Time Warner Cable last week intimated the only thing keeping faster cable modem speeds from Kansas City customers is consumer demand and they are not worried about the arrival of Google Fiber’s 1Gbps broadband speeds.

The cable operator claims they have the advantage in Kansas City, as the first provider to offer a triple play package of voice, broadband, and television service. Time Warner also says they are constantly working on new, innovative services, including the much-touted “tablet remote” the company says it already offers customers in Kansas City in the form of apps available on the Android and iOS platforms.

“We always have the ability to adjust our network to keep up with demands from consumers [for faster broadband speeds],” Time Warner Cable said.

Cable operators and phone companies have traditionally argued there is little consumer demand for gigabit broadband speeds because the services most customers access online don’t need or cannot support that level of speed. Cost has also usually been a factor, and many operators point out the majority of their customers are satisfied with speeds of 20Mbps or less.

“We’re ready to compete any day, anytime, anywhere, with anyone,” said Time Warner Cable spokesman Mike Pedelty.

AT&T, which has been providing U-verse in parts of Kansas City since 2007 says it isn’t threatened by Google Fiber either.

Chris Lester from AT&T Media Relations notes AT&T now offers U-verse to more than 400,000 households in and around Kansas City and claims the company has gotten a “great response” from consumers, but declined to specify exactly how many of those households have actually signed up for service.

Both the dominant cable and phone company in Kansas City are betting on subscriber loyalty and consumer resistance to change to maintain their subscriber numbers. Statistically, they have a good chance of holding most of their current customers, at least for now.

The threat of Google’s fiber fast speeds may not be limited only to Kansas City, however. The Wall Street Journal has learned Google may be intending to bring its fiber network to other American cities, as long as they are not already served by Verizon’s FiOS fiber-to-the-home network.

Incumbent cable operators facing new competition from phone company IPTV (AT&T U-verse, Verizon FiOS) have not lost as much business as they first anticipated. In most cases, only 25-35% of customers eventually left for a satellite or phone company competitor. The older the subscriber, the less likely that customer is to consider a change, unless the service is poor or the price becomes unaffordable.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KCTV Kansas City Competition for Google Fiber 7-26-12.mp4[/flv]

KCTV in Kansas City talks with AT&T and Time Warner Cable about their newest competitor.  (2 minutes)

No cable operator has reported alarming results from subscriber defections, either from competition or cord-cutting behavior, and Wall Street analysts are watching subscriber numbers closely.

So far, reports on the ground indicate AT&T and Time Warner Cable are following the playbook first established when any new broadband provider arrives on their turf — aggressively market discounts tied to a contract with a stiff early termination fee to discourage customers from switching. At least one local provider has been reportedly sending salespeople door to door to try and lock customers in with a multi-year service contract. When that does not work, both companies use their customer retention departments to offer customers cheaper service in a last ditch effort to keep them from heading for the door.

Even with those defensive measures, some investors still see Google’s new fiber service as something new and different in the broadband marketplace — “the most disruptive thing since Gmail,” concludes Business Insider‘s Matt Rosoff.

Rosoff says Google Fiber could completely change the broadband landscape in the United States much the same way Gmail changed e-mail.

Back when Gmail launched, the other free email providers like Hotmail and Yahoo Mail were offering less than 5MB of storage — that’s five megabytes,” Rosoff writes. “Google trumped them all with 1GB of free storage. With so much storage, there was no need to trash anything. You could archive it and keep it forever.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Fox Business News Google Stirs It Up 7-26-12.flv[/flv]

Fox Business News explores Google Fiber and finds phone companies telling reporters consumers don’t need 1Gbps broadband.  (2 minutes)

Gmail has since captured a large share of the email market, while also paving the way for Google’s increasingly profitable business apps. Some also argue Google’s “save everything online” approach was like training wheels for the cloud computing concept, where consumers think less about local storage and more about going online to access content. Google Fiber’s speeds make accessing online content effortless, and with no usage caps, customers need not ration their usage.

As of Monday, Google has already achieved the minimum number of needed homes to install Google Fiber in several, mostly affluent, Kansas City neighborhoods.

Rosoff says much like Gmail exposed the weaknesses of former email leaders like Hotmail, Google Fiber embarrasses incumbent Internet Service Providers and illustrates just how slow they have been to innovate.

“Google Fiber makes the cable-based ISPs look pathetic,” says Rosoff. “It promises to offer speeds up to 1,000Mbps downstream and upstream, for only $70 a month.”

In comparison, Time Warner Cable charges $100 for 50/5Mbps service in Kansas City. AT&T’s U-verse can only offer up to 24/3Mbps service, and it charges well over $50 a month for that, except on a new customer promotion. Both Time Warner and AT&T also sell “lite use” packages from 1-6Mpbs for $20-25 a month — service Google intends to give away for free after a $300 installation fee.

Many industry observers suggest Google is using its new fiber network in part as a hedge against market abuse from dominant cable and phone companies who are fiercely opposed to Net Neutrality and favor monetizing broadband usage.  Both are serious threats to Google’s business model which seeks more usage, not less. The more time consumers spend online, the more likely they will be exposed to a Google ad, use a Google product, or purchase a current or forthcoming service owned or partnered with the search engine giant.

Early indications from Kansas City show the cable and phone companies do have something to be concerned about. In more affluent areas of Kansas City, Google passed the minimum number of households willing to commit to the fiber service in just two days. Enthusiasm has been so overwhelming, tech entrepreneurs drooling for fiber service are hiring door-to-door promoters to visit nearby residents to encourage them to show their interest, in some cases even paying Google’s $10 pre-registration fee on their behalf.

More than 20 percent of the eligible “fiberhoods” in Kansas City, Mo. have already passed their signup goals. In poorer, mostly minority neighborhoods, Google is still waiting for their first pre-registration. In less affluent Kansas City, Kan., Google is finding considerably less interest, and pre-registrations are running below goal in all but three “fiberhoods.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WDAF Kansas City Competitors Gear Up For Google’s Challenge 7-26-12.flv[/flv]

WDAF says competing cable and phone companies cannot deliver the speeds Google Fiber will offer, but they are betting consumers don’t need or care about faster broadband speeds. (3 minutes)

Time Warner Cable is facing possible prosecution for vandalism over sidewalk graffiti the company used in Redondo Beach, Calif. to advertise its Wi-Fi network — a service the city claims the company has no authorization to provide.

Redondo Beach officials immediately began receiving complaints the morning of July 5 when Time Warner Cable’s blue chalk advertising messages began appearing all over the city’s sidewalks.

City councilman Steve Aspel told the cable operator’s director of government relations that constituents were upset about the large promotional messages.

Time Warner’s Wi-Fi equipment (City of Redondo Beach)

“It really pissed me off and everybody in the neighborhood too,” Aspel told Time Warner’s Steven Sawyer. “Please have your company never do that again.”

Aspel told Sawyer nobody knew the messages were written in chalk, which will likely dissipate in a few days or sooner in any significant rain storm. The thought the cable company might have used blue paint on public sidewalks enraged several local residents.

But city officials were even more concerned about the fact Time Warner Cable has a Wi-Fi service up and running in Redondo Beach, without any permission from city officials to either install or operate it.

Assistant City Manager Marissa Christiansen told the council Time Warner was not allowed to operate any Wi-Fi network inside the city without explicit permission from the council. The city had been negotiating with the cable operator to grant permission to install the necessary Wi-Fi hotspots in the city’s right of way, but the cable company went ahead and installed them anyway, according to city manager Bill Workman.

“When we actually saw the markings on the sidewalk and put two and two together that it had all gone on without all the things we had discussed in those meetings, we, too, were very upset,” Workman said. “Very clearly, this is outside of their state franchise.”

Cable operators also require a building permit to install new equipment on public property.

Sawyer told the city council Time Warner apologized for the sidewalk markings, and the company moved quickly to remove them.

“We’ve done these markings in other cities and have never had an issue,” Sawyer said.

City attorney Mike Webb said there is an active criminal investigation underway to determine if the sidewalk messages are criminal graffiti, and was not in a position to elaborate as to if or when the cable operator would be prosecuted for violating the city’s municipal code.

Discussions about the Wi-Fi service itself are reportedly ongoing.

Time Warner Cable is planning major expansion of its network of Wi-Fi hotspots across southern California and into other service areas nationwide in the coming years.

Suddenly Bought

Well-compensated management at Suddenlink are teaming up with private equity firm BC Partners and the Canada Pension Plan’s CPP Investment Board to buy out Suddenlink Communications in a deal for the $6.6 billion company.

The transaction will leave Suddenlink’s founder and current CEO Jerry Kent in charge and part-owner of the company. Some other members of top management are also participating in the buyout deal.

Suddenlink is currently owned by investment bank Goldman Sachs through its private equity arm, Quadrangle Group LLC and Oaktree Capital Management LP.

The buyers will assume $4 billion of Suddenlink’s outstanding debt and BC Partners and CPP Investment Board are taking on $500 million of additional debt to fund the purchase.

Kent

Kent says the deal is designed to infuse additional capital into Suddenlink’s operations, which primarily serve smaller communities in Texas, West Virginia, North Carolina, Oklahoma, Louisiana, Arizona, and Arkansas. Suddenlink launched in 2003 with the acquisition of discarded cable systems originally owned by Cox and Charter Communications. Today the company serves 1.4 million residential customers, making it the seventh largest cable operator in the country.

With Kent remaining in charge, few changes are expected. In 2011, Suddenlink adopted an Internet Overcharging scheme including usage caps and overlimit fees that it is gradually rolling out to all of its customers.

Investors see revenue growth opportunities from Suddenlink, particularly as it further monetizes broadband.

“This represents a unique opportunity to acquire a leading cable operator that has consistently generated industry-leading results,” said André Bourbonnais, who heads private investments for CPPIB.

Kent had been reportedly shopping the cable system around to private-equity firms over the past several months, on the condition he got to remain in charge and early investors could cash out.

Montreal-based Cogeco Cable has announced it is acquiring Atlantic Broadband, a cable operator serving small communities in Pennsylvania, Florida, Maryland, Delaware and South Carolina for $1.36 billion, raising investor fears the company is once again on a spending spree.

Cogeco’s tarnished record of cable acquisitions was highlighted last year when it was forced to write off almost $250 million in losses racked up by its Portuguese acquistion Cabovisao. The company finally sold the money-losing operation at a loss in February.

Cogeco stock plummeted more than 17 percent on today’s news, and investors are concerned Cogeco’s entry into the U.S. market is competitively risky.

Atlantic Broadband’s cable systems were acquired from Charter Communications in 2003. Charter was consolidating its operations into larger markets, and the systems along the eastern seaboard were deemed too small to create the kind of large, regional clusters cable operators prefer today. Atlantic only serves around 252,000 customers nationwide, almost all in smaller communities and cities. That mirrors the way Cogeco operates in Ontario and Quebec — primarily in smaller cities bypassed by larger operators Rogers Cable and Vidéotron.

Cogeco CEO Louis Audet believes growth opportunities in Canada are limited at best. He defended the acquisition as an entry point in the United States, signaling Cogeco was going to continue shopping for other small U.S. cable operators.

Cogeco is paying about $5,400 per subscriber, according to Bloomberg News. That compares with $4,418 Time Warner Cable paid per subscriber for Insight Communications, and $5,486 for each Knology customer acquired by WideOpenWest LLC.

Cogeco acquired Atlantic Broadband from private-equity firms Abry Partners and Oak Hill Capital Partners.

A new wave of industry consolidation has begun to pick off smaller independent cable operators who find profits squeezed by increased programming costs and dwindling subscriber numbers.

This month, the private equity firms that back Atlantic Broadband have put the company up for sale. ABRY Partners, which controls the cable venture as well as much larger RCN and Grande Communications, is ready to ditch the Atlantic venture and its 255,000 subscribers in Pennsylvania, New York, West Virginia, Florida, Maryland, Delaware, and South Carolina. Most of the cable systems controlled by Atlantic Broadband were considered “non-strategic assets” by former owner Charter Communications, which sold them to the Atlantic Broadband start-up in 2004.

Although profitable, Atlantic has been losing customers — 4 percent last year alone — and that worries investors. Acquiring television programming continues to grow more difficult for smaller operators who do not receive the volume discounts larger players do. As programming costs rise, pressure on profit margin results.

Atlantic Broadband was the 14th largest cable operator in the country. The sale could bring $1.4 billion to the equity firms, and industry analysts predict another equity firm will likely emerge as the buyer. Most of Atlantic’s systems are outside of the the areas where large cable operators create enormous regional clusters of operations. Time Warner Cable dominates in New York, Comcast in Pennsylvania, Maryland, and Delaware, and Suddenlink in West Virginia.

Atlantic Broadband is not the first smaller cable venture to find itself for sale.

• Time Warner Cable acquired Insight Communications last August;
• WideOpenWest announced plans to buy Knology for $750 million in April;
• WaveDivision Holdings LLC, which serves more than 325,000 residential and business customers in Washington, Oregon and California, also is exploring a sale.