Ford, Jr.: Making his former public service pay-off with dollar-a-holler advocacy on behalf of Big Telecom.

Former U.S. Senator John Sununu and former U.S. Congressman Harold Ford, Jr., share several things in common:

1. Voters tossed them out of their elected offices (or refused to elect them to higher ones) for poorly representing their interests;
2. Both are honorary co-chairs of Broadband for America, the country’s largest Big Telecom-industry-funded astroturf effort;
3. They don’t understand the concept of content provider traffic-hosting, and the traffic expenses they already pay.

Both jointly penned a letter in the San Jose Mercury News accusing Netflix of enjoying undeserved streaming profits, “subsidized” by large cable and phone companies that deliver broadband Internet service to paying customers:

Netflix’s current pricing model allows unlimited downloads for $7.99 per month. Netflix saves, with every download, approximately 40 cents that would otherwise be paid to the U.S. Postal Service. If the average customer downloads 10 movies and TV shows a month, Netflix will save $4 a month for each of its 23 million customers.

Obviously these massive transmissions over the Internet are not really free. Someone is paying for them. That “someone” is the millions of broadband subscribers, whether or not they are Netflix customers.

How is that fair?

Netflix argues that the marginal cost to the network providers of streaming a half-hour TV show to a residential customer is “one penny.” This ignores the hundreds of billions of dollars in sunken network investments needed to create that one-penny marginal cost efficiency at the customer’s end.

[…] It hardly seems fair to make users of these services pay more in order to subsidize Netflix’s costs of delivering their videos online.

This call for a fairer pricing model and a more realistic long-term investment strategy has bipartisan support. In 2010, the FCC said government policy should not discourage “broadband providers from asking subscribers who use the network less to pay less, and subscribers who use the network more to pay more.”

Neither former elected official comes to the debate with any direct experience as a telecommunications specialist, but since when does that matter.  They know how to deliver talking points-on-demand.

Sununu: New Netflix Math

Netflix, like every content producer on the Internet, pays hosting and content delivery fees to place their content online.  Netflix hires a content delivery network to regionally distribute its video streaming to ensure the best, and most efficient route to ensure an uninterrupted viewing experience.  While Netflix’s incremental costs may seem low, they still amount to millions of dollars annually in transport costs.  And the online video streamer already pays extra additional fees to some of the largest broadband providers in the country, including Comcast.

The other factor Ford and Sununu ignore is the bill at the other end — the inflated cost for broadband service consumers already pay.  For $40+ per month, consumers pay for service precisely to obtain the content of their choosing, and millions choose Netflix.  That monthly broadband fee, far in excess of the actual cost to provide the service, more than compensates providers for the “network investments” that are now declining at a rapid rate, even as broadband bills keep rising.

No doubt part of your broadband bill goes to pay for industry astroturf operations like Broadband for America, which doesn’t represent a single consumer, even though you are paying for it.  Of course, the marginal cost to hire industry lobbyists and their former legislative friends who today represent their interests (not yours), is pretty low on a per subscriber basis.  It hardly seems fair to us that subscribers should be footing the bill for groups like Broadband for America, who regularly advocate against consumers’ best interests.

If providers are looking for more money to improve their networks, perhaps they can start by cutting off Broadband for America, an industry mouthpiece that cannot even get its core arguments anywhere near actual facts.

Independent phone company Windstream this morning announced its intention to acquire business telecommunications provider PAETEC Holding Corp., in a transaction valued at nearly $2.3 billion.

“This transaction significantly advances our strategy to drive top-line revenue growth by expanding our focus on business and broadband services,” said Jeff Gardner, president and CEO of Windstream. “The combined company will have a nationwide network with a deep fiber footprint to offer enhanced capabilities in strategic growth areas, including IP-based services, data centers, cloud computing and managed services. Financially, we improve our growth profile and lower the payout ratio on our strong dividend, offering investors a unique combination of growth and yield.”

PAETEC, based in suburban Rochester, N.Y., has been a business telecommunications provider since 1998, and many of its founding employees joined the company from locally-based Rochester Telephone Corporation, its long distance subsidiary RCI, and a competing long distance competitor ACC — today all long-gone.

For residents of Rochester, the implications of the merger could literally leave a hole in the center of downtown, where construction of PAETEC’s pre-merger headquarters was just getting underway.  With the recent demolition of Midtown Plaza, what local residents today call “the big hole in the ground” could be there a long, long time if Windstream abandons construction plans.

In December, then-mayor Robert Duffy (now New York’s Lieutenant Governor) took PAETEC founder and CEO Arunas Chesonis at his word that the company’s new headquarters would be built in downtown Rochester — a project that would never have been started without substantial tax credits, loans and grants backed by New York taxpayers.

“More than three years ago, Arunas Chesonis called me on the phone and said if the City and State would demolish Midtown Plaza, he would build the corporate headquarters of PAETEC on that site,” said Mayor Duffy late last year. “Despite the worst economic downturn since the Great Depression and having endless options to locate his company, Arunas Chesonis stayed true to his word. The rebirth of downtown Rochester now has a key cornerstone to build on.”

Now those plans may be gone with the Windstream.

Midtown Plaza was demolished to make room for PAETEC's new downtown Rochester headquarters, a project which may now be up in the air. (Picture courtesy: YNN)

The all-stock deal is expected to close in six months, and Windstream hopes to capitalize on PAETEC’s extensive fiber network and data centers to bolster service to its own business customers.  The increased capacity would also deliver improved service for the company’s residential DSL customers with a more robust Internet backbone.

Windstream, based in Little Rock, Ark., has been transforming itself away from its roots as a residential landline provider into a business and broadband services company, and today’s deal is an extension of that.

The company expects to win at least $100 million in new synergies from the merger, based on reduced capital expenditures required to build out Windstream’s own network, and from reduced costs from being a larger volume player.

But Windstream is also well-known for other cost-savings, through massive job cuts at the firms it acquires.  Last June, hundreds of workers at Iowa Telecom learned that.  After Windstream’s acquisition of D&E Communications in Pennsylvania, nearly 80% of D&E’s employees were shown the door.

For nearly 5,000 PAETEC employees, almost 900 of which live and work in Rochester, updating resumes may have just become job number one.

That’s ironic for a company whose founder wrote his own book: It Isn’t Just Business, It’s Personal: How PAETEC Thrived When All the Big Telecoms Couldn’t.

The first chapter is called “Putting People First,” and explains how the management of PAETEC recognizes the value its employees bring to the company: “Success in business begins and ends with people: the people you hire, the ones you partner with, and the ones you serve as your customers.”

Employees this morning may be wondering if Windstream shares Chesonis’ philosophy.

On this morning’s conference call, Windstream executives spoke about efforts to identify and preserve talented members of PAETEC’s executive management team as part of the newly-expanded company.  They had nothing to say about rank and file employees.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WHAM Rochester PAETEC Deal 8-1-11.mp4[/flv]

WHAM-TV spoke with George Conboy of Brighton Securities about this morning’s merger announcement, and the major implications the deal will have on PAETEC’s home base — Rochester, N.Y.  (5 minutes)

Cox alienates their customers.

Six of the 19 ‘Most Hated Companies in America’ are big cable, satellite and phone companies.  The list, published this month by The Atlantic magazine, call out the perpetrators of bad customer service, high prices, and in the case of Time Warner Cable (#3) — Internet Overcharging.

The American Customer Satisfaction Index rates companies based on thousands of surveys. In the latest index, the most-hated companies include large banks, airlines, power and telecom companies.  Especially called out this year was Time Warner Cable, celebrating a decade of public relations blunders ranging from gouging experiments on Internet service pricing, showing pornography on children’s channels, high rates, and downright lousy service in some areas.  And with CEO Glenn Britt entertaining a return to Internet rate gouging, the company’s 59/100 score still has plenty of room to fall.

#3 — Time Warner Cable (59/100) — All of the above, plus sexually harassing a North Carolina customer.

#4 — Comcast (59/100) –Dreadful customer service and poor communications left consumers with dozens of channels gone missing, outrageous rate hikes, their phone service implicated in a Florida woman’s death, and who could forget the technician that set a customer’s house on fire. This one actually lost two score points since last year.

#5 — Charter Communications (59/100) — The usual rate increases were bad enough, but Charter also told their customers they were on the hook for cable boxes lost in fires that were not their fault, was held accountable for faulty billing practices, went bankrupt, introduced its own Internet Overcharging scheme, and worst of all — their infamous PR disaster telling tornado victims in Alabama to go and find their lost cable boxes scattered somewhere in the neighborhood.  The representative on the line will wait.

#14 — AT&T (66/100) — Limited coverage and the introduction of usage pricing for data pl    …   oh sorry, AT&T dropped the call.  All reasons why AT&T wins the ‘you suck’ award among mobile providers this year.

#17 — Cox Cable (67/100) — The home of the $480 early termination fee, Cox alienates customers like few others.  They even use spacemen to harass their customers.  Bemusingly, Cox is considered a customer service success compared with our other bad boys.

#18 — Dish Network (67/100) — Trending downwards, Dish is still giving their customers a bath in bad billing and worse customer service.  They are lovers of big ad splashes with a terrifying excess of fine print which ruins the deal, if you read it.

Pentefountas

Stop the Cap! is following this week’s extensive hearings into Internet Overcharging in Canada by the Canadian Radio-television and Telecommunications Commission (CRTC).  The debate into Bell’s attempt to mandate usage-based billing for -every- provider in Canada, regardless of whether they are owned or operated by Bell, reached a new level of absurdity this morning when a Conservative appointee to the CRTC, Tom Pentefountas — the vice-chairman of the commission — asked this question to an astonished panel headed by Openmedia.ca, a consumer group fighting usage-based billing:

“What is so undemocratic about allowing a few companies to control the Internet?”

Pentefountas was openly hostile at times against Openmedia, questioning their membership, their funding, and whether they had a “self-interest” in the fight.  They do — consumers, a concept that evidently escapes the very Big Telecom-friendly new commissioner, appointed by the government of Stephen Harper.

Yesterday, much of the hearing was focused on Bell’s defense of UBB, and we noted Mirko Bibic’s increasing discomfort as the Bell lobbyist came under increasing scrutiny and hard questioning that he never experienced during earlier hearings (those that led to the CRTC’s approval of UBB).  Now that the public (and higher government officials) are watching and listening, what used to be a non-confrontational experience is today sounding increasingly skeptical of the arguments for UBB by many commissioners.

We’ll have audio archives of the hearings available here when they are published online.  They help build the record of carrier arguments for UBB, independent findings which call out those arguments, and the opposition to UBB and why flat rate broadband is important to the knowledge-based economy of North America.

There will be hurdles to overcome, starting with confronting the attitudes of commissioners like Mr. Pentefountas, who evidently does not understand the implications of a few corporate entities controlling Canada’s Internet.

Follow live coverage of the CRTC hearings here.

Cohen

Next time you wonder why Washington politicians bend at the whims of big telecom companies, simply follow the money.

The Washington Post reports Comcast’s executive vice president David L. Cohen hosted nearly 120 people in his home last Thursday evening.  The price of admission?  At least $10,000 targeted for President Barack Obama’s reelection campaign.

The total haul for the current president — at least $1.2 million.

Among the attendees: Sen. Bob Casey (D-Pa.) and Philadelphia Mayor Michael Nutter.

Cohen, who is well-known as a Democratic operative, spent much of his free time earlier this year helping win favor for Comcast’s merger with NBC-Universal.