If the Federal Communications Commission allows Charter Communications to deploy a new, enhanced encryption system for set-top boxes that will allow it to scramble any or all of its video channels, it will offer broadband service up to 100Mbps to at least 200,000 additional homes within two years and transition every Charter Cable system in the country to all-digital television service.

The proposed deal was addressed to the Commission in a brief letter from Charter Communications CEO Thomas Rutledge on Apr. 4.

Charter is trying to negotiate a two-year waiver to allow the company to deploy a cheaper and more robust downloadable set-top box security upgrade that initially does not support CableCARD technology. Charter’s proposal will leave its legacy conditional access platform in place to give CableCARD users a temporary reprieve until the next generation of CableCARD technology becomes available in retail outlets. Other customers will eventually have to get a set-top box for every television in the home once the company converts to an all-digital platform. QAM service will not be available if Charter encrypts its lineup.

Charter wants to move away from analog service to increase bandwidth for DOCSIS 3 broadband upgrades and providing more HD channels to customers.

The commitment to offer up to 100/5Mbps service may not tax Charter too much. Multichannel News reports Charter’s regulatory filings show the majority of Charter Cable systems can already offer 100Mbps service today.

Charter ended 2012 with DOCSIS 3.0 deployed to 94 percent of its homes passed, “allowing us to offer multiple tiers of Internet services with speeds up to 100 Mbits download to our residential customers.”  About 98 percent of Charter’s cable network supported 550 MHz or more of capacity at the end of 2012.

Rutledge is attempting to repeat the success he had at Cablevision convincing the FCC to waive costly set-top box upgrade requirements. Cablevision also received a waiver allowing it to encrypt its entire video lineup in the New York area, in part to combat signal theft.

The Consumer Electronics Association is opposed to the cable industry’s efforts to adopt their own closed standards for set top security, preferring AllVid, a proposed next generation version of the CableCARD that will work with all types of video services, not just cable television.

Time Warner Cable and Cablevision customers: Is Charter Cable in your future?

The best way the cable industry can grow revenue in the lucrative broadband business is to bring back the same type of collusion and control cable companies maintained over video programming 20 years ago.

Dr. John Malone did not want to sound nefarious in his recent interview with CNBC’s David Faber, but the new part-owner of Charter Communications has built a reputation as cable’s Darth Vader over the last 30 years. His detractors consider his way of doing business akin to a nationwide cable mafia, complete with exclusive, non-competitive territories that assure operators can charge sky-is-the-limit prices.

Malone is now back in the cable business in a big way, and analysts expect he will quickly amass influence in an industry he once led as CEO of the nation’s then-largest cable operator — Tele-Communications, Inc. (TCI).

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Why is John Malone back in the cable business and why buy a piece of Charter Cable? Malone tells CNBC’s David Faber Charter is a company with enormous growth potential through mergers and acquisitions. CNBC says Malone could be targeting Time Warner Cable and Cablevision for acquisition by Charter as early as next year. “There is consolidation yet to be done,” Malone hints.  (7 minutes)

Malone notes the cable industry is on the cusp of transformative consolidation through collaborative agreements, mergers, and outright acquisitions both here and abroad. CNBC speculated that could begin with efforts to further reduce the number of cable operators in the United States, perhaps beginning with a deal by Charter Communications to acquire both Time Warner Cable and Cablevision, which could combine under Malone’s stewardship and Charter’s executive leadership to “compete” with Comcast.

Dr. John Malone

CNBC reporters note Malone has high praise for Thomas Rutledge, CEO of Charter Communications. Rutledge’s earlier experience working for both Time Warner Cable and Cablevision could be an asset in combining all three companies into one. Analysts speculate such a deal could be pitched as early as 2014 when Time Warner Cable will undergo a management makeover with the departure of CEO Glenn Britt. CNBC also noted Cablevision’s imminent sale has been rumored for years, and current leader and family patriarch Chuck Dolan is 87 years old. With cheap credit and Malone’s business savvy, both companies could find themselves part of a Malone-engineered takeover that would vastly expand Charter Communications into the second largest cable operator in the country.

Malone sees the days of traditional cable television coming to an end as consumers turn to “over the top” online video for an increasing share of their viewing time. As cable television rates continue to increase, customers are cutting the cord. Malone believes today’s bloated cable packages are ripe for an upheaval from a-la-carte pricing or theme-based programming bouquets that break expensive sports programming or movie channels out of the traditional basic cable lineup. Malone even suspects a challenge to the industry’s current price models could surprisingly come from the programmers themselves.

Sports networks will be among the first to notice their affiliate revenue collected from cable and satellite companies (and passed on to customers in the form of higher rates) will stagnate as customers drop cable television. Declining viewer ratings also mean lower ad revenues. Malone believes at some point sports teams and/or programming networks will decide that the biggest barrier to winning new viewers is the $70-80 asking price for basic cable. If sports programmers find they can reach new audiences selling their programming online, direct-to-consumer, for $5-10 a month, the basic cable all-for-one-price model will quickly collapse.

“As the cable guys and the satellite guys start to lose customers to the over-the-top guys, some of those economics will be reflected back on the sports guys,” Malone said. “They’ll start losing advertising revenue. They’ll lose affiliate revenue. And they have to face reality that maybe you need to segregate your market like everybody else.”

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John Malone predicts the demise of the traditional bundle of cable television programming within five years. The future is streamed video online, declares Malone, so it is important the cable industry move to manage that competitive threat by acquiring streaming competitors or launching their own services to assure video programming revenue can be protected.  (5 minutes)

Malone sees the future sustainability of the cable industry dependent on the high revenue broadband business.

“I think it is at a point in history when the most addictive thing in the communications world is high-speed connectivity,” Malone told CNBC. “Everywhere in the world that we operate, we’ve just seen the public want more and more data rate. Whether it’s wireless or wired. There’s a big appetite for it. Cable technology right now is the most cost-effective way to deliver that growth in speed.”

Malone believes there is also plenty of room for revenue growth and cost-cutting, which he said can best be accomplished by getting other cable operators together to “cooperate” and “coordinate” broad scale broadband projects that counter competitive threats from third parties.

Malone helped pioneer the cable industry business practice of “don’t compete in my backyard and I won’t compete in yours,” an informal agreement among operators to stay within their own specific territories, safe and secure from competition. In the 1980s and 1990s, Malone’s TCI was one among many cable operators buying and swapping cable systems to build large, regional system “clusters” where only a single cable company provides service, winning economy of scale and a formidable presence that discouraged other wired competitors from entering the business. In most cities, only the deep pockets of AT&T (U-verse) and Verizon (FiOS) have managed to shake things up.

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Bring back the cable mafia? CNBC’s David Faber gets John Malone to admit vertical and horizontal integration — controlling the content and the pipeline — are important factors to protect cable revenue and expand American dominance in cable internationally. Malone is also a big supporter of industry consolidation and believes mergers and acquisitions are necessary to shrink the number of cable operators in the United States. (5 minutes)

The cable mafia?

Malone wants broadband to be carefully managed under the industry’s own control and direction.

Faber asked if Malone wanted to bring back the days of the “cable mafia.”

“Yes, I think we do want to bring back the days of @Home, the days of Ted Turner, the days when we all got together, because together we provided national scale,” Malone said. “Now I think we have the opportunity to create global scale,” he said. “The goal is not to be bigger. The goal is to be more cost-effective.”

Sarah Palin and her Big Gulp were seen on every Comcast channel in mid-Tennessee until technicians could force her off subscribers’ screens.

“If this had been an actual emergency, you would not be seeing Sarah Palin holding a Big Gulp while addressing the Conservative Political Action Conference convention….”

The former vice-presidential candidate got free extra publicity from Comcast cable systems serving middle Tennessee on Saturday night when a test of the emergency alert system went haywire and switched every Comcast channel to Gov. Palin’s speech given to a conservative political group.

Subscribers may have been amused until they discovered she was on every channel, and there was no way to get rid of her and back to regular programming until a Comcast technician could be called on to reset the system.

“The Comcast cable system serving middle Tennessee has experienced a problem with its emergency alert system,” Comcast spokeswoman Sara Joe Houghland said in an e-mailed statement. “Impacted customers had their equipment locked onto C-SPAN until Comcast personnel were able to resolve the problem shortly thereafter. The company is working diligently to find the root cause of the matter.”

Not diligently enough for irritated subscribers, some who missed post-season basketball games or network shows.

The Tennessean reports this is not the first time Comcast has had this problem:

• It happened again on Monday morning when a line of powerful storms moved through the area;
• A similar incident happened when a string of tornadoes hit the Nashville area in late January.

The problem seems to be the “end of warning/test”-signal not being processed properly by Comcast, which then keeps the warning active until the equipment is reset. In January, the newspaper reports the “end of message” disengage signal was missing altogether.

The Tennessee Association of Broadcasters have lost their patience and have asked the FCC to exclude local stations from being overridden by the EAS warning system.

Their argument is that any real emergency will likely be covered by local newsrooms well in advance of any weather or news messages dispatched through the EAS system.

Dr. John Malone’s Liberty Media will buy a 27.3 percent interest in Charter Communications with a $2.62 billion investment in America’s fourth largest cable operator.

Liberty will buy the stake from investment firms Apollo Management, Crestview Partners, and Oaktree Capital Management.

“We are pleased with Charter’s market position and growth opportunities and believe that the company’s investments in its high-capacity digital network which provides digital HD and on demand television, high-speed data and voice, will benefit its customers and shareholders alike,” Malone said in a statement.

Malone is no stranger to the cable industry, having been at the helm of Tele-Communications, Inc. (TCI), the largest cable operator in the country in the 1980s and 1990s. TCI systems were sold to AT&T in 1999, which eventually spun them off to Comcast and Charter Communications, which still run them today.

Dr. John Malone

Since Malone’s exit at TCI, he has been in charge of Liberty Global, which owns cable systems overseas and controls several U.S. cable programming interests through his Liberty Media operation. The investment in Charter represents Malone’s return to an American cable industry he helped pioneer.

The agreement requires Liberty to acquire no more than 35 percent of Charter until January 2016, at which point Liberty’s maximum allowable controlling interest rises to 39.99 percent. Liberty also wins four seats on Charter’s board of directors. But many industry analysts predict Malone will not be satisfied with anything less than eventual full control.

Malone often takes an initial minority interest in the companies he later intends to acquire outright. Macquarie analyst Amy Yong told Reuters he employed a similar tactic to gain control of SiriusXM, the satellite radio company.

“He’s probably going to have a pretty big say in the company’s future over the next few years. This will accelerate capital returns and take advantage of Charter’s tax assets to consolidate the cable industry some more,” Yong said.

Malone is attracted to investment opportunities in companies with high marketplace leverage opportunities and exploiting potential revenue from captive customers in the rural, less-competitive markets Charter has traditionally favored.

Here today, gone tomorrow: Bresnan Communications that was Optimum is now Charter Cable.

Malone also has a strong philosophy towards marketplace consolidation, something ongoing in the cable industry, particularly among smaller cable operators serving less-populated areas.

Under the leadership of ex-Cablevision executive Thomas Rutledge, Charter Communications recently acquired the interests of Cablevision West — former Bresnan Cable systems in the mountain west. Malone sees considerable opportunities expanding operations in smaller communities that have either received substandard cable service, or none at all.

Malone has recently been stockpiling available cash for investments, spinning off his former cable programming properties Starz, a premium cable channel, Discovery Communications, which runs the Discovery Networks, and Liberty Interactive, which owns the lucrative home shopping channel QVC.

Charter Communications has had a difficult history. Microsoft co-founder Paul Allen bought a controlling interest in the cable operator in the late 1990s, primarily because he saw cable broadband as a natural fit for his vision of a future wired America. Allen’s weighty investment was used to jump into a cable industry consolidation frenzy still underway more than a decade ago. Cable operators claimed consolidation was necessary to increase efficiency by building up regional clusters of cable systems. Before consolidation, it was not unusual for two or three different cable operators to serve customers in separate parts of a metropolitan area. Often one operator would serve the city with one or two other cable companies offering service in suburban and exurban communities nearby.

In 1999 alone, under Allen’s leadership, Charter Cable acquired 10 cable companies.

By 2005, Charter Cable had amassed millions of new subscribers, but not as many as company executives claimed when they artificially inflated subscriber numbers to protect the value of the company’s stock. Four executives were indicted that year for criminal accounting fraud. By 2009, with $22 billion in debt, the company declared bankruptcy, eventually wiping out shareholders.

The court’s decision to forgive 40 percent of the company’s debt angered creditors but opened an opportunity for private equity firm Apollo Capital Management to gain control by ending up with the majority of shares in the restructured company.

For years, the company has continued to receive some of the worst customer satisfaction ratings in the industry, usually ranking at or near the bottom. But many Charter customers stay because there is little competition from other players, especially telephone companies. AT&T’s U-verse is the most likely triple-play competitor, but AT&T has avoided introducing U-verse in many of Charter’s service areas because they are deemed too small.

Malone sees Charter’s future revenue potential grow as a broadband provider, considered both a money-maker and must-have service. Analysts say that Charter is well-positioned to poach more customers from phone companies, which typically only offer slow DSL service in much of Charter’s rural footprint.

Gore: Malone is the Darth Vader of cable.

But customers may find with Malone’s involvement, that service may come at a price. Malone was criticized heavily in the 1980s and 1990s for leading the charge for customer rate increases. TCI’s captive customers in Tennessee found their cable bills increased between 71-116 percent in just three years during the 1980s.

Former Sen. Al Gore, Jr., at the time called Malone the head of a “Cable Cosa Nostra” and the Darth Vader of big cable. The cable executive was a frequent target of lawmakers flooded with constituent complaints about poor cable service and accelerating prices.

In 1999, The Guardian noted Malone was an admirer of telecom oligopolies:

He is scathing about regulatory attempts to prevent monopolies and mergers. Governments, he says, are “antediluvian” in their approach to the emerging new world economic order. Instead of trying to prevent mergers and collusion between media and communications companies, Malone says governments should actually promote the creation of “super-corporations” (such as his own) with enough capital to exploit the potential of new technology.

That attitude may soon be back in play with the cable industry’s increasing focus on expanding broadband service as their new primary revenue generator.

Atlantic Canada provider Eastlink still offer unlimited access for speeds of 20Mbps or slower, but the fastest speeds now come with usage caps and overlimit fees, as depicted on this sample invoice.

While broadband pricing in the United States depends primarily on whether one lives in a rural or urban area, in Canada, which province you live in makes all the difference.

Canadian broadband pricing varies wildly across different provinces. If you live in northern Canada, particularly in Nunavut or the Yukon, Internet access is slow and prohibitively expensive, assuming you can buy it at any price. Customers in Atlantic provinces including Nova Scotia, Prince Edward Island, Labrador and Newfoundland pay the next highest prices in the country, often exceeding $60 a month. But Atlantic Canadians often find unlimited use, fiber optic-based plans are often part of the deal. In the west, fervent competition between dominant cable operator Shaw and telephone company Telus has given residents in British Columbia and Alberta more generous usage allowances, faster speeds, and lower pricing.

The Canadian Broadcasting Corporation reports the most significant gouging takes place in the Canada’s two largest provinces: Ontario and Québec, where Bell (BCE) competes with three dominant cable operators: Rogers and Cogeco (Ontario) and Vidéotron and Cogeco (Québec). Critics contend that “competition” has been more in name-only over the last several years, as prices have risen and usage allowances have not kept up.

“These disparities are influenced by the competition,” Catherine Middleton, a professor at the University of Ryerson’s Ted Rogers School of Management told CBC News. “For example, Bell competes against Rogers in Ontario, but against Vidéotron in Quebec, with different plans for different markets.”

(Coincidentally, in 2007 the University of Ryerson accepted a gift of $15 million from the late Ted Rogers, founder of Rogers Communications, which won him naming rights for the Ted Rogers School of Management.)

Rogers and Cogeco charge Ontario residents more money for less access. Vidéotron treats their customers in Québec somewhat better, so Bell has plans to match.

“Ontario gets the worst when it comes to competitiveness,” Michael Geist, a law professor at the University of Ottawa and Canada Research Chair in Internet and e-commerce law told CBC News. “It tends to be the least competitive when it comes to getting bang for your buck.”

Prices start to moderate in the prairie regions. SaskTel and MTS Allstream are the largest providers in Saskatchewan and Manitoba. Both offer customers unlimited service plans, something of a shock to those further east. But unless you live in a larger city where the two companies are upgrading to faster fiber-based networks, DSL at speeds averaging 5Mbps is the most widely available service.

Nearing the Canadian Rockies, usage-restricted plans are a reality once again. In Alberta and British Columbia, Telus and Shaw competition means more generous usage allowances, and Telus does not currently enforce their usage limits. Shaw raised its own usage limits significantly beyond what a customer would find from Rogers back east. Prices are often lower as well.

The CBC notes unlimited broadband from cable operators has become a rarity. Eastlink, which provides service in Atlantic Canada, has phased out unlimited access on plans above 20Mbps. Rogers has a temporary “unlimited use” offer for customers paying for its premium-priced 150Mbps plan, and only until March 31.

The most significant recent change for eastern Canada was Bell’s decision to offer an unlimited-use “add-on” for $10 extra a month for Bell customers in Québec and Ontario who choose at least three Bell services (broadband, television, phone, satellite, or wireless service). Rogers has matched that offer for its own triple-play customers. Those who only want broadband service from either provider will pay three times more for unlimited access — an extra $30 a month.

The mainstream Canadian press often ignores third party alternative providers that offer an escape from usage-capped Internet access.

But there are other alternatives, often ignored by the mainstream media.

A growing number of third-party independent providers buy wholesale access from large Canadian networks and sell their own Internet plans, often with no usage limits. TekSavvy, Distributel, Acanac, among many others, provide Canadians with DSL and cable broadband at prices typically lower than one would find dealing with Bell, Rogers, Shaw, or other providers directly. Some discount plans still include usage caps, but those limits are often far more generous than what the phone or cable company provides, and unlimited access is also available in most cases.

One website allows consumers to comparison-shop 350 different providers across Canada. Despite the growing number of options, the majority of Canadians still buy Internet access from their phone or cable company and live under a regime of usage caps and high prices, if only because they do not realize there are alternatives.

Usage caps have cost Canadian broadband consumers both time watching usage meters and money paying overlimit penalties. But the cost to innovation is now only being measured. While online video has become so popular in the United States it now constitutes the largest percentage of traffic on broadband networks during prime time, usage limits have kept the online video revolution from fully taking hold in Canada. That is a useful competition-busting fringe benefit for large telecom companies in Canada, which own cable networks, cable systems, broadcast networks, and even satellite providers.

Netflix’s chief content officer called Canadian broadband pricing “almost a human rights violation.” The online video provider was forced to introduce tools to let Canadians degrade the quality of their online video experience to avoid blowing past monthly usage allowances.