AT&T launched its U-verse service in parts of the Memphis area Monday, promising competition for Comcast, the dominant cable company in southwest Tennessee.  But some area residents expected much more to come from last year’s controversial industry-friendly statewide franchising law that promoters promised would bring lower prices for service across the state.

AT&T plans to offer U-verse within the next two years to subscribers in Arlington, Bartlett, Collierville, Covington, Dyersburg, Germantown, Lakeland, Memphis, Piperton and Ripley.  Monday’s launch only covers a portion of Memphis, and doesn’t cover large portions of downtown.

[flv width=”552″ height=”294″]http://www.phillipdampier.com/video/U-verse overview.flv[/flv]

An Overview of AT&T U-verse television service

Unlike traditional cable services, AT&T’s U-verse is typically delivered on a copper wire and fiber optic based Internet Protocol network.  Not as advanced as Verizon FiOS, which provides a fiber optic connection straight into the home, AT&T’s system still relies in part on traditional copper phone wire that runs from the pole to your home.  AT&T uses this approach to save money — company officials claim 100% fiber networks are too costly to build, and Wall Street investors balk at the up front costs.

AT&T uses its fiber network from the phone company office to individual neighborhoods to reduce the distance between the homeowner and the company’s equipment, which delivers a digital signal across the customer’s existing phone line.  Just like DSL, the shorter the distance between the customer and the telephone company equipment, the faster the speeds.  AT&T U-verse requires fast speeds to handle the video channels, digital phone, and broadband components that are part of the U-verse product line.

AT&T’s U-verse pricing ranges from $49 a month for an enhanced basic service package of 130 channels to $109 for 390 channels.  Premium channels are extra.  Plans include one AT&T set top box.  AT&T’s system will require a set top box for each television, at a monthly rental of $7 for each additional set, which can increase costs significantly for houses with several televisions.  An HD package runs $10 per month.  AT&T specials often include discounted or free installation, which takes between four to seven hours to complete and is only done on weekdays.  No contracts are required and customers can cancel at any time.

AT&T U-verse pricing in Memphis (click to enlarge)

AT&T claims that 70% of their customers choose a bundled package that includes television, broadband, and/or telephone service.

Company officials credited the passage of the Competitive Cable and Video Services Act, which became effective in July 2008, for paving the way for AT&T U-verse in the city.  AT&T’s praise also included crediting elected officials by name who supported the company’s lobbying efforts towards passage of that bill, which stripped cable franchising authority from local communities and adopted a statewide franchise system.

“We are thrilled to offer this innovative video choice to customers in the Memphis metropolitan area. As we celebrate this Memphis launch, I want to remember the contributions of the Tennessee General Assembly to open Tennessee’s video services marketplace to competition which is truly benefiting consumers. I would like to again thank Memphis area legislators including Speaker Emeritus Jimmy Naifeh, Senator Mark Norris, House Speaker Pro Tem Lois DeBerry, Chairman Ulysses Jones and the many others who supported competition and choice for consumers,” said Gregg Morton, president, AT&T Tennessee.

In turn, elected officials were quoted in AT&T’s press release:

“As Tennessee policymakers, our goal was to increase investment throughout the state and give consumers more choices and innovative new services,” said Senator Norris. “AT&T has been a great community citizen and the launch of AT&T U-verse also supports economic growth in Memphis.”

“We are excited that AT&T has brought their 100 percent Internet Protocol-based television service to Memphis,” said Chairman Jones. “Consumers in Memphis have asked for this and today, AT&T has delivered.”

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p style=”text-align: center;”>AT&T Group President for Operations Support John Stankey discusses the company’s fiber strategy and provides an update on its progress in deploying its groundbreaking IPTV service, AT&T U-verse TV. (11 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

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The Municipal Technical Advisory Service, in association with the Tennessee Municipal League, noted that the lobbying effort to pass the Act was among the most expensive lobbying campaigns in state history.

This legislation is part of the national trend to diminish or eliminate the franchising authority of cities by granting cable companies the right to provide services without negotiating agreements with local governments.

In recent years, several cable companies operating in Tennessee permitted local franchise agreements to expire and refused to negotiate contracts with cities in anticipation that legislation would be adopted that would give cable companies great advantages in negotiating new agreements.

This tactic has paid off, as this law essentially grants a statewide franchise to these companies. Current franchise holders may now terminate their local agreements and seek a state franchise. A city that has previously negotiated a franchise agreement with one cable provider may be forced to permit other cable companies to serve its area under the same terms and conditions of the existing agreement

Such legislation has traditionally been advocated by telephone companies like AT&T and Verizon who are introducing video services in a bid to remain competitive with cable, which now offers its own telephone service.  Seen as a shortcut to negotiating with each individual municipality, the statewide franchise advocates claims it reduces the time and expense of bring needed competition to communities.

In addition to an expensive lobbying campaign, astroturfer FreedomWorks coincidentally showed up to promote their “Choose Your Cable” campaign, which in fact mirrors AT&T’s public policy advocacy of statewide franchising.

FreedomWorks Chairman Dick Armey commented, “FreedomWorks and our thousands of Tennessee members were proud to take part in the grassroots battle in Tennessee that finally saw this ground-breaking legislation through. We salute the Tennessee state legislature for its leadership in giving Tennessee consumers the advantages of increased competition in the video services market. The Competitive Cable and Video Services Act will offer cable consumers more choices and more innovation. And when businesses are forced to compete for customers, the customers win.”

Incumbent cable operators have had mixed reactions to such proposals, generally opposing them in areas where they would likely face the entry of AT&T or Verizon into their markets, and taking a more favorable approach in areas where they are unlikely to face a strong telephone company competitor.

In Tennessee, with AT&T itching to bring U-verse to state residents, cable operators launched a major opposition effort.

Local municipalities and many consumer advocates strongly oppose statewide franchising legislation, noting such laws remove local oversight over operators that do not perform responsibly and reasonably in their communities.  Additionally, in many states where statewide franchise bills have become law, local communities find franchise fees paid into state bodies that do not always pass on the full amount of that revenue to towns and cities.

Other common problems include:

• Threatened loss of local Public, Educational, and Governmental (PEG) local access channels;
• Reduced control over zoning regulations prohibiting digging and construction without permits;
• Loss of “free service” provisions that deliver cable programming to public schools, community centers, and town, police and fire halls at no charge;
• Loss of authority to help manage customer complaints.

In Tennessee, those opposing the legislation managed to get rid of statewide franchise fee administration, retained control over their existing PEG channels, and kept existing “free service” provisions, as well as reasonable zoning requirements.  However, the telecommunications industry did manage to include language banning municipally owned broadband networks in any area where an incumbent provider exists:

Memphis, Tennessee

Broadband joint venture authority.

The law creates the “Tennessee broadband deployment fund” to be used to promote the deployment of broadband service to rural areas. Guidelines will be developed to govern use of the funds, and grants will be available to local governments, cable companies, and telecommunications companies.

Cities now have the authority to enter into joint ventures with one or more third parties to provide broadband services. Joint ventures will be authorized only in areas that are historically unserved. City electric companies and electric cooperatives that participate in these joint ventures must still comply with other applicable statutes, and no revenues from utility operations may be used to subsidize the joint venture.

Cable operators also managed some concessions, and after the bill was signed into law, the state cable television association said they could live with the result.

Stacey Briggs, executive director of Tennessee Cable Telecommunications Association:

“This has been a good process – not easy, but good – and Speaker Naifeh should be commended for managing this outcome on a highly complex policy.

The cable industry, including Comcast and Charter, stood firm to make sure that our members were treated fairly and that AT&T and other companies were not granted advantages in the law. And, most important for consumers, Tennessee’s cable companies will continue making substantial and meaningful investment in Tennessee. Cable companies will continue to be the leader in bringing the most advanced products, services and newest technologies to consumers across the state.

AT&T and other companies have had the right to compete under local franchising rules for more than a dozen years. This new policy streamlines the franchise process, but it remains to be seen whether new entrants will compete in Tennessee.”

After all of the lobbying was done, the bill was signed into law, and the competition FreedomWorks was touting did arrive, the only thing missing from the consumer perspective was lower pricing.

Comcast, the local cable operator serving Memphis, seemed unfazed by AT&T’s entry into the area.

“We have competed successfully against satellite TV and other competitors for many years,” said Trevor Yant, vice president and general manager of Comcast of Memphis. “AT&T will become another player in the market with the services they choose to offer.”

One of the possible reasons for Comcast’s apparent lack of concern may stem from the reaction of many Memphis residents, who note AT&T’s prices are often higher than those charged by Comcast.

Among the mostly unimpressed reactions on local message boards:

mrhmeisme:
“$109.00 for 390 channels doesn’t sound like a very competitive price for a yet untested product. That’s some 20 percent higher than my current package that has all the channels that interest me. I suppose the proof will be in the pudding.”

Not_Chicken_Little:
“The website for U-verse presents the packages very poorly, and the prices don’t seem to be any bargain. But I am glad to see some competition, even though I don’t think they’ll make much headway. They need to show what they’ve got in a more attractive and understandable way, and cut prices – they don’t make me even think of switching with the lame sales pitch they have now.”

dmat7777:
“I just did a comparison of cost between my current Comcast and the U-verse. For comparable services, U-verse would be about $15 more per month for me. Some of the packaging/options might look better. For example, the Flickr photo being included, but I’m more concerned about how much $$$ per month. I don’t see AT&T taking this seriously. They seem to be doing the typical huge corporate thing, and not addressing the customers real concerns. No surprise there.”

ChickPea:
“$49 a month is too rich for my blood. When someone offers a decent package available for $25-$30 a month, I’ll be in.”

Oddly, the most common requests and complaints among Memphis area residents continue to be unanswered by Tennessee officials who were eager to support the Competitive Cable and Video Services Act, but left out a few things:

umbluegray:
“I want a plan where I can pick and choose the channels I want. I hate paying money to some of the basic channels like MTV, etc.”

ladydonald:
“I would be a big fan of a-la carte programming if it were ever enacted.

A-la carte channels are a niche that all of the providers are totally ignoring. Just think what would or could happen if those options were available.”

Hogs2009:
“It would be nice if you could pick out what cable channels you want and skip the rest. 90% of cable channels I do not want but am charged for. I mainly have cable for sports broadcasting channels, like ESPN, ESPN2, and ESPN Classic. I also like having local on cable because it is more clear, again because some games are on local channels. A-la carte is a great idea!”

Many residents were also suspicious of just how good a local competitor AT&T will be against Comcast, which itself took over providing cable service formerly provided by Time Warner Cable:

DanWesson:.
“Since Comcast bought out service from Time Warner locally, our service has been sub-par. I have had technicians out the house multiple times due to inexplicably losing certain HD channels and internet service that continually drops or can be agonizingly slow, on par with dial-up some days (particularly the hot ones, which is very strange). Their technicians on the phone and who come to the house have been polite and friendly, but they aren’t exactly going out of their way to fix the problem.

Comcast also charges me more than Time Warner did in addition to charging a “modem-rental” fee when the cable modem was free from Time Warner and I haven’t exchanged it since the change.

All that said, I’m not sure AT&T is the way to go as their corporate practices are the worst in the Telecom industry. Customer service has always been non-existent as the customer is merely a cash-cow. I’m all for competition in the marketplace, though. If Direct TV didn’t require a contract that might would be the route I went, but I’d still be reliant on one of these other worthless companies for internet.”

Not_Chicken_Little:
“On the website trying to check availability, U-verse tells me it cannot find my address! It suggests I try again using my AT&T phone number instead and directs me to continue to another screen. That screen, however, has no option to enter a phone number – only the address.

So I already see the level of competence I would have to endure if I choose U-verse. And like dmat7777, I see that the price for comparable service would be considerably higher than what I have now.”

apollo1377:
“AT&T can’t handle phone service. Do you think they can take on more? I think NOT.”

ima_cracker:
“If AT&T could deliver a more reliable package some would pay more to get it.

Instead they are mortgaging the company’s reputation for wireline services, which they continually deride, to try and emulate the cable companies financial model, which has produced a reputation for reliability that is the envy of nobody.

If instead of trying to destroy the value in wireline AT&T decided to pursue a higher quality, more reliable service for cable, they could at some point expect to capture a substantial amount of market share. But they assume the consumer is too stupid to make the distinction between one service and another.”

ChickPea:
“AT&T websites are a perennial problem. Ever since BellSouth was taken over by AT&T, getting any information on local service online has been a struggle. A site map would probably look like a birds nest.
That said, I’m loving my AT&T DSL lite! Cheap and plenty fast for a non-gamer.”

Despite continued financial pressure on cable companies’ core cable television business, Cablevision Systems was able to grow its broadband service, and retain broadband customers.  The company also announced it will spin off its Madison Square Garden unit into an independent entity, still owned by Cablevision shareholders.  Madison Square Garden includes the arena of the same name as well as ownership of two sports teams – the New York Knicks and New York Rangers.

The spinoff will create two distinct entities for Cablevision – an entertainment company comprised of Cablevision cable systems and Rainbow Programming, which runs several basic cable networks, and MSG, which will be sports-oriented.

In its earnings report, Cablevision said the Madison Square Garden unit had an operating loss of $8.4 million, and according to cable analyst Craig Moffett of Sanford Bernstein, will likely face a $500 million dollar charge for renovation of the arena in the coming years.  Cablevision said it earned $87 million, or 29 cents per share, in the most recent quarter, compared with $94.7 million, or 32 cents per share a year ago.  The decline in earnings was attributed to pressure from MSG losses and a drop in the number of basic video subscribers, as well as losses from its Newsday newspaper operation.

Cablevision’s broadband service retained strong customer loyalty.  It also stands out as being free of Internet Overcharging, and proud of it.  The company has made it clear it appreciates broadband growth in the United States and considers broadband usage “addictive,” and wants to be certain it remains so.

Cablevision is also considering introducing additional features to its Wi-Fi service, including the provision of a wireless voice service available to customers in New York and New Jersey.

Cox Cable DOCSIS 3 modem

Cox Cable’s ‘Ultimate Internet’ broadband tier is now available to Cox customers in Rhode Island.  Offering 50Mbps downstream and 5Mbps upstream, the premium speed service sells for $109.99 a month with an annual contract.  The service comes as a benefit from the recent upgrade to DOCSIS 3 technology in Cox Cable’s Rhode Island service area.  Cox Cable has generally unenforced usage allowances on all of their broadband service tiers.  Theoretically, the ‘Ultimate Internet’ tier is limited to 300GB downstream and 100GB upstream traffic per month, but very few Cox Cable customers have ever been contacted about their usage, regardless of the amount.

Joel Evans, a Cox Cable customer living in Rhode Island, posted a review of his experience with the new Cox Cable broadband tier on Geek.com:

Before the upgrade I was peaking around 21 Mbps download and 4 Mbps upload. These were actually great speeds considering that the promised speed was really more around 20 Mbps and 3 Mbps, respectively. After the upgrade, however, I noticed an incredible speed bump. Instead of the promised 50 Mbps down and 5 Mbps up, I received 65 Mbps down and 6 Mbps up. I can only imagine that these will probably fluctuate over time.

It wasn’t until I was recently asked by Cox how my experience has been that I noticed how much of a difference more bandwidth makes. For example, I stream Hulu to my Apple TV (thanks to boxee) and usually there’s a bit of lag with the stream. Nowadays it streams right away as if I’m watching live television.

A mandatory service call by Cox Cable is required for installation, because technicians will check line quality and also swap out a customer’s older cable modem with one capable of handing DOCSIS 3 “channel bonding,” which allows multiple cable channels to be connected together to permit faster broadband speeds.

Cox plans to expand availability of the ‘Ultimate Internet’ tier to more than two-thirds of its systems by the end of 2010.

Shaw's flyer distributed to Novus customers (click to enlarge)

Letting Shaw get away with this will let them buy up competitors like Novus for a pocket full of Toonies.

[Update 10:16am EDT 7/29] — Brion, one of our loyal readers, had a chance to visit Novus’ website and discovered that Novus has usage allowances on its own broadband service.  That’s naughty.  They are far more generous than Shaw’s, which start at 10GB and are more commonly in the 60GB range for average customers, but that’s besides the point.  The Comments section is where the discussion about the usage allowances are taking place.  We call on Novus to explain their limit policy, and more importantly, consider dropping it altogether and using that as a competitive tool against Shaw, which has far lower limits.  If the vast majority of customers are unlikely to hit them, why have them at all?  Write an Acceptable Use Policy that allows for informal communication with the extreme users consuming terabytes of bandwidth a month and offers them a commercial plan for them to consider.  Don’t be a part of the Internet Overcharging crowd.  We celebrate the kind of competition Novus can provide residents of Vancouver and Burnaby, but we’d like to make sure the competition is worth fighting for.

[Update 6:12pm EDT] — Welcome to Novus customers who discovered this site through Novus’ campaign website. Stop the Cap! is an all-consumer website designed to promote and defend the competitive broadband marketplace in both the United States and Canada.  Paul-Andre Dechêne is our Canadian editor. We are unalterably opposed to Internet Overcharging schemes, which include bit/usage caps, consumption-based pricing, and fees or penalties imposed by providers for exceeding them.  We are pro-competition, pro-Net Neutrality, and opposed to throttles.  Companies like Novus which provide needed competition in the cable television, telephone, and broadband marketplace are essential for a healthy marketplace with rational pricing.  Shaw’s obvious predatory pricing tactics are designed to drive away Novus’ customers, making the company ripe for takeover, by Shaw of course, for a pocketful of Toonies.  While those Shaw prices sound good today, driving away competition guarantees much, much higher pricing tomorrow in a monopoly environment.  Novus is installing fiber optic-based service, which means they are already kilometers ahead of Bell and the usual assortment of the Shaw/Rogers/Vidéotron old school cable companies.

We welcome your views.  Just leave your public comments in the editor box at the bottom of the page (or click the comments link just below the headline).  You can explore more than 400 articles on our issues from the menu bar at the top.  Drop down menus will let you read about the issues that are most relevant to you.  Thanks for joining us.  The fight for affordable broadband continues across Canada, and we welcome your participation.  Bookmark us and drop by regularly. — Phillip M. Dampier, Editor]

Imagine paying $9.95 a month for a digital cable package with two free high-definition set-top boxes with personal video recorders, more than 200 digital channels, more than 25 high-definition channels, and a movie channel package.  Not convinced?  How about also getting two free months thrown in.

Need telephone service?  How about free nationwide/U.S. calling, free installation, and a whole mess of phone features for $9.95 a month?  Don’t forget broadband.  That’s just $9.95 a month as well for 15Mbps service with free Powerboost.  To sweeten the deal to diabetic coma proportions, Shaw will throw in two free months of service for each of those packages, too.

What’s the catch?  You have to live in an area currently served by Novus Entertainment, Inc., an upstart independent fiber-based competitor wiring metro Vancouver, British Columbia.  Novus has aggressively wired high rise condominiums and other densely populated neighborhoods and buildings in Vancouver.  Novus is a tiny company compared to Canada’s national cable companies.  Shaw provides cable television service to 2.1 million customers in several Canadian provinces.  Novus has 9,000 subscribers in 220 buildings in Downtown Vancouver and Burnaby and is planning an expansion into Richmond. Those buildings are being peppered with marketing from Shaw, including this special pricing offer.

Existing Shaw customers, and those who live outside of Novus’ service area, cannot obtain the special pricing.  That is the heart of a complaint lodged by Novus against Shaw at the Competition Bureau of Canada and in the British Columbia Supreme Court, charging Shaw is engaged in predatory pricing designed to put Novus out of business.

“Shaw is abusing its dominant position in the market by offering services – which it normally makes nearly 50 per cent margins on – at a sizeable loss as a means to destroy a local competitor,” said Donna Robertson, Co-President and Chief Legal Officer of Novus Entertainment Inc. “The millions of existing Shaw customers paying full price should be outraged because they’re unwittingly subsidizing the costs that customers with a competitive alternate pay, which is unethical and unfair. If they don’t make the offer available to everyone, current customers should call Shaw and demand the same deal.”

Novus points out Shaw has been “on a buying spree” picking up smaller cable operators and independent providers, but has “been unsuccessful in getting traction with Novus,” company officials suggest.

Stop the Cap! has discovered Shaw’s discount offer is a remarkable one, compared with the regular pricing Shaw customers pay elsewhere:

Shaw Deal for Novus Cable TV Customers

$9.95 digital cable with two personal video recorders, movie channel package, digital channel package
Two free months service

Shaw Deal for Other Canadians

$67.85 HD package
$16.00 Movie Central/HBO or Super Channel premium movie network
$26.95 digital cable “specialty channel” package
$ 3.95 time shifting option
$30.00 Shaw HD personal video recorder set-top box

The grand total: $144.75 per month, with no free months.

“Shaw enjoys increasing cable margins of nearly 50 per cent, which it boasts to investors is ‘best-in-class’ compared to other North American cable companies,” said Robertson. “We believe that Shaw’s targeted campaign is an attempt to eliminate Novus from the competition, which would allow Shaw to maintain its near monopoly status and raise prices for all customers whenever it sees fit”

“Based on Shaw’s actions, we can only assume that they are trying to buy our customers by gouging their own prices,” said Robertson. “They’re offering these services at an enormous loss, while forcing the rest of their customers to make up the difference. We aren’t big enough to compete with Shaw’s predatory pricing, but we are faster and more reliable, and our service is actually less expensive over the long term.”

Novus has launched a website and is busy on Twitter asking Shaw customers across Canada to demand the same special offer they are making available in Novus’ service area.

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Do you want the 10 Bucks Offer too? Sign our Petition and call Shaw to request this special rate.

Greater Vancouver – 604-629-8888
Kelowna – 250-762-4433
Prince George – 250-562-1345
Fort St John – 250-785-3039
Victoria – 250-475-5655
Edmonton – 780-490-3555
Calgary – 403-716-6000

Richard Greenfield, Pali Research

Wall Street media analyst Richard Greenfield of Pali Research is telling investors that the era of quick cash from “digital phone” service customer additions is probably coming to an end.

Greenfield penned a research note last week pointing out that despite the blizzard of postcards, mailers, and wall-to-wall advertising cable operators do to promote their “digital phone” services, it’s getting tougher to sign up new customers.  Mike Farrell in Multichannel News condensed the marketspeak down:

In a research note, Greenfield noted that industry-penetration leader Cablevision Systems, which has telephony in 40% of its homes passed and more than 60% of its basic-video base in a triple-play bundle, took six years to reach those milestones. Time Warner Cable after five years has about 15% penetration (27% of subs in a bundle); Comcast, four years into telephony, has 13% phone penetration and 24% of its subs in a triple-play bundle.

The year 2008, the analyst noted, was the first that net telephony additions fell for both Comcast and Time Warner Cable.

“While Cablevision is way ahead of its peers in telephony, the question is now becoming, will its peers be able to get to even 25% penetration, let alone the 40%-plus levels Cablevision has achieved or is the opportunity to further cement the bundle simply dwindling by the day?” Greenfield asked.

For the uninitiated:

• “Homes passed” refers to homes where cable service is available;
• “Triple play bundle” refers to customers who take three services – cable TV, Internet, and telephone service in a bundled package from a provider;
• “Penetration” refers to market share.  In the case of Time Warner Cable, only 15% of their subscribers sign up for “digital phone” service, but the number is higher for those with a bundled package.

Greenfield, who often annoys cable companies and instigates angry press releases from some cable trade associations, represents the Wall Street investor types, who are not pro-company or pro-consumer.  They are simply pro-money for investors.

Investors are very concerned this year about cable company stock value.  They worry customers are starting to cancel cable television packages (or at least downgrade their service to get fewer channels), and are now also concerned telephone revenue will not grow at the traditional rate it has since “digital phone” service was introduced.

Broadband service is the exception.  It remains highly profitable and is continuing to grow even during hard economic times.

Stop the Cap! believes that cable operators will look more and more to broadband profits to help prop up their stock price, making it imperative that broadband service deliver as much profit as possible, while operators crack down on costs.  Internet overcharging schemes, such as limiting and discouraging access, raising prices, or a combination of both can reduce costs even further while maximizing profits, particularly in markets where limited or no competition exists.