Courtesy: vgm8383

Bay area residents are fuming over Comcast’s latest round of rate increases.  The din grew so loud, Drew Voros, the Oakland Tribune Business Editor, noted “the annual outcry over Comcast rates is louder than any rate increase for electricity or water I have come across. A possible exception being California’s energy crisis earlier this decade.”

Voros then casually dismisses consumer outrage by telling his readers “cable TV is not a utility. It is not a vital service with transparency, public input and debate. There is no recourse for poor service through regulatory bodies or the ballot box.”

We know where this is going.

Voros doesn’t suggest that the rate increases are unjustified and unwarranted, nor does he have a bad word to say to Comcast, although he does fixate on one aspect of the regulatory framework (the wrong one) that he believes is at the core of the problem of unchecked rate increases.

His suggestion is to watch free over the air television or try DirecTV, Dish Network or AT&T’s U-verse.

Let’s explore those alternatives.

For some, assuming they get reasonable reception, and many Bay Area residents do not, getting local over the air signals might be good enough, but won’t help with those pesky rate increases on broadband service, or for those channels like C-SPAN or cable news outlets residents access to get coverage of events local broadcasters ignore.

DirecTV and Dish Network are also fine alternatives, assuming you have permission from a landlord to install the reception equipment, and/or your view to the satellite isn’t obstructed by trees or buildings.  AT&T U-verse is an even better potential choice, assuming it’s actually available in your area.

For everyone else, it’s Comzilla or go without.

Voros then goes too far into the weeds and gets lost in what suspiciously looks like “blame the government” rhetoric:

What many TV viewers do not realize is that the franchise agreements are loaded with fees and payments to the cities, funded through annual rate increases. There’s give and take between cable companies and the cities they serve. It’s a business deal with you in the middle.

But consumers are not bound by any franchise agreements, and the options for television services have grown immensely since the first cable TV line was connected in the 1970s. That is why the franchise agreements are out of date. Technology has overtaken that legal document. There’s no monopoly on television content delivery.

Comzilla attacks San Francisco with rate hikes.

Ask any city official if they’d rather enjoy the incremental increase in franchise payments (which amounts to a fixed percentage, usually 3-5% of gross revenue) made possible by the annual rate hike, or the peace and quiet from constituents not upset over an industry that routinely increases rates well in excess of inflation.

Doing away with the franchise system to resolve cable rate hikes would be like using a ShamWow to deal with the after-effects of Hurricane Katrina.

Most cable companies used to include the “franchise fee” as part of the cost of the monthly service, but now routinely break that charge out onto its own line on your bill (and many never lowered the price for the original service, pocketing that as a hidden rate increase as well).  A rate increase may add a few pennies to the franchise fee on a customer’s bill, but then there is the other $3-5 dollars to consider.

Franchise agreements are negotiated for wired providers.  AT&T had to obtain one to provide U-verse.  That’s because local communities demand that a business tearing up their streets provide something in return for the community.  That usually includes: a small percentage of gross revenue, an agreement to provide free service in community centers, government offices, and public schools, and that they set aside several channels for Public, Educational, and Government access, known collectively as “PEG channels.”  It’s a very small price to pay for an industry that earns billions in profits.

Those agreements typically are renegotiated every ten years, so if consumers object to the franchise fee arrangement, they can appeal to local government to reduce or eliminate it.

Voros also suggests consumers try to obtain television programming online.  That is also sometimes possible, but as Stop the Cap! readers know, that also takes a broadband connection, and Comcast just raised the price for many of their customers for that as well.  With the industry’s new TV Everywhere project, dropping your cable subscription, as Voros suggests, will also likely cut you off from many of your favorite cable shows online — TV Everywhere is for paid television subscribers only.

The industry has every angle covered, right down to suing to remove the exclusivity ban on cable networks and programming.  Should the DC Court of Appeals agree, Voros’ contention that there’s no monopoly on television content delivery will also be thrown into doubt.

The solution is not to blame “outdated” franchise agreements.  The cable package business model is the larger problem.  Customers are expected to pay for ever-growing and more costly basic and digital cable packages filled with channels they don’t want.  Of course competition should be encouraged, but allowing consumers to choose and pay for only the channels they wish is a far better solution to runaway cable pricing.

Delta, part of the Vancouver metro area, British Columbia

Stop the Cap! reader Rick has been educating me about some of the new-found aggression by Shaw Communications, one of western Canada’s largest telecommunications companies, in expanding its business reach across Canada.  Woe to those who get in the way.

Novus Entertainment is already familiar with this story.  As Stop the Cap! reported previously, Shaw launched fire sale pricing on its cable, broadband, and telephone services ($9.95 a month for each) and target marketed those limited special offers in and around buildings wired for Novus service.  Novus protested to the BC courts, claiming Shaw was engaged in predatory pricing behavior.

A few days ago, an Ontario court judge dismissed a suit brought by Rogers Communications against Shaw over Shaw’s plans to buyout Mountain Cablevision, a smaller cable provider serving parts of southwestern Ontario.  Rogers was upset because the purchase violated a “covenant” between the two telecom giants not to compete in each others’ service areas.

Now, Shaw’s trucks are rumbling down the roads of Delta, a community south of Vancouver,  as work begins on constructing a cable system that will directly compete against Bragg Communications’ Delta Cable.  Shaw also has won approval from the Canadian Radio-television Telecommunications Commission (CRTC) to competitively wire Ladner and adjacent neighborhoods southeast of Vancouver.

Shaw president Peter Bissonnette told industry news site Cartt.ca the wiring of Delta and Ladner comes as a result of “people there saying they would like to get Shaw.”  So now residents can look out their windows and see Delta Cable’s wiring on one side of the street and Shaw’s wires on the other.

Another success story for head-on competition leading to lower prices and more choice, right?

Not so fast.

As Cartt.ca reports (one article view is available for free, subscription required thereafter), there is a history to be considered here, and that may include another agenda beyond the “consumers wanted us so we came” explanation.

There’s a bit of history to the Delta system and Shaw, however. Back in 2006, when then-owner John Thomas decided to sell Delta Cable and Coast Cable, many assumed he would sell to Shaw. After all, Thomas was on Shaw’s board of directors. However, aware of the fact most of his employees would likely be out of work if nearby Shaw bought it, he instead surprised most by selling to what was then Persona Communications, for about $90 million.

Some months later, Persona itself was purchased for a reported $750 million by Bragg Communications, which does business, of course, as EastLink, primarily in Eastern Canada.

Cartt reports it is no secret Shaw wants the Delta region as part of its greater Vancouver service area, and the traditional route by which most cable companies do this is by buying out the incumbent provider.  Bragg Communications understands this, and has sold some of its own systems in the past, most recently in Saskatchewan.  But so far, not in Delta.

Bissonnette was cagey when asked if Shaw had pursued the buyout route, which is always cheaper than overbuilding an area with all new wiring.

“They know what we are doing. There’s always more than one way to skin a cat you know,” he said.

If Shaw adopts the same aggressive strategy in Delta they have used against Novus in downtown Vancouver, it will likely make Delta’s current cable system unprofitable.  Bragg would be forced to consider either engaging in a sustained price war, something Shaw is in a better position to handle because of revenue earned from non-competitive areas, or eventually sell the Delta Cable system at a fraction of its original value.

For comparison, Delta Cable charges $26 a month for analog basic cable plus $26.95 a month for a robust digital channel package.  Broadband service, with a 62GB usage cap is $39.50 per month.  They don’t seem to offer telephone service.  Shaw promoted a digital/basic combination package in downtown Vancouver for $9.95 a month and broadband for an additional $9.95.  Shaw to Delta Cable: Compete with that.

For a time, up to 28,000 households in the area may enjoy some benefits from a sustained price battle, unless Bragg capitulates and sells out early, but in the end, if Shaw engages in the kind of allegedly predatory pricing it has in downtown Vancouver against Novus, the benefits will be short-lived, and Shaw always has time to make up the difference down the road.

A Wall Street Journal article this morning calls the imminent introduction of Net Neutrality policy “a boon for consumers […] to use their computers or cellphones to enjoy videos, music and other legal services that hog bandwidth.”

The article refers to the widely expected announcement today by FCC Chairman Julius Genachowski that Net Neutrality should be adopted as the fifth principle governing Internet service in the United States.

But Journal reporter Amy Schatz’s judgment about who wins and who loses in the Net Neutrality debate is framed by the flawed broadband provider arguments she adopts as reality:

The proposed rules could change how operators manage their networks and profit from them, and the everyday online experience of individual users. Treating Web traffic equally means carriers couldn’t block or slow access to legal services or sites that are a drain on their networks or offered by rivals.

The rules will escalate a fight over how much control the government should have over Internet commerce. The Obama administration is taking the side of Google, Amazon.com Inc. and an array of smaller businesses that want to profit from offering consumers streaming video, graphics-rich games, movie and music downloads and other services.

Setting aside the inappropriate use of the word “hog” to define broadband usage, which comes straight out of the broadband industry’s public relations strategy, Schatz ignores the fact some of the biggest drains on these networks will soon come from the industry’s own efforts to dominate online video — TV Everywhere.

In fact, the excuses for imposing Internet Overcharging schemes in 2009 do not reference much beyond online video growth as a justification to impose speed throttles and price increases on consumers.

Schatz adopts industry positions as fact in a number of places throughout her piece, which belongs on the Editorial page of the Journal:

If the FCC does force U.S. wireless carriers to open their networks to data-heavy applications like streaming video, it could push them beyond the limited capacity they have. Already, in areas like New York and San Francisco, a high concentration of iPhones has caused many AT&T customers to complain about degrading service.

In fact, many wireless carriers already provide their own wireless video to customers, and don’t seem to be engaging in a lot of hand-wringing over that.  Should Net Neutrality force open the wireless platform, the quality of the service, not the provider’s self interest will govern the success and failure of individual applications.  AT&T, which has earned massive revenue from its exclusive iPhone arrangement with Apple, can and should continue to invest some of that revenue into expanding their network to meet the demand.  If they cannot, it is an open question why they would allow any online video or other data-heavy applications on their networks until those networks can handle the traffic.

In such a scenario, wireless carriers may have to rethink how much they charge for data plans or even cap how much bandwidth individuals get, said Julie Ask, a wireless analyst at Jupiter Research.

This ignores the fact providers have already rethought about how much they charge for data plans.  Some providers are now compelling subscribers to choose data plans as part of their two year service agreements, while the industry is replete with 5GB usage caps on wireless data services today.  Someone should ask Ask what she thinks is forthcoming that hasn’t already happened.

The FCC’s proposal will take into account the bandwidth limitations faced by wireless carriers, according to people familiar with the plan, and would ask how such rules should apply to current networks.

…which takes the wind out of the sails of the argument Net Neutrality would be ruinous to wireless providers.

The proposals come as the FCC faces a federal appeals court case over its authority to regulate Web traffic. Comcast is fighting an FCC decision last year to ding it for violating the agency’s “net neutrality” principles when it slowed traffic for some subscribers who were downloading big files. Comcast said it didn’t violate any rules because the FCC had never formally adopted any, but it did change how it manages its network.

In reality, Comcast’s speed throttle targeted files small and large, all because they were delivered over a specific network Comcast didn’t like: peer to peer.  That’s a protocol that relies on a group of people obtaining files by sharing pieces already downloaded with one another until the file is complete for everyone.  That involves uploading and downloading file pieces, often over a lengthy period.  Comcast’s network was built with the assumption most customers would download far more than they upload, and peer-to-peer challenged that model with its file sharing methodology.  The surge in upload traffic challenged their network at times, so Comcast decided to throttle the maximum speeds consumers could use while engaged in peer-to-peer file sharing.

Republicans are likely to oppose the FCC’s new proposal — both at the FCC and in Congress — arguing that the FCC is trying to fix problems that don’t exist and that the agency should take a more hands-off approach to the fast-changing industry.

“With only a few isolated instances of complaints alleging net neutrality-like abuses ever having been filed, it is a mistake,” said Randolph May, president of Free State Foundation, a free-market oriented think tank.

It’s difficult to fathom exactly how much more “hands-off” the agency can get with respect to broadband, an unregulated service in the United States.  That “hands-off” policy was responsible for the establishment of de facto monopoly/duopoly broadband service in most American cities, wireless broadband that charges nearly the same price for the same usage capped service, and is tinkering with Internet Overcharging to leverage that market status into higher pricing for all consumers.

May’s argument is akin to calling the fire department only after a fire has consumed half of your home, not when the smoke detector first goes off.

As a result, both the cable companies and phone companies had incentives to create conditions on the Internet — either through pricing or slowing or speeding up certain sites — to favor their own content.

This sentence, buried towards the end of the piece, exemplifies exactly why Net Neutrality is so important.  Let’s put this fire out before it burns out of control.

Mark Cuban, owner of HDNet, maintains a personal blog

Mark Cuban is on another tear this week.  Stop the Cap! reader Michael referred us to the latest.  This time it’s TV Everywhere, the cable industry’s answer to online video they get to own and control.

TV Everywhere is a concept put out by TV distributors that basically says that if you pay for cable or satellite, you should be able to watch the content you want, where you want. Everywhere. To some people this is not a good idea.  As is always the case,  many people think tv programming should be widely available for free on the internet.  Of course the content is never free. Someone has to pay to create it and we purchasers of cable and satellite services pay the subscription fees that pay the content companies and allow them to create all that content. Someone always must pay for free. Its unfortunate that there are some incredibly greedy people who think their entertainment needs should be subsidized. We aren’t talking healthcare, we are talking The Simpsons.  No one in the country has the right for their Simpsons to be subsidized.

I am uncertain why Mark is tilting at windmills here, fighting a battle with arguments that are beside the point.

He should know, as an independent programmer, permitting another cartel for video program distribution online has the potential to place control of that content in the hands of the pay television industry.  Agreements to carry a cable network on a cable system could easily become contingent on participation in TV Everywhere once it becomes more established.  Mark knows all about restrictive carriage agreements.  Some of his networks were trapped in a mini-premium HD tier on Time Warner Cable, despite his wishes to see them a part of the general HD lineup.  Once Time Warner Cable threw his networks off their cable systems nationwide, presumably so would go our online access to it as well.

For consumers, the basic concept of TV Everywhere seems like a positive development, if it brings online video content people want to see without charging them yet another fee on their pay television bill.  Consumers, raise your hand if you have a problem with more online video.

In fact, the loudest concerns about the entire endeavor these days are coming from the content producers and owners themselves.  They are the ones worrying about giving content away.

The Wall Street Journal chronicles the concerns:

While 24 networks are taking part in the Comcast trial, including Time Warner’s Turner cable networks, broadcaster CBS, AMC, BBC America, and Hallmark Channel, Walt Disney Co. (DIS) has so far avoided the “TV Everywhere” experiment because it doesn’t offer the Disney networks enough money in return for allowing their shows to be streamed over the Web.

“A new opportunity to reach consumers is very attractive … [but] we want to do so in a way that delivers proper compensation [to us] for that value,” said Disney Chief Financial Officer Tom Staggs, who spoke at the Goldman Sachs media conference on Tuesday.

That brought out Jeff Bewkes, Time Warner CEO, who scoffed at the demands for compensation.  Bewkes reminded Disney who is paying the bills.

“[The content providers are] not the ones who are going to the effort and expense of making this possible,” he remarked. “The ones that are making this possible are the distributors – the telcos, the satellite companies, the cable companies.”

Second, nobody is arguing that TV programming should be given away “free” online with absolutely no compensation.  The existing online video models are primarily advertiser supported.  The advertisers pay the costs to make the service available, and viewers endure online commercials during each ad break.  Some networks want to cram a ton of ads equaling the number a viewer would see on their television (get ready for more Snuggie and door draft stick on tape ads). Others are more realistic and will place a maximum of 30 seconds of commercials during each break.  Finding the right balance will be important — too many ads and consumers will pirate the content to avoid the ads.  Run smaller amounts and consumers will easily tolerate them.

Third, nobody I am aware of is arguing TV needs to be “subsidized.”  What does that even mean?

Besides the skirmish between content providers and the companies that want to distribute TV Everywhere, the concerns I’ve seen expressed include:

• The concentration and control of online video content through a cable industry-controlled authentication system that is long on generalities and short on specifics regarding how it will operate.  How do non-cable subscribers get “authenticated.”  What procedures are in place to protect the competitive data other providers will have to share with any authentication process?  How about customer privacy?  Is there equity of access to TV Everywhere regardless of the pay television service the consumer subscribes to?
• The credibility of the broadband providers’ argument that their networks are already overcrowded to the point they must “experiment” with usage caps, consumption billing, and other Internet Overcharging schemes.  Apparently their networks aren’t nearly as congested as they would have us believe, considering the fact they are participating in a project to place an even greater load on those networks.
• Mark seems to support content portability, namely the ability for a subscriber to place that content on any device for viewing.  Good luck.  Content producers go bananas over content that can be downloaded and viewed on any device or computer, because such open standards are also open to rampant piracy.

TV Everywhere can be a consumer value-added service for pay television providers, if it’s handled in a consumer friendly way.  The cable industry does not have an excellent track record of keeping their customers in love with them.  My personal concern is that what TV Everywhere gives away for free to “authenticated” subscribers today will tomorrow be packed with advertising, carry an additional fee for access on your cable bill, and will be just one more excuse to try and ram usage caps and consumption billing down the throats of the broadband customers trying to take advantage of their broadband service.

“Comcast isn’t looking to make a $50 billion purchase.”

Stephen Burke, Comcast Chief Operating Officer

Now that Comcast has been freed from that pesky provision of the 1992 Cable Act, authorizing the Federal Communications Commission to set a maximum size for large corporate cable operators, the nation’s largest cable operator is now considering breaking out the checkbook and going on a shopping spree.  That is likely to spark a merger and acquisition frenzy among several players in the industry which could dramatically reduce America’s choices for telecommunications services.

Bloomberg News this evening quotes Stephen Burke, Comcast’s Chief Operating Officer, that it will consider buying other cable operators at a “good price.”

“If there is a way to acquire cable systems for what we consider a good price, ones that are well managed, we would certainly look at whatever is out three,” Burke, 51, said today at a Bank of America Corp. conference in Marina del Rey, California. Still, the company “isn’t waking up every morning” evaluating how it can become bigger, he said.

The Wall Street Journal calls the decision by the U.S. Court of Appeals in Washington, freeing Comcast from its limits, the start of “the coming cable consolidation.”

Martin Peers, writing for the Journal, said that when the dust settles, phone companies might own satellite TV providers and cable companies might end up consolidating into one or two super-sized providers blanketing the entire country with service.

Consumers would be left with a handful of providers for all of their communications needs, from telephone to broadband to television, if the courts open the door with more decisions favorable to the industry and antitrust reviews aren’t aggressively undertaken.

Starting with Comcast, Burke thinks Comcast’s first priority might be to buy up more programmers.  Comcast already has ownership interests in several cable networks, and Burke feels “content channels are good businesses, and we wouldn’t be doing out job if we didn’t try to figure out a way to get bigger in those businesses.”

With Comcast and Cablevision joining forces to sue their way out of the cable network exclusivity ban, owning and controlling those networks, and what competitors get access to their programming, could be an important asset in an ever-consolidating marketplace.  Imagine if U-verse or FiOS was denied access to ESPN, The Weather Channel, CNN, and other popular cable channels.  Would subscribers be compelled to switch providers if they could no longer get the channels they want to watch?

The Journal ponders the coming consolidation frenzy:

Comcast and other cable companies will probably need to consider more consolidation — if not now, in the next couple of years. They are still losing market share to satellite and phone rivals. Comcast lost nearly 700,000 basic subscribers in the year to June. Time Warner Cable has fallen to No. 4 among TV providers, behind satellite firms DirecTV Group and Dish Network.

Cable operators are more than offsetting video losses by selling phone and Internet-access. Eventually, though, those opportunities will peter out. And phone companies’ competitive threat in video could be enhanced by a combination with satellite TV.

The newspaper speculates about this kind of marketplace in the near future:

Today's pay television marketplace

AT&T DirecTV: The Journal ponders an AT&T buyout of DirecTV resulting in a reduction in AT&T’s investment in U-verse, pushing consumers to its newly-acquired satellite service and redirecting investment into the overburdened AT&T mobile phone network.

VerizonDISH: A Verizon buyout of DISH would allow the phone company to push more rural customers to DISH satellite service, and reduce the expense of wiring all but the nation’s largest cities with fiber optics.

Comcast (formerly Comcast & Time Warner Cable, if not others): A supersized Comcast absorbs Time Warner Cable and becomes an even more dominant cable operator, leveraging its investment in Clearwire to offer a  wireless data option to stay competitive with the mobile phone companies like AT&T and Verizon Wireless.

That would leave most Americans with just three choices for telecommunications services capable of bundling multiple products together.  Wouldn’t such a merger-mania trigger antitrust implications and government review?

The Journal doesn’t think so:

Would such a deal pass antitrust scrutiny, even absent the ownership cap? There is a good chance, say several antitrust lawyers. A major focus of antitrust law is whether a merger reduces competition in a way that could raise prices or otherwise hurt consumers. As cable operators generally don’t compete with one another, merging wouldn’t cut competition.

But what kind of benefits would be found for consumers?  If one resides in a city too small to be judged worthy of fiber optic deployment, consumers could be told to get the satellite television service and live with the copper wiring the phone companies provide today.

Cable operators would be in a fine position to compete, as they traditionally have, against satellite television because of the technical limitations of satellite service, ranging from consumer objections to having a dish on their home, to a limit on the number of sets that can be wired, to the inability to get a clear view of the satellite because of nearby trees or other obstructions.

Who pays for the debt likely incurred from a bidding war during a merger frenzy?  Guess.