Phillip Dampier

Stop the Cap! reader Kimon discovered the debate over Net Neutrality is far from over when alerting us to a strong rebuke of the net policy in a number of newspapers published regionally by GateHouse Media.

Macedon, N.Y. resident Cheryl Miller doesn’t like the federal government involving itself in the Internet, and considers the “physical part of the Internet” the private property of Internet Service Providers:

When a progressive liberal takes up a cause, you can bet he’s found another way to undermine someone else’s liberty. The issue of “net neutrality” is a prime example of this rule.

The concept of net neutrality has piggybacked into recent public interest stories about groups with high-minded names like Free Press and Public Knowledge — stories about Internet-assisted food, clothing and book drives for the needy around the world, and other such humanitarian and environmental endeavors. It is sneakily implied that the success of such undertakings are the result of net neutrality principles, but they are not.

[…] Proposed net neutrality legislation would prohibit ISPs from charging different rates for various types of content or services, such as is done with cable and satellite television (think pay-per-view and premium channels). Restricting ISPs from operating in profitable ways is a disincentive to invest in more bandwidth to better serve customers, and likewise discourages innovations that could benefit consumers. More regulation will result in less profit, less competition, higher prices and a stunted Internet.

For Miller, any government policy that interferes with AT&T, Verizon, and Comcast’s view of how the Internet should be ordered amounts to a government takeover of the Internet, especially when the government can tell providers they cannot prioritize traffic or charge customers different prices to access different content.

Here at Stop the Cap!, we were unimpressed with Miller’s arguments and partisan cheap shots, especially at the expense of public policy groups like Free Press and Public Knowledge.  Perhaps she does not realize conservative groups like the Christian Coalition of America are also supporters of Net Neutrality.  But we don’t necessarily blame her either, considering all of the money being spent by corporate-funded groups to distort Net Neutrality’s ultimate goal: to ensure the same formula that made the Internet a runaway success is kept firmly in place.

Our formal response appeared in the same newspapers this afternoon:

“If your house was destroyed, and you have looked around the neighborhood for our cable box and cannot find it, you owe us $212 and you need to either pay us or make an insurance claim on our behalf.”

Those were the exact words of a Charter Cable representative talking to a storm victim who lost her home, possessions, and yes, Charter Cable’s set top box.  Stop the Cap! reader Jake from Alabama shared the story of his friend Kelly — a single mother with three kids who lived in Jefferson County, until last month’s tornado flattened her home and scattered everything the family owned for miles around.  Kelly is now living with her parents in Georgia and trying to sort through insurance claims, school for her children, her future career, and the cable company.

“She told me everyone was wonderful, offering food, aid, temporary shelter, and even assistance with insurance claims,” Jake writes.  “Everyone but Charter Cable, who immediately demanded payment for equipment that could have blown into the next county.”

Kelly told Jake the other utilities were glad to help suspend service to her now non-existent home.  The phone company is even forwarding phone calls to her Alabama phone number, which now connects to her cell phone.  Nobody asked for a penny, and all expressed sorrow for the loss.  Charter Cable expressed an interest in Kelly’s credit card number to pay for her lost cable box.

“She told me the woman at Charter demanded to know if she was not prepared to pay today, when would she file her insurance claim so the company can get paid,” Jake says.  “Even worse, if she didn’t pay, they would assess late fees and turn her over to a collection agency.”

Cable companies demanding payment for lost or destroyed cable equipment is nothing new.  Stop the Cap! has documented instances where operators demand payment for cable boxes destroyed in fires, even when the customer lacks insurance.

“It’s become a hot topic in Birmingham and storm-damaged areas because relief workers are hearing horror stories from customers, some injured, who are told to start combing through adjacent yards to look for their lost cable equipment,” Jake says.

Bright House Networks, which also provides service in some storm-damaged areas, has been particularly nasty.

Jake notes one local talk show featured a caller who shared the story of a Bright House representative who told the customer she would wait on the phone while she searched the backyard for Bright House’s DVR box.

“It was disgusting, and Bright House told a Birmingham newspaper it was their policy to demand homeowners file insurance claims on the cable company’s behalf so they can get paid full value for their damaged, usually previously used, cable equipment,” Jake says.

In fact, that is Bright House Networks’ policy, notes the Birmingham News:

Bright House Networks, whose service area includes hard-hit Pratt City, also expects its customers to file claims under homeowners’ or renters’ insurance to pay for lost or destroyed cable boxes. “That’s how we normally handle it,” spokesman Robert L. Smith said.

If storm victims don’t have insurance, he said, decisions will have to be made on a case-by-case basis.

“For those who have lost everything, talking to a cable company is probably the last thing on their minds,” Smith said. “We’re not going to pressure someone for a set-top box.”

But in fact cable companies have pressured customers into paying for lost equipment and told they’ll get their money back from the final insurance settlement.

“The problem here isn’t so much that Charter and Bright House want to get paid for destroyed equipment, it’s how zealous they are about getting paid right now, even as people are still wrapping their hands around the cards dealt to them by the massive tornado damage,” Jake says.

The News notes not every cable company is out for customers’ credit card numbers:

Among other television services, AT&T’s U-verse customers who lost their leased equipment in the storm can have it replaced at no charge, company spokeswoman Sue Sperry said.

DirecTV waives replacement costs for equipment damaged in storms if customers continue services, spokeswoman Vanessa Dunham said. If service can’t be restored because of damage to the home, DirecTV offers to cancel the account and waive fees for not returning equipment, she said.

[Update 5/20: Charter Communications sent a statement saying, in part: Charter will not charge customers for missing, destroyed, or damaged equipment as a result of the recent tornadoes. We adjusted our policy shortly after the tornado in response to the large-scale and catastrophic nature of this storm.  We have now confirmed the company is now crediting customers for lost or damaged equipment.]

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Your cable company has a problem.  Collectively, the cable industry has lost more than 2 million video customers over the past year, and the problem may be getting worse.  Some of the largest cable companies in the United States are making excuses for the historic losses:

• The bad economy
• Housing and foreclosure crisis
• High unemployment
• Family budget-cutting

But cable companies should be rethinking their excuses, according to a new report from Strategy Analytics.

“Throughout the past seven consecutive quarters of subscriber losses, the inclination of cable has been to point the finger at various external factors,” said Ben Piper, Director of the Strategy Analytics Multiplay Market Dynamics service. “Our analysis shows that neither the economy nor the housing market is to blame for these subscriber defections. The problem is one of value perception.”

Value perception.  That’s a measurement of whether or not one feels they are getting good value for the money they pay for a product or service.  Value comes in several different forms, starting with emotional — do I feel good, safe, secure, or nostalgic using the service?  Can I imagine life without it?  What about my friends and family — will I stand out if I am not buying this product?  It’s also practical — Can I afford this?  Can I find a cheaper or better alternative?  Do I really need this service anymore?

Tied into value perception is customer goodwill.  If you have an excellent experience with a company, letting go of their products comes much harder.  If you feel forced to deal with a company that has delivered poor and expensive service for years, pent up frustration will make it much easier (and satisfying) to cut them loose at the first opportunity.

Embarq used to be Sprint's pathway to prosperity in the local landline business, until cord cutting put landlines into a death spiral.

In the telecommunications industry, value perception is a proven fact of life.  It began with phone companies.  Formerly a monopoly, landline providers have been forced to try and reinvent themselves and become more customer-friendly.  First long distance companies like Sprint and MCI moved in to deliver cheaper (and often better quality) long distance service.  Sprint even got into the landline business themselves, forming EMBARQ, which at its peak was the largest independent phone company in the United States.  When Voice Over IP providers like Vonage and the cable industry’s “digital phone” products arrived, they promised phone bills cut in half, and introduced the concept of unlimited long distance calling.

The value perception among consumers became clear as they began disconnecting their landlines.  The alternative providers offered cheaper, unlimited calling services, often bundled with phone features the local phone company charged considerably more to receive.  Even though VOIP is technically inferior in call quality in many instances, the value the services provided made the decision to cut the phone cord easier.

But local phone company landline losses would only accelerate with the ubiquity of the cell phone, but for different reasons.  What began with high per-minute charges for wireless calls evolved into larger packages of calling allowances, with plenty of free minutes during nights and weekends, and often free calling to those called the most.  Most Americans end the month with unused calling minutes.  As smartphones gradually take a larger share of the cell phone market, the accompanying higher bills have forced a value perception of a different kind — ‘I can’t afford to keep my landline –and– my cell phone, so I’ll disconnect the landline.’

The cable industry has traditionally faced fewer competitive threats and regularly alienates a considerable number of customers, but still keep their business despite annual rate increases and unwanted channels shoveled into ever-growing packages few people want.

This pent up frustration with the cable company has led to perennial calls for additional competition.  That originally came from satellite television, which involved hardware customers didn’t necessarily like, and no option for a triple play package of phone and broadband service.  The cable industry offers both, and by effectively repricing their products to discourage defections from bundled packages, customers soon discovered the resulting savings from satellite TV were often less than toughing it out with the cable company.

As a result, satellite television has never achieved a share of more than 1/3rd of the video market.  Many satellite customers are in non-cable areas, signed up because of a deeply discounted price promotion, were annoyed with the cable company, or didn’t care about the availability of broadband or phone service.  When the price promotion ends or technical issues arise, many customers switch back to cable.

More recently, researchers like Strategy Analytics have discovered some potential game-changers in the paid video marketplace:

• The impact of broadband-delivered video content
• The Redbox phenomena
• Competition from Telco TV
• The digital television conversion

Strategy Analytics studied consumer perceptions and found customers braver than ever before about their plans to cut cable’s cord.  According to the consumers surveyed, nobody scores lower in value perception than cable companies.  Citing “low value for money,” over half of the cable subscribers surveyed told the research firm they intended to disconnect their cable TV package in the near future.

While other researchers dismiss those high numbers as bravado, there are clear warnings for the industry.

“Much ink has been spilled on the topic of cord cutting and even skeptics are now admitting that it can’t be ignored,” said Piper.

Indeed, Craig Moffett, an analyst with Sanford Bernstein who almost never says a discouraging word about his beloved cable industry, told Ad Age Mediaworks the issue of cord-cutting was real.

“It’s hard to pretend that cord cutting simply isn’t happening,” Moffett said.

Craig E. Moffett, perennial cable stock booster, even admits cord-cutting is real.

The most dramatic impact on the cable industry has been in the ongoing erosion of the number of premium channel subscribers, those willing to pay up to $14 a month for HBO, Cinemax, Showtime, or Starz!.  The reason?  Low value for money.  As HBO loses subscribers, Netflix and Redbox gain many of them.  Netflix still delivers a considerable number of movies by mail, but has an increasingly large library of instant viewing options over broadband connections.  Strategically placed Redbox kiosks deliver a convenient, and budget-minded alternative.

The loss of real wage growth, the housing collapse, and the down-turned economy do put pricing pressures on the industry, but some cable executives hope the time-honored tradition of customers howling about rate increases without ever actually dropping cable service continues.

But as new platforms emerge, some delivering actual pricing competition to the cable TV package, increasing numbers of customers are willing to take their video business somewhere else.  Some are stopped at the last minute with a heavily discounted customer retention pricing package, but that doesn’t keep them from sampling alternative online video options.  Among those who actually do leave, some are satisfied with the increased number of channels they get for free over-the-air after America’s digital television conversion.

Many others are switching to new offerings from telephone companies.  Both AT&T and Verizon deliver video packages to many of their customers, often at introductory prices dramatically lower than their current cable TV bill.  When considering a bill for $160 for phone, video, and broadband from the cable company or $99 for the same services from the phone company, $60 a month in savings for the first year or two is quite a value perception, and the inevitable disconnect order is placed with the cable company.

Ad Age‘s own survey, more skeptical about cord-cutting, confirmed that many former cable TV customers left for budgetary reasons, but many also kept their triple play packages.  They just bought them from someone else.

Also confirmed: a dramatic upswing in online viewing, sometimes paid but often ad-supported or free.

Strategy Analysts concludes in its report, available for $1,999, that the ongoing erosion of cable TV subscribers isn’t irreversible, but it requires urgency among providers to become more customer-friendly and increase the all-important value perception.

In other words: respecting the needs and wishes of your customers.

Thankfully, the cable industry is dealing with competitors like AT&T, who are willing to assassinate their current lead in value perception by slapping Internet Overcharging pricing schemes on their broadband service.  That will certainly raise the ire of their DSL and U-verse customers, many who are treating the customer unfriendly usage limits as an invitation to leave.  Their former cable companies are waiting to welcome them back.  The real question remains, will cable customers now be treated better?

Charter Cable, one of America’s worst-rated cable companies, wants out of greater Los Angeles.  Its cable system, serving parts of LA, has been rumored for sale for years.  Now the cable company has gotten serious, hiring Goldman Sachs and Citibank to run an auction to sell off the system.

The most logical buyer, Time Warner Cable, has been engaged in on-again, off-again talks with Charter about Los Angeles for sometime, according to several sources in the cable investment community.  Charter proposed a swap, trading its Los Angeles system to Time Warner if they could acquire Time Warner’s subscribers in Wisconsin.

Time Warner Cable currently serves 560,000 subscribers in Green Bay, Milwaukee and Appleton.  Charter serves much of the rest of the state.  Thankfully for many Wisconsin customers, Time Warner Cable told Charter they were not interested.  Time Warner gets significantly higher customer ratings than Charter does.

Now that Goldman Sachs and Citibank will be running an auction, Time Warner Cable could still ultimately acquire the Charter systems in Los Angeles, if they are willing to pony up an estimated $2 billion asking price.  If Time Warner won’t bid that high, speculation is that Comcast, Cox, or Cablevision will.

A surprise bonus for buyers are rumors Charter will throw in its cable system in Fort Worth, Tex.  That move would also seem to benefit a Time Warner Cable takeover, considering the nation’s second largest cable operator already has an enormous presence in the Dallas/Fort Worth Metroplex.  But Multichannel News points out that part of Texas brings bad memories for Time Warner, when it had to effectively commit to an expensive rebuild of the nearby ailing system acquired from bankrupt Adelphia Cable in 2006.

Time Warner Cable is still rumored to be the logical buyer of Insight Cable’s systems, also for sale, in Indiana, Kentucky, and Ohio, although the cable company is still balking at an asking price of up to $4 billion.

In the 1980s and early 90s, independent cable companies were hot properties for speculators and investors looking to buy low and sell high.  But as the marketplace has become increasingly concentrated, the days of flipping cable companies for big profits are long gone.

But a few independent holdouts remain.  Bresnan Communications, the 17th largest cable company was sold last year to Cablevision Industries (8th largest).  Now Insight Communications, the 9th largest operator, is up for sale by its private equity owners Carlyle Group, MidOcean Partners and Crestview Partners.

Insight serves just over 760,000 customers in Kentucky, Indiana and Ohio.  Originally, the company operated as Insight Midwest, a partnership between co-owners Comcast and Insight.  When the partnership between the two companies ended, Comcast took most of Insight’s customers in Indiana and Illinois and converted them to Comcast service.  The remainder have been served by Insight.

The deal to sell Insight is being managed by Bank of America-Merrill Lynch and UBS AG and is being pitched to much larger cable operators with a price tag of $3.5 billion to $4 billion.

That’s too rich for Time Warner Cable’s blood.  The nation’s second largest cable operator was interested in acquiring Insight, but not at those prices.  Another potential buyer could be Comcast, which has a significant part of the midwestern market, especially in Illinois.

Insight has been on the sales block before — the last time in 2007 when Carlyle Group found no buyer interested in the systems at their asking price.