Time Warner Cable customers in Kansas City are ground zero for the cable operator’s retransmission consent battles with over-the-air stations that leave cable viewers without a full lineup of local channels.

Just hours after Time Warner customers got back two local stations owned by Hearst Corporation, Meredith Corporation’s KCTV and KSMO are preparing to pull the plug at midnight tonight.

“Please know that we have tried very hard to reach an agreement with Time Warner Cable, so that our viewers would not have to miss any of our stations’ around-the-clock reporting of news, politics, traffic, weather emergencies, public service announcements, and favorite local and national programming,” reads a statement from the two stations. “We are disappointed in the outcome of our negotiations especially since we have successfully reached agreements with every major cable and satellite company that recognizes our fair market value. The fact is that we are only asking Time Warner Cable for pennies a day from your cable bill for our programming.”

They did not elaborate on exactly how many pennies more a day they were asking to receive. Time Warner Cable suggested they wanted a 200% rate hike.

Should negotiations fail, viewers in Kansas City will lose their local CBS and CW affiliates. Time Warner Cable’s recent response to these disputes is to replace missing local stations with out-of-area stations, in this case most likely Nexstar’s WROC-TV in Rochester, N.Y., a CBS affiliate. Time Warner has not bothered to find a fill-in CW station to date.

But Nexstar last week sued Time Warner Cable in U.S. District Court in the northern district of Texas alleging copyright infringement and breach of contract for importing its TV stations without permission. Nexstar wants a temporary restraining order and damages. If the judge hearing the case issues the restraining order, Kansas City will have to do without a CBS station on Time Warner’s lineup until the dispute is settled.

So far this year, there have 69 instances of local stations withholding their signals from either a cable, phone, or satellite operator in disputes over retransmission rights fees.

In a hearing held yesterday in Washington, several senators attacked the disputes that deprive paying subscribers of broadcast stations.

Sen. Jim DeMint (R-S.C.) wants to repeal the 1992 law that allows broadcasters to require pay television operators to get permission and, in an increasing number of cases, payment to carry local broadcast stations.

DeMint argues the law has outlived its usefulness.

But Sen. John Kerry (D-Mass.) and others note the law also enacted several consumer protections and pro-competition policies that stopped programmers from withholding programming from competing pay television providers.

Kerry called demands to repeal the law altogether “radical” and suggested such moves could destroy local broadcasting. Cable operators want the power to negotiate contracts with out-of-area stations to leverage lower retransmission consent fees from broadcasters and provide customers with replacement stations when the two sides can’t or won’t agree to terms.

Broadcasters have suggested that could leave cable viewers with stations from distant cities, depriving viewers of important local news and emergency information.

For now, no action in Washington is anticipated. Broadcasters have leveraged their popularity to demand increasing payments for permission to carry their signals, and cable and other pay television operators, despite protests, usually agree to slightly lower fee increases and pass them right along to paying subscribers in the form of a rate increase.

Yesterday’s hearing, chaired by Sen. Jay Rockefeller (D-WV), discussed changes in television technologies over the past two decades. It focused on examining the effectiveness of the Must-Carry law, a 1992 law currently in place for the cable industry. The Must-Carry law requires a variety of local broadcast stations to be viewed on pay-TV platforms. Today’s Must-Carry rights were enacted by Congress in the 1992 Cable Act, which the Supreme court upheld in 1997. Congress then found that cable systems have an “economic incentive” to alter their local broadcast signals and that, without Must-Carry rules, broadcasters’ viability is jeopardized.

Although Chairman Rockefeller sought to not have the hearing derailed by retransmission consent disputes, a significant portion of the hearing dealt with that specific issue.

Top cable and broadcasting executives, as well as law experts testify. Witnesses include Melinda Witmer from Time Warner Cable; Martin Franks of CBS; the National Association of Broadcasters’ Gordon Smith; Colleen Abdoulah from Wide Open West!; Gordon Smith from the American Cable Association; law professor and former Disney Washington executive Preston Padden; along with Mark Cooper from the Consumer Federation of America. Courtesy: C-SPAN (1 Hour, 41 Minutes)

While simultaneously complaining about the spiraling costs of sports programming such as MSG Networks, the nation’s two largest cable operators are planning to cut checks worth $80 million to help bail the NY Mets baseball team out of some of its long term debt.

The New York Times reports both Comcast and Time Warner Cable are preparing to funnel funds into the team through regional sports network SNY.

Time Warner Cable and Comcast are nearing a plan to finance SNY’s purchase of four shares in the Mets, worth $80 million, said one person e with knowledge of the plan who was not authorized to speak publicly.

[…] That means they will have much-needed cash to pay off their substantial debts. But it would be a slightly quirky way of doing it. The deal would mean 16 percent of the Mets would be owned by SNY. The Mets’ parent company, Sterling Equities, owns 70 percent of the network.

[…] Lee Berke, the president of a media consulting company, said that Time Warner Cable and Comcast “don’t want to see the team stumble as it has been, because it directly impacts what they’re putting on TV. This is shaping up as a multiyear downswing for the Mets, and this is a way to keep them above water.”

[…] As for Time Warner Cable and Comcast, it was not immediately clear why they would not invest directly in the Mets. But the two companies clearly want to put money into Wilpon’s financially beleaguered hands (the club has lost some $120 million in the last two years), even if it has to be routed through SNY, to ensure that the team meets its $200 million goal.

[…] Together, Time Warner Cable and Comcast own about 30 percent of SNY. The network started carrying Mets games in 2006.

That investment comes at the same time cable operators are increasingly vocal about sports programming costs.

“ESPN, through … sheer muscle, has been able to say to us, ‘You will carry this service on the lowest level subscription you offer, and you will make all of them pay for it,’” Matt Polka, CEO of the American Cable Association, a trade group told Newsweek. “My next-door neighbor is 74, a widow. She says to me, ‘Why do I have to get all that sports programming?’ She has no idea that in the course of a year, for just ESPN and ESPN2, she is sending a check to Disney for about $70. She would be apoplectic if she knew … Ultimately, there’s going to be a revolt over the cost. Or policymakers will get involved, because the costs of these things are so out of line with cost of living that someone’s going to put up a stop sign.”

Cable analysts continue to be astonished by an inflation rate in sports programming rates that rivals health care costs.

“Every time [there is] a huge increase we can’t believe it, and then there’s another huge increase,” says Laura Martin, an analyst with investment bank Needham & Co. “The rapidly rising cost of sports, especially the new NFL contracts, increases the likelihood that sports will be forced by the government to be on a different tier within three years, by our estimates.”

Cable industry investment in sporting teams is now becoming a familiar headline.  In early January, the Los Angeles Times reported Time Warner Cable was considering buying the Los Angeles Dodgers at a price that could exceed $2 billion.  It would compliment two new regional sports cable channels Time Warner plans to launch in southern California featuring the Los Angeles Lakers.

It’s not just the big players that are trying to game the broadband stimulus system.

Tiny Pine Telephone Company of Broken Bow, Oklahoma was the only ACA member to secure a $9.5 million stimulus grant

One way to assure the winners and losers of broadband stimulus funding is who gets to write the application rules. The broadband stimulus program includes a scoring system, assigning points of merit to applicants who meet certain criteria. Provide proof of community support, earn a few points. Demonstrate a commitment to serving broadband to the unserved, earn some more points. Offer 21st century broadband speeds of 20Mbps or more, earn a lot more points.

The American Cable Association (ACA), a trade association for smaller independent cable companies, feels the point system has been weighted to favor phone company projects. Both cable and telephone company lobbyists offered their “suggestions” for criteria to be scored. The rural telephone company lobbies won.

Fierce Telecom notes a key criterion is whether the applicant borrowed funds under Title II of the 1936 Rural Electric Act, and it appears that telcos led that charge. Anyone that did borrow the funds under that program got five points so ACA asked the grant makers to reduce the emphasis of that criteria from five to one. Apparently, ACA not only didn’t get their wish, the grant makers upped the points on that issue from five to eight.

With federal funding programs, it’s not uncommon for the rules to be written in such a way that helps politically-connected applicants in the qualification process. ACA was simply outgunned during this round, and after the first round of projects to be funded was announced, only one rural phone company, Pine Telephone, was deemed a winner.

“The American taxpayer will be disappointed to learn that the program was changed to give greater priority to awarding particular segments of the telecommunications industry with broadband funding over equally or better-qualified applicants, including ACA members, that could provide the same broadband service at a lower cost,” ACA President and CEO Matthew Polka said.

Had the reverse been true, the press release from the rural telephone trade association would say the same thing — only the names would have changed.

Coming up…

Sticking it to Frontier Communications — “Just Say No” Applies to America’s ‘Rural Phone Company’ As Well

Lawrence, Kansas is a unique place to live.  Its local newspaper, the Lawrence Journal-World, was one of the first in America to begin an online edition in 1995.  Its owner, The World Company, just so happens to also own the independent cable system serving the community, which also provides broadband and phone service to the city’s 90,000 residents.  Its biggest competitor is AT&T, which has been upgrading parts of Lawrence with its U-verse system to stay competitive.

Sunflower Broadband, which provides a “triple play” package of Internet, cable TV and telephone service, has remained controversial among service providers because it instituted an Internet Overcharging scheme with usage caps and overlimit fees.  The company has been used by the American Cable Association, a trade and lobbying group serving independent cable operators, as a poster child for effective rationed broadband schemes that reduce demand and increase broadband profits.

Lawrence, Kansas

Customers generally have loathed usage caps, particularly when they were stuck choosing between Sunflower’s faster, usage capped broadband service or a low speed DSL product from AT&T.  Stop the Cap! receives more complaints about Sunflower Broadband than any other provider, except Time Warner Cable during its own Internet Overcharging experiment in April 2009.  Lawrence residents appreciate the relatively fast speeds Sunflower can provide, but complain they can’t get much use from a service that limits customers to a set allowance and then bills them up to $2 per gigabyte in overlimit penalties when they exceed them.

Last fall, things started to change in Lawrence as AT&T began offering it’s U-verse service in parts of the community.  We began receiving e-mail from Lawrence residents pondering a new service plan Sunflower Broadband introduced — Palladium, an unmetered broadband option priced at $49.95 per month.  It sounded like a good deal, perhaps introduced to protect them from U-verse customer poaching, until they noticed Sunflower was  selling the plan without a fixed downstream or upstream speed.  In fact, no speed was mentioned at all.  Indeed, Sunflower’s Palladium is nothing new to those living abroad under various cap ‘n tier broadband regimes.  It’s comparable to New Zealand Telecom’s Big Time plan, where customers need not fear overlimit fees and penalties, but have to live with a “traffic management” scheme that gives priority to customers on other plans living under a usage cap.

In other words, Palladium customers get last priority on Sunflower’s network.  If the network is not congested, these customers should enjoy relatively fast connections.  But during primetime, expect speeds to drop… and dramatically so according to customers writing us.

Sunflower Broadband's Internet pricing - add $10 if you want standalone service

That customers debate just how slow those speeds can get testify to the nature of cable’s “shared infrastructure.”  Groups of subscribers are pooled together in geographic areas and share a set amount of bandwidth.  As usage increases, so does congestion.  Responsible operators measure that congestion and can split particularly busy neighborhoods into two or more distinct “pools,” each sharing their own bandwidth.  Based on the variable reports we’ve read, it’s apparent Palladium works better in some parts of Lawrence, namely those with fewer broadband enthusiasts, than others.

Network management is a major concern of Net Neutrality proponents.  It allows an operator to artificially impede traffic based on its type, who generates it, and potentially how much a customer has paid to prevent that throttling of their speed.  In the case of Palladium, network management is used to give usage-capped customers first priority for available bandwidth, and push Palladium customers further back in line.

Judging the quality of such a service is a classic case of “your results may vary,” because it is entirely dependent on when one uses the Internet, how many others are logged in and trying to use it at the same time, how many customers are saturating their connections with high traffic downloading and uploading, and how many people are sharing your “pool” of bandwidth.  Oh, and the quality of your cable line can create a major impact as well.

Sunflower Broadband representatives claim Palladium is “optimized for video” and should provide at least 2Mbps service during peak usage and up to 21Mbps service at non-peak times.  That’s a tremendous gap, and we wanted to find out whether most customers were getting closer to the low end or the high end of that range.

Back in October, we wrote a request in the comments section of the Journal-World asking customers to e-mail us with answers to several questions about their experiences with Sunflower Broadband:

• 1) whether you ever exceed the cap.
• 2) do you think there should be one.
• 3) would you prefer faster speed with a cap or slightly slower speed with no cap.
• 4) your experience with the new unlimited option.
• 5) whether you would contemplate switching to AT&T U-verse if it meant escaping a usage cap, even if it had slower speeds.
• 6) Would you pay more for faster speed and no cap?
• 7) your overall feelings about Sunflower Broadband.

We heard from just over two dozen readers sharing their thoughts about the company and its service.  The response was mixed.

Generally speaking, customers hate the usage caps Sunflower Broadband maintains on most of their broadband tiers.  All thought it was unfair and unreasonable to limit broadband service under Sunflower’s Bronze tier to just 2GB per month and their Silver tier to just 25GB per month.  Most customers who wrote subscribed to the Silver tier of service with 7Mbps/256kbps speeds at $29.95 per month.  They also paid a $5 monthly modem rental charge.  Those who wrote who fit the “broadband enthusiast” category were internally debating whether the Gold plan, with its assured 50Mbps/1Mbps speeds for $59.95 per month was a better option, even with a 120GB allowance, or whether they should opt for Palladium’s $49.95 option to escape the usage cap.

Among enthusiasts, some felt Sunflower responded to customer demands by offering an unlimited plan in the first place, and thought it was an acceptable trade-off to obtain lower speeds at peak usage times for a correspondingly lower price, and no cap, as long as speeds were reasonable at all times.  Others were offended they had to make the choice in the first place.

“If I lived anywhere else, I wouldn’t have to choose between a throttled service or one that asks for $60 a month for 120GB of service,” writes Steve from Lawrence.  “AT&T DSL for me is 1.5Mbps service because I live close to the edge of the distance limit from AT&T’s exchange.”

But Justin, also from Lawrence, has a more favorable view. “I hate their usage cap with a passion, but when you look at what small cable companies usually offer their customers, it’s slow speed service at terribly high prices,” he writes. “At least Sunflower did DOCSIS 3 upgrades and can offer big city speeds here.  How long will that take other small independent providers?”

Troy adds, “at least they gave us one choice for unlimited service.  Time Warner Cable and Comcast sure didn’t.”

About half of those who wrote did exceed their usage cap by underestimating the amount of usage in their respective households.  Most of those who did were on the Silver plan.

Dave writes, “I knew right off the bat the Bronze tier was ridiculous for anyone to choose, and our family has three teenagers so we knew that was not an option.  We tried the Silver plan when we switched from AT&T DSL service and blew the lid off that 25GB cap probably within two weeks and got a crazy bill.  At least Sunflower forgave the overlimit fees for the first month, but they could afford to because we upgraded to Palladium, paying them $20 more per month.”

One customer's dismal Palladium speed test result from last October, likely the result of a signal problem

Angela, who shares an apartment with two other roommates had their share of fights over who used up all the broadband allowance.

“We have a wireless network and everyone splits the bill, but when we ran up almost 200GB of usage, we freaked.  Nobody would admit to using that much Internet.  Thanks to my boyfriend, we discovered our wireless router was wide open and one of our lovely neighbors probably hopped on to enjoy,” Angela writes.

Sunflower also forgave their overlimit bill for the first month, but they decided to take advantage of an introductory offer from AT&T and switched to U-verse and are much happier.

“At least with AT&T, we know what our broadband bill is going to be and we don’t have fights or worries about getting a huge bill from Sunflower,” she adds.

Among those answering our question about reduced speed in return for no cap, the consensus view was “we would need to know what speed they are providing.”  Broadband speed was important to most who wrote.  While many may not be able to discern a difference between 10 and 20Mbps service for most online activities, obtaining 2Mbps service when expecting closer to 20Mbps is readily apparent, and that was the biggest problem with Palladium users unimpressed with its performance.

“Palladium is god awful, and close to unusable on the weekends and during the early evening when everyone is online,” writes Kelly, also in Lawrence.  “We have college students all over the neighborhood and these people can’t be unconnected for a minute, so I’m not surprised Palladium crawls when everyone is online.”

Kyle, a regular Stop the Cap! reader writes the whole concept of Palladium leaves a bad taste in his mouth.

“Palladium is the equivalent of going into a restaurant and eating leftovers — whatever speed is leftover, it’s yours.  Sometimes it might be a whole meal, other times scraps!  It’s an example of crappy customer service coming from a provider which doesn’t have much competition (although maybe that will change with U-verse),” he says.

Kyle is on the Gold plan, but remains unimpressed with Sunflower:

“Is there another DOCSIS 3 system in the country that limits upload speed to 1Mbps or has a bandwidth cap this low (120 GB) with DOCSIS 3?”

Stop the Cap! also obtained access to the company’s subscriber-only forums and discovered considerable discontent with Sunflower’s broadband service.

“I recently switched over to Palladium to avoid the new Gold price gouging. I bought the new modem set it up and much to my surprise my speeds were HORRIFIC! Consistently 4.5Mbps service over the course of a week at various times. Upload speeds were so terrible it took 15 minutes to send emails with one minute movies,” writes one user.  “So, for $20 more a month Palladium offers much slower speeds BUT unlimited bandwidth (which according to Sunflower’s own statistics almost no one exceeds their limits anyway.)  What a rip-off. All I want is my old Gold back, same speed and price. I am absolutely disgusted with Sunflower. Calling Palladium “variable speed” is a lie. You are throttling customers – period.”

“So I have Palladium and the speeds are decent, usually around 10Mbps down (we won’t talk about up speeds.) But every time I run a torrent my speeds go down to about 500kbps. The second I turn off my torrent client and run a speed test again its right back up to 10. Has anyone else been having similar issues? It seems like Sunflower throttles my entire connection when they detect a torrent,” writes another.

One Lawrence resident claims he was blacklisted by Sunflower Broadband after criticizing them.

“Their blacklisting of me served as a warning to others after I spoke out nationally.  They are quite pissed and I’m not allowed to go to any event sponsored by them.  I even got removed from the local Twitter festival,” a person who I have chosen to keep anonymous writes. “The nutshell is that the bandwidth from DOCSIS 3.0 is extremely throttled for Palladium users. If they have done heavy downloading the throttle drops speed to about 2Mbps.”

For Lawrence residents who have decided they don’t like the choices Sunflower provides for broadband service, the good news is that AT&T is upgrading their network in the city to provide U-verse service, and many who wrote us have switched just because AT&T does not engage in Internet Overcharging caps and limits in Lawrence.

There is even a blog devoted to comparing Sunflower Broadband service with AT&T U-verse.  The Lawrence Broadband Observer has been reporting on the dueling providers since August.  His verdict: AT&T U-verse wins for broadband for its more stable speeds, and no Internet Overcharging schemes, even if it costs more:

We decided to go with U-verse for our Internet service, canceling our Sunflower Broadband Internet, which we had used for over 13 years. U-verse’ top line internet costs $15 more per month then Sunflower’s; we decided that the advantages of U-Verse for Internet were enough to make this extra $15 per month a reasonable value.

Furthermore, the speed of U-verse has been remarkably consistent, always ranging between 16 and 17Mbps down and about 1.4Mbps up, no matter the time of day.

While Sunflower’s service is very fast at certain times of day, it frequently slows down during evenings or other times of heavy network use, sometimes to less then half of the speed we were paying for.

The other primary reason we went with U-verse was because U-verse does not have bandwidth overage fees or any kind of bandwidth limits. Although we have been careful with Sunflower and managed to avoid any bandwidth overage charges, having “the meter running” all the time was annoying, and we worried that we could always be surprised with an unexpected charge. With U-verse we do not have this worry.  One could almost think of the $15 extra for U-verse as an insurance policy…it buys peace of mind not having to worry about bandwidth overages.

“It helps no one if broadband subsidies flow to ‘overbuilders’….” Matt Polka, American Cable Association CEO

“We will have government-created competition.” Cable One senior vice president and chief sales and marketing officer Jerry McKenna

America’s cable companies are having fits of anxiety over $7.2 billion dollars in broadband stimulus money that isn’t just going to fall into their laps.  “There are a lot of strings on that money,” one executive told Multichannel News this week in a piece that truly feels for the plight of the nation’s cable operators, concerned that billions of dollars could end up stimulating competition in the rural broadband marketplace.

The horror.

Granted, there are some concerns with some specific conditions which will likely represent little or no impediment to big regional telephone companies, and those like Frontier Communications, which specialize in servicing rural customers (and will likely apply for a substantial amount of broadband stimulus money), but will potentially lock out a lot of “mom and pop” operators.

Among them are requirements that a “first lien” be granted to the Rural Utilities Service, a USDA government-run administrator of the broadband program.  That has some banks, which small providers would likely use to finance some up front construction costs, up in arms.  A first lien would leave the government first in line for any asset recovery from a failed project, not the bank.

But some small providers are also upset with a requirement that any completed projects be held within that provider’s portfolio for a minimum of 10 years.  That provision, according to government officials, was added to prevent bottom feeder “flippers” from creating new companies tailor-made to fit broadband grant criteria, receive substantial amounts from the government to build projects, and then quickly sell them to the highest bidder when complete, pocketing the profits.

But the overwhelming concern expressed by 70% of cable operators surveyed by the American Cable Association at their ACA Independent Show held in late July is the fear of competition.

Many small-operator executives said that they feared the broadband stimulus would create competition — one said the money would go to “charlatans who would ruin the business.”

Cable One senior vice president and chief sales and marketing officer Jerry McKenna, who after his panel session at the show said that his MSO will likely apply for two or three broadband projects, was even more direct.

“We will have government-created competition,” he said.

As a result of the realization that free government money was simply not going to fall from the sky into their hands, many of the nation’s cable operators have stomped their feet and thrown fits, finally resulting in more than half declaring they were either not likely or absolutely certain they would not apply for a penny.  It’s their hope the federal government will see a dearth of applications, assume the process is too onerous, and dramatically loosen up the rules.

“If they get an overwhelming number of applications, the administration will see this [program] as a success,” American Cable Association director of regulatory affairs Ross Lieberman said at the show. “If there are not that many applicants, if there is no incumbent interest, we can expect changes to this program.”

Changes have already been made at the behest of lobbyists, who are now given a freer reign to pursue broadband policies more amenable to their clients.  Also changed are the definitions of what constitutes an underserved or unserved area, and with the broadband mapping project at risk of being run by the providers themselves, those definitions could eventually become meaningless anyway.

But providers fearing an “overbuilder,” a competing company that strings its own cables and provides true competition, need not panic just yet.  As they nail bite about the decision to apply or not apply for broadband stimulus money, risking if they don’t a competing provider may, the government has graciously provided a 30 day window for incumbent providers to submit a formal challenge of other applicants for up to 30 days after the deadline.

Every application will be publicly posted online at BroadbandUSA.gov.