Rogers is serving up its Ultimate Internet service, with speeds up to 150/10Mbps, by challenging some of Canada’s biggest athletes to try and beat the company’s broadband speeds.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Rogers Ultimate Bundle Challenge.flv[/flv]

Tennis Pro Milos Raonic: For Milos’ challenge, we set up a tennis court in a Toronto warehouse, with a “play” button target at one end.  We challenged Milos to serve the ball and hit the target to play a song, faster than we could download it using Rogers Ultimate Internet. Let’s not forget Milos is well known for his powerful serve, reaching 250 km/hr. He has also served more aces than any other player so far in 2012. Does Rogers Ultimate Internet have a chance against a champion like Milos?  (1 minute)

Apparently more often than not, judging from Rogers’ video. But one thing Raonic has going for him, as a human being, is no usage cap. As our loyal reader Alex points out, Rogers’ Ultimate Internet only includes a downright piddly 250GB a month, which is quite a little for customers paying just shy of $123 a month for Internet access. Rogers slaps a $0.50/GB overlimit fee on this tier, with a maximum of $100.

That leaves super-premium customers feeling like they can take Rogers’ screaming fast Internet service on a 15-lane highway with a 250kph speed limit for around five kilometers before hitting the toll booth.

Verizon is pulling back on its traditional landline service and FiOS expansion to continue focusing on its more-profitable wireless service.

Verizon Communications’ landline customers will endure continued cost cutting as the company focuses on its increasingly profitable wireless division, now set to bring in even more profits with Verizon Wireless’ transition to new, often higher-priced service plans.

Verizon executive vice-president and chief financial officer Fran Shammo yesterday told investors attending Bank of America-Merrill Lynch Media’s Communications & Entertainment Conference that the company is pleased with Verizon Wireless’ successful transition to Share Everything, which includes a shared data plan for multiple wireless devices.

Shammo characterized the true nature of Share Everything as a data plan that happens to include unlimited calling and messaging.

“It really comes down to data consumption and that is what drives revenue,” Shammo told investors. “And really the reason we did this was because we saw what happened in Asia with some of the text messaging and the dilution and voice migration.  So you are protecting that revenue stream going forward and we think that is beneficial to the consumer and the company.”

Shammo sees increased profits in Verizon’s future as customers transitioning away from unlimited data plans eventually bump up and over their new plan limits. But the revenue gains actually begin the moment customers sign up, as those bringing various wireless devices to a shared data plan are immediately told to upgrade for a larger data allowance at an additional cost.

“We are telling them that they really need 2GB per device,” Shammo said. “So if they want to bring five devices, they really should be buying the 10GB ($60/month) plan. What we are finding is customers are very receptive to that formula because they can get their head around the 2 gigabytes. They understand what their usage is. So part of it is that they are actually buying higher up packages than we’ve anticipated.”

Verizon also has a plan to deal with potential bill shock from customers using their wireless devices for high bandwidth applications. The company is receptive to letting content producers pay Verizon to cover customer usage charges.

Share Everything = a data plan that happens to include unlimited calling and messaging

“So when you look at that, revenue per account may not go up, but service revenue will because you are just getting it from someone else,” Shammo said. “So the LTE network allows the differentiation, and the way I like to classify it as you can have an 800 service over here, which is ‘free data’ because somebody else is paying for that and then you have your consumption data over here.”

Shammo believes customers who gave up their unlimited data plan believing Verizon’s basic data allowance will suffice for years to come will be surprised at how fast they will hit their limits as wireless data becomes more important.

“I think we are going to see this accretion faster than people think,” Shammo said. “If you look at our SpectrumCo [cable operators Cox, Comcast, Bright House Networks, and Time Warner Cable] deal, [CEO Lowell McAdam] and the team did an outstanding job convincing the Department of Justice about the innovation that can happen here and maybe being the first in the world to really integrate wireless with inside the home and content outside the home. And if you think about how that content can be streamed outside the home within cars, you really say this is unlimited as to where this can go. So I think the innovation is going to come very, very quickly here.”

With the spectrum deal with cable operators in place, Shammo said Verizon will not be in the market for any large spectrum acquisitions in the near future, and even plans to sell off some excess spectrum it does not currently need, so long as the company gets paid what it believes the spectrum is worth.

Verizon’s concern for keeping large amounts of cash on hand is evident as it continues to reduce investments in traditional landline service and FiOS. In fact, Verizon said it would continue increasing prices for its FiOS fiber network to more closely align with the higher prices cable companies are charging.

“We have really concentrated this year on getting our price points equivalent to where the rest of the market was,” Shammo said. “We were actually underpriced with a superior product to cable. So the concerted effort was we needed to do some price-ups and we are doing that over — we started in the first quarter. We did it in the second; we are doing it in the third. You saw some of that benefit come through in the second quarter where we delivered a 2.5% mass-market revenue increase, which was I think the best in years and I see that doubling by year-end. So I think that, coming out of this year, we will be on a very good path for a mass-market revenue increase.”

Two service calls in six months may get your traditional landline canceled and moved to Verizon FiOS phone service, which requires 10 digit dialing for every number.

But those rate increases will not deliver improved service. If fact, Shammo said Verizon will continue reducing costs and investments in its network. Much of its investment in the landline business has been to support Verizon Wireless’ growth through its IP backbone and fiber-to-cell-tower projects. Shammo predicts capital investments will continue to be flat to down.

One example where the cost-cutting is apparent is how Verizon deals with service calls for troubled phone lines.

Verizon landline customers in FiOS areas who report chronic service problems may find themselves disconnected and switched to FiOS Voice over IP phone service instead, because Verizon has quietly set new in-house rules about the number of permitted service calls for each customer.

“If we have a copper customer who is what we classify as a chronic (two truck rolls in a period of six months for that copper line), I am losing money on that copper customer,” Shammo said. “So if I can take that chronic customer and move them to FiOS, I deplete the amount of operational expense to keep that customer on and now I have moved them over to the FiOS network where they get the benefit of FiOS digital voice, which is clearer.”

Once a customer gets switched to FiOS, Verizon’s marketing machine swings into action.

“I now can put their DSL service onto FiOS Internet where they now realize the speeds of FiOS and what we are seeing preliminarily is even if we take a voice and DSL customer and move them, they are starting to buy up in bundles because they are starting to see the benefit of the higher speeds,” Shammo said. “Then we open up the sales routine to go after them, now for the FiOS TV product.”

Unlimited data holdouts can leave

Shammo added Verizon is becoming more concerned than ever about long term investments that leave the company waiting years for a return.

“Lowell and I have a very concerted effort to really make sure that the investments we make are returning their invested capital in a very short period of time,” said Shammo.

That spells trouble for landline service upgrades and future FiOS expansion, which both require the company to take a long term view recouping those investments. But even Verizon’s wireless business’ capital expenses are down — by $1.3 billion through the first half of this year.

Verizon Wireless has also picked up nearly $5 billion in cost savings through restructuring, including lucrative revenue earned from new activation and upgrade fees and also tightening up on subsidized wireless phone upgrades.

For customers holding onto unlimited data plans, intending to get their money’s worth from them, Shammo has a message:

“Quite honestly, they could leave my network because you are not making much money on those.”

Time Warner Cable has been mailing offers to broadband-only customers offering free cable-TV service if they upgrade their Internet speeds to the company’s Ultimate 50/5Mbps tier, which currently sells for $99.95 a month in most markets.

The company began the promotion in early summer, but targeted broadband-only customers already upgraded to Turbo or Extreme speeds. Now it is available to any Time Warner broadband-0nly customer.

Customers can choose between two levels of service:

• $99.99 a month for 12 months: 50/5Mbps Internet service plus “Digital Essentials” TV, which includes local stations and around 40 additional cable networks;
• $139.99 a month for 12 months: 50/5Mbps Internet service plus “Digital TV,” which includes over 200 television channels and free HD DVR service for 6 months.

Time Warner Cable has regularly targeted its Internet-only customers with promotions to entice them to upgrade to television and phone service, typically marketing a discounted triple play package. This is the first time the company has sought to get broadband customers to upgrade to its most costly Internet tier by throwing in television service as an added incentive.

The company tells customers the deal will improve their online video experience and reduce potential problems when multiple members of a household access Internet services at the same time.

Phillip “Artificial Scarcity for Fun and Profits” Dampier

It would be an understatement to say I’ve heard the argument once or twice that there is simply no economic room for additional players to enter what Big Telecom companies always claim is a robustly competitive marketplace for Internet access.

Virtually every company facing inquiries from regulators, politicians, and consumers always makes the point today’s deregulated broadband playing field is an excellent example of free market competition at its best.

While they advocate for even more deregulation, oppose the entry of community-owned broadband services, and demand more spectrum from Washington lawmakers, we endure a veritable monopoly/duopoly for Internet access. Their defense, after a dismissive rolling of the eyes, is that we just don’t understand business.

Enter Tim Lee, writing for the alternate reality reader of Forbes, who decided to prove his argument by comparing broadband with Supercuts:

Being the first to build a hair-cutting shack in a particular customer’s backyard can be pretty lucrative. It gives you a de facto monopoly on that household’s haircut business. Let’s assume that it takes 4 years worth of haircuts to recoup the costs of building a shack for a particular household. While barbers will need to raise some extra capital to build the shacks, in the long run the owner of the first shack may be able to earn big monopoly rents.

Now along comes a new barber who wants to enter the hair-cutting business, but every household already has at least one hair-cutting shack. So he needs to build hair-cutting shacks in backyards where another barber has already built one. And that’s an economically precarious situation. Remember, we assumed a monopolist needs to do 4 years worth of haircuts in order to break even. But if you build a shack in a backyard that already has another barber in it, you shouldn’t expect to get more than half of the customer’s business, on average, over the long run. Not only that, but competition will push down prices, so you’ll have to do more haircuts to recover the costs of construction. So you’ll be lucky to recover your initial investment within 8 years, and it could easily take more than a decade.

And things are even worse for the third or fourth barber who builds in a particular backyard. The fourth barber will be building in a yard that already has three barbers. He can only expect to attract 25 percent of the household’s business, and strong competition among barbers means his margins will be pretty thin. It’s hard to see how he could ever recover the costs of his investment.

Brushing away the hair-cutting analogy, Lee’s point is that it is wasteful and inefficient for competitors to overbuild new networks where others already exist. The phone and cable companies that dominate the marketplace today decry additional competition as a death blow to their business models, because with so many providers fighting for customers (by lowering prices and offering better service), not every provider can sustain a profit Wall Street investors expect quarter after quarter. This argument is particularly common when attacking those dastardly socialist community-owned broadband providers they say destroy private enterprise (while unconvincingly also warning they will always fail and cost taxpayers millions on the way down). It is also why Wall Street continues to beat the drum for additional consolidation in the wireless marketplace, where anything more than AT&T and Verizon Wireless represents too much revenue destruction.

Lee does make some valid points:

1. Infrastructure costs are the biggest expense in launching a new network, especially wiring the last mile to customers;
2. Verizon FiOS overestimated its potential market share and found it harder to turn a profit than first anticipated;
3. Other utilities have avoided building redundant networks (ie. you don’t have two companies providing their own electric, water, and gas lines).

When communities decide to offer their own broadband service, incumbent cable and phone companies spend big bucks to scare residents.

But Lee’s conclusion is entirely favorable to the industry he often defends — that is just the way things are and customers should not expect anything better.

Those arguments are usually also the basis for free market declarations that if a private company cannot find a way to deliver a service at a profit, then those left out will just have to do without.

Thankfully, despite Lee’s criticism of Google Fiber in Kansas City as “extremely wasteful,” the search engine company is perhaps best positioned of all to turn the industry’s common refrain against new competition on its head.

Every so often, a surprising third party shows up with the resources to ignore Wall Street’s conventional wisdom. Enter the deep pockets of Google Fiber or a bond-backed community provider threatening to deliver service far better than what a community currently enjoys. The predictable defense from incumbent providers:

• Nobody needs faster broadband speeds;
• Community networks are a government takeover of the Internet;
• Fiber optics are expensive and represent an unnecessary investment;
• Public broadband destroys private investment and jobs at incumbent commercial providers;
• This is just a political stunt, not a real effort at taking Internet speeds to the next level.

Without the kind of competition on offer from Google, community providers, and private providers like Verizon taking a chance on FiOS fiber optics, there would be no room for innovation in the marketplace.

Provider tolerance for today’s marketplace duopoly and the lackluster service that results is reminiscent of a joke told by President George W. Bush’s in 2000: “If this were a dictatorship, it would be a heck of a lot easier…just so long as I’m the dictator.”

It is easy for today’s comfortable duopoly providers to take shots at would-be competitors while dragging their feet on network upgrades. They have little to fear with Wall Street on their side, joining opposition to new competition as harmful to profits. Even Verizon Communications, one of the two dominant providers, quickly heard from analysts irritated with the infrastructure expenses involved upgrading to a fiber optic network. At the heart of that criticism was a sense it was an unnecessary expense, with no reason to change the safe and reliable status quo. Innovation that costs money is the enemy of Wall Street, unless competition warrants the investment.

Therein lies the key. Effective, disruptive competition demands companies do something different. Lee may be right that three companies cannot easily bring home the big profits. Wall Street may have to make do with less. In a competitive market, the player offering the least will be the first to innovate to keep or attract customers, or eventually close their doors. Those remaining will compete in turn to deliver the best possible service at the lowest possible price. That itself is a departure from the comfort zone enjoyed by phone and cable operators today where neither feels much pressure. Cable companies won’t ever compete with other cable companies and the same is true for phone companies. But if a company like Google arrives, the decade-long coffee break is over.

Want proof? Just look at cable operators struggling to keep video customers who are now finding alternatives with Netflix and online viewing. They are increasingly looking for ways to enhance the value of cable television by offering online viewing themselves. Even rate increases have slowed. If Netflix and cord-cutting were not factors, would cable companies have changed the way they do business?

Google’s marketplace disruption delivers for consumers.

Lee is right saying it is not easy to break into the broadband business. Only some might realize the same investors and Wall Street barons that dislike profit-eroding competition also often happen to be in the business of loaning money to finance new businesses. More than a few will turn those loans down as too risky to contemplate.

But here comes the rhetorical trap Lee’s argument gets ensnared in: If running redundant networks is wasteful and we still need competition, the logical solution would be to construct or nationalize one advanced network on which all providers would market their services. Why waste time and money on duplicate copper and coaxial networks when a single fiber to the home network could deliver improved service well beyond what the local phone and cable company can offer.

Isn’t the answer to run a single telecommunications line into customer homes (one preferably not controlled by any provider), and let competition bloom on that advanced infrastructure? That is the solution Australia has chosen, scrapping the country’s ancient copper wire phone lines in favor of one national fiber network. Most community providers also operate open networks that other cable and phone companies can utilize (but often petulantly refuse).

Somehow, despite the enormous savings possible from sharing or offloading network infrastructure expenses, I doubt providers will consider that the kind of innovation they want or need.

Time Warner Cable is alerting customers in upstate New York they are next in line for a gradual transition away from analog cable television service.

But unlike the near-complete switch to digital affecting many customers in Maine, the cable operator plans a less jarring shift in New York, beginning with switching 4-7 channels to digital format between Oct. 10-17.

Time Warner will also introduce New York customers to the company’s digital transport adapter (DTA). The digital adapter was designed for televisions currently direct connected to cable without a set top box. Time Warner’s DTA will convert digital signals to standard definition analog, so customers can get back the channels they lost in the digital switch without the monthly expense of a traditional set top box.

Time Warner plans to offer its New York customers free DTA equipment until the end of November, 2013 — after which the boxes will cost 99 cents a month. (Time Warner’s DTA website claims the boxes will be available without cost until the end of 2014.)

Customers using DTA equipment will not be able to use them to watch premium channels, but will get back any basic channels that were previously converted to digital-only format and those channels switched in the future.

The channels being dropped from analog service vary in each upstate city. Time Warner is notifying customers by mail about the specific channels that will be dropped in each area, but here is a rough breakdown:

Rochester: CMT, C-SPAN, EWTN, Golf Channel, Lifetime Movie Network*

Buffalo: C-SPAN, EWTN, CFTO (CTV), E!*, CNN International*, OWN*, WXPJ (Ion)*,  Discovery Fit and Health*

Syracuse: CMT, C-SPAN, EWTN, Golf Channel, Lifetime Movie Network, OWN, truTV

(*)-Not in all areas.

Time Warner Cable previously announced it was committed to discontinuing analog cable television service across its national footprint within the next four years.

In a separate announcement, all Time Warner Cable customers will see the addition of more Fox programming thanks to a recent contract renewal agreement.  Fox Business Network, and its HD companion channel, will now be a part of Time Warner’s Standard tier (although the channels will continue to be in the digital format). Fox Movie Channel, previously part of the mini-pay Movie Pass tier will be moved to the Digital Basic Tier. These changes are scheduled to occur Oct. 31.