Netflix has reached an agreement with Verizon Communications for a paid-peering interconnection between the two that will help assure Verizon’s broadband customers can watch Netflix content without repeated buffering slowdowns.

It is the second major deal for Netflix where money has changed hands to assure a more error-free experience for customers, coming two months after a similar deal with Comcast.

Both Verizon and AT&T have told their respective shareholders they anticipate new revenue streams from interconnection agreements with Netflix, which now constitutes a large percentage of evening Internet traffic in the United States.

By establishing a more direct connection between Netflix and Verizon, customers should experience fewer streaming problems. Netflix traditionally pays third parties to handle its traffic and some of those shared connections have grown increasingly overcongested. ISPs are becoming increasingly reluctant to upgrade them without financial compensation.

The FCC does not consider peering arrangements part of the Net Neutrality controversy, but for customers the result is the same — without a financial arrangement with a provider, content from certain websites may not be dependably accessible. Earlier this year, Netflix viewing was increasingly disrupted for many Verizon, AT&T, and Comcast customers.

Netflix CEO Reed Hastings has repeatedly complained Netflix is being subjected to an “arbitrary tax” to assure dependable service to its paying customers. Hastings now wants the FCC to treat the issue as an “end run” around Net Neutrality and include peering agreements and financial compensation issues in the new Net Neutrality rules expected to be introduced in May.

Most analysts do not expect FCC chairman Thomas Wheeler to oppose or regulate the financial arrangements between ISPs and content producers.

If you are a Time Warner Cable customer, one of four things will happen by this time next year:

1. You will still be a Time Warner Cable customer if regulators shoot down its merger with Comcast;
2. You will be a Comcast customer;
3. You will be a Charter Communications customer;
4. You will be served by a brand new cable company temporarily dubbed “SpinCo,” owned partly by Comcast but managed by Charter.

Comcast and Charter this week reached an agreement on how to handle the 3.9 million Time Warner Cable customers Comcast intends to spin-off to keep its total subscriber numbers at a level they believe will appease regulators. The transaction will affect Time Warner customers in the midwest the most, particularly former Insight Cable customers.

Charter Communications will say goodbye to customers in California, New England, northern Georgia, Texas, North Carolina, Oregon, Washington, Virginia and parts of Tennessee. Most of those customers will now be served by Comcast. Among the regions affected: New York, Boston, Dallas/Ft. Worth, Northern/Southern California, and Atlanta.

[flv]http://www.phillipdampier.com/video/WISN Milwaukee First Comcast Now Charter 4-28-14.flv[/flv]

WISN in Milwaukee reports Time Warner Cable customers there were just getting used to the idea of Comcast and they are not happy service will be provided by Charter Communications instead. (2:03)

Comcast and Time Warner Cable will in turn give up many of its cable systems in the midwest, either transferring them to Charter or the “SpinCo” venture managed by Charter.

Charter will take over directly in Ohio, Kentucky, Wisconsin, Indiana and Alabama.

If you are a Comcast or Time Warner Cable customer next to a current Charter service area in Michigan, Minnesota, Indiana, Alabama, Eastern Tennessee, Kentucky or Wisconsin, chances are you will end up a subscriber of the “SpinCo” venture. That will prove a distinction without much difference to customers, because Charter will manage the day-to-day operations of the new cable company and has the right to eventually acquire it outright.

With the exception of a small handful of systems in western sections of Pennsylvania, Virginia and North Carolina, all of New England, New York, and the mid-Atlantic region will be serviced by Comcast.

With the exception of Cablevision in eastern New York, Comcast will be the dominant cable provider across New York State from Manhattan to Buffalo.

The agreement also includes a commitment by Charter to drop its opposition to the Time Warner Cable/Comcast merger.

“Today’s announcement from Comcast would, in essence, lead to the creation of a three-company cable cartel. Masquerading as subscriber divestitures, the agreement with Charter brings together the three largest cable providers, who account for 38% of cable subscribers and 45% of Internet subscribers,” the Writers Guild of America West said in a statement. “The decision of these three powerful companies to divide markets and share ownership of subscribers through a new publicly traded corporation is unprecedented and adds to the mounting evidence against the Comcast-Time Warner Cable merger.”

The transaction is expected to be tax-free and will happen in three stages:

• Asset Sale: Charter acquires systems serving around 1.4 million former TWC customers for an estimated $7.3 billion in cash;
• Asset Transfer: Charter and Comcast transfer assets in a tax-free exchange involving around 1.6 million former TWC customers and about 1.6 million Charter customers;
• Asset Spin-off: Comcast will spin-off a new entity (“SpinCo”) composed of cable systems serving around 2.5 million Comcast customers to its shareholders, with Charter acquiring close to 33% of the equity of SpinCo in exchange for 13% of the equity of a new holding company of Charter.

Charter Communications would become the nation’s second largest cable operator if the deal is approved, owning outright systems with an estimated 5.7 million video customers and managing an extra 2.5 million SpinCo customers, together totaling more than 8.2 million video customers.

Comcast wanted the deal done quickly so it could begin lobbying Washington and other regulators with detailed divestiture plans to keep Comcast’s total subscribers to less than 30% of the national cable market.

Although Comcast will face tough competition in Time Warner Cable territories also served by Verizon FiOS, Charter and its managed SpinCo will compete primarily with AT&T U-verse. Just 1% of Charter’s territory is expected to see competition from Verizon’s fiber network.

[flv]http://www.phillipdampier.com/video/Bloomberg Divesting Comcast Subs 4-28-14.flv[/flv]

Comcast agreed to divest 3.9 million customers to Charter Communications, potentially helping to ease the approval process for its merger with Time Warner Cable. Media Morph Chairman and Chief Strategist Shahid Khan and Bloomberg’s Paul Sweeney speaks on Bloomberg Television’s “In The Loop.” (6:23)

The head of the country’s largest Spanish-language television network Univision said on Monday that Comcast’s proposed purchase of Time Warner Cable could be “bad for Hispanic audiences.”

Univision President Randy Falco told Wall Street analysts that the combined cable company would serve 91 percent of all Latino households and be the dominant distributor of multichannel programming in 19 of the 20 largest Spanish-language television markets.

“We are hoping at the very least there is that scrutiny and potentially much tougher restrictions added to the existing [Comcast-NBCUniversal] consent decree that will protect Comcast competitors such as Univision who are serving minority communities in particular,” said Falco.

Although Falco did not directly oppose the merger, he did express concern that Comcast would not treat independent Spanish language networks like Univision as well as NBCUniversal-owned Telemundo network. Falco noted Comcast has refused to carry Univision’s sports network. Time Warner Cable does.

“Either Comcast doesn’t understand that soccer is a passion point for Hispanics or they don’t support competitors who have competing services,” Falco said. “My fear is that the latter is the case and this type of anti-competitive conduct would continue.”

Falco is among the first media executives to publicly criticize the merger. Critics of the deal say programmers are keeping quiet fearing future retaliation from Comcast.

Meredith Attwell Baker is moving on up…

Meredith Attwell-Baker, former FCC commissioner and high-level Comcast lobbyist has been named the new president of the CTIA – the wireless industry’s chief lobbying group and trade association.

“I am thrilled to have this opportunity to use my experience in both the public and private sectors to help the vital and fast-growing wireless communications industry,” Baker said in a press release. “CTIA should be in the center of discussions about how wireless is reshaping our economy, our society and our culture.”

Baker has cashed in on her two-year stint as a Republican commissioner at the FCC after resigning in the middle of her term to accept a high-paying lobbying job at Comcast only months after voting in favor of Comcast’s merger deal with NBCUniversal. Criticism of her hiring by one Seattle youth advocacy group almost cost it financial support when Comcast initially threatened to yank its funding.

The revolving door between the private sector and those that regulate it has rarely been as clear than at the Federal Communications Commission. Baker will assume a position once held by current FCC chairman Thomas Wheeler. Another former chairman of the FCC, Michael Powell, now runs the National Cable & Telecommunications Association, the cable industry’s lobbying group.

Baker will be well-compensated at the CTIA with a salary likely to approach $3 million a year. Baker is the daughter-in-law of former secretary of state James A. Baker.

Comcast will increase capital spending in the first half of 2014 to hasten the rollout of its advanced X1 set-top boxes and new wireless gateways that provide public Wi-Fi from customer homes.

Comcast told investors Tuesday its increased spending will likely be offset by increased earnings from more subscribers and room for further price hikes over the course of the year.

First quarter consolidated revenue increased 13.7% to $17.4 billion over the past three months. Almost $11 billion of that comes from Comcast’s cable business. The company boosted cable earnings by 5.3% in the first quarter. Most of that came from a 4.5% increase in the average customer’s cable bill. Comcast subscribers, on average, pay $134 per month. They will pay even more by the end of the year.

Although Comcast’s head of its cable division Neil Smit noted the company implemented lower rate increases during the first quarter, there is room to boost prices further.

“I wouldn’t read any trends into it,” Smit said. “We took rate increases across the smaller percentage of our footprint this quarter than last year as well, but we target different offers to different customers and I don’t think we’re seeing it topping out. In the competitive arena, the offers are in the same ballpark, the promo prices go up and down, but the destination pricing is fairly similar across these various competitors.”

Roberts

Comcast continued to buck cord-cutting trends and added 24,000 new video customers in the quarter, a major improvement over the 25,000 it lost at the same time last year. Comcast believes its new X1 platform and aggressive customer retention efforts are responsible for winning and keeping cable television customers. Ongoing speed enhancements in Comcast’s broadband division won the company 383,000 new Internet customers in the last three months. Broadband is Comcast’s biggest money-maker, and revenues increased a further 9% during the quarter owing to customer growth, rate hikes, and customers choosing higher-speed tiers. By the end of the quarter, 38% of Comcast’s residential customers subscribed to at least 50Mbps service, showing growing demand for higher speed Internet.

Sources tell Stop the Cap! Comcast intends to further expand its trial of usage caps (Comcast prefers to call them “usage thresholds”) to more markets this year. Comcast has settled on 300GB usage allowances for most broadband products in current test markets, charging $10 for each additional allotment of 50GB as an overlimit fee. Comcast has avoided trials of usage caps in areas where Verizon FiOS delivers significant competition. Verizon has no usage caps on either their DSL or fiber broadband products.

Comcast also picked up 142,000 new phone customers in the quarter, mostly from those subscribing to aggressively priced triple play service bundle promotions. Around 155,000 new triple play customers signed up over the last three months.

At the end of the first quarter, 68% of Comcast customers took at least two products and 36% took three products, compared to 33% at the end of last year’s first quarter.

Brian Roberts, CEO of Comcast, said there were several factors that fueled Comcast’s growth during the quarter, starting with its advanced X1 set-top box platform, which offers a better television experience and makes finding things to watch easier. If customers have an X1, Roberts told investors, they are less likely to drop cable television service.

X1

“These positive early results reinforce our decision to accelerate our X1 deployment this year, and we are now adding 15,000 to 20,000 X1 boxes per day, which is double our rate of deployment from just six months ago,” Roberts told analysts. “Additionally, we are now rolling out a new XFINITY TV app, which enables our customers to live stream virtually their entire television lineup on any IP device in the home and watch DVR recordings in the home or on the go.”

Although usage caps remain controversial, Comcast has been aggressive about increasing broadband speeds at least once a year.

“In broadband, we recently increased speeds again for the 13th time in 12 years,” Roberts offered. “Doubling speeds in our Blast products to 105Mbps, while our Extreme tier moved up to 150Mbps for customers in the northeast. And we’re not stopping there. Our focus on wireless gateway deployment is adding utility to our customers while at the same time helping us create the largest Wi-Fi footprint in the U.S. with over one million public Wi-Fi hotspots currently available to our customers.”

Although Comcast’s first quarter capital expenditures increased $51 million (or 4.6%) to $1.1 billion (10.6% of cable revenue versus 10.7% in the first quarter of 2013), the cable company returned even more money to shareholders. In the first quarter, the company boosted return of capital by 35% to $1.3 billion. Comcast repurchased its own shares of stock totaling $750 million and paid $508 million in dividends for the quarter.

In 2014, Comcast will invest 14% of cable revenue (compared to 12.9% in 2013) to accelerate the deployment of X1 and wireless gateways, increase network capacity and continue to invest in expansion of business services and XFINITY Home. But it will spend far more than that placating shareholders. If Comcast wins support to buy Time Warner Cable, Comcast intends to increase its stock repurchase plan by $2.5 billion. The company earlier committed it would spend $3 billion on repurchasing its own shares, for an expected total of $5.5 billion during 2014.

When a company repurchases its own shares, it reduces the number of shares held by the public. That in turn means that if profits remain the same, the earnings per share increase. It also boosts the value of the massive portfolios of Comcast stock held by executives as part of their compensation packages.

[flv]http://www.phillipdampier.com/video/Comcast Introducing the X1 Platform from XFINITY 4-14.mp4[/flv]

Comcast produced this video showing off its X1 platform and new set-top boxes. (1:47)