Time Warner Cable will increase the broadband speed for its most popular Standard service to 15/1Mbps across the country over the next 60 days.

With increased competition from Verizon’s FiOS fiber to the home network and AT&T U-verse, Time Warner is boosting Internet speeds to stay competitive with aggressive promotions on offer from phone companies throughout its service area.

Rob Marcus, chief operating officer for Time Warner, today told investors U-verse was available in about a quarter of the company’s footprint, with Verizon FiOS offering service in 12% of the areas where the cable company provides service.

“Last quarter, U-verse featured fairly aggressive double play promotions, especially in Texas and the midwest, while FiOS continued to aggressively enter new buildings in New York City,” Marcus said.

Marcus

Time Warner Cable failed to meet investor expectations for broadband growth during the third quarter, and some are questioning the company’s wisdom narrowly-targeting promotions to specific segments of its customer base. Bloomerg Industries analyst Paul Sweeney suggested the company was struggling to market the correct bundles of services to its customers.

Marcus reported Time Warner has seen the largest growth in DOCSIS 3.0 enhanced broadband so far, with 73,000 new customers signing up for the company’s 30/5Mbps Extreme tier or 50/5Mbps Ultimate tier during the last quarter. Combined with Turbo customers, this represents over 22% of all Time Warner’s residential broadband customers.

But while the company celebrated its new revenue from cable modem rental fees, the new charge has alienated a number of customers, some now shopping around for a better deal from competitors.

“In essence, this is a rate increase on [broadband] service, but the key is our customers have a choice,” Marcus said. “If customers prefer to buy their own modem from a qualified list of options, we’re all for it. After all, if the modem is on the customer’s balance sheet, that is less capital expense for us and fewer truck rolls.”

Marcus’ statement conflicts with one made earlier by Joli Plucknette-Farmen, communications manager for Time Warner Cable in western New York. She told WGRZ-TV last month the new fee was not  a “rate hike dressed up as a fee”, as some critics have suggested.

The company made no announcements about increasing the speeds of its higher-speed tiers to maintain their value in light of the forthcoming speed increase for Standard service.

In another sign competition between cable and phone companies may not be as robust as they would have you believe, Comcast last week announced a deal to sell local advertising on behalf of AT&T U-verse.

Under the agreement, Comcast’s Spotlight ad sales division will now sell local advertising slots on behalf of AT&T’s U-verse in cities where both companies provide service.

Comcast says the agreement will cover 21 cities, including:

• Atlanta
• Champaign-Springfield-Decatur (Ill.)
• Chicago
• Detroit
• Flint-Saginaw-Bay City (Mich.)
• Fresno-Visalia (Calif.)
• Grand Rapids-Kalamazoo-Battle Creek (Mich.)
• Hartford-New Haven (Conn.)
• Houston
• Indianapolis
• Jackson, Miss.
• Jacksonville (Fla.)
• Lansing (Mich.)
• Little Rock-Pine Bluff (Ark.)
• Memphis
• Miami-Ft. Lauderdale
• Monterey-Salinas (Calif.)
• Nashville
• Sacramento-Stockton-Modesto (Calif.)
• San Francisco
• West Palm Beach-Ft. Pierce (Fla.)

This leaves Comcast with a lock on local ad sales for both its own cable and AT&T’s U-verse systems. Most major cable networks offer their affiliates opportunities to insert local commercials during certain advertising breaks. The ad insertions provide a lucrative revenue stream for pay television providers, which can target viewers of specific cable networks or run the same messages across hundreds of cable channels.

The deal will save AT&T from having to hire additional employees to handle local ad sales and will let advertisers cover one or both systems in a single ad buy.

But critics wonder if Comcast cooperating this closely with AT&T is good for competition.

The deal is not unprecedented, however. AT&T has also partnered with Charter Cable to cross market local ad sales in cities where U-verse and Charter compete head to head.

Phillip “You Guys Need a Timeout” Dampier

AT&T and Time Warner Cable are complaining they have gotten a raw deal from Kansas City, Mo. and Kansas City, Ks., in comparison to the incentives Google was granted to wire both cities with gigabit fiber broadband.

“It’s time to modernize our industry’s rules and regulations…so all consumers benefit from fair and equal competition,” read a statement from AT&T.

“There are certain portions of the agreement between Google and Kansas City, Kan., that put them at a competitive advantage compared with not just us but also the other competitors in the field,” said Alex Dudley, a Time Warner Cable spokesman. “We’re happy to compete with Google, but we’d just like an even playing field.”

The Wall Street Journal seemed to suggest Google was getting the keys to both cities, with grants of free office space and free power for Google’s equipment, according to the agreement on file with the cities. The company also gets the use of all the cities’ “assets and infrastructure”—including fiber, buildings, land and computer tools, for no charge. Both cities are even providing Google a team of government employees “dedicated to the project,” says the Journal.

The Google Fiber project was so desired that the local governments rolled out the red carpet. In Kansas City, Mo., for instance, the city is allowing Google to construct “fiberhuts,” small buildings that house equipment on city land at no cost, according to a person familiar with the matter.

The cities are discounting other services, as well. For the right to attach its cables to city utility poles, Google is paying Kansas City, Kan., only $10 per pole per year—compared with the $18.95 Time Warner Cable pays. Both cities have also waived permit and inspection fees for Google.

The cities are even helping Google market its fiber build-out. And both are implementing city-managed marketing and education programs about the gigabit network that will, among other things, include direct mailings and community meetings.

Several cable executives complain that the cities also gave Google the unusual right to start its fiber project only in neighborhoods guaranteeing high demand for the service through pre-registrations. Most cable and phone companies were required by franchise agreements with regional governments to build out most of the markets they entered, regardless of demand.

But the Journal missed two key points:

1. Time Warner Cable has been granted the same concessions given to Google on the Missouri side, and AT&T presumably will also get them when it completes negotiations with city officials on the matter.
2. Both cable and phone companies have the benefit of incumbency, and the article ignores concessions each had secured when their operations first got started.

The Bell System enjoyed a monopoly on phone service for decades, with concessions on rights-of-way, telephone poles and placement. AT&T was a major beneficiary, and although the AT&T of today is not the same corporation that older Americans once knew, the company continues a century-long tradition of winning the benefit of the doubt in both the state and federal legislature. AT&T has won statewide video franchise agreements that give the company the power to determine where it will roll out its more advanced U-verse platform, and enjoys carefully crafted federal tax policies that helped them not only avoid paying any federal tax in 2011 — the company actually secured a $420 million “refund” subsidized by taxpayers.

Cable operators also won major concessions from local governments under pressure from citizens eager to buy cable television. At the time, cable companies were granted exclusive franchises — a cable monopoly — to operate, an important distinction for investors concerned about the value of their early investments. Local zoning and pole attachment matters were either negotiated or dealt with legislatively to allow cable companies the right to hang their wires on existing utility poles. Franchise agreements permitted the gradual roll-out of cable service in each franchise area, often allowing two, three, or more years to introduce service. It was not uncommon for neighborhoods on one side of town to have cable two years before the other side could sign up. That sounds awfully familiar to AT&T U-verse today.

Google’s proposal to build a revolutionary broadband network delivering 1Gbps deserved and got the same type of treatment then-revolutionary phone and cable service won back in the day.

Time Warner Cable also won much the same treatment Google is now getting, and the cable operator has gotten $27,000 in fees refunded and will avoid another $100,000 in permit fees going forward. Time Warner Cable and Google will both receive free traffic control services during network construction — not that Time Warner Cable plans much of a change for customers in either Missouri or Kansas.

AT&T will likely also receive the same treatment, although it would be hypocritical of them to complain that Google gets to pick and choose where it provides service. Large swaths of Kansas City and suburbs are still waiting for U-verse to arrive, and many areas will never get the service. Cable operators had to wire a little further, but also benefited from years of monopoly status and network construction expenses paid off years ago when there literally was no competition.

Those paragons of virtue at Goldman Sachs are appalled Google has such a good relationship with Kansas City officials more than happy to have the gigabit speeds neither AT&T or Time Warner Cable would even consider providing.

Google’s rights “appear to be significantly more favorable than those cable, Verizon or any other fiber overbuilders achieved when striking deals with local governments in the past,” Goldman Sachs analyst Jason Armstrong told the Journal. “We’re surprised Time Warner Cable hasn’t been more vocal in its opposition.”

But then the cable company has secured most of the same benefits Google has, so why complain at all?

In fact, city officials had to browbeat Time Warner to modernize its network in ways it would have not done otherwise without the new agreement.

Both AT&T and Time Warner have every right to be concerned. Their substandard networks and high prices (along with a lousy history of customer service, according to national surveys) put them at a competitive disadvantage if Google does not make any major mistakes. Neither cable or phone company has made any noise about upgrading service to compete, and should customers begin to leave in droves, then both companies may actually have something to cry about.

The Wall Street Journal’s report on the concessions granted to Google wanders off into the Net Neutrality debate for some reason, and misses several important facts reviewed above.  (3 minutes)

PC Magazine has declared fiber to the home service America’s fastest broadband technology, and among larger providers, Verizon’s FiOS once again took top honors for delivering the fastest and most consistent broadband speeds.

Over the past nine months, the magazine’s readers have been conducting regular speed tests using their personal broadband connections. The magazine found fiber optics remains the best current technology for delivering cutting-edge broadband service, with an average speed rating for FiOS reaching 29.4/16.7Mbps. Since PC Magazine readers were subscribed to various speed tiers while conducting the tests, the magazine’s ratings do not measure the fastest possible speeds on offer from different providers. Verizon’s most-popular service bundle includes 15/5Mbps service, heavily weighting Verizon’s speed rating which is capable of even faster speeds with their 50-300Mbps premium service tiers. But on average, consistently fast speeds kept them in the top spot.

Cable broadband technology was the second-best choice, depending on how cable operators implement it. Cable companies depend on a singl, shared broadband pipeline in each neighborhood. DOCSIS 3 upgrades allow a cable operator to vastly expand that pipeline by “bonding” several channels together to increase the maximum bandwidth. Cable operators that combine the latest technology with the smallest number of customers sharing a connection do the best.

Midcontinent Communications (better known by customers as Midco), achieved first place nationwide. The company, which serves customers in Minnesota, the Dakotas, and Wisconsin, took top honors with an average speed of 24.7/4.4Mbps — the best of any cable operator.

Ratings sometimes show the level of investment made by cable operators in their network. A sudden boost in average speeds is a sure sign a cable operator is rolling out network upgrades. A speed decline can expose a cable company trying to oversell an already constrained network. Charter Cable, which has routinely gotten poor ratings in Consumer Reports’ rankings, showed dramatic improvement in PC Magazine’s ratings, achieving third place with an average speed increase from 15Mbps to 18.5Mbps. But while the added speed is nice, the company’s usage caps are not. Conversely, WOW!, which achieved top scores in Consumer Reports’ ratings, scored towards the bottom of PC Magazine’s tests.

Comcast, which last year trumpeted its high rankings in controversial ads claiming to deliver the fastest broadband in the nation has now been overrun by both Midco and Charter. Comcast Xfinity is now in sixth place, hardly the fodder for any future ad campaign.

Cox Cable actually lost ground since last year, with average speed now down to 14.8Mbps. The bottom four: Time Warner Cable, Mediacom, WOW!, and Suddenlink — are all hampered by slow upload speeds and more anemic “take-rates” on higher speed broadband plans with the speeds on offer. With fewer premium speed customers, average speed ratings take a hit from the larger proportion of customers sticking with standard service.

Phone companies barely appeared in the magazine’s top ratings. AT&T’s U-verse could not even make the top-15. While 25Mbps was adequate when U-verse was first deployed, the broadband speed race has quickly overshadowed the company’s fiber to the neighborhood service, which still relies on home phone lines and antiquated copper infrastructure in the immediate neighborhood.

Phone companies still offering traditional ADSL on almost all-copper networks turned in even more dismal results — most too low to rate. Only Frontier’s adopted FiOS network kept them in the rankings in the overall broadband “slow zone” in the Pacific Northwest, along with CenturyLink’s acquired ADSL2+ and bonded DSL networks built by Qwest.

ISPs that perform poorly typically criticize the methodology of voluntary speed tests as the basis for speed and performance ranking. Most criticize the apparent lack of consistency, random sampling, the possibility rankings may be weighted in certain geographic areas, and may mix a disproportionate number of customers with standard or premium level speeds to unfairly boost or diminish average speed rankings. But overall, PC Magazine’s rankings show some technologies superior to others. If a customer has a choice, finding a fiber to the home provider is likely to provide an improvement over what the cable company offers, but the differences between phone company DSL and cable broadband are even starker.

The FCC speed test program, conducted by SamKnows, takes more regular snapshots of broadband quality from volunteer panelists. Your editor’s home broadband connection from Time Warner Cable is profiled above, showing results from January-September 2012

Time Warner Cable last week intimated the only thing keeping faster cable modem speeds from Kansas City customers is consumer demand and they are not worried about the arrival of Google Fiber’s 1Gbps broadband speeds.

The cable operator claims they have the advantage in Kansas City, as the first provider to offer a triple play package of voice, broadband, and television service. Time Warner also says they are constantly working on new, innovative services, including the much-touted “tablet remote” the company says it already offers customers in Kansas City in the form of apps available on the Android and iOS platforms.

“We always have the ability to adjust our network to keep up with demands from consumers [for faster broadband speeds],” Time Warner Cable said.

Cable operators and phone companies have traditionally argued there is little consumer demand for gigabit broadband speeds because the services most customers access online don’t need or cannot support that level of speed. Cost has also usually been a factor, and many operators point out the majority of their customers are satisfied with speeds of 20Mbps or less.

“We’re ready to compete any day, anytime, anywhere, with anyone,” said Time Warner Cable spokesman Mike Pedelty.

AT&T, which has been providing U-verse in parts of Kansas City since 2007 says it isn’t threatened by Google Fiber either.

Chris Lester from AT&T Media Relations notes AT&T now offers U-verse to more than 400,000 households in and around Kansas City and claims the company has gotten a “great response” from consumers, but declined to specify exactly how many of those households have actually signed up for service.

Both the dominant cable and phone company in Kansas City are betting on subscriber loyalty and consumer resistance to change to maintain their subscriber numbers. Statistically, they have a good chance of holding most of their current customers, at least for now.

The threat of Google’s fiber fast speeds may not be limited only to Kansas City, however. The Wall Street Journal has learned Google may be intending to bring its fiber network to other American cities, as long as they are not already served by Verizon’s FiOS fiber-to-the-home network.

Incumbent cable operators facing new competition from phone company IPTV (AT&T U-verse, Verizon FiOS) have not lost as much business as they first anticipated. In most cases, only 25-35% of customers eventually left for a satellite or phone company competitor. The older the subscriber, the less likely that customer is to consider a change, unless the service is poor or the price becomes unaffordable.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KCTV Kansas City Competition for Google Fiber 7-26-12.mp4[/flv]

KCTV in Kansas City talks with AT&T and Time Warner Cable about their newest competitor.  (2 minutes)

No cable operator has reported alarming results from subscriber defections, either from competition or cord-cutting behavior, and Wall Street analysts are watching subscriber numbers closely.

So far, reports on the ground indicate AT&T and Time Warner Cable are following the playbook first established when any new broadband provider arrives on their turf — aggressively market discounts tied to a contract with a stiff early termination fee to discourage customers from switching. At least one local provider has been reportedly sending salespeople door to door to try and lock customers in with a multi-year service contract. When that does not work, both companies use their customer retention departments to offer customers cheaper service in a last ditch effort to keep them from heading for the door.

Even with those defensive measures, some investors still see Google’s new fiber service as something new and different in the broadband marketplace — “the most disruptive thing since Gmail,” concludes Business Insider‘s Matt Rosoff.

Rosoff says Google Fiber could completely change the broadband landscape in the United States much the same way Gmail changed e-mail.

Back when Gmail launched, the other free email providers like Hotmail and Yahoo Mail were offering less than 5MB of storage — that’s five megabytes,” Rosoff writes. “Google trumped them all with 1GB of free storage. With so much storage, there was no need to trash anything. You could archive it and keep it forever.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Fox Business News Google Stirs It Up 7-26-12.flv[/flv]

Fox Business News explores Google Fiber and finds phone companies telling reporters consumers don’t need 1Gbps broadband.  (2 minutes)

Gmail has since captured a large share of the email market, while also paving the way for Google’s increasingly profitable business apps. Some also argue Google’s “save everything online” approach was like training wheels for the cloud computing concept, where consumers think less about local storage and more about going online to access content. Google Fiber’s speeds make accessing online content effortless, and with no usage caps, customers need not ration their usage.

As of Monday, Google has already achieved the minimum number of needed homes to install Google Fiber in several, mostly affluent, Kansas City neighborhoods.

Rosoff says much like Gmail exposed the weaknesses of former email leaders like Hotmail, Google Fiber embarrasses incumbent Internet Service Providers and illustrates just how slow they have been to innovate.

“Google Fiber makes the cable-based ISPs look pathetic,” says Rosoff. “It promises to offer speeds up to 1,000Mbps downstream and upstream, for only $70 a month.”

In comparison, Time Warner Cable charges $100 for 50/5Mbps service in Kansas City. AT&T’s U-verse can only offer up to 24/3Mbps service, and it charges well over $50 a month for that, except on a new customer promotion. Both Time Warner and AT&T also sell “lite use” packages from 1-6Mpbs for $20-25 a month — service Google intends to give away for free after a $300 installation fee.

Many industry observers suggest Google is using its new fiber network in part as a hedge against market abuse from dominant cable and phone companies who are fiercely opposed to Net Neutrality and favor monetizing broadband usage.  Both are serious threats to Google’s business model which seeks more usage, not less. The more time consumers spend online, the more likely they will be exposed to a Google ad, use a Google product, or purchase a current or forthcoming service owned or partnered with the search engine giant.

Early indications from Kansas City show the cable and phone companies do have something to be concerned about. In more affluent areas of Kansas City, Google passed the minimum number of households willing to commit to the fiber service in just two days. Enthusiasm has been so overwhelming, tech entrepreneurs drooling for fiber service are hiring door-to-door promoters to visit nearby residents to encourage them to show their interest, in some cases even paying Google’s $10 pre-registration fee on their behalf.

More than 20 percent of the eligible “fiberhoods” in Kansas City, Mo. have already passed their signup goals. In poorer, mostly minority neighborhoods, Google is still waiting for their first pre-registration. In less affluent Kansas City, Kan., Google is finding considerably less interest, and pre-registrations are running below goal in all but three “fiberhoods.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WDAF Kansas City Competitors Gear Up For Google’s Challenge 7-26-12.flv[/flv]

WDAF says competing cable and phone companies cannot deliver the speeds Google Fiber will offer, but they are betting consumers don’t need or care about faster broadband speeds. (3 minutes)