Time Warner Cable today announced major improvements in its service, including a tripling of broadband speeds and equipment upgrades that will first arrive in New York City and Los Angeles.

With the cable company facing a hostile takeover effort by Charter Communications with Comcast’s help, CEO Rob Marcus sought to appease shareholders that worry the cable company’s recent lackluster results originate from outdated technology, poor customer service, and broadband speeds that are well below the cable industry average.

Time Warner Cable will have to increase capital spending to pay for the upgrades, expected to cost $3.8 billion annually for the next three years.

CEO Rob Marcus calls the effort a “transformation of the Time Warner Cable customer experience.” The upgrade program is called TWC Maxx for now inside Time Warner Cable, but will have its own brand when it publicly launches later this year.

Here are some highlights:

Marcus

TV Service

• Network infrastructure upgrades to enhance reliability
• New advanced set-top boxes
• A six-tuner DVR
• A cloud-based interface and navigation
• An expanded on-demand library

Internet

• Dramatic free speed boosts for all customers
• A new Ultimate speed tier of 300/20Mbps

Unfortunately, customers outside of Los Angeles and New York will have to wait up to two years for the upgrades to reach their community.

“With ‘TWC Maxx,’ we’re going to essentially reinvent the TWC experience market–by-market,” said Marcus. “We’ll triple Internet speeds for customers with our most popular tiers of service, add more community WiFi, dramatically improve the TV product and, perhaps most importantly, we’ll set a high bar in our industry for differentiated exceptional customer service. We’re focused on providing the features and benefits that matter most to our customers.”

The most noticeable improvement will be free broadband speed upgrades. Customers with Standard or above Internet service will also receive the latest generation cable modems including Advanced Wireless Gateways for customers with Turbo to Ultimate tier service. Marcus did not say whether the company is ending is monthly equipment fees for cable modems.

Here are the new speed tiers:

• Everyday Low Price – Currently 2/1Mbps – New 3/1Mbps
• Basic – Currently 3/1Mbps – New 10/1Mbps
• Standard – Currently 15/1Mbps – New 50/5Mbps
• Turbo – Currently 20/2Mbps – New 100/10Mbps
• Extreme – Currently 30/5Mbps – New 200/20Mbps
• Ultimate – Currently 50/5Mbps – New 300/20Mbps

New York and Los Angeles Upgrade Schedule

The first four network hubs scheduled for upgrade are those in West Hollywood and Costa Mesa, Calif. and portions of Woodside (Queens) and Staten Island, N.Y. The rest of both cities will be upgraded by the end of this year.

Los Angeles customers will also see analog cable television service discontinued in favor of digital later this year. New York City has already been converted to all-digital television. Customers in both cities will be able to schedule same-day appointments and one-hour service windows.

Who Gets Upgraded Next?

Analysts expect Time Warner Cable will upgrade cities where they face competition from U-verse and FiOS after completing NYC and LA.

Analysts say Time Warner Cable’s upgrade plans are more aggressive than initially anticipated and many expect the company to move quickly, especially in competitive markets, to boost subscriber numbers and cut customer defections to help convince shareholders it is worthwhile to reject Charter’s hostile takeover bid.

The most likely markets to be targeted for upgrades after New York and Los Angeles are those facing stiff competition from Google Fiber and Verizon FiOS. Cities where AT&T U-verse delivers competition are likely to come next, and those cities where Time Warner Cable only faces competition from telephone company DSL service will likely be the last to be upgraded. However, long before that, Time Warner Cable could be sold off to other cable operators that will make these upgrade plans moot.

Marcus today reiterated his rejection of Charter’s latest $132.50 a share offer. Marcus said the cable company is only interested in an offer above $160 a share, and that at least $100 of that must be in cash, with the balance in Charter stock. Charter will have trouble delivering that amount of cash without the assistance of other cable operators.

Craig Moffett with MoffettNathanson Research isn’t sure Marcus’ plans are enough to keep TWC from being sold. He expects Charter to soon increase its offer above $140 with the help of Comcast, which is willing to pay cash for Time Warner Cable systems in New York, New England, and North Carolina after a deal with Charter is complete.

[flv]http://www.phillipdampier.com/video/Bloomberg Rob Marcus Interviewed 1-30-14.flv[/flv]

Robert Marcus, chief executive officer of Time Warner Cable Inc., talks about the cable company’s fourth-quarter earnings and its forthcoming upgrades, and Charter Communications Inc.’s $37.4 billion buyout bid. Time Warner Cable beat fourth-quarter profit estimates and forecast subscriber growth. Marcus speaks with Betty Liu on Bloomberg Television. (8:38)

Bright House Networks is dropping analog service in April in favor of an all-digital lineup that will require customers in Central Florida to have set-top boxes or similar equipment to continue watching.

“Digital is here to stay,” said Bright House spokesman Don Forbes. “Analog is going the way of the dodo bird.”

In a letter being mailed to all affected customers, Bright House notes customers will need a cable box, digital adapter or CableCARD for every television connected to cable.

Bright House will supply each customer with two digital adapters and remote controls at no charge through 2014. But the cable company will bill customers for those devices starting next January.

Sets equipped with QAM tuners alone will not suffice for receiving the entire cable lineup.

Customers are urged to begin requesting any required equipment starting today — either at a Bright House retail store or call toll-free: 1-855-589-8582.

As expected for months, Charter Communications, Inc. today formally offered Time Warner Cable shareholders $132.50 per share to assume ownership of the nation’s second largest cable operator in a deal worth more than $61 billion, including debt.

Bloomberg News this afternoon reported Charter Cable has offered $83 in cash for each outstanding share of TWC stock, as well as about $49.50 in Charter stock. That makes the attempted takeover the third largest merger deal worldwide since 2009.

Rutledge

Charter CEO Thomas Rutledge, a former executive at TWC and Cablevision would lead the combined enterprise under the Charter Cable name, likely pushing out TWC’s new CEO Robert Marcus. Rutledge argues that combining Charter and TWC would bring about considerable cost savings, particularly for spiraling programming costs. Analysts say the deal would also mean a reduction in Time Warner Cable’s workforce, especially in middle management, as operations are consolidated around Charter’s leadership.

Rutledge today said he privately approached Time Warner Cable executives with an offer in late December.

“We haven’t received a serious response,” Rutledge said today in a Bloomberg News telephone interview. “Our objective was to talk to management and try to get them engaged. They have not, so we’re going to make our case to shareholders about why this deal is good for them and hope they ask management and the board to watch out for the interests of shareholders.”

[flv]http://www.phillipdampier.com/video/CNBC Marangi on TWC Deal 1-13-14.mp4[/flv]

Chris Marangi from Gamco tells CNBC Charter Communications’ proposal to buy Time Warner Cable for $61.3 billion is probably too low, but the cable industry is “ripe for consolidation” and further mergers are likely. (1:39)

Time Warner Cable’s chief financial officer Artie Minson reportedly requested Charter make a higher bid that included more cash, but Charter refused.

Malone

The man pulling the levers behind Charter’s curtain is Dr. John Malone, former CEO of Tele-Communications, Inc., which was America’s largest cable operator in the late 1980s and 1990s. Malone’s Liberty Media is Charter Communications’ largest single investor. Malone has long argued for consolidation and cooperation in the cable industry to boost profits and control programming costs that drive up cable television bills.

Malone specializes in structured mergers and acquisitions that result in tax-free buyouts. Charter’s offer relies heavily on debt financing and would allow Charter to shield its ongoing net operating losses from taxes.

Malone indicated he is willing to play hardball to force a merger.

Malone told investors he expected Time Warner Cable to resist a takeover by Charter — America’s fourth largest cable company — so he is prepared to nominate Charter-friendly directors for Time Warner Cable’s board before nominations close Feb. 15. Time Warner Cable shareholders could force the merger by voting for Malone’s handpicked directors, who would promptly approve Charter’s takeover offer. But Time Warner executives will likely argue Charter’s offer is disadvantageous for TWC shareholders.

“Since we made our first proposal, Time Warner Cable has lost another half million video customers,” Rutledge said. “Their customer service continues to decline in every measure. We can improve it. We have a demonstrated track record of improving customer service. It’s a question of credibility.”

Consumer Reports reports otherwise. Charter Communications has perennially been ranked America’s second worst Internet Service Provider cable operator in annual reader surveys. Only Mediacom is ranked lower among cable operators.

Now that Charter’s offer has gone public, investors suspect other cable operators may soon consider bidding for Time Warner Cable as well. Comcast is a likely bidder with an interest is taking control of Time Warner Cable’s systems in New York City and certain midwestern markets. Comcast would also like TWC’s regional sports channels serving southern California.

Customers will have no say in the matter, except through appeals to federal regulators which must approve any sale.

Unlike TWC, Charter Cable has usage limits on their broadband service.

[flv]http://www.phillipdampier.com/video/CNBC CNBC David Faber on TWC Deal 1-13-14.mp4[/flv]

CNBC’s David Faber reports today’s offer from Charter Communications is not technically a “bid” for Time Warner Cable. Instead, it’s a public offer to hopefully force TWC executives to take Charter’s offer more seriously. (3:25)

Just months after starting to rollout a new generation of Comcast’s X1 “entertainment operating system” set-top boxes, the cable company is preparing to upgrade the cable television experience with X2.

Comcast, like many other cable operators, is gradually moving to IP and cloud capable set-top equipment as television transitions towards an all-digital platform. The traditional set-top box has proved expensive, cumbersome, and often annoying for customers trying to navigate through hundreds of cable television channels with a less-than-ideal on-screen program guide.

X2 hopes to change that perception with a customizable dashboard that learns viewer preferences over time and makes intelligent suggestions for customers looking for something to watch. Using a cloud based platform also means much easier upgrades. X2 also erases the line dividing traditional cable channels and streaming online video, which would allow Comcast to use its broadband network to distribute video programming and integrate social media.

X2 has, so far, been largely a “by-invitation” affair, with customers invited to preview the new interface on their current X1 equipment by pressing this key sequence with their remote control: EXIT-EXIT-EXIT-X-T-W-O

In addition to improving TV viewing, X2 also sets the stage for a cloud-based DVR being tested in Boston and Philadelphia and live-streaming Comcast’s TV lineup direct to wireless devices in the home.

A Comcast spokesperson tells us the X1 (and X2) platforms will be available to a substantial number of customers this year.

[flv]http://www.phillipdampier.com/video/Comcast The Making of X2 8-2-13.mp4[/flv]

Comcast produced this video showcasing the development of the X2 platform. (3:07)

Two years after energy conservation groups revealed many television set-top boxes use almost as much electricity as a typical refrigerator, a voluntary agreement has been reached to cut the energy use of the devices 10-45 percent by 2017.

The Department of Energy, the Natural Resources Defense Council, the American Council for an Energy-Efficient Economy, the Appliance Standards Awareness Project, the Consumer Electronics Association, and the National Cable & Telecommunications Association agreed to new energy efficiency standards for cable boxes expected to save more than $1 billion in electricity annually, once the new equipment is widely deployed in American homes. That represents enough energy to power 700,000 homes and cut five million tons of CO2 emissions each year.

“These energy efficiency standards reflect a collaborative approach among the Energy Department, the pay-TV industry and energy efficiency groups – building on more than three decades of common-sense efficiency standards that are saving American families and businesses hundreds of billions of dollars,” said Energy Secretary Ernest Moniz. “The set-top box efficiency standards will save families money by saving energy, while delivering high quality appliances for consumers that keep pace with technological innovation.”

DVR boxes are the biggest culprits. American DVRs typically use up to 50W regardless of whether someone is watching the TV or not. Most contain hard drives that are either powered on continuously or are shifted into an idle state that does more to protect the life of the drive than cut a consumer’s energy bill. A combination of a DVR and an extra HD set-top box together consume more electricity than an ENERGY STAR-qualified refrigerator-freezer, even when using the remote control to switch the boxes off.

Manufacturers were never pressed to produce more energy-efficient equipment by the cable and satellite television industry. Current generation boxes often require lengthy start-up cycles to configure channel lineups, load channel listings, receive authorization data and update software. As a result, any overnight power-down would inconvenience customers the following morning — waiting up to five or more minutes to begin watching television as equipment was switched back on. As a compromise, many cable operators instruct their DVR boxes to power down internal hard drives when not recording or playing back programming, minimizing subscriber inconvenience, but also the possible power savings.

In Europe, many set-top boxes are configured with three levels of power consumption — 22.5W while in use, 13.2W while in standby, and 0.65W when in “Deep Sleep” mode. More data is stored in non-volatile memory within the box, meaning channel data, program listings, and authorization information need not be re-downloaded each time the box is powered on, resulting in much faster recovery from power-saving modes.

The new agreement, which runs through 2017, covers all types of set-top boxes from pay-TV providers, including cable, satellite and telephone companies. The agreement also requires the pay-TV industry to publicly report model-specific set-top box energy use and requires an annual audit of service providers by an independent auditor to make sure boxes are performing at the efficiency levels specified in the agreement. The Energy Department also retains its authority to test set-top boxes under the ENERGY STAR verification program, which provides another verification tool to measure the efficiency of set-top boxes.

Comcast, DirecTV, DISH Network, Time Warner Cable, AT&T, Verizon, Cox Communications, Charter Communications, Cablevision, Bright House Networks and CenturyLink will begin deploying new energy-efficient equipment during service calls. Some customers may be able to eventually swap equipment earlier, depending on the company.

[flv]http://www.phillipdampier.com/video/WCCO Minneapolis Check Your Cable Box 6-27-11.mp4[/flv]

WCCO in Minneapolis reported in 2011 cable operators like Comcast may make subscribers wait 30 minutes or more for set-top box features to become fully available for use after plugging the box in. (1:50)