Both Time Warner Cable and Verizon don’t think you want or need gigabit fiber broadband — the kind of service now available in Kansas City from Google Fiber.

Time Warner Cable’s chief financial officer Irene Esteves says the cable company is content delivering most of the country no more than 50/5Mbps broadband (for at least $10 more than Google charges for 1,000/1,000Mbps service).

“We’re in the business of delivering what consumers want, and to stay a little ahead of what we think they will want,” she told an audience of Wall Street investors at the Morgan Stanley Technology Conference. “We just don’t see the need of delivering [gigabit speeds] to consumers.”

Esteves says she is not opposed to supplying gigabit speeds to business customers.

“We’re already delivering 1-10Gbps service to our business customers, so we certainly have the capability of doing it,” she said.

Despite regular quarterly conference calls where Time Warner executives trumpet the growing interest in higher broadband speeds, Esteves downplayed the importance of Time Warner’s top-tier: 50/5Mbps, claiming only a very small fraction of Time Warner customers opt to receive speeds that high.

Fran Shammo, chief financial officer at Verizon agreed with Esteves during the conference, also arguing nobody needs gigabit speeds today.

“FiOS brings a very different perspective to the household with fiber to the home,” Shammo said. “We actually tested a 1Gbps circuit in New York three years ago, so our FiOS product can deliver that but we just don’t see the need yet from a household to have that much of a pipe into their home.”

Time Warner’s “low interest” 50Mbps premium tier is Verizon FiOS’ mainstream sweet spot. Verizon now heavily markets 50/25Mbps Quantum service as their best value option, charging $10 more per month to upgrade from basic 15/5Mbps service.

One of the side benefits of Google getting into the broadband provider business is learning first-hand what is reality and what represents provider spin and marketing nonsense used to justify high prices and usage limits.

As Google Fiber slowly spreads across Kansas City, the search engine giant is gaining first hand-experience in the broadband business. Google understands what cable operators endured in the 1980s and what Verizon was coping with until it pulled the plug on FiOS expansion: the upfront costs to build a new network that reaches individual subscribers’ homes and businesses can be very high. But once those networks are paid off, revenue opportunities explode, particularly when delivering broadband service.

Milo Medin, a former cable Internet entrepreneur and now vice president of access services at Google, presented a cogent explanation of why Google can make gigabit broadband an earner once construction costs are recouped. He demonstrated the economics of fiber broadband at a meeting of the San Jose chapter of the IEEE.

In addition to a long term investment in fiber, and the new business opportunities 1,000Mbps Internet provides, Google has learned from the mistakes other utilities have made and is trying to establish close working relationships with local governments to find ways to cut costs and bureaucracy.

In Kansas City, Google has placed staff in the same office with city zoning and permit officials. Working together in an informal public-private partnership to cut red tape, local inspectors have agreed to coordinate appointments with Google installers to reduce delays. That alone reportedly saves Google two percent in construction expenses.

“Governments have policies that can make it easy or hard, so I say, ‘if you make it hard for me, enjoy your Comcast,’” Medin said.

Internet traffic vs. costs

Medin notes broadband adoption and expansion in the United States is being artificially constrained by the marketplace, where wired providers are resting on their laurels.

More than a decade ago, people paid $40 a month for 4-5Mbps service, Medin noted.

Providers have kept the price the same, arguing they create more value for subscribers with ongoing speed increases.

But Medin notes overseas, prices are falling and speeds are increasing far faster than what we see in North America.

“Broadband in America is not advancing at nearly the pace it needs to be,” Medin argues. “Most of you have seen dramatic changes in wireless, but there’s never been a real step function increase in wired. That’s what’s needed for us to retain leadership in technology — and not having it is a big problem.”

Medin points to OECD statistics that show the cost per megabit per month in the U.S. is the sixth highest among 34 OECD nations. Only Mexico, Chile, Israel, New Zealand, and Greece pay higher prices. Every other OECD nation pays less.

By leveraging fiber optics, which every provider uses to some extent, costs plummet after network construction expenses are paid off. In fact, despite the explosion in network traffic, provider bandwidth costs remain largely flat even with growing use, which makes the introduction of Internet Overcharging schemes like usage caps and consumption-based pricing unjustified.

“Moving bits is fundamentally not expensive,” said Medin.

In 1998, when cable broadband first became available in many markets, the monthly price for the service was around $40 a month. Internet transit prices — the costs to transport data from your ISP to websites around the world averaged $1,200 per megabit that year. Today that cost has dropped below $4 per megabit and is forecast to drop to just $0.94 by 2015.

Data caps protect incumbent big studio and network content creators at the expense of independent producers and others challenging conventional entertainment business models.

That was the conclusion of several writers and producers at a communications policy forum hosted by Public Knowledge, a consumer group fighting for an open Internet.

A representative from the Writers Guild of America West noted that cord-cutting paid cable TV service has become real and measurable because consumers have a robust online viewing alternative for the first time. John Vezina, the Guild’s political director, noted how Americans watch television is transitioning towards on-demand viewing.

New types of short-form programming and commissioned series for online content providers like Netflix are also changing the video entertainment model.

Welch: It is about the money.

But a digital roadblock erected by some of the nation’s largest broadband providers is interfering with that viewing shift: the data cap.

Data caps place artificial limits on how much a customer can use their Internet connection without either being shut off or finding overlimit fees attached to their monthly bill. Critics contend usage caps and consumption billing discourage online viewing — one of the most bandwidth intensive applications on the Internet. With broadband providers like Time Warner Cable, AT&T, Verizon, and Comcast also in the business of selling television packages, cord-cutting can directly impact providers’ bottom lines.

Providers have traditionally claimed that usage limits are about preserving network resources and fairness to other customers. But Time Warner Cable admits they exist as a money-making scheme.

Rachel Welch, vice president of federal legislative affairs at Time Warner Cable, says the cable company is not worried about limiting data consumption. It considers monetizing that consumption more important.

“We want our customers to buy as much of the product as possible,” Welch told PC World. “The goal of companies is to make money.”

Time Warner now offers customers a choice of unlimited service or a $5 discount if customers keep their monthly usage under 5GB, but some worry that is only a prelude to introducing expanded usage limits on a larger number of customers in the future.

For many consumers already hard-pressed by high broadband bills, worrying about exceeding a data allowance and paying even more may keep viewers from watching too much content online.

For that reason, Vezina called data caps “anti-innovation.”

“It hurts consumers [and] it hurts creators who want to get as much out to the public in as many ways” as possible, he said.

Public Knowledge has become increasingly critical of data caps in the last two years. The organization has questioned how ISP’s decide what constitutes a ‘fair’ usage limit and criticized inaccurate usage meters that could potentially trigger penalties and overlimit fees.

Do you ever wonder why your local cable system suddenly decided to begin carrying barely known networks like Centric, Logo, Palladia, and a dozen other channels you can’t recall ever watching even as providers perennially complain about “increased programming costs?”

The cable dial has gotten increasingly crowded with secondary cable networks that usually occupy three digit channel numbers somewhere in cable dial Siberia, unlikely to be encountered by anyone other than the most hearty channel surfer.

Welcome to the cable network racket, run by the corporate owners of popular cable networks that allegedly force cable operators to also carry (and pay for) lesser-watched networks as part of a broader carriage deal.

Today, Cablevision filed an antitrust lawsuit against Viacom in Manhattan federal court for illegally forcing the cable company to carry and pay for more than a dozen ancillary cable networks it claims customers don’t want, just so Viacom will sell access to popular cable networks including Comedy Central, MTV and Nickelodeon.

“The manner in which Viacom sells its programming is illegal, anti-consumer, and wrong,” Cablevision indicated in a prepared statement. “Viacom’s abuse of its market power is not only illegal, but also prevents Cablevision from delivering the programming that its customers want and that competes with Viacom’s less popular channels.”

Cablevision argues Viacom is hostile with cable operators who don’t want these add-on channels, coercing carriage agreements by threatening “massive financial penalties” or exclusion of popular channels altogether until operators sign up for the majority of Viacom networks.

Cablevision’s complaint asserts that Viacom is engaged in a “per se” illegal tying arrangement in violation of federal antitrust laws. Cablevision also claims Viacom has engaged in unlawful “block booking,” a form of tying  conditions on the sale of a package of rights to the purchaser’s taking of other rights.

Cablevision is seeking a number of remedies including voiding the carriage agreement Cablevision signed with Viacom just last December, a permanent injunction banning Viacom from making carriage agreements conditional on adding other networks, and financial relief in the form of damages and legal costs related to bringing the suit.

Yes

Viacom-owned networks customers actually want:

• MTV
• MTV2
• Nickelodeon
• VH1
• Spike
• TV Land
• Comedy Central
• BET

What?

Viacom’s 14 extra networks you may have never heard of and may not want to pay for:

• Centric
• CMT
• MTV Hits
• MTV Tr3s
• Nick Jr.
• Nicktoons
• Palladia
• Teen Nick
• VH1 Classic
• VH1 Soul
• Logo
• CMT Pure Country
• Nick 2
• MTV Jams

Viacom issued a statement minutes ago claiming it would “vigorously defend this transparent attempt by Cablevision to use the courts to renegotiate our existing two-month-old agreement.”

Viacom argues it does not force operators to carry any of its networks, but admitted it does offer financial incentives in the form of lower prices when operators agree to also carry its lesser-known networks. Viacom said that it had “long offered discounts to those who agree to provide additional network distribution.”

Comcast may be attempting to get around Federal Communications Commission regulations governing what cable companies can charge for cable equipment by recasting the monthly fee as a “service charge.”

The cable operator’s decision to start charging $1.99 a month for digital transport adapters (DTAs) — small boxes that can convert digital signals into analog for older televisions — has at least one Minnesota city up in arms.

Eagan city officials met with outraged residents Tuesday to discuss the fee hike and hear a number of complaints about how Comcast does business in the community.

“It really ran the gamut, from concerns about losing stations, to concerns about being bait and switched, to having gotten boxes for free and worried that you had to pay for them in the future,” Eagan Mayor Mike Maguire told WCCO-TV.

Comcast customers in Minnesota are receiving letters from the cable operator some call deceptive. The letter warns “digital equipment is needed on all your TVs to receive channels,” despite the fact many televisions manufactured after 2007 are equipped with QAM tuners that will receive the digital signals without extra equipment, at least for now.

Only in fine print at the bottom of the letter does Comcast admit QAM-equipped sets won’t need the equipment, saving $1.99 a month per set.

Letters have also been sent to customers who have used DTA equipment provided by Comcast at no charge… until now.

Comcast earlier announced it intends to collect $1.99 a month from each subscriber using DTA equipment, even if those customers previously had received the equipment for free.

But Comcast’s decision to charge $24 a year in perpetuity for a box with a wholesale cost of less than $50, depending on the model, may run afoul of Federal Communications Commission regulations that forbid cable operators from charging excessive amounts to lease cable equipment:

Cable operators may require their subscribers to use specific equipment, such as converters, to receive the basic service tier. They may include a separate charge on your bill to lease this equipment to you on a monthly basis. This monthly rate must be based on the operator’s actual costs of providing the equipment to you. Operators may also sell equipment to you, with or without a service contract. If an operator provides a choice between selling and leasing the equipment, the monthly leasing rate will be regulated but the sales price will be unregulated. If an operator only sells equipment and does not also lease equipment, then the sales price must be the actual cost of the equipment plus a reasonable profit, and any service contract should be based on the estimated cost to service the equipment. If the customer buys the equipment but does not purchase a service contract, the customer can be charged for repairs and maintenance. Cable operators may not prevent customers from using their own equipment if such equipment is technically compatible with the cable system.

Eagan Mayor Mike Maguire

In a possible attempt to avoid regulatory language regarding cable equipment, Comcast has declared its new $1.99 fee is actually an “additional outlet service charge,” not an equipment fee.

“The deployment of DTA technology allows us to bring more value to our customers through additional HD channels and faster Internet speeds, both of which are used by the majority of our customers,” said Mary Beth Schubert, vice president of corporate affairs. “These types of enhancements require significant investment, and we feel the nominal fee now being implemented for DTA additional outlet service on our digital tiers reflects the additional value of the service.”

“There is no charge for the first three DTA devices,” said Schubert. But she quickly added, “After the digital transition in March and April, those TVs will not have access to these channels unless they are paying the $1.99 DTA additional outlet service fee.”

Michael Bradley, an attorney representing 20 local communities, is investigating to see if Comcast’s language about its new fee violates FCC rules.

The new charge is expected to be lucrative for Comcast, earning the company at least $550 million annually in new revenue.

Comcast intends to boost that even further as it embarks on encrypting its digital lineup, making QAM-equipped televisions useless to receive scrambled cable channels.

“These customers will eventually need to connect a digital device to their QAM tuner equipment at a future date as we implement additional network security features,” warned Schubert. “Customers will be provided complete information well before any additional measures take place.”

The FCC previously negotiated an agreement with cable operators intending to encrypt their cable lineup to keep customers from experiencing bill shock from new, mandatory equipment fees:

But by recasting new fees as unregulated “additional outlet fees,” Comcast and other cable operators may have successfully outwitted the FCC’s good intentions, earning billions in new revenue annually as a result of a simple language change.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WCCO Minneapolis Comcast Fee Causes Outrage in Minn 2-20-13.mp4[/flv]

WCCO reports the city of Eagan held an informational meeting Tuesday about Comcast’s newest fee for digital boxes required on older televisions. Comcast customers nationwide will soon pay the new $1.99 “DTA additional outlet service fee” for each television equipped with the digital set top DTA box “to offset increasing programming and operational costs.”  (2 minutes)