan communities used to have to select the best cable operator for their community. It’s a fact of life Comcast is well aware of, and it underlined that point by tossing a carelessly written, pro forma/fait accompli franchise renewal proposal into the mail that left Muskegon’s civic leaders cold. But if they fail to act fast, Comcast will win automatic approval of whatever it proposes to offer the 38,000 residents of the western Michigan city for years to come.

Statewide Video Franchising in Michigan

In December 2006, primarily at the behest of AT&T, the Michigan legislature passed a new statute that would create a uniform, statewide video franchise agreement template that providers could use to apply for or renew their franchises to operate. In theory, establishing a uniform, simplified franchise application would lead AT&T to quickly wire Michigan with U-verse, its competing cable/broadband/phone service, and bring dramatically lower prices for cable service and fewer complaints because of greater competition.

The Uniform Video Services Local Franchise Act was remarkably similar to those passed in more than a dozen other states — no mistake considering it was based largely on an AT&T-written draft distributed and promoted by the American Legislative Exchange Council (ALEC), an AT&T-backed third-party group that encourages state legislatures to enact corporate-ghostwritten bills into law.

Under the new law, much of the power reserved by local officials to approve cable franchises and enforce good customer service was stripped away and handed to the state’s Public Service Commission. The deregulation measure tipped the balance of power in providers’ favor, making it possible to do business on their terms, not those sought by community leaders. Among the law’s provisions:

1. Communities are still bound by the terms of their existing franchise agreements, but providers can break the legacy contracts for any reason, forcing a new agreement under the new statewide franchise law. If a provider wants out, they can abandon the community or transfer operations to a new provider with 15 days advance notice and no prior approval.
2. A franchise renewal proposal will be automatically approved if a city does not reject it within 30 days.
3. Communities cannot unreasonably restrict providers from access to public rights-of-way, an important consideration for AT&T’s U-verse, which requires the placement of large, sometimes noisy utility cabinets (a/k/a “lawn refrigerators”) to connect its fiber network with residential copper wiring.
4. Communities are limited to collecting up to 5% of video revenue in franchise fees and up to 2% to support Public, Educational, and Government (PEG) channels. In the past, some communities asked cable operators to wire schools, libraries, and local government offices at no cost, and several negotiated other forms of support for PEG channels, which allow local citizens to view town board meetings and create and distribute locally produced programming. Today, those agreements are only possible on a voluntary basis, without any threat if a provider refuses, they will get their franchise request rejected.
5. Providers are no longer obligated to honor agreements setting timetables to wire communities. Instead, they can handpick areas to be served, except in cases where racial or income discrimination can be proven.

Since the law was clearly designed to help new entrants like AT&T’s U-verse and Verizon FiOS, Michigan’s incumbent cable companies either demanded the same rights, remained neutral, or halfheartedly protested the proposed law suggesting it unfairly benefited new competitors. Cable companies, for example, would not benefit from laws throwing out buildout requirements because their networks are already largely complete.

But once signed into law, cable operators did begin asking cities to voluntarily adopt the new uniform statewide video franchise. Muskegon joined most other Michigan cities in declining the invitation.

AT&T did begin wiring Michigan for U-verse service, although there is no evidence it would not have done so had the Act never been signed into law. But that has not helped Muskegon, because the dominant phone company in the area is Frontier Communications. Frontier has so far shown no interest in building a competing cable TV service, so the only competition residents get are from two satellite companies.

City of Detroit v. State of Michigan and Comcast

Soon after the statewide franchise law was passed, Comcast notified the city of Detroit it could take the proposed renewal of its existing 1985 franchise agreement and go pound salt. The franchise agreement with the city expired in February 2007, just a month after the new law took effect. It was a new day, Comcast told city officials, and the company offered its own proposal for renewal — a 5% take-it-or-leave-it franchise fee and nothing else. Comcast even rejected the city’s counteroffer to include a 2% PEG fee, permitted under the new law.

Franchise negotiations went nowhere, but Comcast had nothing to fear. The city did not properly reject their franchise renewal offer so, as far as the company was concerned, it automatically won a franchise renewal.

The city sued both Comcast and the State of Michigan in the summer of 2010 alleging the statewide law violated the federal Cable Act, usurped local “home rule” authority, and that Comcast was illegally trespassing in the city without a franchise agreement. The Michigan Attorney General took Comcast’s side, defended the state law, and helped the cable company argue its case in court.

Comcast did not want the case heard and asked for its immediate dismissal, which was rejected.

In the summer of 2012, the judge split the decision between the city and Comcast. The judge found that Comcast had probably been operating illegally in Detroit since 2007 and owes the city damages. The judge also found parts of the state law troubling enough to invalidate. In particular, he emphasized cities do have a clear right to reject franchise proposals offered by cable operators and that in many cases those operators must adhere to their existing franchise agreements until they expire. Cities also have the right to protect and manage their rights-of-way, ending the perception cable and phone companies have the right to place hardware almost at-will in public areas.

Comcast wants to avoid paying Detroit damages for potentially operating illegally without a valid franchise.

The judge found nothing inherently faulty with the concept of statewide video franchising, nor did he rule that providers are required to serve everyone in a geographic area or that cities are allowed to enforce local customer service standards.

The impact of the statewide law, even after the judge’s ruling, still erodes local control. As pre-2007 franchise agreements expire, it is highly unlikely cable operators will continue to offer free service to municipal buildings, will not accept requirements to provide “universal service” or even language requiring wiring of every home that meets a “homes per mile” test. Some cable operators are even closing local customer service centers that used to be required in many franchise agreements.

Comcast did not appreciate the court ruling, sought to have it set aside, and failed. Now the Court of Appeals will likely weigh in on the case by the end of this year. Comcast is particularly concerned about the prospect of paying damages to the city of Detroit for illegally operating without a valid franchise. The judge hearing the case considered that a very real possibility and requested submissions from all parties about how much Comcast should pay the city.

Muskegon officials cited the judge’s rulings in the Detroit case in their letter rejecting Comcast’s proposed renewal agreement. The city wants to renegotiate certain terms regarding its PEG channels, still wants complimentary service to public buildings, and requests cable service be extended to the Hartshorn Marina.

Six Years Later, Cable Rates and Complaints Still Rising, the Competition is Fleeting, and Many Believe the Law Has Achieved Nothing

The Michigan Public Service Commission is tasked with reporting annually to the legislature and the public about the impact of the AT&T-sponsored law. The PSC’s broad conclusion is that the new law is working:

Increases in subscribers as well as the emergence of another video/cable provider are positive signs for the video services industry in the state of Michigan. Both franchise entities and providers have continued to report that video/cable competition is continuing to grow. Growth in competition has been observed each year since the Commission began issuing this report. In addition to the increase in competitive providers, companies continued to invest hundreds of millions of dollars into the Michigan video/cable market in 2012.

As the Act enters its seventh year of existence, signs of progress and competition continue to be evident. It appears that both franchise entities and providers perceive that providers are offering more services to customers. In addition, more areas throughout Michigan are beginning to have a choice of video/cable service providers.

But in the same report, the PSC admits the overwhelming consensus among those in individual communities is the law has made little to no difference in competition or pricing. For example, every provider has continued to raise their rates, particularly after promotional new customer packages expire. Much of the savings calculated in Michigan took introductory prices into account, such as when AT&T U-verse entered a market. After 1-2 years, those savings evaporate. AT&T has increased its pricing just as often as dominant cable providers Comcast and Charter.

The PSC touts that 15 new competitors have begun offering service in Michigan since the law was enacted. But besides AT&T’s U-verse., the majority of those new entrants are municipal telephone companies, small/family owned rural cable companies, or providers that specialize in serving only apartment complexes or condos. All but AT&T serve only tiny areas in Michigan and most have customers that number only in the hundreds to low-thousands.

Michigan’s New Competitors

• Ace Telephone Company of Michigan Inc.
• AT&T (U-verse)
• Bloomingdale Communications, Inc.
• Drenthe Telephone
• Martell Cable Service Inc.
• Mediagate Digital
• Michigan Cable Partners (MICOM Cable)
• Packerland Broadband
• Sister Lakes Cable TV
• Southwest Michigan Communications Inc.
• Spectrum Broadband
• Summit Digital
• Sunrise Communications LLC
• Vogtmann Engineering
• Waldron Communication Company

How many new Michigan customers has this competition netted since 2011? 2,116

The overwhelming majority of Michigan communities still have just one cable operator and no competitor. AT&T U-verse accounts for almost all the communities reporting a second provider.

Complaints have also been higher every year the statewide franchise law has been in effect. In 2007, there were 615 formal complaints made to the PSC. Every year thereafter, the number of complaints exceed 2007 levels, ranging from 757 in 2011 to 1,074 in 2010. Comcast is by far the worst offender — 51 percent. AT&T and Charter had a smaller percentage of complaints, 15 and 14 percent respectively. The majority of complaints among all providers deal with billing issues.

Since the new law took effect, many communities have felt so disempowered, they stopped reporting local complaints to the PSC. But among those who have, the story is the same in states without statewide franchise laws:

• System updates not completed as promised. Large numbers (of residents) have gone to satellite;
• Upgrades needed to allow for better reception and channel selection;
• There are two providers in our area, yet little increase in competition;
• Cost to extend service to reach potential customers affects competition;
• Cable provider left when switching from analog to digital, stating not enough customers to afford the changeover. Now only satellite is available;
• No broadband/high-speed Internet service in many townships;
• No phone, cable service available;
• Michigan has totally failed bringing affordable Internet service to this community, and has prevented our township government from providing the needed services.

The perceived impact of the 2007 law isn’t so great either:

• Communities lost in-kind and other services from the incumbent provider;
• Cable rates continue to increase;
• Zero value added and has eroded local control of franchising;
• Customers have a choice now, but rates are still higher;
• Providers simply poach competitor’s customers as evidenced by flat franchise revenue; as one increases the other decreases;
• This statute has proven to accomplish literally nothing for municipalities and only serves to benefit providers;
• The Act did nothing to improve service.

Verizon Wireless customers and public safety personnel are upset that the cell phone company was caught unprepared after a rural roaming agreement with AT&T expired at the end of June, leaving police officers without communications and others with no way to reach 911.

AT&T no longer permits Verizon Wireless customers to roam on its acquired former Alltel network, which has dramatically reduced service in Geraldine, Absarokee, Ft. Benton, Browning, Harlem, Evaro, Cascade, Stanford, Lincoln, Ennis, Virginia City, and Great Falls.

Lincoln resident Gayle Steinch is living with the result of that business decision. She has a single bar of service on her Verizon Wireless cellphone at her house. It is her only phone — she dropped landline service in 2007.

“And I live a half a block off the main street,” she told the Great Falls Tribune.

Verizon’s road to no bars in rural Montana.

Capt. Gary Becker of the Montana Highway Patrol told The Montana Standard troopers in the area haven’t been able to communicate on their cell phones or their computers installed in their cruisers since the roaming agreement expired. Becker said police have to travel at least 30 miles to get any usable reception from Verizon.

Jessica Constantine, manager of the AT&T Elite Wireless store in Butte, said AT&T “had a roaming agreement with Verizon and we allowed them to use our towers for three years. The contract is over.”

And with it, Verizon Wireless network reception.

The agreement was part of a deal between AT&T and Verizon over Verizon’s 2010 purchase of Alltel. Federal regulators required Verizon to divest itself of certain Alltel territories for competitive reasons, transferring those customers to AT&T. As a result, territories that used to be well-served by Alltel’s CDMA network are now being converted by AT&T to GSM and data service, exposing Verizon’s sparse home cellular coverage in several parts of the state.

“They had years to prepare for AT&T switching off Alltel’s old CDMA service Verizon was dependent on, and Verizon did little to nothing,” said Jim Brown. “The Verizon person I spoke with told me it did not make sense to build a network out here because the only thing it would serve are crows. But they promised they would at least try to equal the coverage Alltel used to give us. That never happened and still isn’t.”

Verizon denied there was a major service loss in rural Montana. Bob Kelley, corporate spokesperson for Verizon, said that the change in service was planned and its impact would be limited to “less than optimal” service. He confirmed there were no unexpected outages.

After negative media coverage reported Verizon’s inability to provide quality cell service in rural Montana, the company agreed to temporarily deploy portable cell towers to improve coverage.

The “COWs”— cellphone towers on wheels — are stationed in Lincoln, Virginia City, Lima, Broadview, between Absarokee-Fishtail, as well as in Jackson, mostly meeting the needs of law enforcement monitoring the Rainbow Family Gathering last week. Verizon is also deploying repeaters that can re-broadcast signals and enhance range, as well as add coverage to existing permanent facilities. The company is planning on adding permanent towers this week in Marion and Tarkio. Additional permanent towers are also planned for Lincoln and Columbus by the end of August.

That cannot come soon enough for some customers.

Cell tower on wheels

“Verizon brought up this 40-foot [temporary] antenna, but you really can only get service on it on Main Street,” said Steinch, the manager of The Bootlegger, a Lincoln bar and restaurant. “We had a guy in here this morning who has a towing company who missed out on an $1,800 job because his cellphone didn’t get the call.”

Service has deteriorated so badly in rural Montana, some AT&T stores had lines of soon-to-be-ex-Verizon customers snaking out the door, and at least one reported it was completely sold out of cell phones and wireless broadband devices.

“Dillon sold out of cell phones yesterday,” said Constantine, “because everybody in Lima who was using Verizon just flooded the Dillon store.”

Verizon subscriber John Ulias found his cellphone useless at his cabin in the Little Belt, as did many of his neighbors in that area.

Although Verizon told Ulias and the Tribune subscribers should still be getting service in the Little Belts area from a Verizon antenna in Stanford, Ulias said that isn’t the case.

“I gave the Verizon representative the cell numbers of two of my Little Belt neighbors after he told me we should be getting service up there,” Ulias told the newspaper. “The guy called me back and said his calls went straight to their voicemail.”

Montana residents affected by the disruption of Verizon Wireless service seeking to file a complaint should contact the Office of Consumer Protection at the Montana Department of Justice by emailing: [email protected], faxing 406-444-9680 or calling 800-481-6896 or 406-444-4500.

For customers planning to switch carriers because of reception issues in Montana, Verizon is waiving early termination fees. For those customers the company can convince to stay, discounted service will be available along with discounts on a Verizon Network Extender, a portable in-home mini-cell tower that interfaces with a home broadband connection. To pursue either option, prepaid consumers should call Verizon Customer Service at 1-888-294-6804; all others should call 1-800-922-0204.

In New York and New Jersey, Verizon is attempting to convince some rural residents to abandon their landline service in favor of Voice Link, which relies entirely on Verizon Wireless reception.

“I have one word for my friends back east: don’t,” said Brown.

Time Warner Cable won’t engage in an expensive bidding war for ownership of Hulu so it is trying to convince the online video venture’s current owners not to sell.

Sources tell Bloomberg News the cable company has offered to buy a minority stake in the online video streaming service alongside its current owners, which include Comcast-NBC, Fox Broadcasting, and Walt Disney-ABC.

If Hulu accepted the offer, the other bidders’ offers may not even be entertained.

Among those filing binding bids/proposals with Hulu as of the July 5 deadline:

• DirecTV, which reportedly wants to convert Hulu into an online companion to its satellite dish service for the benefit of its satellite subscribers;
• AT&T and investment firm Chernin Group, which submitted a  joint bid, presumably to beef up online video options for U-verse customers.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Plot Thickens in Bidding War for Hulu 7-9-13.flv[/flv]

Bloomberg News discusses how the various bidders for Hulu would adapt the service for their own purposes. It’s all about bulking up online video offerings.  (4 minutes)

Hulu’s new owners could continue to offer the service much the same way it is provided today, with a free and pay version. But most expect the new owners will throw up a programming “pay wall,” requiring users to authenticate themselves as a pay television customer before they can watch Hulu programming. If Time Warner Cable acquired a minority interest and the current owners stayed in place, Time Warner Cable TV customers could benefit from free access to certain premium Hulu content, now sold to others for $8 a month. That premium content would presumably be available to U-verse customers if AT&T emerges the top bidder, or DirecTV could offer Hulu to satellite subscribers to better compete with cable companies’ on-demand offerings.

Hulu’s influence will be shifted away from broadcast networks and more towards pay television platforms regardless of who wins the bidding. That could end up harming the major television networks that provide Hulu’s most popular content. Many of Hulu’s viewers are cord-cutters who do not subscribe to cable or satellite television. Placing Hulu’s programming off-limits to non-paying customers could force a return to pirating shows from peer-to-peer networks or third-party, unauthorized website viewing.

Online video rights are so important to cable operators and upstarts like Intel, which wants to launch its own online cable-TV like service, providers are willing to pay a premium for streaming rights.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Why Hulu Is Attracting Billion Dollar Bids 7-8-13.flv[/flv]

Richard Greenfield, analyst at BTIG, and Scott Galloway, chairman and founder of Firebrand Partners, discuss Hulu and the ability to stream on multiple platforms. They speak on Bloomberg Television’s “Bloomberg Surveillance.” (4 minutes)

The Los Angeles Times reports that pay TV distributors are in a rush to make deals, not only to offer more viewing options for customers, but to potentially get rid of expensive and cumbersome set-top boxes.

Interlopers like Intel, Apple, and Google who want to break into the business have not had an easy time dealing with programmers afraid of alienating their biggest customers. Even DirecTV, which has done business with some of the largest cable networks in the country for well over a decade still meets some resistance.

Acquiring Hulu could be an important part of DirecTV’s strategy to develop the types of services satellite TV has yet to manage well. On-demand programming is no easy task for satellite providers. But if DirecTV acquired Hulu, satellite customers could find DirecTV-branded on-demand viewing through the Internet. The Times speculates DirecTV could even build an online subscription service for subscribers who don’t want a satellite dish, receiving the same lineup of programming satellite customers now watch.

Distributors that acquire enough online streaming rights could even launch virtual cable systems in other companies’ territories, potentially pitting Comcast against Time Warner Cable, but few expect cable operators to compete against each other.

The general counsel of the Federal Communications Commission predicts your landline will stop working within the next ten years, abandoned by companies like AT&T and Verizon in favor of wireless service in rural America or fiber (if you are lucky) in the cities.

Phillip “Did you know your landline will be dead within ten years?” Dampier

Sean Lev, the FCC’s general counsel, said in a blog post that “we should do everything we can to speed the way while protecting consumers, competition, and public safety.”

But the FCC seems to be abdicating its responsibility to do exactly that by singing the same song some of America’s largest phone companies have hummed since they decided to get out of the copper landline business for fun and profit.

Traditional boring telephone service is regulated as a utility — a guaranteed-to-be-available service for any American who wants it. Hundreds of millions of Americans do, especially in rural areas where America’s cell phone love affair is tempered by dreadful reception, especially in mountainous areas. Oh, and the nearest cable company is ten miles away.

AT&T and Verizon — two of America’s direct descendants of the Bell System, just don’t want to pay to keep up a network most of urban America doesn’t seem to want or need anymore. In addition to a dwindling customer base, providing a regulated legacy service means having to answer to unions and government-types who make sure employees are fairly compensated and customers are given reasonable service at a fair price. The alternatives on offer from AT&T and Verizon carry no such regulatory (or union) baggage. Prices can change at will and customers have no guarantee they will receive service or have someone to complain to if that service is sub-standard.

While in the past regulators have taken the lead to make sure telephone companies meet their obligations, the new FCC seems to spend most of its time observing the business agendas of the companies themselves.

Lev implied to the Associated Press the FCC is not exactly leading the parade on the future of landlines. He seems more comfortable trying to analyze the intentions of AT&T and Verizon’s executives:

Most phone companies aren’t set to retire their landline equipment immediately. The equipment has been bought and paid for, and there’s no real incentive to shut down a working network. He thinks phone companies will continue to use landlines for five to 10 years, suggesting that regulators have some time to figure out how to tackle the issue.

Lev

AT&T is more direct: It wants to switch off all of its landline service, everywhere, by 2020. Customers will be given a choice of wireless or U-verse in urban areas and only wireless in rural ones. Where U-verse doesn’t serve, AT&T DSL customers will be in the same boat as Verizon customers on Fire Island: pick an expensive wireless data plan, satellite fraudband, or go without.

Verizon prefers a “gradual phase-out” according to Tom Maguire, Verizon’s senior vice president of operations support.

Verizon claims it has no plans to shut down working service for customers, but it does not want to spend millions to continue to support infrastructure fewer customers actually use. That means watching the gradual deterioration of Verizon’s copper-based facilities, kept in service until they inevitably fail, at which point Verizon will offer to “restore service” with its Voice Link wireless product instead.

For voice calls, that may suffice for some, especially those comfortable relying on cell technology already. But at a time when the United States is already struggling with a rural broadband problem, abandoning millions of rural DSL customers only makes rural broadband an even bigger challenge. The wireless alternative is too variable in reception quality, too expensive, and too usage capped.