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.

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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)

Cable companies are starting to lay the groundwork to support the next generation of HD video — first with 4K, an improvement over today’s HD standard, and eventually 8K Ultra High Definition TV — delivering pictures 16 times better than the current 1080p HD standard and coming close to the level of detail supported by IMAX.

The 8K evolving standard, proposed by Japan’s public broadcaster NHK and dubbed Super Hi-Vision, remains years away, but cable operators are preparing their systems to support 4K UHDTV (3840 x 2160 – 8.3 megapixels)  much sooner.

By the time 8K comes into use, most cable operators will rely entirely on a single broadband pipe to deliver video, Internet access and telephone service. To handle that traffic, and the bandwidth UHDTV demands, providers will have to upgrade their systems to support much faster speeds. A single video channel transmitted in 8K UHDTV requires around 360Mbps.

That makes Google’s decision to construct a gigabit broadband network in Kansas City seem less revolutionary and almost evolutionary, considering how quickly bandwidth demand will increase in the next eight years.

The cable industry is now moving fast to finalize the next version of the DOCSIS standard which supports cable broadband. DOCSIS 3.1 is expected to be introduced Thursday at the Cable-Tec Expo. An initial preview seems to suggest the standard will be backwards-compatible with prior DOCSIS versions — good news for those buying their own cable modems — and will support multi-gigabit speeds, if the cable operator decides to dedicate more of its available bandwidth to broadband.

An essential goal of the cable industry is to match or beat 1Gbps, currently on offer from several fiber to the home service providers and Google. Some operators want even more — up to 10/2Gbps capacity, as they consider future speed needs.

But engineering advancements and innovation fly in the face of bean counters attempting to monetize broadband usage with usage caps and usage-based billing. The industry’s justification for usage caps becomes even more tenuous as it moves to a single pipeline for all of its services and treats its cable TV package differently from Internet traffic. AT&T and Bell are already doing that today with their U-verse and Fibe platforms. Both claim their TV channels move over a different network than traditional Internet, but as costs for both continue to decline, that is becoming a distinction with little difference.

Google and a handful of independent or community-owned broadband networks are largely the only ones calling out the cable industry’s bogus claims that consumers don’t need super fast broadband, usage caps are necessary, and broadband speed upgrades are difficult and too expensive. These new competitors have correctly predicted the exponential growth in bandwidth demand and are prepared for it, even as the industry continues to dismiss their competitors’ networks as unnecessary overkill.

But cable’s hurry to DOCSIS 3.1 tells a different story.

Jeff Baumgartner from Light Reading Cable observed cable executives at Tuesday’s annual Cable & Telecommunications Association for Marketing (CTAM) conference, where those attending beat the drum for faster and better networks:

[DOCSIS 3.1] will also focus on the quality of cable’s pipe, reduced latency and other smarts designed to help enable a new set of broadband-based services. Cable’s interest in offering 4K HD services, which offer four times the resolution of today’s HD, was an example that was brought up several times during the session.

The cable industry also hopes to shorten the process of creating the specs and having them turn into deployable products. An average generation of DOCSIS has typically taken three to four years.

“We can no longer do that,” said Phil McKinney, the new president and CEO of CableLabs, but didn’t offer a guess on the anticipated cycle for 3.1. “We have to deliver higher and higher performance.”

[…] And 3.1 is also about the almighty dollar as broadband usage continues to climb. Getting costs down “is a key part of Docsis 3.1,” said Cox Communications Inc. EVP and CTO Kevin Hart.

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Jeff Baumgartner from Light Reading Cable was invited to a demonstration of 8K UHDTV, which will require much faster broadband networks to handle the super high quality video. (3 minutes)

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.

“We know where you live, where your office is and who you owe money to. We are having your house watched and we are going to use this information to destroy you. You made a big mistake messing with TCI. We are the largest cable company around. We are going to see that you are ruined professionally.” — Paul Alden, TCI’s vice president and national director of franchising to an independent consultant hired to review competing cable operators for Jefferson City, Mo., in a historical example of cable industry abuse

The Federal Communications Commission last week voted unanimously to expire rules that required cable operators to make their programming available on fair and reasonable terms to competitors. Big mistake.

We have been here before. Let us turn back the clock to the days before the FCC and Congress mildly reined in the cable television industry with the types of pro-consumer regulations Chairman Genachowski and others have now let expire. Why were these rules introduced in the first place? Because years of industry abuse heaped on consumers and local communities took their toll, with high prices for poor service, outrageous corporate bullying tactics, and endless litigation to hamper or stop consumer relief.

How long will it take for the industry to resume the same abusive practices that forced the FCC and Congress to finally act once before?

The Central Telecommunications. v. Tele-Communications, Inc. (TCI): The Poster Child for Cable Industry Abuse

Tele-Communications, Inc. (TCI) was the nation’s largest cable operator. Later known as AT&T Cable, the company was eventually sold to Comcast.

Back in the 1980s, before the days of direct broadcast satellite competition like DirecTV and Dish, and years before telco-TV was allowed by law, the cable industry totally dominated the video marketplace. The only challenges came from incredibly rare competing cable TV providers or three million home satellite dish owners or wireless cable subscribers.

The industry’s only check on unhampered monopoly growth came from local authority over cable operations through the cable franchising process. If a cable company got out of control or did not offer the programming or service a community found adequate, it could offer a franchise to another company, effectively kicking bad actors out of town.

In Jefferson City, Mo., the local cable operator during the 1980s was Tele-Communications, Inc. (TCI). It had acquired the franchise in the city by buying out the original provider in the late 1970s. TCI had been buying a lot of smaller cable operators around the country under the direction of then CEO John Malone. By 1981, it had grown to the largest cable operator in the country, and few dared confront the well-heeled operator, which had a legal budget greater than the operating budgets of some communities TCI served. TCI was later acquired by AT&T Cable, which in turn sold its cable systems to Comcast, which continues to operate them to this day.

In 1980, Jefferson City officials decided it would be prudent to make sure they were getting the best cable service possible, so as TCI’s franchise agreement reached expiration, the city issued a “request for proposals” offering other cable companies a chance to bid for the right to serve the community of around 38,000. For TCI, this was tantamount to a declaration of war, and the cable company meant business. Malone equated anything threatening a permanent cable franchise for TCI as something like an act of government theft. In books later written about the events in Jefferson City, even some TCI executives admitted they were “horrified by the sleaziness” of the kind of hardball tactics involved, comparing them to a “B-movie.”

TCI revealed it would stop at nothing to keep competitors away from their territories and drag out years of litigation. Central Telecommunications, Inc., v. TCI Cablevision, Inc., revealed exactly how far TCI was willing to go:

From: Cutthroat: High Stakes & Killer Moves on the Electronic Frontier, By Stephen Keating

Cajole the mayor into canceling competitive bidding. In early 1980, after Jefferson City made it known TCI might get some competition, the company quickly met with the mayor hoping to persuade him to renew TCI’s franchise without a competitive bid process, so as to avoid a “frontal attack” by competitors.

Threaten the independent consultant. In December, 1980 the city hired Elmer Smalling, an industry consultant, to independently evaluate various bids from cable operators willing to serve Jefferson City. TCI immediately began publicly attacking his qualifications in a way the court later found to be defamatory. The court case documents Paul Alden, TCI’s vice president and national director of franchising, making personal threats against Smalling.  A sample:

“We know where you live, where your office is and who you owe money to. We are having your house watched and we are going to use this information to destroy you. You made a big mistake messing with T.C.I. We are the largest cable company around[.] We are going to see that you are ruined professionally.”

It got worse for Smalling. At this same time, Warner-Amex (another large cable company now known as Time Warner Cable) was a client of Smalling’s. Alden contacted Warner-Amex about Smalling. Following the threats, Smalling lost Warner-Amex as a client.

City Attorney Thomas Utterback later wrote a memo to the City Council in which he described TCI as a “relentless corporate bully.”

Threaten would-be competitors. On several occasions, from January of 1981 to the summer of 1981, Alden repeatedly telephoned Robert Brooks, chief operating officer of Teltran, a company which submitted a bid for the city’s franchise, and threatened him that unless Teltran withdrew from the bidding process, TCI would make trouble for Teltran in Columbia, Missouri, where it operated a cable television franchise. Teltran subsequently dropped out of the bidding process on the ground there was a “distasteful environment” in Jefferson City.

Another competitor, Central Telecommunications, became a defendant in a TCI lawsuit challenging the city’s right to request proposals from other cable companies. TCI argued it now had a 1st Amendment right of free speech to serve Jefferson City residents regardless of the wishes of city officials. In a wide ranging series of subpoenas, TCI demanded the bank handling Central’s financing turn over a “very wide range of potentially confidential records,” which according to Central was an effort to destroy its financing agreement with the bank.

Malone

Threaten customers. TCI warned customers that unless it won the cable franchise for Jefferson City, it would immediately shut off its cable system and leave customers without service, potentially for years, until Central built its own system from scratch. TCI officials said “it would not sell ‘one bolt’ of its system to whoever received the new franchise and that it would ‘rather have [its system] rot on the pole’ than sell it to a competitor at any cost.”

TCI’s system manager in Jefferson City told elderly residents of a senior citizens’ home that TCI would cut off service if denied a franchise, and the residents would be without television for two years pending construction of a new system because the concrete walls of their residence would not allow reception of over-the-air stations.

Lie, Lie, and Lie Some More. In one City Council meeting, Alden wildly claimed that TCI was the nation’s largest distributor of satellite dish antennas, with “an exclusive” right to sell in the state of Missouri. TCI promised that if the city renewed its franchise agreement, it would keep satellite dishes out of Jefferson City. If the franchise was not renewed, Alden promised to “flood the city with satellite dishes,” denying the city franchise fees. Alden later admitted both statements were untrue.

Threaten the mayor’s office. Although the mayor has never disclosed exactly what TCI threatened him with, the public record shows in March 1981, Alden called the mayor and threatened to turn the system off unless TCI’s franchise was renewed. TCI also filed an expensive lawsuit against Jefferson City regarding the way it handled its request for proposals.

By the fall of that year, TCI was meeting with city attorney Utterback in secret negotiations to renew its cable franchise, in direct violation of the city’s request for proposals  which required all negotiations to be open, as well as Missouri’s “sunshine laws.” By next spring, the mayor had privately notified council members he would veto any franchise renewal awarded to anyone other than TCI, which he later admitted was a condition imposed by TCI during its secret negotiations.

On January 25, 1982, the City Council provisionally awarded the franchise to… Central Telecommunications. TCI immediately refused to pay the city the prior year’s franchise fees, in excess of $60,000. It also reminded the mayor of his obligations to TCI as part of the secret franchise renewal negotiations held the prior fall. On April 20, 1982, the City Council passed the ordinance awarding a franchise to Central. The vote was six in favor and four against. The mayor vetoed the ordinance. The council then deadlocked five-to-five on awarding a franchise to TCI and the mayor cast the deciding vote in favor of that company. The next day, TCI dismissed its lawsuit against the city and paid the withheld franchise fees.

In the end, several courts upheld tens of millions in damages for Central Telecommunications, TCI’s lawsuit was dismissed at the company’s request, Mr. Alden was summarily dismissed by TCI after Malone referred to him as a “loose cannon,” and Jefferson City was stuck with several additional years of lousy service from TCI.

But TCI’s “bad corporate citizen” practices would come back to haunt the cable juggernaut, eventually failing to win assignments for two $800 million orbital slots for a direct broadcast satellite service the company proposed. After the Jefferson City experience, even the FCC could not, in good conscience, reward TCI with satellite slots it wanted for a “competing satellite service” it would sell through its own cable companies.

The memories of FCC officials are evidently short. Giving cable operators an inch has historically bought them a mile, paid for by consumers. Mandating easy to understand rules requiring cable operators sell programming to competitors on fair and reasonable terms is sound policy whether there is competition or not. Removing those rules or watering them down only promotes the kind of mischief that, when unchecked, leads to these kinds of horror stories. History need not repeat itself.

Comcast has agreed to provide cable service to 540 homes on Chappaquiddick Island, but only if residents agree to cover part of the cost, which Comcast estimates will be $1,526 per home, assuming everyone offered the service signs up.

Martha’s Vineyard, with Chappaquiddick Island to the east

The cable company has been at odds with town officials in Edgartown, which is responsible for negotiating franchise agreements for six Massachusetts island communities and Edgartown itself. Comcast said it would cost $1.58 million to wire up the small island, and it wants residents to pay $824,000 of that.

The cable company also wants residents to pay extra for connections if their homes lie more than 250 feet from the primary cable Comcast intends to wire across the island. Beyond that, customers will pay Comcast’s usual rates for cable TV, phone, and broadband service.

Edgartown wants Comcast to cover the island towns that surround it, and the company in turn has routinely claimed there were insufficient customers available to recoup the costs of the investment.  But attitudes have softened now that Comcast’s franchise is up for renewal.

Local officials issued a request for proposals in February, 2011 to a variety of cable operators that might be interested in serving Martha’s Vineyard, of which Chappaquiddick is a part. As anticipated, Comcast — the incumbent, was the only company that responded.

But after an extended back and forth, Comcast seemed willing to relent, if someone split the tab.

Local residents have had mixed reactions to the proposal. Some wonder why they should have to foot the bill for a company that will earn $8 million annually from customers on the various nearby islands. Others are willing to pay, but in installments.

Edgartown town administrator Pam Dolby wants a more detailed breakdown of the cost estimate of $1.58 million to wire just over six square miles of the island.