Motorola cable modem

A California federal judge has thrown out most of a class action lawsuit that charged Comcast with marketing broadband service plans without disclosing extra fees for cable modem equipment.

The head plaintiff, Athanassios Diacakis, claimed Comcast sold Triple Play promotions over the phone and in the media without mentioning customers would also have to pay additional fees to lease a cable modem.  Diacakis accused the cable operator of violating California’s tough false-advertising laws by not fully disclosing all fees and surcharges while explaining the promotion.

U.S. District Judge Saundra Brown Armstrong disagreed, however, dismissing most of the plaintiffs claims.  The judge didn’t declare Diacakis’ claims untrue, but ruled they were insufficiently documented to proceed to trial.

“The [amended complaint] fails to specify when or where Comcast advertisements were viewed, the content of those advertisements, or which of them in particular Plaintiff relied upon,” Armstrong wrote.

Diacakis is free to submit an amended complaint if he wishes to proceed with his class action case.

Comcast charges customers $7 a month to lease cable modem equipment, but invites customers to purchase their own cable modems to avoid rental fees.  Many customers do just that, choosing from several dozen approved models Comcast will provision for broadband customers.  The cost to purchase cable modem equipment ranges from $50-125 on average, depending on the cable modem selected.  It takes less than two years for purchased cable modems to effectively pay for themselves at Comcast’s current rental rate.

Wall Street is encouraging Verizon Communications to sell off its landline telephone operations to clear a path for a potentially-profitable merger with British mobile phone company Vodafone Group Plc.

Analysts at Goldman Sachs Group are behind the research report, which suggests Verizon’s recent non-aggression treaty with Comcast and Time Warner Cable makes the sale of Verizon’s landline phone and FiOS fiber to the home network more likely. Verizon will earn a percentage of every cable TV/phone/broadband subscription sold, effectively making Verizon’s own wired network redundant. Potential buyers could include Frontier Communications, CenturyLink, or Windstream, which all have business plans that depend on landline networks fewer Americans are using.

Should Verizon clear away its legacy landline and FiOS networks, Goldman Sachs suggests, a merger with Vodafone would be a “clear fit” for the two companies.

“The remaining wireless and enterprise businesses would have faster growth and a clear fit with Vodafone’s assets and strategy, making it a more attractive merger partner,” Bloomberg News quotes from the report.

“Given that it no longer faces the threat of integrated cable competitors, Verizon could potentially spin off its remaining [landline] assets,” along with “large” pension and benefit liabilities, the Goldman analysts added.

Verizon would also eliminate its ongoing dispute with the two largest unions representing its landline workers — Communications Workers of America and the International Brotherhood of Electrical Workers.  Both unions are still trying to negotiate a new contract with Verizon after a brief, but contentious, summer strike. Verizon Wireless is almost entirely non-unionized.

Vodafone’s share price has been rising recently, perhaps anticipating a potential merger that would give Vodafone a stronger hand in the U.S. marketplace.

Verizon’s investment in its landline network, along with interest in expanding its well-regarded FiOS fiber to the home service, has remained stalled for the past few years.  Recently, the company indicated an interest in moving away from fiber optics to serve broadband customers, and rely on its wireless LTE 4G network instead.

Verizon’s new CEO Lowell McAdam comes from Verizon’s wireless division, and has not shared his predecessor’s enthusiasm for fiber upgrades.

Merger Partner?

While the prospect of an all-wireless future for Verizon may seem good for shareholders, consumers are likely to pay the price:

1. The Justice Department is reviewing the antitrust implications of the non-aggression treaty between Verizon and its cable competitors;
2. The sale of Verizon’s landline network to an independent provider could doom the company’s fiber optic network and limit rural Verizon customers to 1-3Mbps DSL;
3. Verizon Wireless’ prices reflect its market share and lack of strong competition.  The company’s LTE wireless network, although fast, has suffered from reliability problems and is heavily usage-limited.  It may prove unsuitable as a home broadband replacement for rural customers;
4. Reduced competition for telephone, video, and broadband will likely result in higher prices for existing cable subscribers, too.

Verizon is hardly the first phone company to ponder getting out of the phone business.  AT&T has been lobbying to rescind rural universal service requirements for years.  If successful, AT&T could abandon its rural landline network and provide customers with higher-priced cell phone service instead.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CWA Parody of Verizon Video.flv[/flv]

Verizon’s unionized workers are still fighting for a new contract, and released this parody video in response to a company-produced DVD mailed to union workers’ homes.  (3 minutes)

AT&T’s fiber to the neighborhood service is not exactly winning consumers over in Chattanooga, Tenn.  As of this past spring, AT&T only managed to convince 821 local customers to sign up for U-verse service, in part because the competition delivers faster service, and one doesn’t slap broadband customers with an Internet Overcharging scheme.

While Comcast remains the dominant cable company in the city with more than 100,000 customers, community-owned EPB Fiber has made major advances, primarily against Comcast, picking up at least 33,000 customers in the city since the summer of 2010.

EPB is turning into a major success story for community-owned broadband, typically maligned as a financial failure by cable and phone company competitors.  EPB offers residential customers usage cap free gigabit broadband, television, and telephone service and is competing effectively against the nation’s largest cable operator.

EPB has been raking in more than $3.8 million a month in telecommunications revenue from residential customers alone.  In less than two years, EPB, which also delivers electricity in Chattanooga, has built a $45 million a year telecommunications business.  As a community-owned utility, most of that revenue stays in Chattanooga, benefiting the local economy and allowing EPB to reinvest in its network and improve service.

Comcast, in contrast, has seen its revenue drop by 8.4 percent during the first six months of 2011, primarily because of departing customers. That has forced the dominant cable company to become more aggressive in its efforts to retain those calling to cancel, primarily by slashing prices if wavering customers agree to stay.

Remarkably, AT&T’s U-verse has merited also-ran third place status — the victim of limited availability, the ongoing trend of customers dropping landline service, and the far-superior broadband speeds available from the competition.  AT&T’s Internet Overcharging scheme is also the stingiest, limiting broadband customers to just 150GB for its DSL service, 250GB for U-verse broadband, charging overlimit fees when the caps are exceeded.  Comcast has a usage cap of 250GB with no overlimit fee.  EPB has no limits.

The Chattanooga Times Free Press compares all three providers’ strengths and weaknesses:

EPB Broadband speeds are the fastest in the nation.

AT&T — Very aggressively priced introductory offers, more HD channels than its competitors, plus a “quad-play” bundle that includes AT&T wireless service.  But AT&T’s landline network is still the least equipped to compete on broadband speed, an increasing number of residents continue to turn their back on AT&T when they cut landline service, and U-verse’s usage caps come with overlimit fees.

Comcast — Has a substantial number of on-demand programs to access, can be cheaper than EPB during the initial year of service, and is testing home security and automation services.  Also offers two-hour service call windows and aggressively priced retention deals.  But Comcast’s regular prices are high, its broadband service usage-limited, and its reputation questionable after more than a decade of rate hikes and service complaints.

EPB — The fastest broadband speeds anywhere, EPB runs an advanced fiber to the home network, and maintains a very aggressive attitude about expanding and improving service.  EPB is a formidable competitor.  Community-0wned, its service benefits local residents with a locally-staffed call center, revenues that stay in Chattanooga, and management that answers to customers, not Wall Street.  No caps either.  But EPB can be a harder initial sell for price-sensitive customers because it doesn’t offer heavily discounted service to attract new customers.  But EPB prices don’t rise dramatically after the first year, either.  EPB’s television lineup is less robust than others, in part because it lacks a nationwide presence that brings the kind of volume discounts AT&T and Comcast receive.

Hurricane fast it isn't.

More than three and half million Americans are still paying AOL around $17.50 a month for painfully slow dial-up Internet access.

Long declared irrelevant by the technology elite, AOL continues to plod along with millions of customers more than a decade after the company stopped subsidizing the U.S. Postal Service with millions of sign-up disks mailed endlessly to American homes.

Among AOL’s holdout subscribers are the 7 percent of Americans who still believe dial-up is their best option.  Twenty percent of those surveyed by Pew Research said their commitment to dial-up was as sacred as their marriage vows, and nothing would get them to change.  But for most, the only things keeping them from throwing AOL under the bus are:

• The cost: Almost one-third of those surveyed cited the high cost of broadband as the primary reason for not signing up;
• Access: 17 percent are ready and willing, but their local providers are not.  Broadband is simply unavailable in many areas unserved by cable or deemed unprofitable by incumbent phone companies;
• Other Reasons: Almost 30% cited other reasons for not switching, with the most likely being they don’t know or understand their broadband options, they are getting free dial-up access and free is always good, or their local providers didn’t deliver reliable service.

AOL -is- still in business.  While it has been a long time since AOL’s glory years, when the company provided more than 26 million Americans their Internet access, the company still counts today’s 3.5 million users a win.  That may be true for those who don’t need more than basic “You’ve got mail!” service or those suffering from today’s difficult economy.  But cable operators and phone companies do offer price-sensitive dial-up customers a faster alternative.  It’s too bad they rarely bother to market it.

So-called “light user” plans that offer 640kbps-1.2Mbps speeds — much faster than dial-up but hardly “broadband” — are available for $15-26 a month.  For someone paying AOL $17.50, some of these services are more expensive, but probably still within reach when compared to the traditional $45 standard broadband account companies do advertise.  But too often, these budget plans are the best secret in town, under-marketed because of a fear existing broadband customers might seek savings by downgrading traditional (and more profitable) broadband service.

Time Warner Cable experienced another challenging quarter, continuing to lose cable TV customers who either drop or pare back their television service, often in favor of broadband.

The company reported losses of an additional 128,000 video subscribers during the third quarter, but is partly winning that revenue back with new broadband customers — 89,000 of them in the last three months.

“Broadband is a powerful service for which there appears to be unquestionable consumer thirst,” Time Warner Cable CEO Glenn Britt said on the investor call. “Over time, we will contribute more of our plant’s capacity to broadband.”

The company is also poised to expand its marketing to win new broadband customers away from their primary competition — telephone company DSL service.  Company officials remain confounded by customers who subscribe to Time Warner’s cable TV service and take broadband from “inferior” phone company-delivered DSL.  Time Warner will continue to target these customers with win-over promotions offering a year of Road Runner Standard Service at the $29.95 promotional price point.

For the company as a whole, this is the tenth consecutive quarter of year-over-year residential broadband revenue improvement, coming from a combination of higher-priced, faster speed tiers, price increases, and subscriber additions.  The company’s DOCSIS 3 upgrade has proven itself a winner for customers and the company, with 18 percent of Time Warner subscribers now choosing 30 or 50Mbps broadband services.

Wall Street expressed some concern about statements from CEO Glenn Britt that the company was going to expand capital spending on broadband to handle increasing demand, especially from online video.  That concern comes despite the fact the company’s “capital intensity” (spending) from January-September was the lowest in the history of the company.  The full year’s capital spending is on track to reach up to $3 billion, which is consistent with what the company spent last year.

Glenn Britt

So despite the plans to spend more on broadband, that spending is actually in line with previous years.

In response to an opening question from Deutsche Bank’s Doug Mitchelson, Britt delivered an extended explanation downplaying the company’s spending plans:

In a way, there’s nothing really new here. I think you’ve seen this trend for a while. Our broadband product is very strong.

As most people know, the usage of broadband is skyrocketing, as it has been for some time. And that means that we will need to spend more money on it. We have been already, both in capital and operating expenses.

The great thing about the Internet is lots of third parties dream up lots of new applications that require more speed and more bandwidth. And we anticipate that we’re going to have to devote more capacity to that over time. We will do that by gradually removing our analog signals from our — analog TV signals from our plan. We’ve been doing that over the last several years by migrating to digital using Switched Digital technology. And over the next several years, we’ll be going all digital in the TV space.

I don’t see this driving a dramatic change in our cap spending, I think, to the core of your questions. The spending has been going on for a while, and I think you’re seeing a change in mix. The video spending is going down over time. The business services is going to go up, although it didn’t this quarter. And you’re going to see the spending on broadband going up. But I don’t think the overall trajectory is mutually different.

This quarter, the company’s conference call seemed to embrace greater broadband usage, and pondering Internet Overcharging schemes like usage caps or usage-based billing never came up.  But Richard Greenfield from BTIG alluded to usage in his questions to Rob Marcus, president and chief operating officer at Time Warner Cable.

“I think we’re somewhere in the 7GB a month [range] of downstream bandwidth on a median basis,” Marcus said. “The average is much higher given the disproportionate usage by our high-end users.”

There were plenty of other facts to be gleaned from this morning’s conference call:

TV

• Whole Home DVR service has been introduced nationwide.  In the coming year, Time Warner will begin deploying “home gateways,” which reduce equipment costs;
• Time Warner is testing improved cloud-based set top boxes with home networking capabilities in parts of Syracuse, Los Angeles and Dallas.  These boxes will expand across the country in 2012.  They offer better search capability and deliver an improved user experience;
• 60% of customers reject “triple-play” offers from Time Warner and choose either “single” or “double-play” service instead;
• Much of Time Warner’s revenue growth is coming from rate increases on programming, services, and equipment;
• TV Essentials, the smaller, less expensive video package, is now available in New York City and Northeast Ohio, as well as upstate New York. It will launch nationwide by year end.  Unsurprisingly, company officials admit the less-than-attractive channel lineup has resulted in the vast majority of customers calling about the offering taking the traditional video package instead;
• Customers continue to drop ancillary services to cut their cable bill.  The increasingly expensive DVR box is a new target for cutting, and premium movie channels, adult pay-per-view, and mini-pay services all continue to suffer significant declines in business;
• The Google-Motorola deal will likely have little impact on Time Warner’s set top boxes, which primarily come from Cisco and Samsung.

Broadband

• By the end of the year, Time Warner plans to offer an Android-based TV Everywhere application similar to the existing iPad application, which will also continue to be upgraded to include on-demand offerings;
• Time Warner will make their TV Everywhere service available on game consoles, smart TVs and PCs in the near future;
• New York City customers will soon be able to select from a range of local broadcast stations on the company’s iPad app.  Other markets will start to see local channels added to this app in 2012;
• Major parts of Time Warner’s capital investments this year are: building data centers in Charlotte and Denver, conversion to all-digital in Maine to make room for enhanced broadband, and the continued rollout of DOCSIS 3.0. The company is also continuing to spend significantly on wiring commercial buildings to sell services to business customers;
• TV Essentials customers will soon be offered a “lite user” slower speed discount broadband plan to accompany their video package;
• In Los Angeles, Wideband 50Mbps customers also get 2 gigabytes of 4G/3G mobile broadband for no additional monthly charge on the company-branded Clearwire service. For Turbo Plus and Wideband 30Mbps customers, they can get the same 4G/3G capability for an additional $10 a month. Standard and Turbo customers can get it for an extra $20.  The company’s mobile broadband add-on product has not enjoyed much success with paying customers, however.  Time Warner hopes the value-added bundling of mobile broadband will attract more interest.

Phone

• Cord-cutting is now impacting Time Warner “digital phone” service, too.  Customers are increasingly reluctant to purchase phone service from any landline provider.  Now Time Warner’s regular pricing is starting to cost them business.  Executives revealed Time Warner’s “digital phone” service costs the company $9.06 to provide.  They charge consumers $30.  With that kind of profit margin, the company admits it will have to get more aggressive in pricing to attract new customers (and potentially keep existing ones);
• Time Warner lost 8,000 residential voice line customers last quarter, cushioned by net additions of 13,000 business line customers;
• The company continues to show little interest in selling cell phone products or services, either owned by themselves or others.  Mobile data remains an exception.