Comcast introduces the nation's capital to 50Mbps "wideband" service

Back in the 1980s, cable television systems in suburban Washington, DC and northern Virginia often showcased all that was possible for that era of cable operators.  When legislators and other movers and shakers were done for the day, they found some amazing cable services waiting for them when they got home.  Media General’s cable system in Fairfax County had an unprecented two coaxial cables going into each home, with up to 60 channels on each cable, and this was in the early 1980s, when most cable systems provided no more than 40 channels.  Up to 120 channels at prices often cheaper than cable systems with 30 channels, Media General received a lot of praise.

Providing a high level of service with robust competition in the nation’s capital is a great way to diffuse complaints about poor quality monopoly service at high prices reaching members of Congress from constituents back home.  More than a few elected officials opposing pro-consumer legislation in the 1980s and early 1990s used to rave about cable service they received in Washington, forgetting things were hardly as rosy back home.

Now Comcast, which provides cable service through large parts of the metro Washington, DC area, has announced the arrival of 50Mbps cable modem service, made possible with DOCSIS 3 upgrades.  Comcast will reap the profit potential of offering consumers and businesses higher tiers of broadband speed, making customers happy and reporting higher broadband revenue, which will also keep investors pleased.

Unlike Time Warner Cable, Comcast is bullish on deploying DOCSIS upgrades across all of their cable systems.  Comcast COO Steve Burke said, “We are hardcore on DOCSIS 3.0. We want to have two-thirds of our footprint by end of year.”

Comcast is also positioning itself to compete with Verizon FiOS, now being wired in parts of DC, Maryland, and Virginia.

The company announced the new “wideband” service was now available in the Anacostia area east of the river.  Over the course of the summer into fall, it will become available in parts of Arlington County, the City of Alexandria, Montgomery County and Prince George’s County.

Comcast promises to have 100% coverage by the end of the year.

New Speed Tier Pricing (assumes customer has at least one other Comcast service)

Extreme 50 — 50 Mbps down/10 Mbps up — $99.95 per month
Ultra — 22 Mbps down/5 Mbps up — $62.95 per month.
Deluxe (Business Class) — 50 Mbps down/10 Mbps up — $189.95/month (includes business class extra features)

Existing broadband services at slower speeds will also remain available at current prices, but customers may find reduced congestion made possible by DOCSIS 3 upgrades.

Where is the downside?  Comcast is keeping a strict limit of 250GB of consumption on these new residential tiers, which reduces their value, particularly on the higher priced plans.

Comcast apparently doesn’t like Verizon invading its home turf.  The Philadelphia-based cable company and the New York-based telephone company are engaged in an all-out ad war in southeastern Pennsylvania, and Verizon is calling “foul.”

Comcast replies turnabout is fair play, telling the Philadelphia Business Journal:

“Verizon’s been running a negative campaign against Comcast for years and its response to our campaign shows that they can dish it out but they can’t take it. As might be expected, the better the advertising and the more traction that it gains with consumers, the louder the competitor will object,” said Jennifer Khoury, Comcast spokeswoman.

So what ad put Verizon over the edge? Apparently it wasn’t the Verizon sales-stalker who invades people’s cars, front lawns, and demands credit card numbers of women at their doorstep.  No, it was the fact that Comcast depicted a typical Verizon FiOS installation as resembling a chaotic home lawn invasion, complete with heavy ‘yard wrecking’ equipment, life-threatening recklessness, and a monthly bill so prolific in pages, it requires a forklift to deliver.

That did it.

“These ads have people ripping up property, putting lives in danger and suggesting that this is typical of FiOS installations,” Eric Rabe, Verizon’s senior vice president for media relations, said. “That is an outrageous characterization and it has to stop.”

Rabe wasn’t sure if Verizon would sue if Comcast doesn’t knock it off.  The two companies are “having conversations,” according to Rabe.

While they talk, let’s explore the offending ad, plus several others from both sides.  It must be nice to live in a heavily competitive market.  Too many of us do not.  Comcast limits monthly usage to 250GB.  Verizon FiOS has no limit.

[flv width=”640″ height=”360″]http://www.phillipdampier.com/video/Comcast FiOS Bashing Ad 1.flv[/flv]

More video follows below…

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Although Time Warner Cable has downplayed the impact of deploying DOCSIS 3 upgrades to their broadband network outside of New York City, other cable operators making the switch are now enjoying the benefits of bragging rights, higher returns from “heavy users,” and a whole lot of happy customers.

Cablevision delighted the cutting edge crowd when it announced the launch of the fastest residential broadband service in the country — 101Mbps for $99 a month, and absolutely no cap on usage.  Now other players are maneuvering to follow their speed lead.  Broadband Reports noted this morning it had a source claiming that the nation’s largest cable operator, Comcast, was cutting prices on its 50Mbps tier by $40 a month to $99.95 for customers taking a product bundle.    The website earlier noted the company may have a 100Mbps plan in place shortly as well.  Comcast’s cap at 250GB per month does seem to apply.

Even bankrupt Charter Cable is enjoying the benefits of their super premium 60Mbps broadband service in the St. Louis area.

Heavy broadband users, as these companies have learned, often turn out to also be the “early adopters” that will readily respond to marketing for higher priced tiers of service offering higher speeds, as long as those companies don’t also bring along draconian usage caps which completely devalue the deal.  Cable operators enjoy the extra revenue they earn from these customers, retain customer loyalty, and earn praise from customers.

When Time Warner Cable proposed a 50Mbps/5Mbps service for $99 a month, we heard from several readers who were interested in the offer, right up until they learned it would come with a usage cap starting at 150GB per month, which meant customers would pay a whopping 67c per gigabyte, which represents an enormous markup.  Interest evaporated immediately.

The contrast could not be more clear — Cablevision gets industry and customer praise for offering an uncapped premium plan at twice the speed proposed by Time Warner Cable for $100 a month, while Time Warner Cable  dangled a 50/5 tier for the same price, but only after customers supported a consumption billing system and a vague, non-specific timeline for the eventual deployment of DOCSIS 3 which would make that possible.

Verizon’s decision to exit several smaller communities across the country and hand operations over to Frontier isn’t threatening Comcast, one of the predominate cable providers in some of the larger communities Verizon is abandoning in Washington, Oregon, and Indiana.  Some of the impacted communities, particularly Fort Wayne, were being prepared for Verizon FiOS before this week’s announcement.  While Verizon and Frontier have agreed to continue building out the fiber to the home projects already underway, the cable operators serving these communities are likely to exploit the molasses slow transfer from one phone company to the other.

Comcast is busily deploying DOCSIS 3 in their service areas, and even with Verizon FiOS, cable operators with upgraded networks can readily compete for broadband business in any of their markets.

As Verizon rapidly loses interest in the markets it will be leaving, the slow transition can be part of a publicity campaign by the cable operator to convince customers to abandon the phone company, because ‘they’ve abandoned you.”

Donna Jaegers, a senior research analyst at D.A. Davidson & Company told Multichannel News, “Verizon has no real incentive to continue to invest more capital in these markets.”

“In that one-year window, the cable competitors have an easy sales pitch,” she said. “They can say, ‘Hey look, Verizon is already neglecting you — and for the next year they’ll have even more reason to neglect you.’ ”

Cable operators completing upgrades to their networks as a normal cost of doing business make competing with changes in a market a snap.  Some companies recognize the benefits of DOCSIS 3 and have upgraded without running a “pledge drive” to beg for money to do it.  Others have not.

We knew it was always come down to the question of what to do about online video.  Although the overwhelming majority of broadband customers still take some sort of video package (or simply don’t care enough about television to get one in the first place), there is a small, but growing number of people who are dispensing with video packages from cable and relying entirely on broadband video services to watch network and cable programming.

Hulu and Joost, along with limited fare from the major American networks, as well as video offerings from the CBC and BBC exclusive to residents of those countries, create the potential for a major problem for cable operators — what happens if people stop buying video packages.

Comedy Central's Video Streaming - Will it be available to non-cable subscribers for long?

Comcast and Time Warner, the nation’s largest cable operators, have plans to put a stop to the erosion in video subscribers before it gets serious — by seeing to it that they don’t get to watch free online video any longer.

Comcast’s On Demand Online and Time Warner’s TV Everywhere services are either in operation or will begin trials later this year.  Both seek arrangements with cable programmers (coincidentally many of which they also have an ownership interest in) to create a new authentication system to block non-video subscribers from accessing video content aired on those channels.  Cable subscribers who do take a video package will get in for free.

The video programming would still exist on various cable network websites.  Comedy Central would still have clips on comedycentral.com and CNN would still have their news clips at cnn.com.  But under the cable operators’ proposals, those clips would no longer be available to individuals who cannot prove they have a video subscription.

Currently, some 90% of Time Warner’s broadband customers also take a video package, and Time Warner can easily authenticate those subscribers with a type of “authorization key” which an online video player would seek for permission to play the programming.  Time Warner is also contemplating whether live streams of cable channels would also be a good idea.  Currently, cable operators routinely insist on prohibiting live streaming of the cable networks they carry.

Of course, the problem will come down to those who subscribe via satellite dish services or a smaller cable operator or telephone company video package.  Does this enforcement only occur on Time Warner and Comcast’s own broadband networks, or would it be widespread?

Multichannel News covered the Time Warner TV Everywhere trial:

Time Warner Cable is working with two major programming partners on its “TV Everywhere” initiative to make sure the Internet-video service is easy to use and scalable, said Peter Stern, the operator’s executive vice president and chief strategy officer.

Stern, speaking on a panel here at the Cable Show ’09, said the MSO is already working closely with two programmers — Turner Broadcasting System and another he did not identify — that will involve authenticating consumers “in a very straightforward way so they can get access to content.”

“To be honest, we’re still working it out in terms of the user experience,” Stern said.

The concept, which is being Comcast and Cox Communications, is to reinforce the cable TV subscription model, by providing that programming to paying customers over their Internet devices.

Stern pointed out that 90% of Time Warner Cable’s broadband customers are already paying for multichannel video.

“Those people are already entitled to watch this programming,” he said. “The big risk we have is, if we don’t offer this programming to them the way they want it, they’ll turn to piracy.”

Alternatively, if that programming is provided to them for free over the Internet, the risk is they’ll cancel their subscription service – with such “cord cutters” obtaining their media online.

Some basic principles Time Warner Cable is following in developing TV Everywhere are that consumers should “have choice in terms of the sites they can have access on,” he said. “That will be dictated by programmers, not the cable operators.”

Stern continued, “Not to say we’ll not have content on the [Time Warner Cable] RoadRunner site, but we’d be kidding ourselves if we thought we were the only site consumers should be able to access.”

Cable operators have always been concerned about “leakage” of valued cable programming to online streaming or piracy.  Cable programming currently charge subscription fees to cable operators for carriage on those systems.  Some, like C-SPAN or Current, amount to pennies per month per subscriber.  But others, particularly for sports programming, Fox News, basic movie channels, and other high-rated channels command enormous fees amounting to several dollars a subscriber per month each, whether the subscriber wants to watch the programming or not.  These costs are continually increasing.  Fox News, for example, leveraged very strong price increases for its news channel, as well as forcing a number of cable systems to pick up the low rated Fox Business Channel to receive discounts.  Viacom also routinely demands cable operators take additional networks they may not want to carry in return for discounts on the networks those operators do want.

It all gets passed on to cable subscribers in the form of rate increases every year.  With the increasing number of channels on a cable lineup, when a bunch demand rate increases, rates can spike significantly from year to year.  Nearly all have carriage contracts that forbid the cable operator from selling their network(s) on an a-la-carte basis.

With cable video pricing increasing, many subscribers downgrade their subscriptions to save money.  If a cable programming is giving away their content online, that creates a greater incentive for viewers to stop paying for video packages, and rely on their Internet connections instead.

Earlier this week, Time Warner CEO Glenn Britt reiterated that although the erosion of video subscribers isn’t a problem today, it could easily become one tomorrow.  He cautioned programmers who give their shows away for free online that a day of reckoning may be coming, when a cable operator is no longer willing to pay for networks that give everything away online.

Rupert Murdoch, chairman of News Corporation, which owns Fox News, supports the concept, according to Multichannel News:

News Corp. chairman Rupert Murdoch said that cable networks have to find a way to monetize the Web, before consumers begin to expect to get their content for free.

“The fact is with free content, people are used to it being free on the Internet,” Murdoch said. “Nobody is making any real money from the Web except search. We have to monetize it.”

The other controversy involves cable operators trying to limit video viewing by imposing usage caps or tiered pricing on consumers, limiting the amount of video they can consume online.  At the lower end of the caps proposed by Time Warner, viewing Hulu or Joost programming would be akin to “pay per view,” with fees of 50 cents or more per show in broadband costs, once one’s usage allowance expires.