Senator Amy Klobuchar

Senator Amy Klobuchar (D-Minnesota) is expected to introduce legislation this week to protect consumers from excessive early termination fees for ending their cell phone contracts early.

The Cell Phone Consumer Empowerment Act comes a few weeks after Verizon Wireless doubled their cancellation fees November 15 from $175 to $350 for “advanced” mobile phones.

Klobuchar sent a letter to Verizon Wireless President and CEO Lowell C. McAdam, criticizing the company’s decision to increase its Early Termination Fees (ETFs) for new smart phone customers.  Klobuchar also sent a letter to Federal Communications Chairman (FCC) Julius Genachowski, urging a review of the Verizon Wireless decision to raise these fees.

“These fees are anti-consumer and anti-competitive and they bear little to no relationship to the cost of the handset device,” said Klobuchar, a member of the Senate Commerce Committee.

Klobuchar’s bill is anticipated to specifically target Verizon Wireless over its decision to double fees for consumers.  Although the specific details of how the legislation will control fees is still being worked out, Klobuchar’s bill is expected to force providers to incrementally reduce fees for every month of service a customer completes and possibly set a ceiling on the fee charged depending on the retail price of the phone.

Klobuchar introduced a similar bill during the last session of Congress and many cell phone providers responded by pro-rating cancellation fees for departing customers, typically 1/24th of the fee waived for each month a customer stayed with the provider during a two-year contract.  But Verizon Wireless’ decision to double their fee, which could set a new trend in the industry, directly increases prices for consumers, according to Klobuchar.

“Under the company’s new plan, the penalty for leaving the contact halfway through a two-year contract would be $230 – still higher than the $175 ETF Verizon Wireless previously charged for these phones,” Klobuchar wrote to McAdam.

Verizon Wireless is the nation’s largest cell phone service provider.  Verizon customers purchasing an Advanced Device (smart phone) with a one or two year service agreement will be subject to an ETF of up to $350 if they disconnect service prior to the minimum term.  The $350 ETF will decrease $10 for each month of service completed.

The cell phone industry has defended cancellation fees as necessary because providers subsidize the cost of the cell phones sold to consumers.  Customers can purchase phones at the retail price and not be committed to any contract or termination fees.  Some advanced handsets can cost well over $500 if purchased without a contract.

Copies of correspondence to McAdam and Genachowski appear below.

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Bray Cary, Host of Decision Makers

A network of West Virginia television stations spent 20 minutes this past Sunday airing a puff piece that could have been a video press release straight out of Frontier’s public relations department.  Decision Makers, a self-described “agenda setting” public affairs program ostensibly puts important people on the “hot seat” to answer “tough questions about where West Virginia is heading and how it will get there.”

Hardball this was not. Host Bray Cary, who also happens to serve as president and CEO of the television station group, presided over a one-sided softball tournament for Ken Arndt, Frontier’s new Southeast region chief in a 20 minute interview where the hardest question was likely posed off camera – ‘where would you like to do lunch?’

Decision Makers is seen across West Virginia on Cary’s statewide network of television stations — WOWK in Charleston-Huntington, WBOY in Clarksburg-Morgantown, WTRF in Wheeling and WVNS in Beckley-Bluefield.

The appearance of Arndt on the program comes the same week Frontier reportedly committed to purchasing significant advertising time on the stations, leading a Stop the Cap! reader who informed us about the program to ponder whether this Fluff-Fest was part of the ad deal.

Viewers on the public comment section for the show were unimpressed.

“I can’t believe Mr. Cary didn’t ask the Frontier guy any hard questions. It was like a 20 minute commercial for Frontier, is that what you get for buying advertising with the station,” asked one.  “I believe that we would all like to hear and understand Frontier’s direct response to challenging questions from an involved, and knowledgeable speaker. We need to hear more then a branding speech,” said another.

The interview was loaded with misleading and occasionally false statements, often coming from the program host, who served as presiding cheerleader.  You can watch the program’s two segments, and then take a look at our reality check (and if an all-consumer volunteer website can manage this, why can’t Mr. Cary?)

[Video No Longer Available]

Now that you’ve watched, let’s review the misleading statements, some made by Arndt, some by the host:

“You guys are serving 35% of West Virginia – that’s a third of the phones.”

Frontier may serve 35% of the landmass of West Virginia, but not 35% of the population, which is a very important distinction.  Verizon has the overwhelming majority of customers in the state, not the tw0-thirds this statement suggests.

“I guess the only guys fighting you all right now are the Communications Workers of America union workers.”

Ken Arndt - Frontier Communications

That, along with other dismissive comments made by Cary represent just how biased his interview was.  In many communities, citizens, businesses, utility commission staff, and yes – company workers are fighting this deal, because it’s bad news for every community facing a Frontier takeover.  Of course, Cary doesn’t have anyone on his program to refute his guest (or him for that matter.)

“From a timelime perspective, and we’re actually finishing our [broadband expansion] engineering plan right now — by December 15th, my expectation is within the first 18 months we will make a substantial increase raising that 60% (of Verizon broadband penetration) exponentially and making a large investment and bringing in the individuals — the engineering and construction talent to be able to get it done as quickly as possible.”

Frontier anticipates cutting $500 million in costs per year if the deal consummates, according to Bloomberg News. Job cuts at both Frontier and Verizon will create some of that savings, according to Maggie Wilderotter, Frontier’s CEO.  Customer service and field-technician jobs won’t be eliminated, she claims, but with a need for that level of cost savings, combined with the enormous debt Frontier will assume, where the resources to accomplish this expansion will come from is not explained.

Frontier’s broadband expansion targets so-called “middle-mile” expansion.  That was precisely what was done in Rochester.  Fiber optics are used to connect various central offices and some remote network extenders (known as DSLAMs) to try and extend DSL service into more distant areas further away from the central office.  DSL speed is highly dependent on distance.  The further away you get, the lower the speed you can obtain.  Frontier plans to install limited amounts of fiber linking their offices in hopes of providing DSL service in areas that do not have access to it currently.  Unfortunately, every indication is that Frontier’s DSL in most parts of West Virginia will provide a maximum of 3Mbps, if you’re lucky.  In communities like Rochester, DSL service is marketed at 10Mbps, but as I’ve experienced myself, that speed really turned out to be 3.1Mbps living less than one-half mile from the city line.

To many consumers, hearing talk about fiber optics may leave the impression they’ll have this type of connection in their home or business.  That’s highly unlikely.  Frontier fiber serves their own internal network.  Verizon FiOS serves you directly on a fiber optic cable.

‘In West Virginia in 2007 Frontier lost 2.7% of our access lines.  In Verizon’s footprint they lost 6.7%.  In 2008, Frontier’s lost just 2% while Verizon increased [their loss] to over 8%.  Frontier has put together unique packages that continually add value to landlines.  It’s through [Frontier’s] packaging, providing unique services and unique technologies [that the company limits losses].’

Frontier is in the enviable position of focusing on rural markets long bypassed by the phone company’s biggest threats: cable and wireless competition.  Verizon is not.  The real reason for the dramatic difference in line loss is that Frontier customers often have no other choices for telecommunications services.  In West Virginia, cable does not serve many rural communities, so there is no “digital phone” competition to worry about.  Mobile phones in the most mountainous regions of the state can offer problematic service if it’s the only phone you have.  Verizon, which does face relentless cable television competition, pays the price in greater line loss.  Rural West Virginia has a much higher population of elderly residents, who are usually the least likely to drop traditional phone service.  In fact, no state has a higher population of the rural elderly except Florida.

These factors afford Frontier more protection from line loss, not the so-called “unique services and unique technologies” the company only speaks about generally.

Arndt also responds to a question about Frontier’s plans for fiber and other forms of “telco-TV” such as that provided by Verizon FiOS.  After noting the company does plan to move forward on an extremely limited basis by finishing FiOS projects already under construction, Arndt signals Frontier believes its status as a simple reseller of DISH satellite service somehow provides a superior solution to telephone company provided television.

Not really.

Who needs Frontier to sign up for DISH?  Customers can sign up directly themselves.  The advantage of “telco TV” really comes from the construction of the network to support it.  Both AT&T and Verizon have built television-ready networks which not only compete with cable, but also give their customers more and better broadband choices that Frontier cannot and will not offer consumers.  Frontier tries to valiantly spin its copper cable future by saying satellite television offers a better service, but in reality, being a DISH Network reseller hardly is in the same class as FiOS or U-verse.

Residents in the affected areas need to consider whether they are tying themselves to a company that believes copper wire slow speed DSL is good enough for now and into the indefinite future, has no plans to directly compete with cable and other providers in delivering a wired telephone company cable service, will not build FiOS-like fiber optic networks in areas that one day could have been wired by Verizon, and will live with a company content with delivering “ubiquity” of service across all of its service areas, which in reality means large communities will suffer with lowest common denominator service, and rural communities will be lucky to get “good enough for you” broadband.

Arndt’s comments about fiber connectivity in selected portions of their service area refer mostly to multi-dwelling units and new housing developments where service was provided more cost effectively through a shared fiber connection.  That’s not FiOS either.

Color us unexcited about the prospect of Frontier’s ‘unique cable television via broadband service’ Arndt hints at.  That is almost certainly the new DISH set top box that can connect to your Frontier DSL service to stream on-demand television shows.  With Frontier’s 5GB Acceptable Use Policy for broadband, don’t expect to watch too much if and when they enforce the limit.

Among the most shameful segments of the 20 minute video press release Cary presides over is in the second half, when he asks and answers his own questions, spun in Frontier’s direction, about their ability to digest Verizon’s operations that dramatically dwarf Frontier’s current size and scope.  He’s even done “his research,” which suspiciously appears to be surfing through Frontier’s own talking points from their website and public relations efforts.  As far as Cary is concerned, Wall Street says they “like” the deal, and opposition to it is “a lot of noise.”

Arndt responds that the opposition to the deal comes because of FairPoint Communications, which he says failed because of the complexities of integrating their billing systems.  As Stop the Cap! readers already know, FairPoint’s troubles went well beyond computer integration problems.  Arndt’s reasoning is akin to saying New Orleans drowned in Hurricane Katrina because a storm sewer up the street was clogged.  More than 20 news reports on this site alone document the entire sordid story.  On every level, FairPoint failed New England for a range of reasons:

1. The enormous debt FairPoint was saddled with made it difficult for the company to spend the money necessary to maintain and grow their network and survive an economic downturn.  Frontier will also take on enormous debt during a challenging economy and claims it will spend millions to expand broadband service into rural areas where fewer potential customers mean a longer Return On Investment;
2. FairPoint’s acquisition of Verizon New England involved more customers than FairPoint served nationwide before the buyout.  The exact same thing is true of Frontier in this deal;
3. FairPoint’s earlier acquisitions were small, independent phone companies run with limited bureaucracy.  Verizon, and its predecessor Bell System businesses, have done things their own way for decades, making theoretical transitions doable on paper and chaotic in reality.  The exact same scenario exists with Frontier’s purchase of Verizon service areas;
4. Poor service, unresponsive and overwhelmed customer service centers, insufficient investment, and broken promises plagued FairPoint’s New England adventure from day one.  Frontier risks repeating FairPoint’s mistakes, putting customers with no other options for telecommunications service at serious risk.

Cary doesn’t have the insight or the interest in digging down into Arndt’s claims.  Maybe he forgot.  As far as Cary is concerned, everyone in West Virginia should just get familiar with the Frontier name.

Of course, actual consumers aren’t invited on Decision Makers.  Nor are any groups opposed to the deal.  But West Virginians and others can be “decision makers” and choose a different path for their telecommunications future.  They can get on the phone and call their state representatives and tell them to oppose the deal.  They can also contact the state utility commission and file their own comments telling them this deal isn’t worth the risk — three bankruptcies out of three earlier deals.

Even when playing this kind of softball, three strikes should mean you are out.

When utilities want to “charge you for what you use,” it would be nice to trust the meter is accurately measuring your usage, California consumer advocates say.

In a growing controversy, Pacific Gas & Electric (PG&E) is now being accused of installing so-called “smart meters” that were smart for PG&E profits, but financially devastating for California consumers who face higher bills and growing questions about just how accurate those “smart meters” really are.

Customers across California who have had new meters installed, which are supposed to help consumers save energy by charging lower prices at off-peak usage times of day, report enormously higher bills from PG&E after installation.

State Sen. Dean Florez, D-Shafter (Kern County), reports he has seen bills from customers that don’t begin to make sense.

California Senator Dean Florez (D-Shafter/Kern County)

“One farmer was charged $11,857 for running a piece of equipment that was never turned on. A local attorney at the hearing clutched a $500 bill from July, a month in which she was visiting family out of state and almost every appliance in her house was shut off,” he reports.

Florez quotes the woman — “My smart meter keeps reading these spikes in usage at noon. But no one was in the house,” she said. “It’s obvious to me that this technology is not ready for prime time.”

Customers across the state with smart meters have reported similar stories, and are angry with PG&E’s response to their concerns, which can be boiled down to, “the meter is right, you are wrong, now pay us.”

PG&E claims that during its own internal reviews, it found nobody being overcharged. Spokesman Jeff Smith says “in all 1700 of those cases we have not found an instance thus far of the smart meter transmitting inaccurate information or incorrect usage information.”

The California Public Utilities Commission doesn’t think that’s enough and has begun ordering an independent review of the “smart meter” program and accuracy of meter readings.

Liz Keogh spent 14 years collecting and analyzing data at the Institute for Social Research in Ann Arbor, Michigan, and now lives in Bakersfield, California.  She has been pulling out her old PG&E bills and records showing her utility use all the way back to 1983.  What she found since the “smart meter” was installed on her home was disturbing.

Her analysis was printed in the San Francisco Chronicle:

My July, August and September 2009 bills showed the highest usage and cost in 26-plus years, even though I rarely go over “baseline usage.” The dollar difference from 2008 to 2009 was $20 to $30 each month. Billing costs are a product of usage multiplied by kilowatt-hour rates, which, like the federal income tax structure, is “tiered,” so that the more you use, the more you pay – and at higher and higher rates. Analysis of usage is the first step toward understanding fluctuations in cost.According to the smart meter installed on Sept. 12, 2007, the increase in my 2008-09 usage over 2007 was:

	2008	2009
May	+5.6%	+28.6%
June	+7.5%	+32.6%
July	+10%	+50.2%
Aug.	+3.1%	+41.1%
Sept.	-4.8%	+67.9%
Oct.	+4.9%	NA

PG&E’s own data show there was not a significant difference in temperatures for each comparable month. Why, then, did my “usage” increase range from 30 percent to 70 percent in 2009, while the 2008 increases were no more than 10 percent?

Simple answer: Meter malfunctioning, whether accidental and idiosyncratic, or, as some claim, intentional.

The suspicion that funny business is going on might be justified when considering Bakersfield residents have been through this all before.

“[Several years ago] Bakersfield is where PG&E first realized it had made a $500 million mistake, installing tens of thousands of inferior meters that would never live up to the promise. So the utility purchased a new generation of meters from Silver Spring Networks Inc. of Redwood City. PG&E insists that these new meters are glitch-free, though it concedes that it has tested only 50 out of 250,000 meters in Kern County,” Florez said.

At a time when some broadband providers want to install their own meters to overcharge customers for their Internet service, the PG&E experience is telling.  Independent oversight of any meter comes down to the enforcement mechanism available to guarantee accuracy.  But broadband service in the United States is unregulated, and no such enforcement mechanism exists.

And just when you thought you could believe the rhetoric that utility customers who conserve their usage will save more money, another electric and gas utility in San Diego filed a rate increase request that will charge customers who have managed to cut their usage even higher prices than those who have not.

[flv width=”640″ height=”480″]http://www.phillipdampier.com/video/KGET Bakersfield Senator Florez Questions SmartMeters 9-23-09.flv[/flv]

KGET-TV Bakersfield talked with Senator Florez on September 23 about the SmartMeter controversy (4 minutes)

More video coverage below the jump.

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Charleston, West Virginia is just one of many cities potentially served by Frontier

Frontier Communications has won approval from state utility commissions in California, South Carolina, and Nevada to take over telephone service currently provided by Verizon Communications.  The decisions were unanimous in all three votes by Commission members, and involve telephone service in several small communities in all three states.

Circles represent Verizon service areas transferred to Frontier in Nevada and California

Verizon’s castoffs serve a small percentage of customers, which made the transaction fly under the media radar in most cases.  In California, Verizon dumps customers in a small section on the northwest border with Oregon.  In Nevada, several small communities south of Reno are involved.  In South Carolina, Verizon drops scattered groups of customers in small clusters across the state.

These state regulatory approvals follow an October 27 announcement by Frontier that its shareholders have approved the transaction, which will result in Frontier owning Verizon’s wireline operations in all or parts of 14 states.

While the approval appeared pro forma in those three states, West Virginia is another matter.  Strong employee union and consumer group protests continue across the state, with many consumers concerned about the implications of Frontier controlling nearly all wired phone lines in the state.  The Communications Workers of America held a conference call with the media Wednesday to outline its opposition to the deal.

The CWA has been a vocal opponent of the deal, claiming it will risk West Virginia’s telecommunications future with a company without the financial capacity to provide the type of advanced services Verizon is providing in other states.  Kenneth Peres, an economist with the Communications Workers of America, said the deal was extremely risky for consumers, workers and the affected communities.

Peres pointed to the perfect record of three out of three failures for earlier Verizon spinoffs.  FairPoint Communications declared bankruptcy early this week after trying to take on the service needs of three New England states.

Peres told the Charleston Daily Mail that if the deal goes through, Frontier “will find it extremely difficult” to meet its $8 billion in debt obligations while simultaneously investing enough capital to maintain its physical plant, improve service quality, set up a new system in West Virginia, lease systems from Verizon in 13 other states, provide video service for the first time (in Indiana), and ensure adequate staffing “while paying out a lot more in dividends than it makes in profits.”

Frontier went on the attack Thursday, accusing the union of interfering just to grab concessions for itself.

Verizon service areas sold off to Frontier in South Carolina

Steve Crosby, Frontier spokesman, said, “They’re just throwing stuff up against the wall. They know this is a good transaction and they’re trying to extract their pound of flesh. They want more concessions. This is their opportunity to ask for more money for their union membership and more benefits. That’s what they want. Union membership across the country is declining. This is how they’re trying to extract as much as they can from either Frontier or Verizon.”

As for Frontier’s debt load, “This is actually a de-leveraging transaction,” Crosby said. “We’re taking on debt but we’re taking on a whole lot more revenue. We’re currently at a 3.8 times revenue-to-debt ratio, going down to 2.6. So we actually get better in terms of revenue to debt. And today we’re fine. We’re able to pay a nice dividend. The day the transaction closes, we are approaching investment-grade borrowings.

“Our board of directors made the decision to lower our dividend by 25 percent when the transaction closes to give us even more cash to invest in infrastructure and to give us even more financial flexibility,” Crosby said.

“Every time we have an argument we win and they bring up other stuff,” Crosby said. “They never bring up the de-leveraging because it undermines their argument. They never bring up the fact that we will reduce our dividend because it undermines their argument.

“We have said we will maintain employment levels for 18 months” after the transaction closes, Crosby said. Because of required regulatory approvals and other factors, the deal can’t close before April 2010.

“So you can figure that’s two years,” Crosby said. “Who nowadays has that kind of job security? I think we’re bending over backwards. I wish I had the pension plan, the job security the CWA has. They’re looking at extracting more from Verizon and Frontier.”

When asked by the newspaper why Frontier shareholders would approve a deal that was destined for failure, Peres told the newspaper:

Frontier’s business model is built on acquisitions. Frontier bought a portion of Global Crossing’s business which increased revenue and access lines “but that began to decline,” he said. “They bought Commonwealth Telephone but that’s flat-lining. What’s the next step? What were they going to do – improve infrastructure or go through the acquisitions route again?” Continuing with acquisitions “postpones the day of reckoning,” he said.

Commentary: Our Take

Crosby’s comments seem more suited for a talk show audience that hates unions.  Obviously the union does not think this is a good deal for West Virginia, and considering the track record of earlier Verizon deals, and the correct predictions from employee unions on their inevitable outcomes, they have every right to oppose the deal on its face.  Crosby apparently has time to address declining union membership, but not the much more relevant decline in the traditional phone company’s bread and butter business – landlines.  Frontier, like other phone companies, continues to see disconnect requests coming from coast to coast as customers dump the phone company for a cable digital phone product, Voice Over IP line, or rely on their cellphone.

West Virginia would be solidly Frontier territory if the state approves the sale

Verizon recognizes their traditional business is a dying one, which is why they are in a hurry to diversify into competitive broadband and video services over their fiber optic FiOS network.  Where it doesn’t make economic sense (under their current business plan) for Verizon to deploy FiOS, decisions are being made about whether to keep those smaller phone operations within the Verizon family, or sell them off to companies like Frontier.  What Frontier acquires today from the standpoint of customers and revenues could represent the high water mark, and without offering robust options for a digital future, Frontier will likely continue to see customer erosion.

FairPoint acquired seemingly healthy Verizon companies serving the entire states of Maine, New Hampshire, and Vermont.  When their efforts to seamlessly combine Verizon’s legacy systems with FairPoint’s own systems failed, that along with an inability to properly service customers, caused a death spiral as customers dropped service, which led FairPoint straight into bankruptcy.

Frontier’s record of investment and service in western New York speaks for itself.  Time Warner Cable eats Frontier for lunch, with less expensive “digital phone” service, much faster and more reliable broadband, and a video package that Frontier doesn’t offer (reselling DISH Network is hardly the same as providing video service that doesn’t come from a third party company’s satellite dish nailed to the roof).  Frontier is ready and willing to stick with DSL service at speeds that are basically maxed out.  Time Warner Cable evidently doesn’t even consider Frontier a significant enough player to deploy upgrades in this area while they are in a hurry to provide them where Verizon FiOS is under construction.

When a company isn’t prepared to keep up with the rest of New York with fiber deployment to the home, the chances of that kind of service reaching West Virginia anytime soon are near zero.

But Frontier’s unique position as a specialist in “rural service” allows it to eke out an existence in areas where cable isn’t a big competitive threat, and where any broadband is better than no broadband at all, at least for now.  But without a plan for keeping up with the fast changing broadband world, customers happy with 3Mbps service today will despise the company for being stuck with those speeds later.  A lot of people in Rochester sure aren’t happy being stuck with Frontier DSL, and that nasty 5GB “reasonable use” language in the Acceptable Use Policy.

Crosby’s comments about CWA member job security, which he evidently envies, says more about the union’s commitment to its members than Frontier has to him.  Perhaps Crosby can quit his spokesman job and switch to a position that gets him CWA membership with a pension and job security.  Perhaps if the people of West Virginia say thanks, but no thanks, Frontier will be in a better economic state than it would be if this mega-deal collapses under the weight of debt and integration challenges.  Then Crosby can keep his job with the evidently lousy benefits.

Peres’ assumption that Frontier lives only through acquisitions isn’t the complete story.  Just like the myth sharks must constantly swim to survive, Frontier doesn’t constantly have to acquire to survive either.  It does have to concern itself with an ever-consolidating telephone line industry, where the smaller independent companies continue to be snapped up by a dwindling number of players.  If a Windstream or CenturyTel comes along with a great offer, Frontier itself may have a new name — Windstream or CenturyTel.

The economies of scale and cost savings are routinely cited by investors promoting consolidation.  It’s no surprise Frontier shareholders voted for the deal.  Bigger is often better for many investors, as long as the quarterly financials play to their interests.  Listening to Frontier investor conference calls, the Wall Street bankers, and the media that support them, are constantly concerned with keeping costs cut to the bone, customer defection limited, risk reasonable, and that dividend being paid.  They are satisfied with Frontier’s rural, less competitive market focus, even if the customers that end up served by them are not.

The Great Wall of Pay

Newspaper, broadcasting, and cable magnates have had enough of online web visitors accessing all of their content for free.  Free is naughty.  Free must be stopped.  Free threatens to devalue everything.

For the last few years, content producers have been looking for ways to recoup investments in online publishing.  Newspapers publish articles online and fear that causes people to stop paying for the printed edition.  Studios and networks make their shows available on Hulu, and people find on-demand viewing more convenient than watching ad-packed live television.  Cable magnates worry about people dropping cable subscriptions and watching all of their video online.

Broadcasting & Cable generated a firestorm late last week when it quoted one of Hulu’s partners — News Corporation’s Deputy Chairman Chase Carey telling the B&C OnScreen Summit “it’s time to start getting paid for broadcast content online.”

“I think a free model is a very difficult way to capture the value of our content. I think what we need to do is deliver that content to consumers in a way where they will appreciate the value,” Carey said. “Hulu concurs with that, it needs to evolve to have a meaningful subscription model as part of its business.”

CNN picked up the story in one of their news blogs, and promptly generated more than 700 responses, most hostile to paying for anything on Hulu, and that included the blog’s author:

“I certainly won’t be pulling out my credit card if the service puts up a subscription pay wall. And I doubt many other customers will be happy to start paying money for a service they previously received for free.”

Most comments indicated they’ll go back watching online TV shows and movies the old fashion way – downloading them from peer to peer torrent networks or newsgroups.

“The Internet abhors a content vacuum, especially one created artificially by a subscription wall,” Stop the Cap! reader Jake writes.  “Just like what happened with digital rights management schemes and viewing rights blockades, enterprising net users will always find a way around them and distribute the content a few don’t want us to have.”

The quest for control is increasingly becoming more contentious among super-sized corporate entities that create and distribute content.  Comcast seeks ownership of NBC-Universal, a content creator and partner in Hulu, which currently gives away content for free Comcast charges customers to watch.  A newly constructed Great Wall of Pay could help stop these business model challenges.

When online content was successfully monetized by advertising, few cared about handing it out for free.  In fact, providers like AOL abandoned many of its ‘subscriber-only’ walls to “go free” and attract a larger audience, and corresponding increased ad revenue.  In a post-bailout recession era, ad dollars have become scarce and no longer pay all of the bills Hulu’s owners want paid.  Advertising industry consultants say Hulu cannot simply increase the number of advertisements to make up the difference.  Even though Hulu users confront far less advertising than traditional broadcast television, research has shown online TV watchers resent a lot of the advertising they see now.  Many Hulu viewers actively develop a form of ad blindness based, in part, on the resentment those ads bring to the experience.  Hulu occasionally offers viewers one extended ad at the start of a show, instead of having them seeded throughout the program.  Many take Hulu up on the offer and use that 90 seconds to grab a snack.

Interestingly, the shorter a web ad, the more viewers retain information contained within it.  Some web ads run only 10 seconds, and are sold to clients with this in mind, and at a budget price to boot.

For web-ad haters, the worst of all worlds would be a Hulu that retains its limited commercial interruptions -and- charges a subscription fee.  For many, that would be the equivalent of “basic cable on the web.”  Many will drop Hulu “like a rock” should this happen.

A day after the hue and cry was raised by the Broadcasting & Cable article, skeptics said it was unlikely Hulu would entirely abandon free programming.  It may provide a premium pay service offering extra episodes, or perhaps remove commercials entirely for premium customers, a proposition at least some were willing to entertain, depending on the price.

“I would consider paying a very small (less than $3.00) monthly fee to watch Hulu if, and only if, they removed the commercials. Otherwise there are other alternatives,” one commenter wrote on CNN’s blog.

Newspapers are also feeling the bite, even more than online video sites.  The printed “dead tree format” of the daily paper has become anathema to the under-30 crowd, despite valiant efforts by some publishers to appeal to younger audiences with feature stories and even free weeklies that mix light news with entertainment features.  The only answer has been to take the paper online.  For years, concepts like online subscriptions, micropayments (paying a few cents per story), free access only for print subscribers, and charging per story for access to week-old and beyond news archives have been considered, tried, abandoned or ignored when web visitors flee or simply skip the pay content.  The daily local newspaper is not what it used to be, and when the “pay here” box pops up, many web visitors simply take their news reading business elsewhere, thanks to the near-universal access to wire service reports and competing media covering stories of interest for free.

Newsday, the Long Island newspaper owned by Cablevision, abandoned its “freeloading” audience yesterday with a new Great Wall of Pay charging a steep $5 a week for those who do not subscribe to either the newspaper or have a broadband account with Cablevision.

The newspaper’s Wednesday edition teased non-subscribers with stories that suddenly drifted off into ellipsis… with an invitation to open your wallet to read more.

Sports media blogger Neil Best, who writes for Newsday, seemed resigned to the fact he was losing a lot of his audience in his farewell-to-free column published Tuesday:

The inevitable decline in my national visibility (and page views) mostly is an ego thing. More to the point, Long Island advertisers understandably have little interest in readers in Dubuque.

For those readers who won’t be coming along for the ride – especially those outside Cablevision territory who in many ways are innocent bystanders in all this – thank you for your readership, input and support.

You will be missed.

Best realistically assessed the number of web visitors he’d see post-Wall, particularly from outside of the immediate area.  Best and his readership seemed to collectively sense this project was destined to fail, another bad experiment from aloof and out of touch management to the realities of the web world.  One commenter lamented the real victim would probably be Best himself:

What’s most frustrating of all, though, is that everyone knows this venture will fail. It’s never succeeded before and there’s truly no reason it will now. Pay for blogs? Are you kidding me? Even the pay-for-columns model is a one-in-a-million risk. But blogs? We all know this is not just you and I missing Neil, it’s Newsday destroying a commodity that could have helped it promote its other products. So Newsday loses– this has no chance– none– to succeed. And Neil loses –immediately– the majority of his followers. He will suffer the most immediate and quantifiable of harms. His readers, his fans, the people who support him and have helped him grow. Now his bosses shut us out and help him dwindle. And we lose. We lose our beloved journalists– we lose their thoughts and every day muses– things that dont even belong in a newspaper.

The use of the word “commodity” would no doubt cause much consternation among Newsday’s management and Wall Street types.  It is the “commoditization” of the news business, with endless debt-laden mergers and acquisitions and the cost-cutting that followed, that trained readers to realize that with the decrease in unique, local content in many newspapers, and their increasing reliance on partnerships with broadcast news operations, wire services, and syndicated feature content, why pay when you can get nearly the same (if not the same) content for free on the next website in the Google results list?

The big believers in the Great Wall of Pay fear what happened to newspapers could happen to their cable, broadcasting, or video rental operations.  The commoditization “crisis” is largely self-made: cable and phone companies with their “dumb pipes,” the cost-cutting local broadcaster that dispensed with nightly news, or the alienating video rental chain store made obsolete by Netflix or the Redbox ‘Tardis’ positioned in the entrance to your local supermarket.  When companies extract maximum revenue through minimal devotion to quality, uniqueness, and integrity, and either overcharge or irritate customers, why be surprised when consumers rebel when being asked to pay or pay more?

One of the rare success stories in pay content has come from Consumer Reports, which charges an annual fee for access to its online reviews.  Consumers notice the dramatic difference between a publication that accepts no advertising and keeps its integrity because of it, and other news sites contemplating pay schemes that are so cluttered with online advertising, autoplaying loud video ads, pop-ups and unders, they can barely find the content they are now being asked to pay for.

Consumers can and will pay for quality content, but many will not be forced into doing so with a corporate blockade on content from “walled gardens” and other “pay me to watch this, right after this ad” schemes.  Online, there is more than one way around the Great Wall of Pay.