Again with the domination and control thing.

Dr. John Malone is wasting no time reacquainting the cable industry with the kinds of classic power plays he used while running Tele-Communications, Inc. (TCI), then America’s largest and most powerful cable operator. Malone’s latest salvo: proposing new broadband pricing schemes that run afoul of Net Neutrality by charging consumers higher broadband prices if they watch online video services like Netflix.

Malone, increasing his influence over Charter Communications before launching the next wave of cable company consolidation, implied the industry is hurting from the lack of power and dominance it used to enjoy when it had an unfettered, territorial monopoly back in the 1980s. Malone told an audience at the annual shareholder meeting of Liberty Global he advocates getting the industry’s mojo back by returning to “value creation” pricing models — code language for new ways to charge customers higher prices or add-on fees.

Malone sees raising prices for Internet service key to bringing the industry back to the golden profits it used to enjoy selling television subscriptions, even as customers faced massive rate increases that doubled, tripled, or even quintupled rates for certain services.

Malone’s assessment of the eight current largest cable operators wiring the country: Snow White (Comcast) and the Seven Dwarfs (Everyone Else). The disorganized agendas of various cable operators are troublesome to Malone, who wants the industry to act in lock step with a unified, cooperating voice. Consumer groups call this kind of friendly cooperation “collusion.”

Malone also thinks it is time to discard reliance on cable television to bring home the revenue and profits Wall Street expects. The industry should instead turn its earning attention to broadband, a product few Americans can live without. Malone believes the cable industry is not only positioned to control content distributed on its TV Everywhere online video platform for authenticated cable subscribers, but also have a say in competing content from Netflix, among others, which are totally reliant on the broadband pipes provided by ISPs.

With Netflix consuming a growing percentage of cable broadband resources, and possibly contributing to cable TV cord cutting, Malone does not advocate crushing its competition. Instead, he wants a piece of the action. How? By demanding online video providers pay for using cable broadband infrastructure. Consumers also face surcharges on their broadband accounts if they watch online video services like Netflix, Amazon, YouTube and other over-the-top-video. Malone also advocates the implementation of Internet Overcharging schemes like consumption billing and usage caps.

Malone’s “world of the future,” is, in reality, not much different from AT&T’s 2005 proclamation that use of AT&T’s broadband pipes should come at a cost to content producers.

Then-CEO Ed Whitacre’s public statements fueled support for Net Neutrality, which forbids broadband providers from traffic discrimination techniques like charging extra for certain content or artificially degrading service for producers who refuse to pay.

Malone’s incendiary ideas may be letting too much of the cat out of the bag, say some observers worried Malone’s rhetoric will remind people he was once labeled “the Darth Vader of Cable.” His statements could attract unnecessary attention that could be used to organize opposition.

Last week, the Wall Street Journal reported that broadband providers and content producers were already secretly cutting deals to exchange bandwidth for money without the public scrutiny Malone’s comments will generate.

The newspaper reports some of the biggest Net Neutrality proponents around, particularly Google, are quietly paying millions to large cable companies to guarantee their content reaches customers as quickly and smoothly as possible.

Among the top recipients: Comcast, which collects $25-30 million a year and Time Warner Cable, which nets “tens of millions of dollars” from Google, Microsoft, and Facebook.

The payments are buried in the murky world of “interconnection agreements” governing the backbone pipes carrying huge amounts of web traffic from popular websites and those owned by large telecom providers. Originally, content and broadband providers agreed to peering arrangements that would trade traffic without payment to each other. But as bandwidth-heavy online video began to turn those shared connections into lopsided floods of movies and TV shows headed into subscriber homes against a trickle of content coming back from broadband customers, the cable and phone companies began crying foul.

Netflix has so far navigated around paying Internet Service Providers directly to support their video content. Instead, it is building its own specialized content distribution network intended for ISPs to more effectively and efficiently deliver high bandwidth video. Connections to the Netflix network are free of charge to participating providers, but many ISPs are demanding to be paid.

Some content providers are fearful if they don’t pay, the free “peering” links will become hopelessly overcongested and slow web pages and services to a crawl.

For Verizon customers, that may have already happened as Netflix streams began stuttering and buffering earlier this month.

Cogent, which supplies Verizon with a considerable amount of Netflix traffic, immediately pointed the finger at the phone company for artificially degrading the Netflix viewing experience. Verizon promptly shot back:

Cogent is not compliant with one of the basic and long-standing requirements for most settlement-free peering arrangements: that traffic between the providers be roughly in balance. When the traffic loads are not symmetric, the provider with the heavier load typically pays the other for transit. This isn’t a story about Netflix, or about Verizon “letting” anybody’s traffic deteriorate. This is a fairly boring story about a bandwidth provider that is unhappy that they are out of balance and will have to make alternative arrangements for capacity enhancements, just like any other interconnecting ISP.

Cable giants like Malone see the battle as one the cable industry will have a hard time losing, because it is the only technology present in most communities that can handle the traffic and the growing demand for faster speeds.

Cable operators think content companies have a license to print money, especially since their success is built partly on broadband networks they don’t own or pay for delivering content to customers. At the same time, content companies fear they could be forced out of business if the cable industry decides to give itself preferential treatment.

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Reporters from The Wall Street Journal discuss the secret payment arrangements between content producers and some of America’s largest ISPs. (4 minutes)

Morin

A former third-party contractor for Charter Communications has been sentenced for illegally obtaining a service restoration work order from the cable company and reconnecting service for the customer, pocketing $160 for himself.

Bay County District Judge Dawn A. Klida this week sentenced Randy A. Morin, 31, of Bay City, Mich. to six months probation, $555 in fines, $160 in restitution, and 50 hours of community service for pretending to be a Charter employee and illegally turning cable service back on for a disconnected customer.

Anthony David called the cable company to reconnect cable service in November, and Morin arrived at his door with work order in hand. What David did not know was Morin had not worked on behalf of the Charter since May 2011.

Morin asked for a total of $160 to reinstate Charter service, which David gave him in two separate installments. At the end of November, David’s Internet service was switched off again after Charter claimed his connection was illegal. David’s next call was to police who began an investigation culminating in Morin’s arrest and felony charges.

William J. Morand, communications director for Charter’s Northeast Region, admitted Morin previously worked for M. Kable, a Charter contractor, and that there was no legitimate way the former contractor could have obtained current customer information.

Except he did.

Court records do not show exactly how that happened.

Helderle

A Charter Cable technician from St. Charles, Mo. was convicted of tying up and sexually assaulting an O’Fallon customer after she reported him for asking her out in an unwanted text message.

Jurors deliberated for only about an hour before convicting 22-year old Michael Helderle on four felony counts, recommending a 75 year prison sentence.

Helderle was employed by Communications Unlimited, a contractor performing work on behalf of Charter Communications.

When the victim requested a service call from Charter on Dec. 4, Helderle showed up. He obtained her cell phone number and asked her out on a date later that evening. The victim reported the text message to Charter and Helderle was fired.

The next day, Helderle broke into her apartment while she was on a video chat with her boyfriend, who was 1,700 miles away on an Air Force base. He called authorities after witnessing Helderle in the apartment.

Helderle handcuffed and tied up the victim, gagged and sexually assaulted her, covering her with a pillow. He then stole her cell phone and cash. When police arrived, Helderle placed a knife to the victim’s throat and threatened her if she called out.

Helderle eventually escaped the apartment while police untied the victim. He was arrested hours later.

Charter defended its actions after the incident:

“Charter recognizes that it is a privilege to be allowed into customers’ homes to install our services. Our customer’s safety is of utmost importance and precautions are taken seriously. We require criminal background checks on all in-home contractors prior to performing any work for Charter.”

It was not enough to avoid offering Helderle employment.

Cable operators use third-party contractors to cut costs and sometimes limit liability. Critics contend third-party contractors often use lower standards of employment and compensate their workers at a considerably lower rate of pay with fewer benefits.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KSDK St Louis James Helderle charged with tying up woman 12-06-12.flv[/flv]

KSDK in St. Louis covered the break-in and sexual assault back in December in this video report.  (2 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KSDK St Louis James Helderle convicted of burglary and sodomy 5-16-13.flv[/flv]

KSDK followed up on the story last week, noting the Charter Cable subcontractor was convicted of burglary and sodomy.  (2 minutes)

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).

[flv]http://www.phillipdampier.com/video/CNBC Malone is Back Into Cable 4-13-13.mp4[/flv]

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.”

[flv]http://www.phillipdampier.com/video/CNBC Malone on Unbundling Cable 4-13-13.mp4[/flv]

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.”