Major cable and phone companies are rolling out new bundled packages and promotions designed to protect their cable television packages from cord cutting.

Verizon, Comcast and Time Warner Cable have all run promotions that carry a clear message: cancel your cable television and your wallet gets it.

The Wall Street Journal shared the story of Comcast subscriber Cathy Vu, who decided she no longer wanted cable TV and tried to downgrade to a broadband-only account.

Comcast gave her an offer she could not afford to refuse when the representative explained canceling cable television would increase her monthly bill $20. As a result, Vu decided she would save more money keeping her cable television turned on.

Welcome to the new world of double and triple play bundled pricing promotions that bring downgrade penalties customers cannot ignore.

The idea of repricing cable service to protect vulnerable cable television and phone service began in earnest after analysts like Sanford Bernstein’s Craig Moffett began noticing customers were no longer addicted to keeping cable television, no matter the cost. He proposed a solution: price broadband service higher and cut the cost of cable television.

The result: carefully constructed promotional and bundled package offers that entice customers to purchase services they might not even want, to get the best (and sometimes lowest) price. Gone were promotions that offered phone, broadband, and television service for $33 each. In their place, new pricing that charges $60-70 for the first service, and heavily discounted prices for each additional service.

You know the pitch:

“Yes, I am calling to sign up for broadband service,” you say.

“Certainly, I would be glad to help you with that. But did you know that for just $20 more a month, you can also get cable television?”

“Really, it’s only $20 more? Sure.”

“I am thrilled to hear you say that. But I hope you are sitting down because I have more good news. For just $10 more, we can give you a phone line with unlimited local and long distance calling. How much do you pay the phone company now?”

“Too much, that sounds like an amazing deal, so I get everything together for $99 a month?”

“You sure do, for the first 12 months anyway.”

One year later when the promotion ends, you call to begin downgrading service to lower your bill. But cable and phone companies are increasingly ready for you.

First they will offer you a slightly less attractive promotional retention offer to keep your business. If you accept, the company gets to book the extra revenue and probably locked you into an annual service agreement.

If you don’t bite and insist on a downgrade, they have some bad news for you — that broadband service you still want will now cost you $60-70 a month, including the modem fee.

If you bail early on a promotional discount offer, the bite on your wallet can be significant.

The Journal found unbundling just does not pay:

• Comcast: TV + Internet for about $50/month for the first 6 months vs. standalone same speed Internet for about $70/month.
• Verizon FiOS: TV + Internet for about $85/month (two-year contract) vs. standalone Internet for about $80/month.
• Time Warner Cable: TV + Internet for about $50/month for 12 months vs. standalone Internet for about $45/month for 12 months, then up to $60 after that.

At the end of the day, Moffett and the rest of Wall Street get their wish — preservation of the all-important growing average revenue (ARPU) collected from each customer. Downgrades lower ARPU, so they must be discouraged at all costs.

Cable operators “recognize that their most advantaged product is broadband,” said Moffett. “They don’t want to sacrifice that advantage by giving the opportunity for customers to cherry pick their best product at a low price and take the rest of your services from somebody else. In effect, they are pricing the broadband at a price that discourages you from taking broadband only.”

Customers primed for cord cutting (or who have never bought cable TV) are likely to receive targeted mailings from Verizon, Comcast and Time Warner Cable encouraging subscriptions to cable TV and prices that nearly give the service away.

Comcast’s Blast Plus promotion in selected markets delivers 30Mbps broadband with Digital Economy television service, both for $50 a month for six months. Internet-only customers would pay $70 per month for the same speeds without television.

Time Warner Cable in New York City wants to be your cable TV supplier so much, it offers a package of broadband and throws in Broadcast Basic service for just $5 more per month. Combined, Turbo Internet and television will cost $49.99 a month for a year. Standalone Internet on a promotion runs $45 a month for 12 months.

On a strict cost basis, charging more for Internet does not make sense. The Journal reports that about 90% of your monthly broadband bill is pure profit for cable operators, because the cost of delivering the service has continued to plummet to all-time lows. Cable television is no longer the cash cow it used to be for cable operators because programmers increasingly demand a piece of the profit pie. Today, cable operators only get to book about 35% of your monthly cable television payment as profit.

[flv width=”640″ height=”369″]http://www.phillipdampier.com/video/WSJ Cable Cord Cutting Less Attractive 11-13-12.mp4[/flv]

The Wall Street Journal examines the trend towards repricing broadband service so that customers feel compelled to keep their cable television package or face even higher bills.  (5 minutes)

This will cost you $10/month in Milwaukee

Stop the Cap! has learned Time Warner Cable is back with another equipment rate increase, this time for television set top boxes that will now cost $10 a month each, beginning in Wisconsin.

Time Warner Cable customers in the Milwaukee area are first getting the notice of the $1.05 rate increase on their latest bill. The new rate takes effect in November.

“Many businesses, including ours, are facing rising costs and have to adjust prices in order to maintain their operations,” explains Time Warner Cable Wisconsin spokeswoman Stacy Zaja. “We also understand that some of our customers are struggling in this economy, and are doing the best to hold the line on our prices.”

The rate increase comes at the same time Time Warner is introducing a $3.95 monthly modem rental fee for its broadband service. Unlike cable modems, however, Time Warner will not allow customers to purchase their own set top boxes, so it represents a rate increase customers can only avoid by canceling service or negotiating a lower rate.

At this time, Time Warner will not increase its prices for cable television service, just the equipment needed to view it.

The Business Journal notes Time Warner may be taking a chance on its latest rate increase, because AT&T’s U-verse service is increasingly available as an alternative choice for Milwaukee residents. Time Warner last raised the set top box rental fee by $1 in 2011, along with a $5 monthly rate hike for its cable television service.

Cohen

Comcast’s chief lobbyist stalled plans to unveil cheaper Internet service for the financially disadvantaged to use as bait to win regulator approval of its 2009 merger with NBC-Universal.

The Washington Post today reports David Cohen’s influence at the cable operator as its chief of lobbying has helped the cable company achieve its status as America’s largest cable operator and entertainment conglomerate.

Cohen has friends in high places thanks to his status as a Democratic Party money bundler. A self-styled “consigliere” to the Roberts family that controls the company, Cohen has overseen a transformation of Comcast from one cable operator among many into a high-powered force not to reckoned with in Washington or Silicon Valley.

Comcast’s growth into a mega-corporation with $58 billion in annual revenues came, in part, from dealmaking that won regulator approval in D.C. Maintaining good relations with those regulators is a Cohen specialty. It did not take the Post too long to find former FCC officials giving Cohen high praise:

• “Every meeting with David is incredibly substantive,” Eddie Lazarus, former chief of staff to the FCC told the newspaper. “He always comes with a willingness to find solutions.”
• “David loves politics, he loves government and he has incredible situational awareness — a 360-degree view of business,” said Blair Levin, a former senior adviser to FCC Chairman Julius Genachowski. “He’s just so good at what he does.”

Under Cohen’s leadership, Comcast has spent lavishly on its corporate lobbying and legal team. Today, 20 full time lobbyists work under Cohen’s direction, with dozens of others available on retainer. The company spent $8.3 million of its subscribers’ money solely on lobbying. The Post reports that makes Comcast the ninth biggest K Street spender, above Verizon.

The poor and disadvantaged had to wait for Comcast to seal the deal on their $30 billion acquisition of NBC-Universal before affordable Internet could become reality for them.

In 2009, Comcast insiders were hard at work on a discount program for the disadvantaged who could not afford Comcast’s regular prices for broadband service. But the program was stalled at the direction of Cohen, who wanted it to be a chip with regulators to win approval of its acquisition of NBC-Universal. The program, sure to be popular among advocates of the digitally disadvantaged, was a key part of approving the $30 billion deal.

“I held back because I knew it may be the type of voluntary commitment that would be attractive to the chairman [of the FCC],” Cohen said in a recent interview.

Regulators promoted Comcast’s “concession” to offer the discounted Internet service as a win for consumers as part of the final approval of the deal. In reality, Comcast was planning to offer the service anyway and finally introduced it in 2011 — two years after first being proposed inside the company.

That fact is a slight embarrassment to current FCC chairman Julius Genachowski, who has told audiences the discounted Internet program was partly to his credit.

“This particular program came from our reviewing of the Comcast NBC-U transaction,” Genachowski said in a speech. “Comcast embraced it as good for the country, as well as good for business. And I’m fine with that.”

Cohen defends Comcast’s lobbying expense as part of the company’s effort to combat scrutiny and challenges to its all-or-nothing video business model, denying customers access to a-la-carte programming.

Comcast’s scope has now grown so large, it has become a force few companies are willing to challenge, and those that try are quick to run into a blockade of Comcast lawyers, lobbyists, and carefully constructed contracts that protect the company’s bottom line from would-be competitors.

Deep pockets like Verizon, Apple, Netflix and Google have all tried… and failed to recast the cable television experience with on-demand programming, a-la-carte channels, and cord-cutting technology.

In response, Comcast has kept competitors tied down to the same cable packages that require subscribers to pay for everything, even if they seek only a few channels. Comcast leverages its broadband network with usage limits that effectively curtail cord-cutting among consumers looking to skip the TV package. Anyone seeking a place in today’s entertainment industry ends up dealing with Comcast sooner or later.

“They are hugely important because they can singlehandedly sink or swim multiple businesses that rely on the Internet ecosystem by virtue of controlling the dissemination of information through their pipes and now by supplying so much of the content,” said Joel Kelsey, a policy director at consumer interest group Free Press. “So many companies have come to us and ask we fight their battles for them because they are afraid of retribution.”

Cohen is well-compensated for his effectiveness. His latest three-year contract makes him one of the highest paid corporate lobbyists in Washington, with a $15 million annual compensation package and $3 million in bonuses, not including his ample stock holdings in Comcast.

His influence extends to the highest levels of the Obama Administration. Last summer, the family hosted a $1.2 million campaign fundraiser for President Obama, and the Cohens have separately contributed $877,000 to various campaigns. Comcast itself has spent $3.3 million in campaign contributions so far this year.

Looking for new revenue opportunities

More than half (52 percent) of all U.S. consumers say Internet service is their home’s most important utility, according to a survey conducted by Verizon Communications as part of their Verizon FiOS Innovation Index project.

But Verizon’s research surveys go well beyond simply identifying who loves Internet access. Verizon’s real interest is identifying so-called “borderless consumers,” — customers who are seeking a seamless online experience and connectivity both inside and out of the home.

The convergence of wired and wireless broadband networks is a potentially enormous money-maker for Verizon, especially if you happen to be a Verizon Wireless customer.

“As the borderless consumer segment continues to grow, so will the need to identify, understand and anticipate what consumers truly want in their increasingly connected lives – today and in the future,” said Eric Bruno, vice president of FiOS strategy and development for Verizon.

Fran Shammo, Verizon’s chief financial officer, has previously told investors that monetizing data usage goes beyond text messaging and web browsing. The next frontier for enhanced revenue will come from the machine-to-machine segment. As consumers strive for a more connected future, enabling wireless connectivity for home appliances, automobiles, medical equipment, and other devices will create new revenue streams for the company.

Verizon’s new research surveys help the company target its future marketing to consumers most likely to be living the “borderless lifestyle.” Are you? Here are some key attributes:

• Above average income: Most are college educated, own their home, and nearly half earn $75,000 or more annually, so they can afford higher broadband bills;
• They are 18-34: Generation X and Millenials grew up in an increasingly connected world. Baby boomers are not far behind, but seniors are;
• Women somewhat outnumber men in their need to remain connected;
• You already have a computer, smartphone, or tablet and are connected to high speed Internet. Most of you want faster speed, if you can get it.

Verizon’s study becomes murkier over the issue of cord cutting. Verizon found that video streaming continues to drive Internet traffic growth, but at least 89% still prefer watching shows on their televisions. Verizon defines that as live TV, DVR, or on-demand from “TV/Cable service.”

But they did not ask whether consumers are watching more or less television provided by their cable, satellite, or phone company or if a larger proportion of viewing now comes from Netflix or other streamed content. That is a key indicator of whether a customer is gradually shifting viewing habits, which could ultimately make it easier to dump cable television.

With 90 percent of those surveyed looking forward to the day when every connectable device in their house can seamlessly interconnect and work together, Verizon’s potential revenue opportunities are enormous, if customers use Verizon Wireless for connectivity and not free Wi-Fi. Machine-to-machine wireless traffic can boost profits without costing the company much, especially under Verizon Wireless’ new Share Everything pricing. The impact of short data exchanges likely from home appliances and other similar devices is expected to be negligible. The profits from charging at least $10 a month to add each of those devices to a Verizon Wireless account are not.

The Federal Communications Commission has granted cable operators permission to completely encrypt their television lineups, potentially requiring every subscriber to rent set top boxes or CableCARD technology to continue watching cable-TV.

The FCC voted last week 5-0 to allow total encryption, a reversal of an older rule that prohibited encryption of the basic tier, allowing cable customers to watch local stations and other community programming without the expense of extra equipment.

The cable industry said the decision is a victory against cable theft, claiming that nearly five percent of all cable television hookups are illegally stealing service, at a cost estimated at $5 billion in lost revenue annually.

But some third party companies offering alternatives to costly set top boxes with endless monthly rental fees claim the industry move towards encryption is more about protecting the cable monopoly than controlling signal theft.

Current licensing agreements do not allow third party set top manufacturers to support scrambled channels without an added-cost, cable company-supplied set top box or card. That means a would-be customer would have to invest in a third party set top box and a cable company-supplied set top box to manage scrambled channels. That may leave customers wondering why they need the third party box at all.

This presented a problem for Boxee, which manufactures third party set top boxes, some with DVR capability. If cable systems completely encrypt their lineups, Boxee customers will need to rent a cable box and work through a complicated procedure to get both to work together.

Boxee officials suggest both an interim and long term solution to the dilemma — both requiring the goodwill of the cable industry to work out the details.

For now, Boxee and Comcast have agreed to work together on an HD digital transport adapter (DTA) with built-in Ethernet (E-DTA). A Boxee user would then access basic tier channels directly through an Ethernet connection and change channels remotely using their enhanced set top via a DLNA protocol.

A longer term solution would be to create a licensing path for an integrated DTA solution included inside third party set top boxes. This would eliminate the need for an added cost E-DTA box.

Cable operators planning to encrypt their entire television lineup will soon begin notifying customers of their plans. Under an agreement with the FCC, those with broadcast basic service will get up to two boxes for two years without charge (five years if the customer is on public assistance). Those who already have a cable box or DVR will get one box for two years at no charge. The cable company can impose monthly rental fees on additional boxes and begin charging for every box after two years.

Former FCC chairman Michael Powell, who now presides over the nation’s largest cable lobbying group, called the FCC decision “pro-consumer” despite the added expense and inconvenient many customers will experience.

“By permitting cable operators to join their competitors in encrypting the basic service tier, the commission has adopted a sensible, pro-consumer approach that will reduce overall in- home service calls,” said Powell, president of the National Cable and Telecommunications Association. “Encryption of the basic tier also enhances security of the network which reduces service theft that harms honest customers.”

Comcast is a leading proponent of total encryption, because it would allow them to start and stop service remotely, without having to schedule a service call to disconnect service. Cablevision already encrypts its entire lineup in certain areas under a previously-obtained waiver from the FCC. The company said it saved money reducing labor costs associated with service calls to physically connect and disconnect service.