AT&T increases upgrade fee. (Photo courtesy: Engadget)

AT&T has announced it is doubling the price of its equipment upgrade fee, now charging $36 when a customer activates a new phone on their wireless account.

Our regular reader Scott sent word AT&T raised the upgrade fee Feb. 12, from $18 to $36, to “cover their costs. ” The fee now matches that charged by Sprint.

From AT&T’s official statement:

Wireless devices today are more sophisticated than ever before. And because of that, the costs associated with upgrading to a new device have increased and is reflected in our new upgrade fee. This fee isn’t unique to AT&T and this is the first time we’re changing it in nearly 10 years.

Wireless companies in North America encourage more frequent phone upgrades because of their business model: pitching subsidized phones in return for a two-year contract commitment, along with higher-priced service plans which gradually recoup the cost of the subsidy.

Consumers who hang on to their phones longer than two years continue to pay higher prices for service plans designed for those who always upgrade phones every two years at contract renewal time.  Phone companies also prefer customers who live under a term contract because they are less likely to switch providers.

In the past, loyal customers not only received extra incentives and discounts when they renewed their contracts, they also had these kinds of service fees waived.  No more.  Most companies have discontinued extra upgrade discounts for existing customers and increasingly refuse to waive service and equipment fees.

While a downturn economy continues to afflict middle and lower income America, it doesn’t seem to be doing much harm to Time Warner Cable’s profits.

America’s second largest cable operator saw profits jump more than $150 million higher to $564 million last quarter, compared to $392 million at the same time the year before.  Time Warner’s revenue grew by 4% to $5 billion in the fourth quarter alone.  In fact, the company is performing so well, executives announced they would return $3.3 billion in earnings to shareholders through share buybacks and dividend payouts, in addition to the forthcoming $4 billion share repurchase program.  Wall Street liked what they saw, boosting shares 7% after the company posted its quarterly and annual results on its website.

Time Warner’s biggest success story remains its broadband service, which consistently delivers the company new subscribers and has helped offset the loss of video subscribers, numbered at an additional 129,000 who “cut the cord” in the fourth quarter of 2011.

Time Warner Cable earned $1.148 billion in revenue from broadband in the last quarter, an increase of 8.6% over last year.  For 2011, the cable operator earned $4.476 billion selling residential Internet access, also representing an 8.6% growth rate over earnings across 2010.

The company attributed this to “growth in high-speed data subscribers and increases in average revenues per subscriber (due to both price increases and a greater percentage of subscribers purchasing higher-priced tiers of service).”

The increased costs incurred by Time Warner Cable to upgrade and expand their network and cable systems were well offset by the aforementioned price increases and subscriber upgrades.  The company increased capital expenditures to $942 million in the last quarter.  Results over the full year show just a 0.2% overall increase in capital investment, now at $2.937 billion.  System upgrades, Time Warner’s plans to move their systems to all-digital cable television, the ongoing rollout of DOCSIS 3.0, new home security and automation services, and investment in online video and data centers are included in these costs. But a more significant reason for the increase comes from the company’s ongoing expansion into business services, which requires wiring more office buildings for cable.

Britt

Time Warner Cable CEO Glenn Britt led off the conference call with investors with an explanation for the increased expenses.

“We plan to continue our aggressive growth in business services by expanding product offerings, growing our sales force, improving productivity and increasing our serviceable footprint. This means continued investment, both in people and in capital,” Britt said. “Projects include expansion of our content delivery network, which powers our IP video capability, our 2 international headends, completion of DOCSIS 3.0 deployment, and conversion to all-digital in more cities. We expect to be able to accomplish this while maintaining the capital spending of the last 2 years — that is, between $2.9 billion and $3 billion, which represents a continued decline in capital intensity.”

Nothing in Time Warner Cable’s financial disclosures provides any evidence to justify significant changes in their pricing model for broadband, which currently delivers flat rate, unlimited service to customers at different speed rates and price points.  In fact, the company’s investments in DOCSIS 3.0 upgrades, which can support faster broadband speeds and a more even customer experience, have already paid off with subscriber upgrades.

Robert D. Marcus, president and chief operating officer, noted subscribers are increasingly considering faster (and more profitable) broadband tiers.

“Once again, high-speed data net adds over-indexed to our higher-speed tiers,” Marcus noted. “Roughly 3/4 of residential broadband net adds were Turbo or higher. And DOCSIS 3.0 net adds accelerated for the eighth consecutive quarter to an all-time high of 54,000.”

Time Warner’s biggest challenges continue to be the current state of the economy, which has made subscribers much more sensitive to pricing and rate increases, and cord cutting traditional cable television service.

“One group is extremely price-conscious, perhaps due in part to the ongoing economic malaise,” Britt said. “The other group is willing and able to pay for more features and service. We’re going to focus more attention on products and services that best meet each group’s needs rather than pursuing traditional one-size-fits-all solutions.”

That is clearly evident in the company’s bundled service options, including increasingly aggressive discounted pricing for new customers and for those threatening to leave and Time Warner’s super-premium Signature Home service, which delivers super-profits.  Average revenue from Signature Home customers averages $230 a month.  Traditional “triple play” customers who buy phone, Internet, and cable service only bring the cable company an average of $150 a month.

The company’s plans for 2012 do not include a specific statement about implementing an Internet Overcharging scheme like usage billing or usage caps.  But it is unlikely such an announcement would be made explicitly at an earnings announcement.  In the last quarter, Stop the Cap! reported comments from chief financial officer Irene Esteves that the company was still very interested in the concept of selling broadband with usage pricing as a “wonderful hedge” against cord-cutting.

Esteves told a UBS conference she believes usage-based pricing for Time Warner Cable broadband will become a reality sooner or later.  Charging “heavy users” more would already be familiar to consumers used to paying higher prices for heavy use of other services, and she claimed light users would have the option of paying less.

But despite favorable reception to the idea of usage pricing by Wall Street, Esteves acknowledged the company’s past experiments in usage pricing didn’t go as planned, and she suggested the company will introduce usage pricing “the right way rather than quickly.”

Other developments and highlights

• 

  Time Warner faces Verizon's $500 rebate offers in NY City

  Time Warner Beats Up DSL: Time Warner Cable’s most lucrative source for new broadband customers comes at the expense of phone companies still relying on DSL to deliver broadband service.  As DSL speeds have failed to stay competitive with cable broadband, the cable operator has successfully lured price-sensitive DSL customers with attractive ongoing price promotions delivering a year of standard 10/1Mbps cable Internet access for $29.99 a month, often less expensive than the total price of DSL service that frequently delivers slower speeds.

• Stalled Verizon FiOS deployment has limited the amount of competition Time Warner faces from fiber optics to just 12% of the company’s service area.  Where competition does exist, especially in New York State, Time Warner has had to stay aggressive to retain customers with deeply-discounted retention deals to keep up with Verizon’s high value rebate gift cards and new customer offers.  AT&T now provides U-verse competition in about 25% of Time Warner’s service area, but like satellite, AT&T U-verse pricing is less heavily discounted.
• Retention pricing and new customer deals deliver lower prices than ever.  In November, Time Warner started selling a triple play offer for $89.99 a month that includes DVR service and now also includes deep discounts or free 90 day trials of premium movie channels. That is $10 less than the same time last year.
• Premium movie channels continue to take a major hit as subscribers try to reduce their bills, especially after Time Warner began increasing rates on those networks.  HBO now sells for as much as $15 a month in many areas.  Time Warner Cable hopes to ‘revitalize’ premium movie channels with online video services like HBO and Max Go and promotional discounts.
• Long-standing customers of Time Warner’s “triple play” package received a “thank-you gift” — free voice-mail in 2011, something that will continue in 2012.
• Customers signing up for Time Warner’s premium-priced Wideband (50/5Mbps) service ($99/month) are being offered free phone service to sweeten the deal.

What to Expect in 2012

• Time Warner is moving forward to create its own Regional Sports Network for southern California;
• Los Angeles will continue to see large-scale expansion of Time Warner’s growing Wi-Fi network, available for free to premium broadband customers, with thousands of new access points on the way;
• The cable company will introduce Wi-Fi service in other, yet-to-be-announced cities in 2012, with up to 10,000 access points planned.
• Time Warner will be making its “digital phone” product more attractive with lower prices and more features, especially in product bundles, as consumers increasingly discard landlines;
• Expect to see the end of analog cable television in a growing number of Time Warner Cable areas, requiring customers to use new equipment (initially provided free) to continue watching on older televisions and those without existing set top boxes.
• Time Warner will continue to expand its “TV Everywhere” project to include live streaming TV on smartphones, video game consoles, computers, and more.  On-demand programming will be available as well sometime this year across all platforms.
• A nationwide channel re-alignment will move subscribers to consistent channel numbers across the country, in part based on grouping them together into “genres.”  Many areas already have digital cable channels arranged this way, but now they will be consistent from coast-to-coast.
• Time Warner will complete DOCSIS 3 deployment in all areas this year.
• The company is moving to introduce 2-hour service call windows almost everywhere, and 1-hour windows and weekend appointments in some markets.  Several cities now allow customers to select specific times for service appointments.
• Self-install kits will become increasingly available for different products, allowing customers to install equipment themselves;
• Time Warner’s IntelligentHome home security, monitoring, and automation product will expand beyond its launch markets (Syracuse and Rochester, N.Y., Charlotte, N.C. and Los Angeles/Southern Calif.).  The product currently has customers in the thousands, considered relatively small.  But Time Warner has learned subscribers are using the service in surprising ways, which will let them adapt their marketing.  Among the most popular features: remotely watching your pets at home.

Most Memorable Quote: “I think, more than anything else, our pricing strategy is dictated by what the marketplace will bear as opposed to what our underlying cost structure is.” — Robert Marcus, president and chief operating officer, Time Warner Cable

Polly wants a $20K "stipend" for parroting the cable industry agenda.

Time Warner Cable is back again for the third year offering $20,000 in “dollar-a-holler” money to write “research reports” that meet the cable operator’s wish-list of current topics of interest.  While the cable company raises rates on customers, some of the proceeds pay for the Time Warner Cable Research Program on Digital Communications, which they say “awards stipends designed to foster research dedicated to increasing understanding of the benefits and challenges facing digital technologies in the home, office, classroom and community.”

After tearing through some of the earlier “award-winning” reports and topics over the past three years, we find it more an exercise in wasted cheerleading money, particularly when some of the authors happen to work for PR astroturf operations and other industry-connected/funded “think-tanks” that take money for dubious research and public statements that amplify the paymaster’s agenda.

It’s not much of a stretch to figure out exactly what kind of submissions the cable company is looking for after reviewing the topic list.  It’s a safe bet nothing we’d have to say to Time Warner would get them to cut us a check for $20K.  In case there is any doubt, we’ve provided a helpful “between-the-lines” analysis of what they are really looking for, should you wish to put pen to paper:

(1) The end-user experience for broadband services
In an increasingly competitive marketplace, more attention is being paid to the consumer experience. For service providers, it is essential to make it simpler and easier for customers to enjoy the benefits of broadband any time, any place, on any device. Key questions include identifying service characteristics consumers consider in evaluating broadband performance, the role of accessibility in design and engineering, how best to encourage innovation in services and business models, the role of pricing and packaging of services, and how best to meet the needs of diverse communities.

(Between the lines: how can we justify Internet Overcharging customers with usage caps and usage billing and make it sound all-consumery and good-newsy?)

(3) Internet governance
Internet governance is still largely framed by the way the Internet existed when it first became a mass-market phenomenon in the late 1990s. But more users rely on advanced digital communications for a diverse set of uses today. Networks and devices are more varied and more powerful than expected, and the Internet now supports a vast range of business models and drives economic growth . In this environment, the role of government and other intermediaries in framing and addressing policy goals continues to change. Key questions include examining the need for new methods of collaboration in multi-stakeholder processes, examining the role of standard-setting, how to measure and assess the performance of the broadband Internet, developing metrics that are meaningful to a wide range of stakeholders (from industry and policymakers to consumers), how to develop new forms of governance that convene stakeholders to solve problems cooperatively, and how to develop guidelines that protect settled expectations as well as enable continuing entry and innovation.

(Between the lines: This whole “open platform” free-for-all network the Internet was originally envisioned to be is so yesterday.  How can we convert it into a corporate-controlled playground by convincing legislators our ‘investments’ in it should justify our ability to “coordinate” it ((a/k/a run, manage, and control)) as we see fit.)

(5) Video Convergence and Internet Video
Online video is growing rapidly, comprising an increasing proportion of Internet traffic even as workable business models continue to evolve. Internet video thus increasingly competes with more traditional video services, while at the same time placing extraordinary burdens on the broadband networks owned and operated by those competitors. This emerging development raises a host of issues for video competition and regulation as well as for broadband policy. Key questions include how to identify and respond to the challenges posed by Internet delivery of video, and identifying the marketplace, legal, and policy barriers that stand in the way of innovation in video service delivery.

(Between the lines: Since we can’t blame peer to peer traffic for the Internet ‘exaflood’ any longer, we’ve designated online video the new Frankenstein that threatens to run our broadband network into the ground.  How can we stop Internet video from cannibalizing our cable-TV service by limiting access (or charging a bountiful harvest of cash to those who dare to watch too much.) Bonus: Include tips on how we can obfuscate our tissue-paper-thin agenda to slap the caps on from being called out as an abuse of our market power.

Phillip Dampier

Sometimes you have to wonder if some people have no shame.  Former Sen. Chris Dodd, who now collects a fat paycheck as chairman of the Motion Picture Association of America, has his fur in quite the ruffle this morning, upset to learn thousands of websites have voluntarily gone offline in a one day protest against proposed copyright legislation bought and paid for by the industry he now represents.

“Some technology business interests are resorting to stunts that punish their users or turn them into their corporate pawns, rather than coming to the table to find solutions to a problem that all now seem to agree is very real and damaging,” Dodd said in a statement.

Corporate pawns?  The irony of Dodd’s use of the revolving door between his public office and the special interests he used to oversee (and now earns a living from), was lost on him.  So was the fact the MPAA and its recording industry cohort the RIAA have spent the past several years alienating consumers extorting settlements out of those presumed guilty, under threat of being sued for much more.  With years of overreach and customer alienation under their belts, pardon America if they suspect Hollywood’s latest anti-piracy plan is more of the same.

Dodd served the people of Connecticut when the music and movie industry began a series of crackdowns on content theft that did more harm than good.  This is the industry that fought the right of consumers to record TV shows on home VCR’s for later viewing, wanted to tax blank media, raised prices on CD’s and DVD’s to the point it fueled piracy, for years refused to license legal online content in ways that would have undercut piracy, imposed “digital rights management” technology that effectively curtailed fair use of content consumers purchased for themselves, and sued customers it suspected of stealing — innocent or otherwise.

Dodd

But Chris Dodd doesn’t work for the American people any longer.  He works for giant corporate studios and now represents their interests.

Dodd is especially upset because the Stop SOTA protests may actually be effective at shutting down the railroading of the so-called “Stop Online Piracy Act” through Congress.

“It is an irresponsible response and a disservice to people who rely on them for information… A so-called ‘blackout’ is yet another gimmick, albeit a dangerous one, designed to punish elected and administration officials who are working diligently to protect American jobs from foreign criminals,” said Dodd.

The industry has spent millions trying to position their legislation as a solution to shady offshore counterfeiters and content thieves, but the bill’s most significant provisions hit much closer to home.

The proposed legislation would allow the Department of Justice and content owners to seek court orders against any site accused of “enabling or facilitating” piracy.  Since America’s long arm of justice can reach only between the states of Hawaii and Maine, this most important provision of the proposed bill would do little to curtail those “foreign criminals.”

SOPA also demands that search engines censor themselves to remove anything Hollywood suspects of infringing copyright from search listings.  As the Electronic Frontier Foundation has documented for years on its Chilling Effects project website, such powers have already been used within the scope of the Digital Millennium Copyright Act to wipe out listings that just reference copyrighted works, occasionally even by third parties that have no real standing to file the complaint.  At least websites responding affirmatively to DMCA complaints are protected from unknowingly violating copyright law.  Under SOPA, those protections are bypassed, potentially making even innocent infringement liable for civil action and search engine blocking.

Much of the enforcement, likely encouraged by companies Dodd now represents, will be done at the behest of Hollywood studios and other deep pocketed content producers.  Ultimately, most of the impact will be felt by consumers suspected of “infringing,” many who effectively lack the financial resources to prove their innocence.

Any web publisher would need to think twice about publishing anything online, if only because the financial risks of defending oneself against alleged copyright infringement would be onerous.

Since most of the criminal element Dodd claims to be concerned with is in it for the money, the most obvious solution is simple: remove the financial incentive.  A victim of copyright infringement need only seek a court order that bars financial transactions between theft-oriented websites and the online payment processors that supply the money.  Barring credit card companies, online payment services like PayPal, and other payment services from accepting money for copyright infringement puts the criminals out of business fast.  Existing provisions in the DMCA already force search engines to remove infringing content.

The alternative is turning the Internet over to the Hollywood copyright police, who along with the movie industry have demonstrated a long history of broad brush enforcement that cares little about the presumed innocence of the accused.

North America’s broadband rankings continue to take a beating at the expense of countries deploying fiber optic broadband.  While the United States and Canada cope with aging landline technology and an uncompetitive marketplace that tells consumers they don’t need fiber-fast broadband speed, countries like Bulgaria, Lithuania and Estonia are lighting up 50-100Mbps networks that often charge lower prices than North Americans pay for 1-3Mbps DSL.

Ookla, a global leader in broadband testing and web-based network diagnostic applications, reports that the best performing broadband networks for speed, value, and performance are increasingly in Europe and Asia.  While both the United States and Canada used to be among the world leaders in broadband infrastructure, that is no longer true.

Some examples:

• The United States now scores 31st in average download speed, Canada is 33rd;
• In upload speed, America now ranks 37th, Canada a woeful 69th;
• Ookla’s Household Quality Index, which ranks packet loss and general reliability of home connections found Canada scoring 27th place, the United States 38th;
• At a cost per megabit, neither the US or Canada offers very good value.  The USA ranked 29th ($4.95 per megabit), Canada 33rd ($5.85 per megabit);
• Neither country does a great job delivering the speeds and service promised either.  The USA ranked 25th, Canada 32nd.

Ookla found that while speeds are rising in North America, they are not increasing nearly as fast as in other, higher-ranked countries.  Most of the speed gains in North America come from cable or limited fiber-broadband deployments like Verizon FiOS or community-owned fiber to the home networks.  Wireline ADSL service, which represented a larger proportion of home Internet connections in 2008, continues to lose ground to faster options from cable companies, community-owned broadband, and phone company fiber upgrades.  In eastern Europe, the Baltics, Russia and Ukraine, many of the dramatic boosts in broadband speed and quality come as a result of national fiber network upgrade projects.

While speeds in North America are gradually increasing, both the U.S. and Canada are being outpaced by many countries in Europe and Asia.

While providers in the United States and Canada often dismiss fiber as too costly, Ookla found fiber-based networks delivering some of the world’s best values in broadband.

For example, on a cost-per-megabit basis, Bulgaria’s new fiber networks deliver the world’s cheapest Internet service, at an average of just $0.64 per megabit.  The average broadband speeds in the country are now higher than 21/11Mbps.

Elion headquarters in Tallinn. Elion delivers fiber broadband to homes across Estonia.

Contrast that with average speeds in the United States (12.41/2.97Mbps) and Canada (11.95/1.70Mbps).  Other top scoring countries for cost-per-megabit include:

• Romania $0.97 USD
• Lithuania $1.11 USD
• Ukraine $1.17 USD
• Republic of Moldova $1.41 USD
• Latvia $1.80 USD
• Hungary $2.00 USD
• Slovakia $2.04 USD
• Hong Kong $2.26 USD
• Russia $2.51 USD

In terms of download speed, Estonia’s investment in a national fiber network is now paying dividends, with a dramatic increase in national average broadband speeds to 50/28Mbps.  As new cities join Estonia’s fiber network, speeds take a dramatic upswing.  Contrast average speeds in Saue (101.03Mbps), Viimsi (98.98Mbps), Tallinn (69.80Mbps), and Võru (65.58Mbps) with ADSL-rich Pärnu (12.55Mbps), Paide (12.40Mbps), Rapla (8.93Mbps), and Valga (7.71Mbps).

It is much the same story in other fiber-rich countries, where broadband speeds far exceed the averages in the United States and Canada:

Look what happens to Estonia's broadband speed rankings when it switched on its national fiber broadband network.

• Lithuania 31.65 Mbps
• South Korea 31.44 Mbps
• Latvia 25.42 Mbps
• Sweden 24.62 Mbps
• Romania 24.47 Mbps
• Netherlands 24.36 Mbps
• Singapore 22.94 Mbps
• Bulgaria 21.12 Mbps
• Iceland 20.53 Mbps

Despite all of the bad news, the cable industry’s trade publication Multichannel News tried to find victory in the jaws of defeat, noting things could be worse… if they ran traditional phone companies.

Cable operators delivered the fastest average broadband download speeds in 2011 — with major MSOs easily blasting by rival telco and satellite Internet services — according to data from independent testing firm Ookla.

For the full year, the six fastest residential Internet service providers in the U.S. based on average download speed were Comcast, Charter Communications, Cablevision Systems, Time Warner Cable and Insight Communications.

[…] Comcast and Charter delivered average download speeds of 17.19 Megabits per second, followed by Cablevision at 16.40 Mbps, Cox at 15.76 Mbps, TWC at 14.41 Mbps and Insight at 14.22 Mbps.

Verizon Communications fared better than its telco peers with an average download speed of 12.94 Mbps, thanks to FiOS Internet, its fiber-to-the-home service that provides up to 150 Mbps downstream. And overall, Verizon had the highest upstream speeds with an average of 7.41 Mbps. Still, the company’s legacy DSL services dragged down overall speeds.

Behind DSL were woefully slower speeds from the nation’s wireless ISPs (which include 3G broadband from large companies like Verizon Wireless and AT&T), and perennially last place satellite Internet.

Moffett

Despite repeated claims by providers that consumers don’t need fiber-fast broadband speeds, industry analyst Craig Moffett at Sanford Bernstein tells a different story:

“Technology adoption is creating a feedback loop that increasingly favors cable’s physical infrastructure,” Moffett wrote in a research note last month. “As more people are served by higher-speed connections, more and more applications are evolving to take advantage of them. Customers with lower-speed connections are increasingly being forced to upgrade to higher speed connections… or be left behind.”

The conclusion reached by Multichannel News columnist Todd Spangler:

“The relative broadband speeds of cable vs. telco isn’t merely an academic curiosity: Major providers are increasingly touting Internet performance in their marketing as they fight for consumers’ dollars.”

Unfortunately for the cable industry, although DOCSIS 3 upgrades have afforded dramatic increases in broadband download speeds, upload speeds lag behind.  Fiber to the home networks are best positioned to achieve victory in the global broadband race.  That is important not only because it delivers consumer dollars to the best provider in town, but fuels the further development of the digital, knowledge-based economy North America increasingly seeks to lead.