Comcast faces $2.4 million in lost sales after a Philadelphia area crime ring sold nearly 6,000 cable customers discounted cable service and free premium channels in return for a one-time fee they pocketed themselves.

Authorities have arrested five men and are looking for 18 others after uncovering the scheme. Prosecutors have been pouring over streams of text messages sent back and forth between members of the “sales crew” referencing strippers, weapons, and luxury goods. One exchange advised one alleged member to destroy “the book” naming customers as police closed in.

Despite pleas to stay “off the map” to avoid attracting attention, at least some of the alleged crooks could not help themselves, some splurging on top dollar luxury watches, autos, technology, and weekends in Atlantic City and Miami Beach.

Prosecutors dubbed the busting of the alleged crime ring “Operation Out of Service.” (Image: Montgomery County District Attorney)

Authorities have since learned the scam was run through “a secret computer” installed in a Comcast subcontractor’s office in Upper Moreland. Customers were approached on the street or in area establishments and offered discounted cable service with free premium movie channels in return for $150.

After payment, the alleged perpetrators logged into Comcast’s account management system and activated channels and changed customer records.

Comcast did not catch on until one of their own employees was solicited while she sat in a beautician’s chair. The employee reported it to Comcast’s security department.

Prosecutors have since released many additional sordid details, primarily focused around another Comcast subcontractor, which appears to be the cable company’s latest weak link:

This corrupt organization was headed by Alston Buchanan of Philadelphia, PA (DOB 10/07/1983). Buchanan designed, implemented and controlled the organization that utilized compromised Comcast technician identifications (IDs) to apply promotional discounts onto Comcast customer accounts.  When used legitimately, the IDs allow Comcast personnel to authorize services, such as premium cable channels or other promotions, to new or existing customers.  Buchanan obtained these unique IDs from a number of sources, including from a terminated employee and an employee on disability. In one instance, Buchanan paid a Comcast subcontractor $5,000 in exchange for her user ID.  This arrangement was brokered by Leighton Harrell of Philadelphia, PA (DOB 1/17/1986).

Once Buchanan had the IDs, he could access the billing accounts for Comcast customers and lower their payments and/or provide them with additional services without Comcast’s knowledge. Those involved in the scheme paid various amounts to Buchanan and his agents ranging from $100.00 – $200.00 to manipulate the billing and services of their Comcast accounts.  The investigation determined there were 5,795 accounts affected over the course of a year from April 2011 to April 2012, with a revenue loss to Comcast Cable of $2,401,673. The effected Comcast accounts were located throughout the Delaware Valley with the majority in Montgomery, Philadelphia, Delaware and Bucks counties.

Buchanan was familiar with Comcast’s billing system, because he was employed by Comcast as a dispatcher from May 2007 through March 2008 and as a dispatcher for Advanced Communications, Incorporated (ACI), a Comcast subcontractor, from October 2009 to July 2010.  In 2010, Comcast began investigating an identical scheme of billing manipulation through unauthorized promotions and believed that Buchanan was responsible.

Earlier this year, Comcast learned this same scheme was being perpetrated when a Comcast employee reported the fraudulent use of IDs to obtain services.  An internal investigation by Comcast revealed that Nicholas Caputo of Virginia Beach, VA (DOB 5/28/1981) was soliciting customers to provide one-time payments in exchange for a reduction of their Comcast bills.  Comcast Security, working with ACI, determined that the account manipulations were originating from the ACI Business Services Router located in the local office for ACI in Hatboro, Upper Moreland Township.

On April 9, 2012, ACI searched the data closet where the Business Services Router was stored.  Upon checking the closet, an unauthorized computer tower was discovered secreted in the corner.   This unauthorized computer tower was hardwired to the modem in the data closet which, in turn, was connected to the Business Services Router in the closet.  Accordingly, the hidden computer tower provided unauthorized access into the Comcast billing accounts.  The investigation revealed that the website “LogMeIn” was used to gain remote access to the unauthorized computer tower.  Ultimately, the computers located in Buchanan’s apartment were found to have accessed the “LogMeIn” accounts associated with the hidden computer tower.

“The Book” the alleged ringleaders wanted destroyed at all costs. (Image: Montgomery County District Attorney)

Comcast’s investigation revealed that Buchanan had an inside connection to ACI through Kendall Singleton of Philadelphia, PA (DOB 7/03/1986), an ACI employee.  On April 9 2012, an unrelated power outage occurred at the ACI office which caused the shutdown of the unauthorized tower.  Knowing that the unauthorized tower would have to be turned-on, Comcast Security installed a hidden camera to monitor the closet.  The next day, Singleton was seen on the camera entering the area of the closet and stooping down in the area of the unauthorized computer tower.  After the computer was re-booted, 96 customer billing accounts were accessed and manipulated within the following hour.

During the course of the investigation, Montgomery County Detectives served search warrants in several locations including the Philadelphia home of Buchanan and Richard Justin Spraggins (DOB 5/22/1983), resulting in the recovery of $103,000.00 cash in an attaché case, computers, cell phones and handwritten ledgers that contained records of the theft scheme, including the agents working for them.  Both Buchanan and Spraggins were in possession of these ledgers.  Analyses of the phones, computers and ledgers revealed the depth and scope of this corrupt organization, and extensive internal communications within the organization pertaining to the illegal scheme.

An investigation into the bank accounts of Buchanan and Spraggins revealed additional evidence of the profitability of the organization’s illegal scheme.  For example, a review of Buchanan’s checking account from December 2010 through April 2012 revealed 748 deposits totaling $221,133.29.  Of these 748 deposits, only 175 were not deposits of $150.00 or increments thereof.  Notably, $150.00 was the usual fee charged for the illegal billing manipulation.

Buchanan, Spraggins, Caputo, Harrell, Irving and Singleton are charged with Corrupt Organizations, Dealing in Proceeds of Unlawful Activity, Criminal Conspiracy, Theft of Services, Theft by Unlawful Taking, Receiving Stolen Property, Unlawful Use of Computer, Computer Theft, Computer Trespass, Criminal Use of Communication Facility and Possessing Instruments of Crime.  Arrest warrants have been issued for more than a dozen others who served as agents in this corrupt organization.

Preliminary hearings are scheduled for September 14, 2012 at 9:30 AM before Magisterial District Judge Jay S. Friedenberg in Willow Grove, Upper Moreland Township.  These cases will be prosecuted by the Captain of the Economic Crimes Team, Assistant District Attorney John F. Walko.

Comcast has obtained a complete list of customers who paid for the discounts or free channels, but does not expect to pursue charges or retroactive payments. The company said it would work with customers to transition them to “authorized packages” in the coming weeks.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KYW Philadelphia Cable TV Conman 8-8-12.mp4[/flv]

KYW in Philadelphia managed to score a short interview with alleged ringleader Alston Buchanan, who called himself a modern day Robin Hood. Of course, Robin Hood didn’t splurge on cars, hookers, and fancy watches, as prosecutors allege members of the cable crime ring did.  (2 minutes)

Comcast last week told Wall Street three important facts:

1. They have plenty of capacity to handle increasing broadband traffic and can deliver faster speeds;
2. They are reducing the amount of money they invest in broadband;
3. They are still moving forward on usage caps and usage billing experiments.

Comcast CEO Brian Roberts told investors the company was well positioned to handle increasing broadband traffic and monetize its usage.

Wall Street liked what it heard. Valuentum Securities Inc., called themselves “big fans of Comcast’s cash flow generation.”

“We’re big fans of the firm’s Video and High-Speed Internet businesses because both are either monopolies or duopolies in their respective markets,” Valuentum concludes. “Further, we believe that both services have become so sticky and important to consumers that Comcast will be able to effectively raise prices year after year without seeing too much volume-related weakness.”

An other way to raise prices is to cap broadband usage and charge customers extra for exceeding their allowance, a plan Comcast has begun testing.

“As you know we announced two different flavors of plans,” Roberts said. “One was capacity linked with the tier that subs are buying and [the other] was just being able to buy blocks of capacity.”

Roberts is referring to Comcast’s pricing experiments now being rolled out in markets like Nashville. The tests will determine whether customers will pay higher prices for different tiers of broadband based on variable speed and usage allowances or whether a flat cap with an overlimit fee is the better way to go.

Roberts

“[Hard] caps are gone,” Roberts said. “We raised the amount people could consume to 300 gigabytes as a base limit. We have not announced the markets for the roll outs yet but I would expect something shortly.”

Comcast used to have a 250GB hard cap which, if exceeded, could result in termination of a customer’s account. Now the company is pondering whether a consistent 300GB cap with an overlimit fee is a better choice.

But Roberts also acknowledged Comcast has plenty of capacity and flexibility to adjust its broadband offerings to compete.

“[…] We have a great network that has tremendous flexibility and capacity to offer more speeds than we offer today and we’re constantly hoping that new applications and needs develop,” Roberts said in response to a question regarding potential competition with Google Fiber.

Comcast added 156,000 new high speed data customers, an 8% increase, over the last quarter. At the same time, the company lost 176,000 video subscribers.

The importance of Comcast’s broadband service was underlined by the fact broadband revenue was the largest contributor to cable revenue growth in the second quarter, with revenue increasing 9%. Comcast attributes that to rate increases, a growing number of new broadband customers, and the 27% of current subscribers upgrading to higher speed services.

Comcast does not and will not have to spend a growing amount of its capital on its broadband service. Comcast cut spending on its network by 5% in the second quarter to $1.1 billion. That represents 11.4 percent of cable revenue earned by Comcast. So far this year, capital expenditures have dropped 2.4% to $2.2 billion — 11.2% of its total revenue.

These days, much of Comcast’s capital expenses support the company’s expansion into business services. The company also expects considerable reductions in spending from completion of its transition to digital — freeing up capacity on existing cable systems instead of spending money to upgrade them. For the full year, including its business services expansion, Comcast expects spending on its own network to be flat.

Comcast’s new X1 platform (Image courtesy: BWOne)

In other Comcast developments of note:

• In June Comcast rolled out its new X1 cloud based set top platform in Boston and is currently launching X1 in Atlanta. Comcast is marketing the upgraded platform first to HD Triple Play customers, who can upgrade for a one-time installation fee. The company plans to roll out the new upgraded platform in five major markets by the end of this year, with a greater expansion in 2013;
• Comcast has increased broadband speeds, particularly in competitive markets, for no additional charge;
• Streampix now offers twice as many titles as the product offered at launch in February;
• Comcast has rolled out its marketing partnership with Verizon Wireless to 22 markets nationwide;
• The company’s ongoing rebranding under the Xfinity name now has a new catchphrase: Xfinity — The Future of Awesome;
• Nearly 75% of Comcast’s customers now take at least two products and almost 40% are signed up for the company’s triple play package;
• Comcast has saved more than $8 million by reducing the number of occasions the company will send technicians to customer homes. The cable company is heavily promoting self-install kits, which has brought a 65% increase  in the number of customers who install Comcast equipment and services themselves.

While Time Warner Cable will pull local channels off its cable lineup when contract negotiations fail, the company was less aggressive fighting demands from Fox News Channel parent company News Corp., and caved in to higher fees for the cable news network.

People familiar with the talks said News Corp. won a major rate increase from the cable operator for its Fox News Channel which could reset the bar when other cable companies negotiate renewal contracts.

Sources told the Los Angeles Times Fox News Channel will now cost each cable subscriber more than $1 a month, up from 89 cents. Time Warner Cable will likely bundle that increase into the next round of customer rate hikes. Fox News Channel’s new price puts them among top tier cable networks like TNT and USA.

Last year,  News Corp. President Chase Carey told Wall Street contract renewals for the channel “will take subscription fees to a whole new level.”

The only concession Time Warner Cable seemed to win was a more limited renewal agreement that only covered the Fox News Channel, Fox Movie Channel, and the barely-watched Fox Business Network. Time Warner Cable officials refused to renegotiate earlier, yet to expire deals with less popular Fox-owned cable networks.

The Times noted Fox News Channel did not want to lose more than 10 million cable subscribers at the height of election season, and the cable company did not want to deal with loyal Fox News viewers likely to complain or leave over the loss of the network.

With the renewal, every Time Warner Cable subscriber will pay even more for the channels whether they watch them or not.

Broadband transport costs continue to decline, at an accelerating pace, according to researcher Telegeography.

Prices to move data across the Internet continue to decline throughout the world. According to new data from TeleGeography’s IP Transit Pricing Service, price declines in most locations accelerated over the past year, at an accelerating pace. But none of those savings are showing up on customer bills. In fact, while providers have been increasing broadband prices over the past three years, their costs to provide the service continue to plummet.

“IP transit prices have reached extremely low levels in developed markets, but remain high in many developing markets and in countries that are remote from major IP transit hubs,” said TeleGeography analyst Erik Kreifeldt. “Nevertheless, few places remain where transit prices exceed $100 per Mbps. As carriers expand into emerging markets and establish new price floors in developed markets, global IP transit prices will continue to fall.”

The median monthly lease price for a full GigE port in London dropped 57 percent between Q2 2011 and Q2 2012 to $3.13 per Mbps, compared with a 31 percent decline compounded annually from Q2 2007 to Q2 2012. In New York, the comparable price dropped 50 percent to $3.50 per Mbps over the past year, and 26 percent compounded annually over the five-year period. Pricing for short term promotions and high capacities have dropped below $1.00 per Mbps per month.

DSL Prime‘s Dave Burstein says that translates to Internet backbone wholesale pricing of less than $0.50 per broadband customer per month in New York or London.

Burstein also notes router and switch prices are also matching the predicted pace of Moore’s Law, declining 25-40 percent per annum. With competition for backbone connectivity robust in North America, the reduced costs are passed along to large broadband providers, but not to customers.

Burstein reports that while Internet traffic continues to expand at “ferocious rates,” your broadband provider’s net cost has been generally flat or even down. In fact, he estimates that when providers add up the cost of backbone transport costs and moving traffic from their network to individual customers, they end up spending less than $1 per month on traffic per customer. But they charge you $40-50 or more for the service.

Burstein also notes that broadband usage has almost no impact on provider costs, whether they offer 3Mbps or 1,000Mbps service, have caps of 50GB, 500GB, or no caps at all.

“With bandwidth costs this low, we’re talking dimes or at most a couple of dollars per month to handle any likely traffic flow,” Burstein reports.

Even accounting for perennial predictions of data tsunamis from equipment manufacturers like Cisco, their own data shows the primary cost of Internet traffic per customer is falling, according to Burstein, even as data consumption increases.

An Australian Internet Service Provider that caps customer usage and charges extra if you want to exceed your allowance has taken to the company’s blog to argue that usage caps are fair, even as their customers start departing for competitors offering unlimited service.

iiNet chief technology officer John Lindsay defends the company’s usage-based billing scheme, which charges more than $30 a month for DSL service with a 20GB usage cap.

“Service providers in favour of a two-speed Internet argue that there is limited capacity on the Internet and that those using the most bandwidth by delivering rich content or transferring large files should pay more,” wrote Lindsay. “In Australia, we have a different business model for the Internet. ISPs operate on a pay-as-you-go model, which also shapes the consumer market. Here, consumers can choose a plan with upload and download quotas to fit their usage and pay according to their needs – the more you use, the more you pay.”

Lindsay

Unfortunately for Lindsay, an increasing number of Australians don’t agree and are switching to providers like TPG and Dodo, which have become enormously popular selling flat rate, unlimited broadband service.

Lindsay warns that if Australia adopts the flat rate service model popular in the United States, a Net Neutrality debate will be sparked as customers discover ISPs are unable to handle the traffic and start prioritizing their own content.

“Operating a quota based business model ensures we’re not responsible for policing activity online – our customers pay a fair price for the services they receive and we can focus on more important issues than where their traffic is coming from,” Lindsay argues. “While US providers argue about a two-tier system, our priority is to provide awesome customer service and ensure our customers enjoy a seamless experience online, whatever it is their Internet connection means to them.”

Of course, Lindsay’s characterization of the American broadband landscape is fact-challenged, because most broadband providers have plenty of capacity to deliver content. Some simply want to earn a new revenue stream from content producers for managing that traffic, even though paying customers already compensate them for that service.

Australia’s data caps have traditionally been onerous because of the higher costs and limited capacity of underseas cables that handle traffic inside and out of the Pacific Basin. But Australians have complained about the low caps for years — so loudly that the Australian government has made construction of a super-capacity fiber to the home network a national priority for the country as international capacity also increases.

Customers were not fooled by Lindsay’s rhetoric.

“This is nonsense,” wrote Lachlan Hunt. “Australia’s model of capped usage limits with higher prices for higher caps, and of ISPs including yourself offering free zones where such data doesn’t count towards the monthly quota is exactly the problem that Net Neutrality advocates aim to deal with. It treats data from companies who choose to partner with you to get their content in the free zone as privileged compared with everyone else, and similarly with other ISPs.”

Hunt complains iiNet’s caps were “ridiculously low” and interfered with his career in the web development industry. Today he lives and works in Europe, where usage caps are increasingly a thing of the past.

“I’m really hoping that you will eventually wake up and realize that usage caps go together with Non-Neutral internet, and with the introduction of the [national fiber to the home network], which brings both higher speeds and capacities, you should be able to lower prices, abolish usage caps and offer a fair model with pricing tiers based on the chosen speeds.”

Stop the Cap! also addressed Lindsay:

[…] We have learned dealing with this issue for several years that ISPs are terrified of their own argument if carried to its fullest extension. If iiNet wants customers to fairly pay for only what they use, they should be billing them on exactly that basis. A flat charge per gigabyte — no allowances/quotas, no penalty overage fees or speed throttles, no wasted, unused quota at the end of the month.

But they don’t dare. If you charged $1/GB (still a crime-gouge compared to the wholesale price), those customers currently paying $30 for up to 20GB service might suddenly be paying $5-15 instead.

[…] If you asked your customers whether they prefer unlimited service or your current cap system, most will clamor for unlimited, even if it costs them a bit more, just for the peace of mind of never facing overage charges or speed throttles.

This argument has never been about capacity. It’s about what it always is about: money.