Phillip “It isn’t so dumb to own the pipes” Dampier

In 2006, AT&T CEO Ed Whitacre thought his company was at a disadvantage being stuck with “dumb pipes” while Google, Yahoo! (remember them?) and Vonage couldn’t count their earnings fast enough. While AT&T sold consumers plain DSL service, content was king on Wall Street and Whitacre groused it was unfair for bandwidth hogs to use “the pipes for free.” That one statement was the equivalent of throwing a lit match on a hillside in Malibu Canyon and a predictable firestorm over Net Neutrality ensued.

Nine years later, Net Neutrality is now official FCC policy, although the sour grape-eating Republicans will continue to throw Congressional hissyfits along the way. While they rely on tissue-thin evidence to back their assertion the FCC secretly colluded with the Obama Administration to stick it to AT&T and demand its repeal, the future of Net Neutrality will more likely be decided in a courtroom a year or two from now.

Back in 2006 AT&T primarily sold DSL service and was looking for cash to finance its then emerging U-verse platform. AT&T planned to follow cable’s lead, devoting most of the available bandwidth on its fiber to the neighborhood network to cable television programming. Broadband speeds were limited to just under 25Mbps — even less if a large household had multiple television sets in use.

But as the Great Recession arrived and wages stagnated, the cost of what used to be a “must-have” service for most Americans increasingly began to exceed the household budget and the day finally arrived when cable companies started losing more television customers than they were adding. Even worse, cable programming costs continue to spiral upwards and no major cable company can increase cable television rates fast enough to support the usual profit margin the industry counted on.

What Whitacre failed to realize nine years earlier is that broadband providers did not simply own “dumb pipes.” AT&T, Comcast, Verizon, Time Warner Cable, Charter and other providers actually occupy two gilded catbird seats, with AT&T and Verizon dominating the wireless Internet business and Comcast, Time Warner, and Charter dominating at-home viewing and wired broadband. Lawmakers who deregulated both industries predicted pitting AT&T against Comcast or Verizon against Time Warner Cable would create competition not seen since Coke vs. Pepsi. Consumers would benefit and world-class service would result.

Instead, Time Warner Cable now sells Verizon Wireless phone service. Verizon gave up on expanding its FiOS network and is selling off its DSL and FiOS business in pieces to focus on its best moneymaker, Verizon Wireless. Comcast in turn threw in the towel on any notion of offering competing cellular service and, in fact, sold its acquired wireless spectrum to Verizon.

PlayStation Vue’s lineup

The best way to make money is to avoid price wars with your competitors and the evidence shows there is growing peace in America’s Telecom Valley. Comcast can now raise your broadband bill because, for most, Verizon FiOS isn’t an option. AT&T U-verse does not have to hurry speed upgrades to customers if Time Warner Cable delivers no better than 50/5Mbps service in large parts of its service area. Google Fiber remains a minor threat, only available in a handful of cities. AT&T distributed more copies of its press release touting U-verse Gigapower — its gigabit Internet offering — than there are customers qualified to sign up.

Notice that we’ve drifted away from talking about cable television programming. So has the industry, now increasingly dependent on broadband rate increases to make up the difference in revenue they used to take home from their television packages.

But now that the biggest players have a predictable source of revenue, allowing disruptors to further challenge earnings isn’t something your local cable and phone company will allow for long. At the moment, those most likely to cause problems are the growing number of “over the top” streaming video services that do not require a cable television subscription to watch. But they do need broadband — Whitacre’s “dumb pipes” — to reach subscribers. To manage that, services like Apple, PlayStation Vue and Sling TV and their customers must deal with the gatekeepers — AT&T, Comcast, Time Warner Cable, Verizon and others.

What Whitacre thought was a disadvantage is now becoming the best thing in the world — manning a toll booth on the only two roads most Americans can use to access online content.

Today, Sony officially launched its Internet-TV service, “PlayStation Vue” in three cities (New York, Chicago and Philadelphia) with a base price of $49.99/month. In includes more than 50 cable networks and in the three launch cities — local network affiliates. In Chicago and Philadelphia, where Comcast provides cable service, potential customers will need to pay $50 a month for Vue and another $64.95 a month for 50Mbps broadband — the least expensive broadband-only tier that is suitable for high quality viewing. Your combined bill for both services is $114.94 a month. Comcast charges $99.99 a month for its double play – 220 TV channels and 50Mbps broadband — almost $15 a month less for its package, and it includes around 150 more channels than Vue.

Comcast explains its new usage caps.

But Comcast also has another weapon it is testing is several of its markets — the resumption of usage caps and overlimit fees on its broadband service. Comcast customers in most test markets are given 300GB a month, after which they face overlimit fees of $10 for each additional increment of 50GB. While web browsing and e-mail fit more than comfortably within those caps, watching HD video may not. That leaves a potential Vue customer with a major dilemma. Should they pay $15 a month more for service than they can pay Comcast for a better package -and- chew away their usage allowance using it?

Comcast has yet to figure out how to install a coin collector on top of your television set, so you can watch as much Comcast cable television as you’d like. But watching streaming video could get very expensive if it exceeds a future Comcast usage allowance.

Smaller video packages from providers like Sling TV or the forthcoming Apple streaming service might make more sense, but will still be subject to Comcast’s usage caps if/when they are reintroduced around the country, while Comcast’s own television service will not.

This is why cable and phone companies hold enormous power over their potential competitors, even if Net Neutrality is fiercely enforced. Usage caps and usage-based billing represent an end run around Net Neutrality and both are permitted. The FCC has consistently refused to engage on the issue of broadband usage caps, leaving providers with a useful weapon to deter customers from dropping their television package in favor of an online alternative.

With most Americans having a choice of only one or two “dumb pipes” over which they can reach these services, being an owner of those pipes and getting to set the rates and conditions to use them is a very comfortable (and profitable) place to be.

The deck is stacked against independent cable operators fighting to stay competitive in a marketplace obsessed with consolidation and volume discounts on cable programming. The excessive costs paid by small, often family owned cable operators have now become so great, they are impeding broadband upgrades and expansion, according to the American Cable Association.

The ACA represents small and medium cable operators that live in a different world than Comcast and Time Warner Cable. For years, these smaller, usually rural operators have been at a disadvantage negotiating with cable programmers for reasonable programming rates. The largest cable operators win the best volume discounts, often offset by higher rates for the smaller cable companies that are typical of ACA’s membership roster.

With the FCC now enforcing Section 706 of its mandate requiring the Commission to advance the cause of competitive and ubiquitous broadband, the ACA has gotten creative in comments urging the FCC to crack down on the kinds of unfair programming contracts that force small operators to spend an ever-increasing amount of their budgets on cable television networks instead of broadband expansion.

Video margins are dropping, which means smaller operators have less to invest in broadband. (Chart: SNL/Kagan)

“It has become evident that the increasing prices video programmers and broadcasters charge multichannel video programming distributors (MVPDs) can act as a drag on broadband deployment,” said ACA president Matt Polka. “If these prices continue their upward spiral, existing providers of both broadband and MVPD services and new entrants will be deterred from expanding their broadband networks or otherwise undertaking new builds.”

Removing barriers to investment is one of the requirements the FCC is supposed to enforce under Section 706 and it has recently shown a willingness to do that by overturning Tennessee and North Carolina laws restricting the growth of municipal broadband. The ACA now wants to learn if the FCC will give small cable operators some relief as well.

The ACA argues that broadband providers must offer consumers video along with broadband and voice services, yet they face ever-increasing video programming costs that squeeze margins.  As a result, smaller triple play providers’ ability to achieve a sufficient return on investment for deploying broadband, particularly in new areas, is quickly diminishing.

The trade group wants the FCC to reform program-access rules to guarantee fairer treatment for smaller cable operators who depend on group buying power through buying co-ops like the National Cable Television Cooperative. The ACA also wants a prohibition on programmers yanking their signals in the middle of retransmission consent contract negotiations. The ability to pull a signal off a cable system gives programmers an unfair negotiating advantage according to the ACA.

The Federal Communications Commission, over loud objections from America’s largest cable and phone companies, has raised the minimum speed necessary to qualify as “broadband” from 4/1Mbps to 25/3Mbps.

Broadband deployment in the United States – especially in rural areas – is failing to keep pace with today’s advanced, high-quality voice, data, graphics and video offerings, according to the 2015 Broadband Progress Report adopted by the Federal Communications Commission.

Reflecting advances in technology, market offerings by broadband providers and consumer demand, the FCC updated its broadband benchmark speeds to 25 megabits per second (Mbps) for downloads and 3 Mbps for uploads. The 4 Mbps/1 Mbps standard set in 2010 is dated and inadequate for evaluating whether advanced broadband is being deployed to all Americans in a timely way, the FCC found.

Wheeler

Using this updated service benchmark, the 2015 report finds that 55 million Americans – 17 percent of the population – lack access to advanced broadband. Moreover, a significant digital divide remains between urban and rural America: Over half of all rural Americans lack access to 25 Mbps/3 Mbps service.

“The FCC doesn’t just have a statutory obligation to report on the status of broadband deployment; we have a duty to take immediate action if we assess that the goal of deployment to all Americans is not being met,” said FCC chairman Thomas Wheeler. “And act we have.”

The 3-2 party line vote left the FCC’s two Republican commissioners Ajit Pay and Michael O’Rielly siding with the telecom industry.

Commissioner Pai even accused the FCC of aiding and abetting the Obama Administration’s larger plan to regulate the Internet.

“The ultimate goal is to seize new, virtually limitless authority to regulate the broadband marketplace,” Pai wrote in his dissent. “Under its interpretation of section 706 of the Telecommunications Act, the FCC can do that only by determining that broadband is not ‘being deployed to all Americans in a reasonable and timely fashion’ or, more colloquially, by ignoring the consistent progress in Internet connectivity that’s obvious to anyone with a digital connection and an analog pulse.”

Pai

Pai called the FCC decision “Kafkaesque,” claiming the agency’s recent activist approach on issues like broadband speed, Net Neutrality, and managing wireless spectrum to guarantee robust competition will result in cuts in broadband investment, raise the cost of deployment, and deter competition.

Pai believes the FCC is erecting barriers that will delay or even stop Verizon and AT&T’s plans to ditch rural landline service through a proposed transition to IP-based phone service in urban communities and wireless-only service in rural areas. He also complained about efforts by the FCC to regulate the Internet like a public utility, claiming “that is not what the American consumer wants or deserves.”

But Commissioner Jessica Rosenworcel countered maintaining the status quo and allowing the marketplace to set the agenda risks our digital future.

“I, for one, am tired of dreaming small; It’s time to dream big,” Rosenworcel said. “This is the country that put a man on the moon. We invented the Internet. We can do audacious things—if we set big goals. I think our new threshold should be 100Mbps. I think anything short of that shortchanges our children, our future, and our digital economy. I don’t think reaching a benchmark like this is easy—but nothing worthwhile ever is. Still, the history of technological innovation is rife with examples of the great depths of American known-how. It is time to put that know-how to work and use it to bring really big broadband everywhere.”

The FCC’s changed definition of what constitutes broadband could also have an impact on the current merger deal involving Comcast and Time Warner Cable now before the FCC and state regulators.

With the new definition in place, Comcast’s monopoly control of broadband service becomes more clear as fewer phone companies are able to meet the minimum speed standard to qualify as broadband competitors. Comcast will now control about 50% of all broadband homes in the country, a percentage that could reach even higher if Comcast revamps Time Warner Cable’s broadband tiers.

The report also highlights a growing digital divide on Tribal lands, in U.S. territories, and in schools. At least two-thirds of residents lack access to broadband on Native American reservations and in U.S. possessions including Puerto Rico, Guam, the Northern Marianas, U. S. Virgin Islands and American Samoa. More than one-third of all schools in the United States lack access to fiber broadband connections.

Key findings include the following:

• 17 percent of all Americans (55 million people) lack access to 25/3 Mbps service;
• 53 percent of rural Americans (22 million people) lack access to 25/3 Mbps;
• By contrast, only 8 percent of urban Americans lack access to 25/3 Mbps broadband;
• Rural America continues to be underserved at all speeds: 20 percent lack access even to service at 4/1 Mbps, down only 1 percent from 2011, and 31 percent lack access to 10/1 Mbps, down only 4 percent from 2011;
• 63 percent of Americans living on Tribal lands (2.5 million people) lack access to 25/3 Mbps broadband;
• 85 percent living in rural areas of Tribal lands (1.7 million people) lack access;
• 63 percent of Americans living in U.S. territories (2.6 million people) lack access to 25/3Mbps broadband;
• 79 percent of those living in rural territorial areas (880,000 people) lack access;
• Overall, the gap in availability of broadband at 25/3Mbps closed by only 3 percentage points last year, from 20% lacking access in 2012 to 17% in 2013.

The National Cable & Telecommunications Association (NCTA), the nation’s largest cable lobbying group, has outdone itself with a brand new fact-challenged video truth-seekers will quickly discover is little more than industry propaganda.

“For nearly 20 years, cable has been building Internet networks that are empowering everyone from innovators and entrepreneurs to kids in the garage,” says the NCTA in its introduction of its new video “The Infinite Internet.” “The Internet propels business, education, entertainment – whatever we want. It’s a platform of possibilities and the fast growing technology in history. Cable is proud of the part we’ve played in advancing America’s future and we’ll continue to make it faster and more accessible.”

Except many NCTA member companies want to introduce usage caps and consumption billing that limit those possibilities on an already absurdly profitable service. The same broadband duopoly of cable and phone companies also holds America’s broadband rankings back, and has demonstrated its real priority is to charge more money for less service.

We’ve reviewed the video and found credibility problems with almost every claim:

Claim: “America’s ISPs have invested trillions of dollars and laid 400,000 miles of fiber optics.”

Our finding: FIB Even industry mouthpieces like the Progressive Policy Institute and NCTA members themselves have a problem with “trillions.” The chief executives of AT&T, Bright House Networks, Cablevision, CenturyLink, Charter, Comcast, Cox, Frontier, Suddenlink, Time Warner Cable, 15 other companies, and industry groups such as the National Cable & Telecommunications Association itself, the Telecommunications Industry Association, and the CTIA Wireless Association claimed in the spring of 2014 that the entire telecommunications industry (not cable alone) spent a combined $1.2 trillion on communications infrastructure. A considerable percentage of that investment was to build out cellular networks, first for mobile phone calls and only later for wireless data. The cable industry spent far less than $1 trillion on its own infrastructure and at the time of its most rapid growth, it was intended primarily to deliver cable television, not broadband.

Stop the Cap! also found the NCTA cheating in its claims of increasing investment in broadband. The trade group was citing cumulative spending, not actual year-to-year spending. A careful review shows broadband investments are generally flat or in decline and are nowhere near comparable to the investments the industry made in the late 1990s.

Although it may be true the cable industry has deployed 400,000 miles of fiber optics, the overwhelming majority of cable customers cannot directly access any of it. Virtually all the cable industry’s fiber is deployed between the company’s headquarters and individual communities where it is connected to the same coaxial cable platform that has been around since the 1960s. Most of the rest is laid for commercial purposes, notably providing backhaul connectivity for cell towers. Time Warner Cable alone deployed fiber to its 10,000th cell tower back in 2013. It’s a lucrative business, earning that cable company more than $61 million a quarter.

BroadbandNow found no cable company appearing on the list of top fiber broadband providers. In fact, as of 2012 only 23% of Americans have access to fiber broadband ranking the United States 14th among western countries in fiber optic penetration according to the OECD.

Claim: “High speed connections reach nearly every home with blazing fast speeds that power our lives.”

Our finding: HIGHLY MISLEADING The NCTA fails to define its terms here. What exactly constitutes a “high-speed connection.” The FCC currently defines broadband as providing speeds of 4Mbps or better. Is that “blazing fast?” The FCC is currently considering redefining broadband to mean speeds of at least 25Mbps, well below many cable company entry-level broadband tiers. The NCTA also likes to claim that 99% of households have access to high-speed Internet, but they include wireless technology at any speed in those figures. If you can get one bar from AT&T’s 3G wireless Internet network, you’ve got high-speed broadband in their eyes.

In fact, when it comes to stingy coverage areas, cable is notoriously not available outside of the biggest cities and suburbs, as the government’s own National Broadband Map depicts:

Map showing cable companies offering at least DOCSIS 3.0 cable broadband service.

Claim: “ISP’s want access for everyone.”

Our finding: TRUE, WITH MISSING FINE PRINT What company would not want to offer its products and services to everyone. The real question is whether they plan on doing that or simply wishing they had. The cable industry has no intention of implementing sweeping changes to the Return On Investment (ROI) formula that determines whether your home gets access to cable or not. Some companies like Time Warner Cable and Frontier Communications are expanding their cable and DSL networks, but only when the government steps in with broadband deployment grant funding.

Assuming service is available, the next hurdle is cost. BBC News reported in 2013 home broadband in the U.S. costs far more than elsewhere. At high speeds, it costs nearly three times as much as in the UK and France, and more than five times as much as in South Korea. Today it costs even more when you count the growing number of providers charging modem rental fees as high as $10 a month and often cap usage or force customers into usage-based billing schemes.

Claim: “With over 300,000 public Wi-Fi hotspots, the Internet of Things is emerging.”

Cox Cable sells their customers on accessing over 300,000 Wi-Fi hotspots, with a prominent asterisk. Access is only available for free if you are a current cable broadband customer.

Our finding: MISLEADING The NCTA is referring to collaboration between Bright House Networks, Cox Communications, Optimum, Time Warner Cable and XFINITY that allow each other’s high-speed Internet customers to use to each company’s Wi-Fi hotspots. They key word is “customers.” The hotspots may be technically reachable by the public, but unless you are a current cable broadband subscriber, using them typically requires the purchase of a daily use pass.

Claim: “Cable will continue to invest, building this platform of possibilities, if we preserve the freedom that created the Internet.”

Our finding: EMPTY CLAIMS The NCTA’s commitment that the cable industry will continue to invest is fulfilled if one cable operator spends just $1 on their network infrastructure. Notice the NCTA does not commit its members to stopping the ongoing decline in broadband investment, much less move to increase it. It also has no explanation for the annual rate increases and new fees and surcharges customers are paying, as the gap between broadband pricing abroad and at home grows even larger. 

“Preserve the freedom” is code language for maintaining the deregulation that the industry has used to its advantage to raise prices in a broadband market most Americans will find is either a monopoly or duopoly. Although the NCTA implies it, the cable industry did not create the Internet. It was a government project (gasp!) initially developed through contracts with the Department of Defense and soon broadened to include educational institutions. The first significant commercial ISPs emerged only in the late 1980s. Cable industry broadband finally showed up around a decade after that. The industry’s claims are akin to boasting Lewis and Clark discovered Kansas City… in 1966.

If the cable industry gets some oversight of its broadband service and enforced protection of Net Neutrality, does that mean investment will flee? First, providers are already spending a lower percentage of capital on broadband expansion in the current deregulatory environment. Second, as broadband becomes the cable industry’s top earner, it provides an endless supply of revenue without the headaches of negotiating programming contracts, dealing with cable television network rate increases, and the growing phenomenon of cord-cutting. In other words, without significant new competition, it remains a license to print money.

[flv]http://www.phillipdampier.com/video/NCTA The Infinite Internet 1-20-15.mp4[/flv]

The NCTA is trying to make hay with its new video, “The Infinite Internet” which purports to share how Big Cable’s vision of the Internet is making new things possible. They don’t mention many of their member companies want to place a usage cap on that innovation, even as they continue to raise prices way out of proportion of the cost of delivering the service. It’s classic cable industry propaganda. (1:08)

Time Warner Cable was named by the Better Business Bureau’s its biggest overall offender in the Charlotte region, generating 187 complaints last year, according to the group’s annual year-end report, noted by the Charlotte Observer.

The cable company did not generate enough complaints to put cable and satellite provider complaints in the top complaint categories, however. Broadband providers in the region came in third in complaints, behind new car dealers and collection agencies. Auto repair shops and used car dealers did better, coming in fourth and fifth, respectively.

Time Warner Cable could not be reached for comment, but complaints registered with the BBB against the cable company almost always were resolved to the customer’s satisfaction. Most companies forward BBB complaints to “executive level” customer service supervisors that are empowered to do almost whatever it takes to settle a complaint. In Charlotte, 91 percent of complaints were quickly resolved once registered with the organization.