“We just don’t see the need of delivering [gigabit broadband] to consumers.” — Irene Esteves, former chief financial officer, Time Warner Cable, February 2013

“For some, the discussion about the broadband Internet seems to begin and end on the issue of ‘gigabit’ access. The issue with such speed is really more about demand than supply. Most websites can’t deliver content as fast as current networks move, and most U.S. homes have routers that can’t support the speed already available.” — David Cohen, chief lobbyist, Comcast Corp., May 2013

“We don’t focus on megabits, we don’t focus on gigabits, we focus on activities. We go to the activity set to get a sense of what customers are actually doing and the majority of our customers fit into that 6Mbps or less category.” — Maggie Wilderotter, CEO, Frontier Communications, May 2013

“It would cost multiple billions” to upgrade Cox’s network to offer gigabit speeds to all its customers. — Pat Esser, CEO, Cox Communications, Pat Esser, chief executive of Cox Communications Inc., January 2013

“The problem with [matching Google Fiber speeds] is even if you build the last mile access plant to [offer gigabit speeds], there is neither the applications that require that nor a broader Internet backbone and servers delivering at that speed. It ends up being more about publicity and bragging. There has been a whole series of articles in the paper about ‘I’m a little startup business and boy it is really great I can get this’ and my reaction is we already have plant there that can deliver whatever it is they are talking about in those articles, which is usually not stuff that requires that high-speed.” — Glenn Britt, CEO, Time Warner Cable, December 2012

“Residential customers, at this time, do not need the bandwidth offered with dedicated fiber – however, Bright House has led the industry in comprehensively deploying next-generation bandwidth services (DOCSIS 3.0) to its entire footprint in Florida – current speeds offered are 50Mbps with the ability to offer much higher. We provision our network according to our customers’ needs.” – Don Forbes, Bright House Networks, February 2011

‘Charter [Cable] is not seeing enough demand to warrant extending fiber to small and medium-sized businesses — and certainly not to every household.’ — “Speedier Internet Rivals Push Past Cable“, New York Times, Jan. 2, 2013

Unless you live in Kansas City, Austin, in a community where public broadband exists, or where Verizon FiOS provides its fiber optic service, chances are your broadband speeds are not growing much, but are getting more expensive. The only thing innovative coming from the local phone or cable company is a constant effort to convince customers they don’t need faster Internet access anyway.

At least until a competitor threatens to shake up the comfortable status quo.

Time Warner Cable claims they are perfectly comfortable offering residential customers no better than 50/5Mbps, except in markets like Kansas City (and soon in Texas) where 100Mbps is more satisfying. Why is a glass Time Warner claims is full to the brim everywhere else in the country only half-full in Kansas City? Google Fiber might be the answer. It offers 1,000/1,000Mbps service for less money than Time Warner used to charge for 50Mbps service, and Google is also headed to Austin.

AT&T scoffed at following Verizon into the world of fiber optic broadband, where broadband speeds are limited only by the possibilities. Instead, they built their half-fiber, half-Alexander Graham Bell-era copper wire hybrid network on the cheap and ended up with broadband speeds topping out around 24Mbps, at least in a perfect AT&T world, assuming everything was ideal between your home and their central office.

At the time U-verse was first breaking ground, cable broadband’s “good enough for you” top Internet speed was typically 10-20Mbps. Now that incrementally faster cable Internet speeds are available from recent DOCSIS 3.0 cable upgrades, AT&T is coming back with an incremental upgrade of its own, to deliver around 75Mbps.

It is still slower than cable, but AT&T thinks it is fast enough for their customers, except in Austin, where Google Fiber provoked the company to claim it would build its own 1,000Mbps fiber network to compete (if it got everything on its Christmas Wish List from federal, state, and local governments).

Are you starting to see a trend here? Competition can turn providers’ investment frowns upside down and get customers faster Internet access.

Wilderotter: Most of our customers are satisfied with 6Mbps broadband.

In rural markets were Frontier Communications faces far less competition from well-heeled cable companies, the company can claim it doesn’t believe most of its customers need north of 6Mbps to do important things on the Internet. If they did, where would they go to do them?

Where Comcast and AT&T directly compete, major Internet speed increases are a matter of “why bother – who needs them.” Comcast is more generous where it faces down Verizon FiOS. AT&T also knows the clock is ticking where Google Fiber is coming to town.

Verizon FiOS, Google Fiber, and a number of community-owned fiber to the home broadband networks like EPB in Chattanooga and Greenlight in Wilson, N.C. seem more interested in boosting speeds to build market share, increase revenue to cover their expenses, and make a marketing point their networks are superior. They respond to requests for speed upgrades differently — “why not?”

Verizon figured out offering 50/25Mbps service was simple to offer and easy to embrace. Two clicks on a FiOS remote control and $10 more a month gets a major speed upgrade for basic Internet customers that used to get 15/5Mbps service. Verizon management reports they are pleased with the number of customers signing up.

In Chattanooga, Tenn. EPB Fiber offered gigabit Internet service because, in the words of its managing director, “it could.” The community-owned utility did not even know how to price residential gigabit service when it first went on offer, but the costs to EPB to offer those speeds are considerably lower over fiber to the home broadband infrastructure.

Broadband customers in Chattanooga, Kansas City and Austin are not too different from customers in Knoxville, Des Moines, and Houston. But the available broadband speeds in those cities sure are.

LUS Fiber in Lafayette, La. changed the song Cox was singing about their ‘adequate’ broadband speeds. Earlier this year, Cox unveiled up to 150/25Mbps service to cut the number of departing customers headed to the community owned utility, already offering those speeds.

Convincing Wall Street that spending money to upgrade networks to next generation technology will earn more money in the long run has failed miserably as a strategy.

“Competitors have been overbuilding, investors are wondering where the returns are,” said Mark Ansboury, president and co-founder of GigaBit Squared. “What you’re seeing is an entrenchment, companies leveraging what they already have in play.”

With North American broadband prices rising, and some cable companies earning 90-95% margins selling broadband, one might think there is plenty of money available to spend on broadband upgrades. Instead, investors are receiving increased dividend payouts, executive compensation packages are swelling as a reward for maximizing shareholder value, and many companies are buying back their stock, refinancing or paying off debt instead of pouring money into major network upgrades.

That is not true in Europe, where providers are making headlines with major network improvements and speed increases, all while charging much less than what North Americans pay for broadband service.

UPC Netherlands is Holland’s second biggest cable company and is in the middle of a broadband speed war with fiber to the home providers.

In the Netherlands, the very concept of Google Fiber’s affordable gigabit speeds terrify cable operators like UPC Netherlands, especially when existing fiber to the home providers in the country are taking Google’s cue and advertising gigabit service themselves. UPC rushed to dedicate up to 16 bonded cable channels to boost cable broadband speeds to 500Mbps in recent field trials, without giving any serious thought to the cable operators in the United States that argue customers don’t need or want the faster Internet speeds fiber offers.

“We had to address it head on very recently because of the fiber (competition)” said vice president of technology Bill Warga. “The company is called Reggefiber in the Netherlands. What they’re touting is a 1Gbps service, [the same speed] upstream and downstream. We came out with 500Mbps service. We had to build a special modem because (DOCSIS) 3.1 chips aren’t out yet. We had to double up on the chips in the modem and put it out there because we had to have a competing product, if anything just in the press. That was a reaction but that tells you how quickly in a marketplace that something can move.”

Despite that, groupthink among cable industry attendees back home at the SCTE Rocky Mountain Chapter Symposium agreed that Google Fiber was a political and marketing stunt, “since the majority of users don’t need those types of speed.”

Who does need and want 500Mbps? Executives at UPC, who have it installed in their homes, admits Warga. But cost can also impact consumer demand. Currently, the most popular legacy UPC broadband package offers 25Mbps for €25 ($32.50). The company now sells 60/6Mbps for €52,50 ($48.75), 100/10Mbps for €42,50 ($55.25) or 150-200/10Mbps for €52,50 ($68.25).

Warga also admits the competition has put UPC in a speed race, and boosted speeds are coming fast and furious.

“They’ll come in and say they’re 100, or 101Mbps we’ll come back and say we’re 110 or 120, or 130Mbps,” Warga said. “It’s a bit of a cat and mouse game, but we always feel like we can be ahead. For us DOCSIS 3.1 can’t come soon enough.”

[flv width=”640″ height=”367”]http://www.phillipdampier.com/video/WSJ Cable Broadband Speeds 1-13.flv[/flv]

The Wall Street Journal investigates why cable companies are getting stingy with broadband speed upgrades while gigabit fiber networks are springing up around the country. (4 minutes)

If the Federal Communications Commission allows Charter Communications to deploy a new, enhanced encryption system for set-top boxes that will allow it to scramble any or all of its video channels, it will offer broadband service up to 100Mbps to at least 200,000 additional homes within two years and transition every Charter Cable system in the country to all-digital television service.

The proposed deal was addressed to the Commission in a brief letter from Charter Communications CEO Thomas Rutledge on Apr. 4.

Charter is trying to negotiate a two-year waiver to allow the company to deploy a cheaper and more robust downloadable set-top box security upgrade that initially does not support CableCARD technology. Charter’s proposal will leave its legacy conditional access platform in place to give CableCARD users a temporary reprieve until the next generation of CableCARD technology becomes available in retail outlets. Other customers will eventually have to get a set-top box for every television in the home once the company converts to an all-digital platform. QAM service will not be available if Charter encrypts its lineup.

Charter wants to move away from analog service to increase bandwidth for DOCSIS 3 broadband upgrades and providing more HD channels to customers.

The commitment to offer up to 100/5Mbps service may not tax Charter too much. Multichannel News reports Charter’s regulatory filings show the majority of Charter Cable systems can already offer 100Mbps service today.

Charter ended 2012 with DOCSIS 3.0 deployed to 94 percent of its homes passed, “allowing us to offer multiple tiers of Internet services with speeds up to 100 Mbits download to our residential customers.”  About 98 percent of Charter’s cable network supported 550 MHz or more of capacity at the end of 2012.

Rutledge is attempting to repeat the success he had at Cablevision convincing the FCC to waive costly set-top box upgrade requirements. Cablevision also received a waiver allowing it to encrypt its entire video lineup in the New York area, in part to combat signal theft.

The Consumer Electronics Association is opposed to the cable industry’s efforts to adopt their own closed standards for set top security, preferring AllVid, a proposed next generation version of the CableCARD that will work with all types of video services, not just cable television.

It’s time to take a look inside Time Warner Cable’s latest quarterly financial report and pick out some interesting developments that will impact customers during the first quarter of 2013.

Time Warner Cable managed 9 percent revenue growth in 2012, primarily from its broadband service, its strongest product. The company added another 500,000 broadband customers over the last year, primarily poached from telephone company DSL service. This growth in subscribers continues despite rate increases and the introduction of a $3.95 monthly modem rental fee introduced last fall.

CEO Glenn Britt noted that Time Warner Cable customers use and love their broadband service.

“The average customer used roughly 40% more capacity last year,” Britt noted.

But Time Warner Cable has plenty of capacity to handle that traffic growth.

Britt plans to leave as CEO of Time Warner Cable by the end of this year.

Irene Esteves, Time Warner’s chief financial officer noted Time Warner Cable continues to decrease its capital spending. Overall, Time Warner spent $3.1 billion on capital expenditures in 2012, or just 14.5% of its revenue. That represents a 40-basis point decrease from 2011. The bulk of that spending was on business services, primarily from the costs of wiring business office parks and buildings for cable. Less than 12% of Time Warner Cable’s spending targeted residential services.

“Overall, we expect capital intensity will continue to decline modestly, with full year capital spending around $3.2 billion in 2013,” Esteves told investors.

Time Warner’s new modem fee is earning the company a major boost in Average Revenue Per User (ARPU). The average Time Warner customer now spends $103.79 a month for service, an increase of 6.3%. Three-quarters of that increase is attributable to the modem fee alone.

Customers are clamoring for higher broadband speeds. At the end of 2012, Turbo, Extreme and Ultimate subscribers comprised over 23% of the company’s residential broadband customer base, up from 19% a year ago and 11% three years ago.

Britt, expected to retire by the end of this year, noted the company’s biggest challenge during his tenure continues to be programming costs. But the company is contributing to that problem itself, spending $110 million in 2012 on its new regional sports networks in southern California, which feature the Los Angeles Lakers and the Los Angeles Dodgers.

“Our programming costs per subscriber has grown 32% in the last four years,” Britt complained. “Over that same period, the Consumer Price Index has risen by 9%. So the math is pretty simple, programming costs have been rising at more than three times the rate of inflation. Our residential video ARPU increased 16% over that same period, so we’ve effectively raised pricing a little faster than inflation but only half as fast as programming costs have risen.”

The rising price of cable service has caused Time Warner to lose a larger number of customers, particularly when promotional pricing deals expire. The company has retrained its retention agents to avoid losing customers to the competition as new customer promotions expire. Time Warner noted some of its strongest competition is coming from AT&T U-verse promotional pricing for double-play offers in Texas and the midwest. In Kansas City, Time Warner continues to dismiss competition from Google Fiber as largely irrelevant, although the company has boosted its maximum broadband speeds to 100Mbps in that city.

Time Warner’s TV Everywhere app.

Other highlights:

♦ TWC completed its DOCSIS 3.0 broadband enhancement rollout in 2012 and began a process of reclaiming bandwidth previously dedicated to the delivery of analog video. These steps will allow the company to continue to devote more network resources to enhancing broadband service, including handling more traffic and selling faster service.

♦ Optional usage-based tiers are available from most Time Warner Cable regions. The offer of a $5 monthly discount for customers keeping their usage under 5GB each month has received almost no interest from subscribers. Sources inside Time Warner tell Stop the Cap! the company never expected much customer interest, but the offer allowed Time Warner to introduce the concept of usage-based pricing without alienating current customers.

♦ Time Warner Cable’s “TV Everywhere” platform continues to expand. Various TWC TV apps now offer as many as 300 streamed video channels on both smartphones and streaming set-top boxes. In December the company expanded its offering to include video on demand, and last week those on-demand programs became available on the desktop. Time Warner expects to grow its on-demand library and introduce local television channels to its streaming apps in 2013.

♦ Time Warner is trying to improve the standing of its residential telephone service with the introduction of a Global Penny plan, which offers international calling to over 40 countries for one cent per minute. This helps the company market its phone service to subscribers choosing its various ethnic and foreign language television packages.

♦ One-hour service windows are now available in most Time Warner Cable areas. In New York City, a 30-minute window is available for the first appointment of the day. The company is also expanding its self-install packages, letting customers do simple equipment installations themselves. The equipment is delivered free of charge by package delivery services and can be returned by mail as well.

♦ Although Time Warner is earning more from its broadband customers, the introduction of a modem rental fee did cause a significant number of customers to disconnect service, presumably in favor of a competitor. But the extra money in the cable company’s pockets more than makes up for the loss.

♦ Time Warner Cable’s forthcoming “hosted navigation product” represents a major change for the company’s set-top boxes. The “gateway” device will include 1TB of storage, can record up to six shows at once, and will automatically transcode video for an IP platform, letting customers view recorded and live programming on set-top boxes or wireless devices like smartphones and tablets inside the home. Expect to see the new device arrive in the second half of this year in many Time Warner cities.

Time Warner’s maze of explanations and excuses still don’t add up.

Instead of waiting for the outcome of a class action case against Time Warner Cable’s new $3.95 monthly modem fee, readers might do better taking their case direct to the company. Longtime Stop the Cap! reader “PreventCAPS” rattled the cages of Time Warner’s social media customer service representatives, which resulted in credits worth six months of modem rental fees.

Our reader tells us he brought pointed questions about the modem fee, complaints about the inconsistent reasons for imposing them, and irritation about the lack of notification.

Some Q&A:

Q. Why is Time Warner Cable now charging a modem fee? Earlier reports that the fee would cover the cost of equipment do not make sense because the company is not automatically supplying customers with new cable modems and already assesses $24-150 penalty fees to “cover costs” of damaged or unreturned cable modems. 

A. Time Warner Cable now says the fee is to cover the costs of increasing broadband speeds. A representative explained that the company wants to make sure everyone can be assured of getting the speeds advertised, and there are still customers with DOCSIS 1x equipment that can only support broadband speeds up to 9Mbps, which already conflicts with the company’s advertised 10Mbps Standard Service speed (soon to be 15Mbps).

Our Take: DOCSIS 1x equipment was recalled from western New York customers years ago. It was first introduced locally in 1998 and is long past its expiry date. It is a safe bet only a very tiny percentage of Time Warner customers still have first generation equipment. The overwhelming majority of current broadband customers have DOCSIS 2 modems, many installed years earlier. Those customers will keep that equipment for years to come unless they choose to upgrade to 30/5Mbps speeds or higher because a DOCSIS 3 modem is required for faster speeds. Our reader pointedly asked if the new modem fee guarantees every customer will receive the newest equipment and increased service. The answer in response was “no.”

These phony explanations and justifications tapdance around the reality this modem fee is being introduced as a revenue enhancer — nothing more, nothing less.

Customers are not buying this!

Q. Why is the list of supported DOCSIS 3.0 modems so thin and limited?

A. The representative speculated the reason Time Warner Cable so heavily favored Motorola equipment came from contractual support agreements and guarantee obligations with that company. But the representative claimed Time Warner Cable “will activate and support any modem model they currently lease to customers.”

Our Take: This claim represents a new development, but one unlikely to prove consistent across the country. Time Warner Cable’s national call centers have employees currently trained to activate and support only those modems on the approved list. However, local technical support and “Tier 3” agents inside of local offices seem to have a more flexible attitude about accepting other equipment. This is a classic case of “your results may vary.”

Q. Why are there modem fees for Internet service but no modem fee if I use the exact same equipment for my Time Warner Cable phone service.

A. The representative claimed it has to do with Federal Communications Commission rules governing phone equipment.

Our Take: We are not certain what rules would apply in this case, but it is possible the company’s lawyers found some “exposure” if Time Warner began charging the fee for phone service equipment. Again, we suspect the fee applies to broadband primarily because it is the service customers are least-likely to cancel over a price hike. Phone service is more tenuous. Increase the price and disconnect requests are likely to rise.

Q. Why are these fees being instituted to “cover costs” when records show capital expenses for Internet service (and cable modem equipment) have dropped for the past three years in a row?

A. The representative claimed that capital costs don’t cover cable modems.

Our Take: That answer is completely inaccurate. Nice try. Stop the Cap! earlier reported that capital expenditures for customer premise equipment dropped for the last three years in a row. For the benefit of readers (and Time Warner Cable), here is the company’s own definition of that equipment¹:

“Such equipment includes digital (including high-definition) set-top boxes, remote controls, high-speed data modems (including wireless), telephone modems and the costs of installing such new equipment.”

 ¹- Time Warner Cable 2011 Annual Report, “TWC’s capital expenditures,” p.60

Rogers Communications customers equipped with DOCSIS 3 modems are getting free speed upgrades, some starting today:

• Ultimate: download speeds will increase from up to 75Mbps to up to 150Mbps (by the end of the year) (250GB limit);
• Extreme Plus: download speeds will increase from up to 32Mbps to up to 45Mbps (150GB limit);
• Extreme: download speeds will increase from up to 28Mbps to up to 35Mbps (120GB limit);
• Express: download speeds will increase from up to 18Mbps to up to 25Mbps (80GB limit).

Customers with DOCSIS 2.0 modems will need to acquire a new DOCSIS 3.0 modem and service plan to take advantage of the new speeds.

Remember, all Rogers Internet plans carry overlimit fees, some steep:

• Ultra Lite – $5.00/GB to a maximum of $100.00
• Lite – $4.00/GB to a maximum of $100.00
• Express – $2.00/GB to a maximum of $100.00
• Extreme – $1.50/GB to a maximum of $100.00
• Extreme Plus – $1.25/GB to a maximum of $100.00
• Ultimate – $0.50/GB to a maximum of $100.00

Our regular Canadian reader Alex Perrier reminds us that “faster speeds mean faster drain of [your] usage allowance.”