This is part two of a multi-part series examining Time Warner Cable’s internal documents, made partly public as a result of a lawsuit filed by the New York Attorney General. You can read part one here.

In the summer of 2014, Time Warner Cable had a problem. For three years, the Federal Communications Commission had been issuing reports about the quality of broadband service from the nation’s largest internet service providers. The raw data collected by about 800 subscribers of Time Warner Cable who volunteered to participate in the project began to worry executives because it showed their broadband service was oversold in certain large cities and was no longer capable of consistently achieving advertised speeds. Even worse, the company’s congestion problems threatened to lower Time Warner Cable’s internet performance score at the FCC.

Sam Knows (but so does Time Warner Cable): The Not-So-Independent, Not-So-Confidential FCC Speed Test Program

The FCC commissioned a private company – Sam Knows – to distribute modified internet routers to gather data about the internet connections of thousands of volunteers and shared the results with the FCC to incorporate into its Measuring Broadband America program. After the FCC issued its first report in 2011, providers quickly learned the consequences of overpromising and underdelivering when Cablevision was called out for dramatically overselling its broadband service and not delivering the speeds customers paid to receive. While Cablevision executives publicly attacked the FCC speed test program as unreliable and wrong, they also quietly opened the company’s checkbook and spent millions quickly upgrading their facilities. The metric they failed to achieve was the FCC’s 80/80 test: “speed that at least 80% of the subscribers experience at least 80% of the time over peak periods.”

Here is what broadband performance on an oversold broadband service looks like. Notice Cablevision’s 2011 speed ranking plummets during peak usage periods when too many customers are sharing too little available bandwidth.

The incident embarrassed and damaged Cablevision’s reputation, and no cable operator wanted to be the next highlighted company for a public spanking by the FCC.

Time Warner Cable’s “Slow-Motion Train Wreck”

In 2013, a Time Warner Cable executive recognized the company’s practice of limiting company-financed expansion of their upstream connections with the rest of the internet would have serious implications for their own speed test scores, because customers were encountering nightly slowdowns on popular websites like YouTube caused by overcongested connections. Company executives feared customers participating in the Sam Knows/FCC program would soon reveal Time Warner Cable’s internet speeds were beginning to suffer some of the same peak usage problems Cablevision was encountering in 2011. The executive’s solution? Temporarily expand upstream connections just long enough to protect Time Warner Cable’s broadband speed scores:

“Our Sam Knows scores are like watching a slow-motion train wreck. We need to get in front of this. One thing I think we may need to be prepared to do is just give more ports to Cogent during sweeps month [when FCC results are measured for purposes of the MBA report]. We don’t have to make any promises, we just have to make it work temporarily.”

But even tricks like that failed to help Time Warner Cable’s speed scores in New York City, where serious congestion problems were obvious, even as late as last year:

The lawsuit filed by New York’s Attorney General revealed that FCC panelists in New York were getting speeds consistently well below the speeds they paid for, especially those paying for premium speeds:

FCC/Sam Knows Time Warner Cable Maxx Panelists in New York Speed Test Reports:

100Mbps subscribers received 73-87% of advertised speed (<80% advertised speed over six month period)
200Mbps subscribers received 49-58% of advertised speed (<60% advertised speed over six month period)
300Mbps subscribers received 33-52% of advertised speed (<38-74% advertised speed over six month period)

Speed test results showed consistent speed deficiencies between 2013-2016 occuring for many reasons, according to the lawsuit, including customers using outdated, company-supplied cable modems insufficient to support the customer’s speed plan, chronically oversold neighborhood groups that Time Warner Cable did not split or upgrade with additional capacity, and inadequate upstream/backbone connections to properly deliver content originating outside of Time Warner Cable’s own broadband network.

Overprovisioning Your Broadband Speed = “Putting Lipstick on a Pig”

We subscribe to 50/5Mbps service but receive closer to 62/6Mbps because Spectrum/Time Warner Cable overprovisions our service.

Instead of investing adequately in network upgrades and node splits, a July 7, 2014 internal email from Time Warner Cable’s former head of corporate strategy told senior colleagues the best way out of this dilemma was to cheat on the FCC broadband tests:

“We recommend increasing over-provisioning our modem speeds to around 20% to drive our Sam Knows scores >100% and then to market that we deliver more than promised speeds.”

In plain English, Time Warner Cable boosted the maximum allowed speed of each customer by about 20%. As a result, during non-peak usage times customers would find, for example, a plan advertising 50/5Mbps speed now delivered around 60/6Mbps. Although some customers considered overprovisioning a hidden free upgrade, Time Warner Cable’s motives were not altruistic. Because the Sam Knows testing program averages scores received from periodic testing, Time Warner Cable padded the results with higher-than-advertised speeds when their network was not congested, which compensated for the slower speeds and worse performance customers were getting during peak usage times. The lawsuit also alleges the practice helped to hide the abundance of obsolete rented cable modems still in use across Time Warner Cable’s broadband network.

The strategy worked to boost Time Warner Cable’s scores, but only as far as the FCC was concerned. Some customers were still finding their visits to YouTube, Netflix, and other websites littered with buffering problems and degraded resolution videos just about every evening. In 2013, before Time Warner Cable went ahead with its overprovisioning plan, the company’s own network engineers called the practice putting “lipstick on a pig.”

The Attorney General had its own analogy:

Using the highway analogy, Spectrum-TWC’s overprovisioning strategy amounts to allowing cars to go faster than the posted speed limit at certain times to compensate for the fact that often the highway slowed to a crawl. Boosting the average results with outlier results masked the enormous frustration for most subscribers stuck in traffic.

Breaking the FCC’s Rules

The lawsuit also alleges Time Warner Cable broke its own commitment to the FCC in the Code of Conduct it signed as a participant in the FCC’s testing program.

The FCC’s Code of Conduct required Spectrum-TWC to “at all times act in good faith” and not do anything “if the intended consequence of such act or omission is to enhance, degrade or tamper with the results of any test.” Specifically, the Code of Conduct prohibited the company from “modifying or improving services delivered to any class of subscribers” that was not “consistent with normal business practices.”

Stop the Cap! has also learned Time Warner Cable was able to identify each participant of the FCC/Sam Knows Time Warner Cable panel. This allowed the cable company to secretly verify the line quality and equipment in use by each participant, and give extra attention to those customers/volunteers to make sure service was performing as well as possible. In fact, executives instructed customer service representatives to assign FCC panelists “VIP treatment” and “best in class devices” when swapping modems, even as the company continued to supply deficient equipment to other customers who were not FCC panelists.

Still to Come: Playing games with online gamers, company officials tell the truth about bandwidth costs and Net Neutrality, and more….

A stack of revealing company documents obtained by the New York State Attorney General’s office suggest top executives at Time Warner Cable were aware the company was intentionally misleading customers and the Federal Communications Commission with broadband performance promises the company knew it could not keep.

Portions of the documents were made part of the public record as part of a lawsuit filed today by New York Attorney General Eric Schneiderman against Charter Communications and Time Warner Cable (now a subsidiary of Charter). The suit alleges that Time Warner Cable systematically and intentionally underdelivered on its commitments to improve broadband service and oversold its network in New York, causing widespread speed slowdowns and performance issues.

The 87-page complaint reveals Time Warner Cable woefully underinvested in its network, leaving customers with poor internet speeds and obsolete cable modems the company leased to customers for up to $10 a month. But a careful review of other statements from company executives also undermines the cable industry’s arguments for data caps, paid interconnection agreements with content providers, the lack of need for Net Neutrality, and the overuse of marketingspeak that allows cable operators to promise speeds they know they cannot deliver.

This two-part Stop the Cap! report analyzes the lawsuit and its offer of proof and will take you beyond the headlines of the legal action against Charter Spectrum/Time Warner Cable and explore some of the cable company’s confidential emails, memos, and meetings.

The documents reveal a lot of ordinarily highly confidential data points about how many subscribers share a Time Warner Cable internet connection, how many deficient and obsolete cable modems are still in the hands of customers, and how the pervasive need to avoid investing in network upgrades caused executives to repeatedly reject spending requests while approving rate increases.

Typical complaints from Spectrum-TWC customers sent to N.Y. Attorney General’s office.

How Spectrum-Time Warner Cable Brings You Broadband Service

N.Y. Attorney General Eric Schneiderman

Time Warner Cable was one of New York’s most important communications companies. At least 2.5 million New York households — one out of three — get internet access from what is now known as Charter Spectrum. Every broadband customer belongs to a “service group” made up of a number of your neighbors who share the same internet bandwidth. In February 2016, the average Spectrum-TWC service group in New York had about 340 subscribers. The range varied widely in practice, from as few as 32 customers to as many as 621 subscribers belonging to the same group. The fewer the number of customers, the less chance they will encounter a traffic-related slowdown caused by using the internet at the same time. For those congested service groups that do, broadband speeds begin to drop, sometimes precipitously.

The amount of total collective speed available to each service group depends on how much bandwidth the cable operator sets aside for broadband. For the last several years, Time Warner Cable typically reserved eight channels of about 38Mbps each for every neighborhood service group. That is equivalent to about 304Mbps — about the maximum speed one Time Warner Cable Maxx customer can get today. If four customers with 50/5Mbps service decided to “max out” their connection each evening, the remaining 336 customers in the service group would get to collectively share about 104Mbps. If six customers did that, the remaining 334 customers would be left with sharing 4Mbps.

Cable operators have always bet customers won’t be online all at the same time. But as internet usage, particularly online video, has grown, customers are increasingly spending primetime hours of 7-11pm streaming high bandwidth video instead of sitting in front of the television. If a large number of customers in a service group purchasing 15/1Mbps service from Time Warner Cable happened to be viewing HD video at the same time, the speed in that neighborhood could drop to as low as 1Mbps, a far cry from what customers were paying to receive.

Time Warner Cable customers that used to experience nightly slowdowns were told “your node is congested” to explain why speeds were dropping. The engineers that developed the cable broadband standard we know today as DOCSIS, envisioned that upgrades or “node splits” would be periodically required to deal with customer growth and increased traffic. Newer DOCSIS standards also give providers the option of enlarging the amount of shared bandwidth by adding additional channels. In the past, Time Warner Cable performed node splits, dividing up congested neighborhoods into multiple service groups. But with the advent of DOCSIS 3 and 3.1, Time Warner Cable also began expanding the number of channels devoted to broadband, enlarging the amount of shared bandwidth available to customers. Unfortunately for customers, Time Warner Cable was among the slowest of the nation’s cable operators to adopt this strategy.

Delivering Slow Speeds for High Prices

As a result of Time Warner Cable’s lack of investment, the company had to manage its bandwidth limitations in other ways. The documents from the recent lawsuit helped adds to our knowledge of how the company tried and often failed to manage the problem:

1. It avoided regularly increasing internet speeds for its customers. Time Warner Cable customers in most cities were limited to a maximum of 50/5Mbps until the Maxx upgrade program began. Other cable operators were selling speeds several times faster, but Time Warner risked a handful of internet enthusiasts utilizing faster available speeds to consume the bandwidth available to the neighborhood service group. Slower speeds mean fewer upgrades.
2. It advertised speeds and performance company engineers and executives admit in confidential documents they could not consistently deliver (or deliver at all in some instances).
3. It continued to rely on outdated and obsolete cable modems that severely limit subscribers’ speed, regardless of what level of service the customer subscribed to.
4. It avoided network investments for budgetary reasons, even when severely congested neighborhoods exceeded 80-90% usage of all available bandwidth, causing noticeable performance problems for customers.

The lawsuit alleges Time Warner Cable consistently sold internet speed tiers that did not or could not deliver the advertised speeds to consumers. The lawsuit points to three reasons why customers don’t get the speeds they paid for:

Deficient Equipment: Spectrum-TWC leased older-generation, single-channel modems despite knowing that such modems were, in its own words, not “capable of supporting the service levels paid for.” Over the same period, Spectrum-TWC also leased older generation wireless routers to subscribers despite knowing that these routers would prevent them from ever experiencing close to the promised speeds over wireless connections.

Congested Network: Spectrum-TWC failed to allocate sufficient bandwidth to subscribers by reducing the size of its service groups or increasing the number of channels for its service groups. These network improvements would have enabled subscribers to achieve the fast Internet speeds that they paid for. Results from three independent Internet speed measurements confirmed that Spectrum-TWC consistently failed to deliver the promised speeds to subscribers on its high-speed plans.

Limitations of Wireless: Spectrum-TWC misled subscribers by assuring them that they could achieve the same Internet speeds through wireless connections as with wired connections despite knowing that accessing the Internet using wireless routers would sharply reduce the Internet speeds a subscriber would experience

A key goal for Time Warner Cable executives was to push consumers into broadband upgrades that increased the average revenue they receive from each of their customers. A 2013 internal company presentation called broadband upselling a “strategic pillar” to “capture premium pricing.” If customers endured pushy sales pitches, it may have been because the company tied customer service representative compensation to increasing monthly revenue received from subscribers. If the representative sold you more, they earned more.

Although it sounded good on the surface, internal company documents also show there was pushback from company employees who feared aggressive sales pitches would only further alienate customers.

“Our customers NEED to be put into the proper packages so that we are conducting business with integrity,” wrote one employee in a presumably anonymous employee survey. “It seems as if this is a hustlers job trying to out hustle everyone else trying to make the most money WE can and not doing the right thing . . . By operating like this, customers laugh at our integrity as a company.”

Time Warner Cable Accused of Supplying Obsolete Cable Modems at Prices Up to $10 a Month

Your speed: as slow as 20Mbps

Assuming a customer did upgrade their internet speed, the Attorney General alleges at least 900,000 of those customers were given older generation single-channel DOCSIS 1 and DOCSIS 2 cable modems the company knew were incapable of delivering the speed the customer signed up for. Even worse, the company began charging monthly fees up to $10 a month for equipment the rest of the cable industry deemed obsolete.

A February 2015 email written by the former head of corporate strategy suggests senior corporate management knew they were selling broadband plans to customers that would never perform as advertised.

“The effective speeds we are delivering customers in a 20Mbps tier when they have a DOCSIS 2 modem is meaningfully below 20Mbps,” the email read.

The following month a company engineer sent email explaining the company’s network utilization targets would result in customers using older single-channel modems receiving speeds below 10Mbps during peak utilization times, even if they paid for 50Mbps or faster service available in some markets. The engineer recommended only allowing customers subscribed to internet speeds below 10Mbps to have a single channel modem if absolutely necessary.

A year later, Time Warner Cable executives admitted to the Office of the Attorney General of New York that customers with internet speeds of 20Mbps or higher needed a DOCSIS 3 modem. But during that same month, the cable company leased DOCSIS 2 modems to over 185,000 customers on plans of 20Mbps or higher, for $10 a month. Even worse, almost 800,000 New Yorkers subscribed to 20Mbps or higher speed plans with a deficient modem for three months or longer. And still worse, despite a company directive issued in June 2012 to remove DOCSIS 1 modems from its network, over 100,000 New Yorkers were still leasing a first generation and long obsolete cable modem for three months or longer, again for the same $10 a month. The Attorney General alleges the company knew these subscribers would not get the internet speeds their plans promised and continued to supply deficient equipment for years anyway.

Rate Hikes Yes, Spending Money on Urgent Equipment Upgrades No

DOCSIS 2 modems are largely obsolete, but not at Time Warner Cable.

As customers endured near-annual rate hikes on broadband service, Spectrum-Time Warner Cable refused to launch a plan to recall and replace obsolete cable modems because it was beyond the company’s “capital ability.”

This finding came in response to a confidential June 2013 presentation that included a startling admission: 75% of the cable modems connected to customers with Time Warner Cable’s Turbo (20Mbps) internet plan were non compliant. “DOCSIS 2 modems are still being deployed due to budget constraints,” the presentation stated. An alternate plan suggested postcards be sent to affected customers offering to replace their modems if they returned them because of the speed problems those customers experienced. That plan didn’t get far either.

The Attorney General calls the company’s decision a “self-serving” financial move when it rejected its own engineers’ recommendations to swap modems.

In 2013, company officials did begin prioritizing replacing the modems of a select group of their customers — those volunteering for the FCC’s ongoing Sam Knows broadband speed test program, designed to verify ISP performance. Realizing Time Warner’s speed rankings would be in jeopardy if panelists were still using DOCSIS 2 modems, it made a deal with the FCC to have the agency temporarily exclude slower speed results obtained from customers with DOCSIS 2 modems until they were replaced. Customer Service Representatives were instructed to treat all FCC panelists with “VIP treatment” and provide them with the “best in class devices.” (Full disclosure: Stop the Cap! is a broadband customer of Spectrum-Time Warner Cable and serves as a FCC/Sam Knows panelist.) Spectrum-TWC promised after those customers were upgraded, all others with older equipment would receive replacements as well, a commitment the Attorney General claims the cable company broke.

Even after Time Warner Cable launched its Maxx upgrade program, offering speeds up to 300Mbps, the cable company was still dealing with a sizable number of customers still using DOCSIS 2 modems that could not deliver anything beyond 20Mbps. In 2014, the company promised it would supply new modems to all subscribers with older equipment at no charge. An experimental “Ship to All” plan would have automatically sent the equipment to every affected customer. Management rejected the program as too expensive and replaced it with a “Raise Your Hand” plan that required customers to self-identify obsolete equipment, contact customer service and wait through long hold times or go to the inconvenience of visiting a Time Warner Cable store. In the notice to subscribers, Time Warner never disclosed the most important reason they needed a new modem — without it they would receive one-tenth or less of the speeds they paid to receive. Customers who failed to return their DOCSIS 2 modems in good condition were also penalized with an unreturned/damaged equipment fee, even though the equipment is now deemed obsolete across the industry.

Company officials admitted internally that “Raise Your Hand” was a plan destined to fail, with large numbers of customers not bothering to take the bureaucratic steps needed to exchange modems. Customers in upstate New York received no notification at all. It was a financial win for the company, which collected $10 lease payments on obsolete equipment it did not have to spend any money to replace. The company celebrated the savings, noting in a January 2015 internal presentation “[c]hanging the Maxx [Ship to All] approach to a Raise Your Hand approach (65% of subscribers take an active swap, with passive swaps for the balance) helped us reduce our capital budget by $45 [Million].” Later in 2015, the company internally reported the savings were even greater than expected — only 25% of customers responded to the offer to replace their modems.

New York’s Secret 20Mbps Speed Cap

For reasons unknown, Time Warner Cable also quietly began secretly locking down obsolete DOCSIS 2 cable modems with a speed cap of 20Mbps while not informing customers or customer service that the account should not have or be sold a higher speed plan. Nevertheless, Spectrum-TWC continued to charge customers with DOCSIS 2 modems as much as $70 a month for 100Mbps internet access that would never exceed 20Mbps.

Wi-Fi Woes

Time Warner Cable Maxx speeds don’t always do well on Wi-Fi.

Spectrum-TWC’s former vice president of customer equipment observed in an October 16, 2014 internal email to senior colleagues that “we do not offer a [device] today that is capable of the peak Maxx speed of 300Mbps via wireless. Generally a customer connecting via wireless will receive less than 100 Mbps,” using the 802.11n wireless routers that Spectrum-TWC leased to subscribers.

This fact of life affected 4 out of every 5 Time Warner Cable Maxx customers subscribed to 200 and 300Mbps plans who leased a Wi-Fi equipped cable modem from Spectrum-TWC. As of February 2016, that meant over 250,000 New York customers were paying for premium internet speeds they would never get over the supplied 802.11n wireless router. Customers were never informed. But company executives were, and as a result, the executive told his colleagues that “we are going to experience a mismatch between what we sell the customer and what they actually measure on their laptop/tablet/etc.”

A separate Spectrum-TWC technical document discussing wireless connectivity, dated January 2015, concluded that “[i]n a real world scenario, most [802.11n] adapters will produce speeds of 50-100Mbps.”

In fact, a Spectrum-TWC internal presentation, dated June 12, 2014, recommended that the company deploy devices with newer generation 802.11ac wireless routers to all subscribers on speed tiers of 200Mbps or higher because such routers came closer to delivering the promised speed. Spectrum-TWC rejected that recommendation, again for financial reasons.

Coming up tomorrow… advertising faster speeds or broken promises, company executives tell the truth about bandwidth costs, how to grossly manipulate the FCC’s speed tests, throttling your favorite websites for bigger profits, and hassling online game fans.

While rural western Massachusetts is stuck in a rural broadband swamp of Verizon’s making, politics in the state capital and governor’s office are risking Yankee ingenuity for another “free market” broadband solution that won’t solve the problem.

The dedicated locals that created WiredWest, the grassroots-envisioned regional broadband solution for more than two dozen towns suffering with inadequate or non-existent broadband service, have toiled for nearly a decade to accomplish what Verizon (or a cable operator) has never managed to do – provide consistently available internet access. WiredWest spent years carefully listening and learning the needs and challenges of each of their member towns. Communities affected by broadband deficiencies in this part of Massachusetts range from the most prosperous areas of the Berkshires to those financially struggling with a range of economic challenges.

On August 13th, 2011, The WiredWest Cooperative in western Massachusetts was officially formed by charter member towns. The project has gained some town, lost some others as the region works towards faster broadband.

WiredWest’s original plan would have brought fiber broadband to practically everyone in the region in just a few years, with more prosperous and populous towns helping subsidize network construction costs for their more budget-challenged rural neighbors. The goal was to avoid the patchwork of broadband have’s and have not’s that many private providers have created across rural America.

Establishing a regional network instead of trying to launch dozens of smaller community-owned providers would help streamline costs, avoid duplicating services, and deliver continuity of service. The concept made plenty of sense to two dozen town leaders and the participating communities, most voting to support the regional approach. But it apparently didn’t seem to make a lot of sense to a bureaucratic state agency called the Massachusetts Broadband Institute (MBI) that suddenly questioned the project’s operating plan and has avoided releasing tens of millions of dollars stashed in its bank account designated for rural broadband network construction.

MBI’s detractors call the agency a “concern troll” and some question whether MBI’s objections are the result of the usual friction between out-of-touch state bureaucrats and the rural communities they are supposed to help, or something more insidious. Others are content stating MBI’s position simply does not make any sense.

MBI spent more than a million dollars of taxpayer funds on lawyers and a Bangalore, India-based consultancy to produce and defend a dubious hit piece “analysis” about WiredWest rife with misconceptions and factual errors. The MBI-sponsored report concluded WiredWest would simply never work. What works better for MBI is handing out $4 million in taxpayer dollars to Comcast, with tens of millions more to be spent on funding private rural broadband projects in the future.

Crawford

Earlier this month, broadcast activist Susan Crawford shared her blistering conclusions about the usefulness of MBI:

For an agency that has produced virtually nothing so far, MBI is a high-priced operation. As far as I can tell, last year MBI spent $1 million of those state funds on consultants, lawyers, and administrative costs in order to hand $4 million to Comcast to provide its usual service to about a thousand homes in those nine Massachusetts towns that already had some cable service. What’s odd is that MBI told the public it chose Comcast because the company had vast experience and could get the work done without involving MBI—so it cost $1 million in oversight expenses to choose a company that doesn’t need oversight.

Despite protests from many residents across WiredWest’s would-be service area, Massachusetts Gov. Charlie Baker sided with his bureaucrats and stalled rural broadband deployment further with a temporary hold, which some claimed gave MBI and community broadband opponents additional time to further undermine WiredWest’s efforts.

Most recently, the same agency that wrung its hands worrying about the efficacy of WiredWest had no problem offering a quick $20 million in grants to private companies for rural broadband solutions. Few in broadband-challenged western Massachusetts are likely to be happy about the results of the latest machinations of MBI’s “free market solution with public taxpayer funds.” Last week, the public got its first look at the submitted applications, largely underwhelming in scope and specifics. None come close to offering the kind of ubiquitous and affordable broadband WiredWest proposed.

MBI also tailored their request for proposals to arbitrarily limit applicants, declaring only companies with $100 million in yearly revenue and at least five years experience building, operating, and maintaining residential broadband networks need apply. Had Google Fiber proposed to wire the entire region with fiber optics in an application, MBI would have turned Google down for lack of experience. (Google Fiber launched service in late 2012.) In fact, no startup or municipal project of any kind could realistically apply. Comcast and Charter could, and both did.

MBI claims each town will make their own final decision, but many communities have already done that by choosing WiredWest. Some towns are frustrated by the state’s interminable delays and politics and are discouraged with the potential spectacle of MBI continuing to throw up roadblocks for political reasons. Those communities are planning their own alternative projects if WiredWest can never get off the ground. The only current alternative is hoping a private company will step up and deliver service. Six applicants responded to MBI’s request for proposals from private providers. Only two showed any willingness to offer service across all of broadband-challenged western and central Massachusetts. Two others were cable operators that have neglected expanding service on their own because it was not profitable to do so. Another two applicants only wanted to serve a handful of communities. Here is an overview of the proposals:

Crocker Communications: Short on specifics, Crocker’s proposal claims an interest in wiring almost 40 unserved communities for $59.15 million, including $18.33 million in taxpayer funds, split into individual grants for each community. But even Crocker, among the most ambitious and detailed applicants, cannot meet MBI’s revenue qualifications, so it attempts to claim a vendor relationship with Fujitsu Network Communications of Japan, which supplies network infrastructure. How Fujitsu would be financially involved in the project to minimize the chances of Crocker running into financial problems while building out its proposed network is not adequately explained. Crocker only specifies $5 million of its own assets will be on the line.

Crocker’s website promotes the company’s desire to have a bigger presence in the state thanks to its cooperation with MBI. Crocker currently provides internet service to customers of a Leverett-based community broadband project. Coincidentally, Peter d’Errico of Leverett’s Broadband Committee was one of the contributors to MBI’s sponsored report slamming the WiredWest project as unrealistic and underfunded. We’re not sure what d’Errico thinks about Crocker Communications’ proposal, which asks for grants as little as $150,000 to help wire one community — New Ashford.

In an aspirational executive summary, Matthew Crocker, president of Crocker Communications, offers an admission there are “inherent challenges in fulfilling the Request For Proposals.” His conclusion: “If this were easy, it would be well underway.”

Crocker’s proposal won’t be easy for roughly 30% of those living in the nearly 40 communities his company proposes to serve. That’s because his company won’t be serving them. Crocker’s proposal only suggests he will deliver service to about 70% of the service area. MBI wanted proposals that would reach 96% of the population. But there will be plenty of time to contemplate these points. Crocker’s proposal warns residents may have to wait until 2021 before they can get service. That will give would-be customers four years to save enough money to pay Crocker’s proposed installation fees: “under $2,000 for 70% of homes passed” or “$3,000 for 96% of homes passed.” Ouch.

Whip City Fiber: Even more murky than Crocker Communications’ proposal, Westfield Gas & Electric’s “Whip City” fiber service submitted a plan offering to serve any of the 40 communities MBI identifies as underserved, but the details aren’t there, except to describe the service the company already provides to its own customers. The actual number of towns to be served and the schedule to launch service are all: TBD = To Be Determined.

Mid-Hudson Data: The most modest of proposals from this Catskill, N.Y. based company seeks $260,000 to offer 279 homes fiber service and wireless for another 20 in the community of Tyringham. Customers would pay an installation fee of $150. While potentially good news for customer living near George Cannon Road, it isn’t much help to the rest of the region.

Fiber Connect, LLC: Another modest proposal from this regionally based ISP offers to provide broadband service for Alford, Becket, New Marlborough, Otis, Tolland and Tyringham. The proposal notes the company is already running a pilot broadband program in Monterey and Egremont. One potential stumbling block is a poorly explained installation fee ranging from $0 if municipalities agree to a “fixed average cost” that could be included in grant funding or a municipally guaranteed lease-to-own payment to $299 if a customers apply for a mysterious promotion or rebate, or $999 which is defined as the basic “initial installation cost.”

Charter Communications: Formerly Time Warner Cable, Charter is hunting for taxpayer-funded grants to expand broadband service to Egremont, Hancock, Monterey, New Salem, Princeton and Shutesbury. All of those communities are near existing Charter/Time Warner Cable systems and the company spared no time in their application promoting their existing close ties with MBI to bring broadband to Hinsdale, Lanesborough, and West Stockbridge. Charter claims it can expand its cable service into the nearby communities in a “reasonable amount of time” but does not get more specific than that.

Comcast: Boils down its application to “we’re doing you a favor, but you pay” language reminding MBI the communities Comcast now proposes to serve: Goshen, Montgomery, Princeton and Shutesbury don’t come close to Comcast’s demand for return on its investment. But since taxpayers are helping to foot the bill….

The one noticeable difference Comcast has over all the rest of the applicants is a page-and-a-half of details about the various regulator-imposed fines and penalties it has had to pay recently for being an ongoing menace to its own customers. Is it arrogance for a company to assume such a vast number of damaging disclosures would not lead a responsible grantor to put the application in the circular file, or is it something else? After all, Comcast was already awarded up to $4 million in taxpayer funds in Massachusetts as a gushing press release reported in August, 2016:

WESTBOROUGH – The Massachusetts Broadband Institute at MassTech (MBI) and Comcast have reached an agreement that will extend broadband access in nine municipalities in Western and North Central Massachusetts, a project which is estimated to deliver broadband connectivity to 1,089 new residences and businesses, and will bring the overall coverage level in each town to 96% or above. The grant will provide up to $4 million in state funds to reimburse partial project costs for Comcast, which has existing networks in each of the towns, to construct broadband internet extensions to additional homes and businesses.

“This agreement further demonstrates our administration’s commitment to tackling broadband connectivity challenges for unserved residents and businesses,” said Governor Charlie Baker. “This public-private partnership will deliver sustainable, reliable, and cost-effective broadband connectivity to nine rural communities that previously faced significant coverage gaps, allowing nearly 1,100 households and businesses to participate more fully in the digital economy.”

“Our results-oriented approach to bridging broadband access gaps is connecting thousands of rural residents to the modern internet,” said Lieutenant Governor Karyn Polito. “We will continue to employ a dynamic, flexible approach to the Last Mile project, and seek solutions that meet the unique needs of communities and residents unserved by broadband access.”

The construction of the broadband extensions in Buckland, Conway, Chester, Hardwick, Huntington, Montague, Northfield, Pelham, and Shelburne is estimated to be completed within two years from the start of the project. The public-private partnership will extend high-speed internet service to unserved residents at speeds that meet or exceed the FCC’s definition of broadband service, through a hybrid fiber/coaxial-cable network.

Wired West Responds With a New Plan

Faced with insurmountable political obstacles, the folks behind WiredWest have bowed to the reality of the current political landscape and reintroduced themselves and their newest plan to get western Massachusetts wired for fiber optic broadband while trying to avoid any further encounters with MBI’s speed bumps and obstacles.

If WiredWest made one mistake, it was forgetting to establish the one connection that apparently matters more than anything else in Massachusetts: a political connection with state lawmakers. But the indefatigable group has not given up, and if the MBI is being honest about being an impartial partner in improving rural broadband in Massachusetts, there is still a better option available to communities than the six proposals recently submitted to MBI. That option is WiredWest.

In its latest proposal WiredWest would continue to play a significant role in the network after being built, with proven service plans that will deliver real broadband service to residents at rates comparable to what private companies charge. But the project will rely on member towns to construct their own fiber networks using private contractors and state and local funding. That puts more responsibility and network ownership in the hands of each individual town, an idea some towns originally rejected as too expensive and cumbersome. But MBI holds the money and has apparently rewritten the rules, so what MBI wants is what MBI will get.

The added cost to the project and the communities involved is significant: there will be some towns that cannot afford or manage the responsibility of constructing their own fiber networks and will likely drop out of the project. The new network plan will also increase costs WiredWest originally hoped to avoid. The group’s financial model also effectively subsidized some of the costs for the smallest and least able communities — a model that could be gone for good.

Each participating town network that does eventually get built will be connected in a ring topology to MassBroadband123, the state’s “middle mile” fiber network that is run privately by Axia Networks. At this point, it appears 14 communities are still on board with WiredWest, seven are “considering” the new WiredWest plan, and another 16 are “pursuing other options” but have not ruled out staying with WiredWest.

It is our recommendation that communities do everything possible to stay loyal to WiredWest, which has a proven track record of being responsive and accessible to communities across the region. Bucking the state’s inexcusable political interference by remaining united sends a strong message that local communities know best what they need, not a high-priced consultant, Springfield-based lawyers and bureaucrats, or the governor. None of those people have to live with the consequences of inferior or non-existent broadband and none have given the problem the kind of serious attention WiredWest has. The biggest challenge to WiredWest isn’t its financial sustainability, it is politics, and that needs to stop.

We’ve reviewed the submissions from MBI’s latest round of grant funding for private projects and they are all inadequate. While many of the companies involved are well-meaning and we believe could play a role in improving rural broadband, most of the applications seem to have been rushed and many lack specifics.

The region should not accept any plan offering only 70% broadband coverage, much less a proposal that will force another four-year wait for broadband (we credit Crocker Communications for at least including a specific timetable, something many of the other proposals did not.) Installation fees up to $3,000 are also unaffordable, with or without a financing plan.

Some analysts still worry if WiredWest can attract enough customers to be sustainable. If it isn’t, most of the private projects MBI has received applications for certainly are not either. Assuming customers can afford a few thousand dollars for installation — a major impediment to getting new customers, there is no guarantee which homes will get service and when. Competitively speaking, considering the only available alternative in most cases is spotty 1-6Mbps DSL from Verizon — a service the company has lost interest in improving or expanding — Verizon is likely to receive the same treatment it gets in other communities where better alternatives exist — a mass exodus of customers cutting Verizon’s cord for good. In fact, Verizon may ultimately sell its landline network in western Massachusetts to another company as it continues to disengage from its wireline businesses. It is highly unlikely any competitor of WiredWest will guarantee access to at least 25Mbps broadband.

WiredWest proposes to charge $59 for 25Mbps or $75 for 1,000Mbps broadband. Digital phone service is $19 a month. An installation fee of $99 will also apply. That is not out of line with what cable companies and other gigabit providers have charged, and they have won a comfortable market share. Private cable and phone companies also continue to raise rates on broadband, if only because they can, providing additional competitive insulation.

MBI’s grants should also not be the end of the story. New York last week rescued up to $170 million from the FCC’s Connect America Fund (CAF) to expand broadband deployment in unserved rural areas of New York State — money Verizon forfeited by expressing no interest in rural broadband expansion. That precedent opens the door for other states to recapture similar federal grants, including those that could target western Massachusetts where Verizon has also declined to accept CAF money. That could ease some of the money worries about WiredWest’s construction costs as well.

At the end of the day, area residents have turned up repeatedly at various events across the region holding signs supporting their choice in local providers: WiredWest. Nobody was holding up a sign hoping Comcast or Charter would be the company that finally brings broadband to their communities. The irony of using taxpayer dollars to fund Comcast in particular is not lost on their customers — many that loathe the company and wish they had another choice. Handing $20 million to that cable giant to expand in western Massachusetts guarantees their newest customers won’t have a choice either. Isn’t it time to give these communities what they want? They clearly want WiredWest.

Former Bright House Networks customers in Florida are unhappy with a $9.99 Wi-Fi Activation Fee that appeared on some customer bills in December.

Several customers converting to Charter Spectrum service reported the activation fee to the Tampa Bay Times and noted Charter initially told them the fee was required after Charter bought Bright House.

Most of the affected customers had cable service from Bright House for years and could not understand why they were being charged for the service. The company began admitting it had made a mistake and is waiving the fee on an individual basis, but only to customers who call and complain. Charter Spectrum began billing Bright House customers for service in November, which may explain why the charge is only appearing now.

Spectrum spokesman Joe Durkin told the newspaper the fee is probably a mistake and should not apply to customers the company inherited from Bright House who already had internet service. But this does imply Charter intends to charge an activation fee for new customers now or in the future. Whether the charge applies to customers using a company-supplied router to provide in-home Wi-Fi or relates to Bright House’s extensive network of Wi-Fi hotspots around Florida is not known.

Durkin told the newspaper this was not a widespread issue, but in response to its first story, the newspaper printed a follow-up the following day, noting it was continuing to receive complaints.

Some customers are suspicious.

“Their customer-service representatives were dismissive of me,” said Lara Bartelds, a Charter Spectrum customer in Clearwater. “A lot of people don’t notice these kinds of charges. I think Spectrum was hoping we’re just not paying attention to our bills.”

Verizon Communications has opened preliminary talks with officials close to Charter Communications about a possible merger of the two companies, concerning regulators worried the massive combined telecommunications company would have a near-monopoly on residential broadband service in New York and western Massachusetts.

The Wall Street Journal reports Verizon is working with advisers to study the potential transaction, and warned there is no guarantee a formal deal will materialize. A merger of Verizon and Charter would combine more than 114 million Verizon Wireless customers, 16 million landline customers, and over 6 million broadband customers with Verizon DSL or FiOS with Charter’s 21 million television, phone and broadband customers. The deal could fetch a price of more than $80 billion, no small amount for Verizon, already $100 billion in debt. An acquisition by Verizon would be a remarkable development for a cable company that became America’s second largest only eight months ago with the acquisition of Time Warner Cable and Bright House Networks.

Preliminary Talks

The newspaper reported Verizon CEO Lowell McAdam has talked with Liberty Broadband CEO Greg Maffei. Liberty has a 25% voting stake in Charter Communications, and Maffei is a close ally of John Malone, Charter’s largest single shareholder. McAdam’s back channel discussions have likely been designed to test Charter’s potential interest in a deal. For Malone and the former owners of Bright House Networks who control another 7% of Charter’s shares, making money appears to be their primary motivation and neither would likely to stand in the way of a deal.

McAdam

The newspaper was less certain about Charter’s CEO Thomas Rutledge. Rutledge is approaching his fifth anniversary as president and CEO of Charter Communications, now greatly enlarged with the combination of Time Warner Cable and Bright House. He spent the last 34 years in lesser roles at Cablevision, Time Warner Cable, and its predecessor American Television and Communications (ATC). Rutledge is reportedly interested in continuing his leadership role at Charter as it seeks to grow even larger, something unlikely to happen if Verizon acquires the cable company and rebrands it as Verizon under their own management. However, Rutledge’s personal interests will likely be secondary to the potential shareholder and executive windfall likely to come from any deal.

A Verizon/Charter Merger Would Establish a Broadband Monopoly in New York and Western Massachusetts

Verizon and Charter are the only significant direct competitors in residential broadband and landline telephone service in western Massachusetts and most of New York State, except a portion of New York City, Long Island and Westchester County (served by Altice’s Cablevision) and Rochester (served by Frontier Communications). A source at the New York Department of Public Service told Stop the Cap! this morning New York regulators would have a tough time approving a merger of this size and scope unless Verizon divested its landline and FiOS network in the state or Charter sold its cable properties in New York. A Verizon divestiture would likely attract Frontier Communications as a buyer, while a Charter sale of New York assets would probably bring bids from companies like Comcast or Altice.

“We would be very concerned about how this would impact broadband service competition and to lesser degree wireline service for New York,” the source, not authorized to speak to the media, told us this morning. “Gov. Cuomo has an ambitious agenda for broadband deployment in rural New York and this deal could also be a problem for the governor’s office. Verizon is perfectly aware of the regulatory challenges such a deal would face in Albany.”

Verizon’s Heavy Dependence on Wireless Was a Mistake

Verizon is under significant pressure to act after Wall Street punished the company for a poor fourth-quarter earnings report that illustrated the days of easy money in the wireless business seem to be over. Verizon suffered the third quarter in a row of sales declines after six years of continuous growth. Analysts point to increasing competition from T-Mobile and Sprint as the single biggest factor for Verizon’s struggles. As Verizon Wireless remained slow to cut prices and remained militant about not giving new and current customers access to unlimited data plans, customers have cut back on services or switched to other providers. Revenue dropped 4.9% in the last quarter and a growing number of Verizon’s most valuable postpaid customers are now leaving — mostly for T-Mobile and Sprint. Wireless churn reached a higher-than-expected 1.1% in the last three months.

Verizon Wireless is also having trouble attracting new customers. Analysts expected Verizon would add 726,000 customers during the last quarter, but only managed to attract 591,000. Wall Street punished Verizon’s latest financial results with a 4.4% slash in the stock price, Verizon’s worst day in more than five years.

Several Wall Street analysts have urged Verizon to diversify its business to reduce its dependency on wireless. In the last three years, Verizon has invested most of its attention and resources on bolstering its wireless network. In 2014, AT&T decided to spread its risk around with significant investments in its U-verse wireline broadband network, an acquisition of satellite-TV provider DirecTV, and its bid to buy content company Time Warner, Inc. In contrast, in 2014 Verizon spent $130 billion buying out its partner’s share of Verizon Wireless. That made UK-based Vodafone cash-rich and left Verizon mired in debt.

So far, Verizon’s diversification efforts have relied on acquiring affordable companies whose best days are long past, including AOL and Yahoo. An effort to entertain Millennials with video clips and other content over its go90 mobile app has largely been a flop, and investments in telematics and machine-to-machine wireless communications are years away from paying off, if they ever do.

Verizon May Want Charter’s Extensive Fiber Backhaul Network

Verizon executives have shown little interest in acquiring assets that rely primarily on linear/live television, which is why the company never moved to counter AT&T’s acquisition of DirecTV with an offer for its satellite competitor Dish Networks.

Verizon is very interested in fiber optics — ironic for a company that largely abandoned expanding its FiOS fiber to the home service seven years ago.

Verizon will need a lot of fiber assets to power the 5G wireless networks the company is interested in deploying. This will require a massive network of fiber-connected “small cells” that will deliver wireless services at speeds faster than today’s 4G networks. These small cells will be capable of serving individual neighborhoods or planned communities and could theoretically rely on Charter’s fiber backbone to deliver service. Without access to Charter’s network, Verizon would have to undertake to build out its own fiber network throughout its service areas.

Regulatory Climate Warms for Big Business Mergers

Although President Donald Trump has voiced his opposition to AT&T’s merger with Time Warner, Inc., his appointments to manage the day-to-day affairs of government are strident believers in deregulation and are unlikely to stand in the way of merger deals. The most likely opposition to a Verizon-Charter deal would come from state telecommunications regulators in New York and Massachusetts. On the federal level, significant opposition may be unlikely. Among the Trump appointees that would likely review a Verizon-Charter merger:

• Joshua Wright is the leading contender to head the Justice Department’s antitrust division. He’s a conservative law professor who believes regulator reviews of corporate mergers should be hands-off to a degree that has failed to withstand court scrutiny. Wright’s approach during his term as a commissioner at the Federal Trade Commission was so business-friendly, some joked his middle name should be “Laissez-Faire.” He believes mergers rarely have a bad impact on competition and prices and in fact offer consumer benefits. Courts have blocked mergers he supported and judges have criticized his standards of proof that “had no support in the law.”
• Sen. Jeff Sessions is Trump’s nominee for Attorney General. While Sessions claimed he had no problem blocking anti-competitive mergers and acquisitions, Wall Street believes the Trump Administration will not stand in the way of a frenzy of mergers. Evercore ISI’s Terry Haines made it clear what is likely to come from a Sessions-led Justice Department: “Sessions’ likely nomination and confirmation by the Senate, in which he has served since 1997, is a market positive for merger and acquisition activity. Sessions as attorney general would shift immediately from the current mostly ‘red light’ Obama antitrust/competition policy and move towards one that would be friendlier to M&A activity.”
• The Federal Communications Commission would also scrutinize the deal, but under the chairmanship of Ajit Pai and a Republican majority, any significant opposition to the deal seems unlikely. Pai has never opposed any major telecommunications merger deal on principle, although he has fought with former chairman Thomas Wheeler over the terms and conditions the FCC sought to impose in return for the agency’s approval.