Next year’s upgrade to DOCSIS 3.1 will support cable broadband speeds up to one gigabit shortly after introduction.

Telephone companies relying on traditional ADSL service to power their broadband offering will likely face a renewed competitive assault in 2016 that will further reduce their already-challenged market share in areas where cable companies compete.

Cable operators are hungry for profitable broadband customers and the best place to find new prospects is at the phone company, where DSL is still a common technology to deliver Internet access. But while cable Internet speeds have risen, significant DSL speed hikes have proven more modest in the residential market.

In 2016, the cable industry intends to poach some of the remaining price-sensitive holdouts still clinging to DSL with revised broadband offers promising more speed for the dollar.

Cable broadband has already proven itself a runaway success when matched against telephone company DSL service. Over the last year, Strategy Analytics found Comcast and Time Warner Cable alone signed up a combined 71 percent of the three million new broadband customers in the U.S.

“Cable operators continue to increase market share in U.S. broadband,” said Jason Blackwell, a director at Strategy Analytics. “Over the past twelve months, Comcast has accounted for 42 percent of new subscribers among the operators that we track.  Fiber growth is still strong, but the telco operators haven’t been able to shake off the losses of DSL subscribers.  In 2016, we expect to see a real battle in broadband, as cable operators begin to roll out DOCSIS 3.1 for even higher speed offers, placing additional pressure on telcos.”

That battle will come in the form of upgraded economy broadband plans, many arriving shortly after providers upgrade to the DOCSIS 3.1 cable broadband platform. Currently those plans offer speeds ranging from 2-6Mbps. Starting next year, customers can expect economy plan prices to stay generally comparable to DSL, with promises of faster and more consistent speeds. A source tells Stop the Cap! at least two significant cable operators are considering 10Mbps to be an appropriate entry-level broadband speed for 2016, in keeping with FCC chairman Thomas Wheeler’s dislike of Internet speeds below 10Mbps.

Just a few years earlier, most providers wouldn’t think of offering discounted 10Mbps service, fearing it would cannibalize revenue as customers downgraded to get lower priced service. Increasing demands on bandwidth from online video and multiple in-home users have gradually raised consumer expectations, and their need for speed.

Unfortunately for many phone companies that have neglected significant investment in their aging wireline networks, the costs to keep up with cable will become unmanageable unless investors are willing to tolerate significant growth in capital expenses to pay for network upgrades. Frontier Communications still claims most of their customers are satisfied with 6Mbps DSL, neglecting to mention many of those customers live in areas where cable competition (or faster service from Frontier) is not available.

Where competition does exist, it’s especially bad news for phone companies that still rely on DSL. Earlier this year, Frontier’s former CEO Maggie Wilderotter admitted Frontier’s share of the residential broadband market had dropped to less than 25% in 26 of the 27 states where it provides service. In Connecticut, the one state where Frontier was doing better, its acquired AT&T U-verse system has enabled the phone company to deliver broadband speeds up to 100Mbps. But even those speeds do not satisfy state officials who are seeking proposals from providers to build a gigabit fiber network in a public-private partnership.

DSL speed upgrades have been spotty and more modest.

Frontier’s recent experiments with fiber to the home service in a small part of Durham, N.C., and the unintentional revelation of a gigabit broadband inquiry page on Frontier’s website suggests the company may be exploring at least a limited rollout of gigabit fiber service in the state. But company officials have also repeatedly stressed in quarterly results conference calls there were no significant plans to embark on a major spending program to deliver major upgrades across their service areas.

Some phone companies may have little choice except to offer upgrades where cable operators are continuing to rob them of customers. In the northeast, where Frontier has a substantial presence, cable operators including Charter, Comcast and Time Warner Cable are committing to additional speed upgrades. Time Warner Cable’s current standard speed of 15Mbps will rise to 50-60Mbps in 2016, up to ten times faster than Frontier’s most popular “up to” 6Mbps DSL plan.

Most of the broadband customer gains won by Comcast and Time Warner Cable come as a result of DSL disconnects. AT&T said goodbye to 106,000 customers during the third quarter. Verizon managed to pick up 2,000 new subscribers overall, almost all signing up for FiOS fiber to the home service. No cable operator lost broadband market share, reported analyst firm Evercore. Leichtman Research offered additional insight, finding AT&T and Verizon were successful adding 305,000 U-verse and FiOS broadband customers, while losing 432,000 DSL customers during the same quarter.

The message to phone companies couldn’t be clearer: upgrade your networks or else.

STATE OF NEW YORK

PUBLIC SERVICE COMMISSION

_______________________________________

Joint Petition of Charter Communications and Time

Warner Cable for Approval of a Transfer of Control

of Subsidiaries and Franchises, Pro Forma                                Case 15-M-0388

Reorganization, and Certain Financing Arrangements.                               

_______________________________________

Statement of Opposition to Joint Petition and

Response to Redacted Comments of DPS Staff

Phillip M. Dampier, Director and Founder: Stop the Cap!

Rochester, New York

September 25, 2015

Stop the Cap! is a Rochester-based consumer group founded in 2008 to fight against the introduction of artificial limits on broadband usage (usage caps, consumption billing, speed throttling) and to promote better broadband speeds and service for consumers. Our group does not solicit or accept funding from lobbyists, companies, or others affiliated with the telecommunications industry. We are entirely supported by individual donors who share our views.

Introduction

Our opposition to the Joint Petition is based on our belief it does not meet the “public interest”  test established in Section 222 of the New York Public Service law, and must therefore be denied.

For the sake of brevity, we wish to associate ourselves with most of the views of the DPS Staff contained in their redacted comments regarding this case, published on the DPS website on September 16, 2015. Most of our testimony will seek to expand on their findings or add additional information to the record for the Commission’s consideration.

As we stated in our remarks regarding the Comcast-Time Warner Cable merger, New York law obligates the applicant alone to demonstrate its proposal is in the public interest. If the Commission finds the application does not meet the public interest or provide sufficient public benefits, it should be rejected. The DPS staff has reported to you Charter Communications and Time Warner Cable have not met their burden. We agree.

The DPS staff then proposes a mitigation strategy in an effort to tip the balance in favor of the applicant. It remains our view it is not the Commission’s responsibility to help tip the balance in favor of an applicant that has failed to meet its burden.

Nevertheless, we offer the Commission our insight about Charter Communications, its proposals, and the DPS staff recommendations with the hope it will be useful to win commitments from Charter should the Commission choose to proceed with approval, enforcing modifications to deliver the public interest benefits consumers across New York tell us they actually want and need from their providers.

Discussion

Phillip Dampier

New York State, particularly across the upstate region, is not well positioned to take advantage of next generation broadband networks. Just two providers deliver telecommunications services to the majority of New York: Verizon Communications and Time Warner Cable. Although Frontier Communications and Cablevision also deliver service, their service areas are much smaller than the two dominant incumbents. The decisions Verizon and Time Warner Cable make about their investments in broadband and telephone service affect millions of New Yorkers.

Many New York residents have only one choice for Internet service that meets the Federal Communications Commission’s definition of broadband: 25Mbps download speed and at least 3Mbps upload speed.[1] In areas where Verizon FiOS is not available, Time Warner Cable is the only significant provider consistently providing service options at or above 25Mbps. The most common alternative is DSL, which rarely meets the FCC’s minimum definition of broadband.

With this in mind, the FCC reported 53 percent of rural Americans lack access to broadband service achieving speeds of 25Mbps or better. As much as 20 percent still lack access to broadband at speeds achieving the FCC’s old benchmark of 4Mbps. Upstate New York, in particular, is a long way away from achieving the goals of 100Mbps broadband set by Gov. Cuomo, unless you have access to a cable broadband provider.

In Rochester, the majority of residents have only one choice for a provider that meets the FCC’s definition of broadband: Time Warner Cable. While Frontier Communications has made investments to improve their wireline network, only a small minority of customers qualify for DSL service that can meet the FCC’s benchmarks.

While Verizon Communications has done an admirable job delivering its fiber to the home service FiOS to portions of New York, the company has suspended expansion of the service and has not even met its service obligations in cities like New York.[2]

Even more concerning is the fact none of the significant incumbent providers serving New Yorkers have expressed any interest in providing residential gigabit speed service. Google Fiber has not announced any expansion into New York State and other significant gigabit speed providers, including AT&T, do not provide wireline service in New York.

In contrast, in states including Texas, North Carolina, Georgia, Missouri, and Tennessee, many consumers have the option of choosing at least two gigabit service providers (Google or AT&T) as well as municipal or public broadband providers such as EPB, which serves the Chattanooga area. Time Warner Cable has focused much of its upgrade activity on these communities to remain competitive, delivering 300Mbps broadband service for the price it used to charge for 50Mbps speeds.

In western New York, the fastest broadband speed most residential customers can buy is just 50Mbps. Charter Communications proposes to increase that speed in some areas to a maximum of 100Mbps, along with their entry level 60Mbps plan. Although helpful, that offers little solace to residents and small businesses that would like the option to purchase considerably faster Internet speeds that are now becoming available in other parts of the country.

The Commission’s decision will have an enormous impact on what kinds of telecommunications services will be available to New Yorkers for years to come. Verizon has shown no interest in resuming fiber service upgrades, so most customers will continue to purchase Internet access from the incumbent cable operator to obtain the broadband speeds they require. Today that usually means Time Warner Cable. Sometime next year, that could be Charter Communications.

Time Warner Cable vs. Charter Communications

The most important question before the Commission is which cable operator is better positioned to deliver the services customers in this state want and/or need. We argue that operator is Time Warner Cable, not Charter Communications.

Since the termination of the Comcast-Time Warner Cable merger, Time Warner Cable has responsibly invested in their infrastructure without assuming an irresponsible amount of debt.

Time Warner Cable CEO Robert Marcus reported significant progress in their first quarter 2015 report to shareholders and customers, despite the distraction of the Comcast merger[3]:

Over the past 16 months, we’ve made significant investments to improve our customers’ experience:

• Investing more than $5.2 billion to, among other things, improve the reliability of our network and upgrade customer premise equipment – including set-top boxes and cable modems – with the latest technologies and expand its network to additional residences, commercial buildings and cell towers;
• Launching TWC Maxx, which features greater reliability, all-digital video, advanced TV services, standard tier of Internet speeds at 50 Mbps, and higher tiers of service up to 300 Mbps. New York, Los Angeles and Austin are complete; Dallas, San Antonio and Kansas City are underway; Charlotte, Raleigh and Hawaii are slated for later this year; and San Diego is expected to be done in early 2016;
• Introducing Enhanced DVR, a six-tuner set-top box that allows customers to record up to six shows simultaneously and store up to 150 hours of HD content;
• Increasing the number of Cable Wi-Fi hotspots available to our customers to 400,000;
• Rolling out our cloud-based video guide to 8 million set-top boxes to date. The guide also makes it easier to browse our On Demand library, which now sits at 30,000 free and paid titles and continues to grow;
• Expanding our industry-leading TWC TV app – which allows customers to watch live TV and On Demand content and control and program their DVR from inside and outside the home. TWC TV is now available on Xbox One, Xbox 360, Amazon Kindle Fire HD and HDX tablets, Android and IOS phones and tablets, Fan TV, PCs, Samsung TV and Roku;

Serving customers on their schedules rather than ours. We expanded one-hour appointment windows across the company and in Q1 met that window 97 percent of the time. We continue to add nighttime and weekend appointments.

Marcus

Since that report, Time Warner Cable has announced new Maxx service upgrade areas – Greensboro and Wilmington, N.C. At least 45 percent of Time Warner Cable’s national footprint will be serviced with Maxx upgrades by the end of this year, and Marcus has indicated additional cities will receive upgrades in 2016.[4]

Marcus has indicated repeatedly he intends to see Maxx service upgrades extend even further. On the January 29, 2015 quarterly results conference call with investors, Marcus indicated Maxx upgrades delivered tangible benefits to the company, including increased customer satisfaction, higher network reliability, and a stronger product line. Based on those factors, it would be logical to assume Time Warner Cable would continue its upgrade project, and indeed Marcus confirmed this in his remarks:

“Our aim is to have 75% of our footprint enabled with Maxx […] by the end of [2016], and my guess is we’re continuing to roll it out beyond that,” said Marcus[5]. “So the only question is prioritization, and obviously as we think about where to go first, competitive dynamics are a factor. So that includes Google, although it’s not explosively dictated by where Google decides to go. In fact I think we announced the Carolinas before Google did their announcement this week. So competitors are certainly relevant obviously.

At the rate Time Warner Cable has been rolling out Maxx upgrades, which were first announced on January 30, 2014[6], with 45% of its service area upgraded within 23 months, it is likely the company would complete its Maxx upgrade to all of its service areas within the next 24-30 months. The DPS staff also notes, “there is no indication that Petitioner’s plan for converting to all-digital in New York is any different from Time Warner’s existing plan.”

Charter’s upgrade proposal is, in fact, generally inferior to what Time Warner Cable is accomplishing on its own. We strongly recommend the Commission carefully consider whether Charter’s proposal is as truly compelling as they claim.

Charter Communications’ upgrade proposal is not a good deal for New York.

We agree with the DPS staff’s conclusion Time Warner Cable, on its own, would likely complete its Maxx upgrade program across upstate New York at or around the same time Charter’s proposed upgrades would be complete. Therefore, when comparing Charter’s proposal with Time Warner Cable’s existing service, we urge you to use Time Warner Cable Maxx service as the benchmark, not the existing level of service provided in upstate New York today.

Time Warner Cable Maxx offers 50/5 Mbps speeds under its most popular Standard plan. In contrast, Charter proposes to offer 60/5Mbps service under its most-popular Spectrum plan. While Charter’s offer is superior at first glance, it comes at a cost to customers looking for more budget-priced service or those seeking faster speeds.

Charter has no plans to continue Time Warner Cable’s $14.99 Everyday Low Price Internet service – a very important offer for low income residents and senior citizens who are unable to afford the nearly $60 regular price both companies charge for their 50 or 60Mbps tiers. Time Warner Cable offers this tier without preconditions, restricted qualifiers, contracts, or limits on what types of services can be bundled with it. Any consumer qualifies for the service and can bundle it with Time Warner Cable telephone service for an additional $10 a month, which offers a nationwide local calling area, as well as free calls to the European Union, Mexico, Puerto Rico, and several Asian nations.

The loss of a $25 plan that includes basic Internet access and a bundled, 911-capable telephone line would be devastating to low-income New Yorkers and senior citizens. During the Comcast-Time Warner Cable hearings, no topic elicited as much interest as Internet affordability. Time Warner Cable clearly offers a superior product line for these customers, including two other Internet service tiers offering stepped up Internet speeds in $10 increments. These options would be unavailable from Charter.

Charter’s proposed solution to serve low-income New Yorkers is adoption of Bright House Networks’ Connect2Compete program, which offers restricted access to $9.95/month Internet service for those who qualify.

Stop the Cap! investigated Bright House Networks’ existing offer in a report to our readers[7] in June 2015, and we urge the Commission to look much more closely at the specific conditions Bright House customers have had to endure to qualify to subscribe:

1) You must have at least one child qualified for the National School Lunch Program. They need not be enrolled now.

2) You cannot have been a Bright House broadband customer during the last three months. If you are a current customer, you must first cancel and go without Internet service for 90 days (or call the phone company and hope to get a month-to-month DSL plan in the interim.)

3) If you have an overdue bill older than 12 months, you are not eligible until you pay that bill in full.

4) Bright House does not enroll customers in discounted Internet programs year-round. From a Bright House representative:

“We do participate in this particular program, however, it is only around September that we participate in it. This is a seasonal offer that we have which can only be requested from the middle of August to the middle of September, which is when most start up with school again for the year.”

5) Bright House does not take orders for the Low-Income Internet plan over the Internet. You have to enroll by phone: (205) 591-6880.

Families fall into poverty every day of the year, and poverty-stricken families move from one school district to another every day of the year. So it’s horribly unfair to tell them they’d qualify for this program if only they had fallen into poverty sometime between the middle of August and the middle of September.

It has been our experience covering service providers across all 50 states that most design these low-cost Internet access programs with revenue protection first in mind. Charter Communications is no different. As with Comcast, Connect2Compete is only available to families with school age children. Applicants face an intrusive, complicated, and time-restricted enrollment process designed to dampen and discourage enrollment.

The interest in meeting the needs of low-income customers would be laudable if not for the insistence otherwise-qualified existing customers cannot downgrade their regular price broadband plan to Connect2Compete unless they voluntarily go without Internet service for three months.

We strongly recommend Charter Communications be compelled to continue Time Warner’s $14.99 Internet plan, but at speeds no less than 25Mbps, the minimum definition of entry-level “broadband” by the FCC. We also recommend Charter be required to further discount this plan to $9.95 a month for qualified customers who meet a simple income test the Commission can define and establish. These discount programs should not just be available to families with school-age children. Everyone needs affordable Internet access, whether you are single and looking for your first job or a fixed income senior citizen.

All restrictions for existing customers or those with an outstanding balance must be prohibited and sign-ups must be accepted 365 days a year with re-qualification occurring not more than once annually.

Charter’s broadband offers for lower-income New Yorkers are not adequate, and neither are their plans for customers who need enhanced service.

Time Warner Cable Maxx delivers a more compelling offer for consumers and small businesses that need much faster Internet access. Charter’s upgrade will offer customers two choices: 60 or 100Mbps service. Time Warner Cable Maxx offers considerably more[8]:

Charter Communications has only committed to provide customers with unlimited Internet access for three years. Time Warner Cable CEO Robert Marcus has repeatedly made it clear compulsory usage caps are off the table at Time Warner Cable – a lesson they learned after customers pushed back and forced them to shelve a usage cap experiment planned for Rochester and other cities in April 2009[9]. The company has never raised the possibility of compulsory usage limits or usage-based billing again.

“We have no intention of abandoning an unlimited product we think that something that customers value and are willing to pay for,” said Time Warner Cable CEO Robert Marcus. “The way we’ve approached usage-based pricing is to offer it as an option for customers who prefer to pay less because they tend to use less. And we’ve made those available at 5 gigabytes per month and 30 gigabytes per month levels.[10]”

Time Warner Cable again offers a better choice for New Yorkers. With many New Yorkers having no practical alternatives, imposing usage limits or forcing customers into even higher-priced usage billing plans would only make New York even less attractive for those who need high quality Internet access for education, telecommuting, or to assist in running a small business. Google Fiber, in contrast, offers 1,000Mbps service with no usage caps at all. Many other providers also have no plans to introduce usage caps.

Charter Communications has a history of capping their customers’ usage. Less than three months before announcing it would acquire Time Warner Cable, Charter Communications quietly dropped usage caps in place on its broadband plans since 2009, without explanation and the FCC now wants to know why, as they also contemplate the impact of the merger[11] [12]. In addition to the anti-consumer practice of placing customers on an unnecessary usage allowance, such usage limits may also be established for anti-competitive reasons to limit exposure to online video streaming, which competes directly with cable television. Customers who watch a lot of online video are those most likely to face service suspension or find overlimit usage fees applied to their bill.

Almost all of Charter’s so-called customer-friendly commitments and policies have a very unfriendly expiration date of three years, which should be unacceptable to the Commission. There is no reason Charter cannot extend its commitments to not charge modem fees, adhere to the basic principles of Net Neutrality, and not impose usage caps or other forms of usage billing permanently. Without such a commitment, consumers could soon pay much higher prices for broadband service, and without robust competition unlikely to develop in most of New York over the next three years, there will be every incentive for Charter to further boost earnings by imposing modem fees and usage pricing on its customers.

One of those incentives is the level of debt Charter Communications will assume in this transaction. DPS staff is correct when they noted New Charter’s debt and lowered credit rating “represents the single most substantial risk of the proposed transaction.”[13]

Debt servicing costs and more expensive credit are both deterrents to investment and are likely to limit the scope of Charter’s ongoing system upgrades and maintenance. Charter is a much smaller cable operator than Time Warner Cable, and is itself still in the process of repairing and upgrading its own cable systems and those it acquired in earlier acquisition deals. Time Warner Cable, in contrast, is in a much stronger financial position to carry out its commitments associated with the Maxx upgrade program.

Specifics about Charter’s commitments to expand service into unserved areas of New York were either vague and non-specific or redacted. The past history of winning expansion commitments from cable operators who rely on Return On Investment (ROI) formulas to determine which homes and businesses they will serve have met with limited success.

The pervasive problem of rural broadband availability is unlikely to be resolved substantially by this transaction without the strongest buildout requirements. But even that is unlikely to be of much help for large sections of New York outside of existing video franchise areas. Compelling Charter Communications to adopt universal service obligations within all existing Time Warner Cable franchise areas may be a good start. Under such a requirement, any consumer or business that wants cable service and lives within the geographic boundaries of an existing franchise area would receive it upon request without construction fees, surcharges, or other passed-along fees to reach that customer, regardless of their distance from the existing cable plant or ROI formula. The largest impact of this would be to extend cable service into business parks and commercial buildings, which often lack cable service, but many suburban and exurban residential customers would also benefit.

But the Commission must look carefully at Charter’s financial capacity to meet these obligations after assuming control of a company much larger than itself. No commitment is worth much if a company ultimately fails to deliver on it.

An overburdened cable operator is also unlikely to make substantial investments in improving customer service, and that makes the risk of depending on Charter Communications to improve Time Warner Cable’s already poor customer service rating doubtful. Competition is the biggest incentive to improve customer service and responsiveness, and that is unlikely to prove much of a factor for large sections of New York over the next few years. In fact, we argue customer service is likely to deteriorate for New Yorkers in the short term because of the disruptiveness of any ownership change and eventual billing system integration. Again, Charter’s proposal offers no compelling public interest benefit to New Yorkers. The fact DPS staff is proposing a performance incentive mechanism to compel service improvements illustrates absent punitive measures, Charter Communications is unlikely to offer any improvement over Time Warner Cable, and may in fact perform worse.

Consumer Reports rates both companies’ Internet Service poorly[14]:

• Charter: 63 (Reader Score), Poor Value, Fair Reliability, Good Speed, Mediocre Phone/Online Support, Fair In-Home Support
• Time Warner Cable: 57 (Reader Score), Poor Value, Fair Reliability, Fair Speed, Mediocre Phone/Online Support, Fair In-Home Support

Virtually nothing Charter Communications has offered as a public interest benefit meets that criteria. Its commitment to improve cable television does not offer any significant benefit to New York cable TV subscribers. Both Time Warner Cable and Charter propose to move to all-digital cable television to free up bandwidth to offer improved broadband.

Rutledge

While consumers clamor for smaller, less-costly cable television packages, Charter Communications’ CEO Thomas Rutledge is credited for inventing the “triple play” concept of convincing customers to package more services – broadband, television and telephone — together in return for a discount. Reuters cited his penchant for “simplified pricing,”[15] which is why Charter offers most customers only two options for broadband service and one giant television package dubbed Spectrum TV containing more than 200 channels.[16]

Unfortunately, any benefits from an all-digital television package are likely to be dismissed when customers get the bill. Currently, many Time Warner Cable customers watch analog television channels on television sets around the home without the need to rent a costly set top box. Any transition to digital television will require the rental of a set top box or purchase of a third-party device to view cable television programming. These can represent costly add-ons for an already high cable bill.

With approximately 99 percent of customers renting their set-top box directly from their pay-tv provider, the set-top box rental market may be worth more than $19.5 billion per year, with the average American household spending more than $231 per year on set-top box rental fees. These are some of the findings from Senators Edward J. Markey (D-Mass.) and Richard Blumenthal’s (D-Conn.) query of the top-ten pay-tv multichannel video programming distributors (MVPDs).[17]

Passed by Congress in December, the STELA Reauthorization Act of 2014 repealed the set-top box integration ban, which enabled consumers to access technology that allowed use of a set-top box other than one leased from their cable company. Without the integration ban, by the end of this year, cable companies will no longer be required to make their services compatible with outside set-top boxes, like TiVo for example, bought directly by consumers in the retail marketplace.

American cable subscribers spend, on average, $89.16 a year renting a single set-top box. The average set-top box rental fee for each company was used to calculate an overall set-top box rental cost average across companies: $7.43 a month, or $89.16 per year. Considering many homes rent a DVR box to make and view recordings and maintain less-capable boxes on other televisions, the total cost adds up quickly. The average household spends $231.82 a year on set-top box rental fees, according to Sens. Markey and Blumenthal.

Charter proposes to introduce a new generation of set top boxes but as far as we know, has not disclosed the monthly cost of these IP-capable boxes to subscribers. We anticipate they will cost more than the current equipment provided by Time Warner Cable, which has also been increasing the cost of its set top box rentals.

Time Warner Cable’s entry level Digital Transport Adapters, which convert digital/HD signals for older analog-only television sets, almost tripled in price over just one year. Originally introduced for $0.99 a month, the rental fee increased this year to $2.75 a month for customers in Rochester.[18]

Other points the Commission should consider in reviewing this transaction:

1. DPA staffers claim the transaction is unlikely to alter the competitive landscape because Charter Communications and Time Warner Cable do not have overlapping service areas. While it is true Charter and Time Warner don’t compete for the same customers, it is inaccurate to suggest the transaction will not alter competition. Cable industry consolidation is underway, in part, to help larger combined operators secure better volume discounts for increasingly expensive video programming.

   AT&T’s primary motivation to acquire satellite provider DirecTV was to secure better prices for video programming, both for DirecTV customers but more importantly for its own, much smaller, U-verse TV operation.[19]

   The cost barrier for new, directly competing entrants into the cable television business is well-recognized, even by smaller independent cable television providers that are having difficulty staying profitable and maintaining investments in broadband as they lack the ability to secure similar volume discounts for themselves. The American Cable Association, representing small operators, warned the FCC “existing providers of both broadband and MVPD services and new entrants will be deterred from expanding their broadband networks or otherwise undertaking new builds” as a result of increasing programming costs.[20]

   As a result, it is unlikely a new provider will be able to develop a sustainable business model that includes cable television while paying wholesale programming costs that are dramatically higher than what combined companies like New Charter will pay.

2. The Commission must insist that upstate New York is treated equally to the New York City market. If the deal is approved, Charter must be compelled to commit to continue Time Warner Cable’s Maxx upgrade initiative across all of its service areas in New York State, to be completed within 30 months. Nothing less than that should be acceptable to the Commission. We agree with the DPS staff’s recommendation that Charter also be compelled to upgrade facilities to support gigabit broadband, but this should be extended to include all of its service areas in New York, not just the largest cities.

   This does not pose a significant challenge to any cable operator. With the upcoming introduction of DOCSIS 3.1 technology, cable operators even smaller than Charter will support 1Gbps broadband speeds as they drop analog television signals. Suddenlink[21], MidContinent[22], Cox[23], and Mediacom[24] already have gigabit deployment plans in the works. If Fargo, N.D. is getting gigabit broadband from MidContinent Communications in the near future, Charter should have no problem offering similar service to customers in Jamestown, Penn Yan, Watertown, Binghamton, and beyond.

3. The Commission must establish and enforce meaningful enforcement mechanisms should Charter fail to achieve its commitments as part of this transaction. Cable consolidation has never significantly benefited consumers. Charter is not guaranteeing Time Warner Cable customers will receive a lower bill as a result of this merger. Nor is it committing to pass along the lower prices it will achieve through negotiations for video programming volume discounts. Cable rates, especially for broadband, will continue to increase. Without meaningful competition, there is no incentive to give consumers a better deal or better service.

   That is why if the Commission feels it must approve this transaction, the conditions that accompany it to achieve a true public interest benefit must be meaningful and ongoing. Any failure to deliver on those commitments must include a direct benefit to customers, not just to the state government. If fines are imposed, customers should receive a cash rebate or equivalent service credit for services not provided as part of any agreement.

Cable operators know once they secure a franchise or become the incumbent provider, no other cable company will negotiate with city officials to take over that franchise if the current provider’s application is denied during renewal. Once Charter (or any other cable company) establishes a presence, there is little or no chance a community will be able to get rid of that provider if it fails to perform. That is why any franchise transfer that comes from an acquisition or merger must be treated with the upmost seriousness. Customers will likely live with the decision the Commission makes for the next 10-20 years or more.

As Time Warner Cable customers loudly reminded the Commission in the Comcast merger proceeding, there is such a thing as a cable operator even worse than Time Warner Cable, already one of the lowest rated companies in the country. Comcast’s reputation preceded its intended entry into New York on a massive scale and the application was eventually withdrawn.

As the Commission must realize, this transaction does not just involve entertainment. Last week the Obama Administration declared broadband Internet access a “core utility.”[25]

“Broadband has steadily shifted from an optional amenity to a core utility for households, businesses and community institutions,” according to a report from the administration’s Broadband Opportunity Council. “Today, broadband is taking its place alongside water, sewer and electricity as essential infrastructure for communities.”

Unfortunately, the federal government has seen to it that this core utility is provided without the ability of local and state governments to properly deliver needed oversight. While the Public Service Commission lacks the authority to enforce consumer protections and quality of service standards for Internet access, it retains the very powerful ability to determine whether a company seeking to make a fortune selling consumers broadband service in a monopoly/duopoly market for many New Yorkers is a good or bad thing for consumers.

Our group strongly believes New York should not take a risk on Charter’s less-then-compelling offer when Time Warner Cable has demonstrated it is in a better financial position and has a proven track record of delivering on its commitments to improve service with its Maxx upgrade project. Time Warner Cable has superior options for low-income New Yorkers, has a large number of New York-based call centers providing valuable employment for our residents, offers more broadband options and faster speeds for entrepreneurs remaking themselves in the digital/information economy, and has committed to providing unlimited Internet access – a critical prerequisite for consumers choosing to drop cable television’s one-size-fits-all bloated video package and watch only the shows they want to see and pay for online.

We urge the Public Service Commission to deny Charter’s application. If it sees fit to make a different choice, we strongly recommend you demand the best possible deal for New York consumers and businesses that, as the DPS staff wrote, deserve best-in-class communications services.

• [1] http://stopthecap.com/2015/02/03/fcc-now-defines-minimum-broadband-speed-25mbps-everything-less-now-slowband/
• [2] http://www1.nyc.gov/office-of-the-mayor/news/415-15/de-blasio-administration-releases-audit-report-verizon-s-citywide-fios-implementation
• [3] http://www.twcableuntangled.com/2015/04/twc-gains-momentum-with-best-ever-subscriber-growth-customer-enhancements/
• [4] https://newsroom.charter.com/
• [5] https://seekingalpha.com/article/2864536-time-warner-cables-twc-ceo-rob-marcus-on-q4-2014-results-earnings-call-transcript
• [6] http://www.twcableuntangled.com/2014/01/get-the-details-on-twcs-plan-to-transform-ctv-internet-experience/
• [7] http://stopthecap.com/2015/06/25/bright-houses-mysterious-internet-discount-program-charter-wants-to-adopt-nationwide/
• [8] http://www.timewarnercable.com/en/enjoy/better-twc/internet.html
• [9] http://abcnews.go.com/Technology/story?id=7368388
• [10] http://stopthecap.com/2014/10/30/time-warner-cable-recommits-mandatory-usage-caps-long-company-remains-independent/
• [11] http://stopthecap.com/2015/09/23/fcc-demands-details-about-charters-suddenly-retired-usage-caps/
• [12] http://www.multichannel.com/news/fcc/fcc-seeks-data-dump-charter-twc-bright-house/394010
• [13] http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={C60985CC-BEE8-43A7-84E8-5A4B4D8E0F54} (p.39)
• [14] http://www.consumerreports.org/cro/electronics-computers/computers-internet/telecom-services/internet-service-ratings/ratings-overview.htm
• [15] http://www.reuters.com/article/2014/01/30/us-charter-timewarnercable-rutledge-anal-idUSBREA0T01D20140130
• [16] https://www.spectrum.com/cable-tv#/channel-lineup
• [17] http://www.markey.senate.gov/news/press-releases/markey-blumenthal-decry-lack-of-choice-competition-in-pay-tv-video-box-marketplace
• [18] http://stopthecap.com/2014/12/22/time-warner-cable-deck-halls-8-modem-fees-fa-la-la-la-la-la-la-la-la-2-75-dta-fee/
• [19] http://www.usatoday.com/story/money/2015/07/24/fcc-approves-ts-acquisition-directv/30626421/
• [20] http://www.americancable.org/node/5229
• [21] http://www.multichannel.com/news/technology/suddenlink-boots-1-gig-broadband/392087
• [22] https://www.midco.com/PressRoom/2014/midcontinent-bringing-gigabit-internet-access-to-the-northern-plains/
• [23] http://www.multichannel.com/news/distribution/cox-plots-docsis-31-plans/393996
• [24] http://www.multichannel.com/news/cable-operators/mediacom-sets-residential-1-gig-rollout/393585
• [25] http://thehill.com/policy/technology/254431-obama-administration-declares-broadband-core-utility-in-report

Phillip Dampier: A cable trade publication is lecturing its readership on better broadband the industry spent years claiming nobody wanted or needed.

Remember the good old days when cable and phone companies told you there was no demand for faster Internet speeds when 6Mbps from the phone company was all you and your family really needed?

Those days are apparently over.

Multichannel News, the largest trade publication for cable industry executives, warns cable companies gigabit broadband speeds are right around the corner and the technological transformation that will unleash has been constrained for far too long.

Say what?

Proving our theory that those loudest about dismissing the need for faster Internet speeds are the least equipped to deliver them, the forthcoming arrival of DOCSIS 3.1 technology and decreasing costs to deploy fiber optics will allow cable providers to partially meet the gigabit speed challenge, at least on the downstream. Before DOCSIS 3.1, consumers didn’t “need those speeds.” Now companies like Comcast claim it isn’t important what consumers need today — it’s where the world is headed tomorrow.

Comcast 2013:

Comcast executive vice president David L. Cohen writes that the allure of Google Fiber’s gigabit service doesn’t match the needs or capabilities of online Americans.

“For some, the discussion about the broadband Internet seems to begin and end on the issue of ‘gigabit’ access,” Cohen says, in a nod to Google Fiber. “The issue with such speed is really more about demand than supply. Our business customers can already order 10-gig connections. 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 to the home.” Essentially, Cohen argues that even if Comcast were to deliver web service as fast as Google Fiber’s 1,000Mbps downloads and uploads, most customers wouldn’t be able to get those speeds because they’ve got the wrong equipment at home.

Comcast 2015:

“We’ve consistently offered the most speeds to the most homes, but with the current pace of tech innovation, sometimes you need to go to where the world is headed and not focus on where it is today.”

“The next great Internet innovation is only an idea away, and we want to help customers push the boundaries of what the Internet can do and do our part to inspire developers to think about what’s possible in a multi-gigabit future.  So, next month we will introduce Gigabit Pro, a new residential Internet service that offers symmetrical, 2-Gigabits-per-second (Gbps) speeds over fiber – at least double what anyone else provides.”

Nelson (Image: Multichannel News)

Rich Nelson’s guest column in Multichannel News makes it clear American broadband is behind the times. The senior vice president of marketing, broadband & connectivity at Broadcom Corporation says the average U.S. Internet connection of 11.5Mbps “is no longer enough” to support multiple family members streaming over-the-top video content, cloud storage, sharing high-resolution images, interactive online gaming and more.

Nelson credits Google Fiber with lighting a fire under providers to reconsider broadband speeds.

“Google’s Fiber program may have been the spark to light the fuse — Gigabit services have fostered healthy competition among Internet and telecommunications providers, who are now in a position to consider not ‘if’ but ‘when and how’ to deploy Gigabit broadband in order to meet consumer’s perceived ‘need for speed’ and maintain their competitive edge,” Nelson wrote.

But the greatest bottleneck to speed advances is spending money to pay for them. Verizon FiOS was one of the most extravagant network upgrades in years among large American telecom companies and the company was savaged by Wall Street for doing it. Although AT&T got less heat because its U-verse development costs were lower, most analysts still instinctively frown when a company proposes spending billions on network upgrades.

Customer demand for faster broadband is apparent as providers boost Internet speeds.

The advent of DOCSIS 3.1 — the next generation of cable broadband technology — suggests a win-win-win for Wall Street, cable operators, and consumers. No streets will have to be torn up, no new fiber cables will have to be laid. Most providers will be able to exponentially boost Internet speeds by reallocating bandwidth formerly reserved for analog cable television channels to broadband. The more available bandwidth reserved for broadband, the faster the speeds a company can offer.

Many industry observers predict the cable line will eventually be 100% devoted to broadband, over which telephone, television and Internet access can be delivered just as Verizon does today with FiOS and AT&T manages with its U-verse service.

The benefits of gigabit speeds are not limited to faster Internet browsing however.

Nelson notes communities and municipalities are now using gigabit broadband speeds as a competitive tool selling homes and attracting new businesses to an area. According to a study from the Fiber to the Home (FTTH) Council, communities with widely available gigabit access have experienced a positive impact on economic activity — to the tune of more than $1.4 billion in GDP growth. Those bypassed or stuck in a broadband backwater are now at risk of losing digital economy jobs as businesses and entrepreneurs look elsewhere.

The gigabit broadband gap will increasingly impact the local economies of communities left behind with inadequate Internet speeds as app developers, content producers, and other innovative startups leverage gigabit broadband to market new products and services.

The Pew Research Center envisioned what the next generation of gigabit killer apps might look like. Those communities stuck on the slow lane will likely not have access to an entire generation of applications that simply will never work over DSL.

But before celebrating the fact your local cable company promises to deliver the speed the new apps will need, there is a skunk that threatens to ruin your ultra high speed future: usage-based pricing and caps.

At the same time DOCSIS 3.1 will save the cable industry billions on infrastructure upgrade costs, the price for moving data across the next generation of super high-capacity broadband networks will be lower than ever before. But cable operators are not planning to pass their savings on to you. In fact, broadband prices are rising, along with efforts to apply arbitrary usage limits or charge usage-based pricing. Both are counter-intuitive and unjustified. It would be like charging for a bag of sand in the Sahara Desert or handing a ration book to shoreline residents with coupons allowing them one glass of water each from Lake Ontario.

Cox plans to limit its gigabit customers to 2TB of usage a month. AT&T U-verse with GigaPower has a (currently unenforced) limit of 1TB a month, while Suddenlink thinks 550GB is more than enough for its gigabit customers. Comcast is market testing 300GB usage caps in several cities but strangely has no usage cap on its usage-gobbling gigabit plan. Why cap the customers least-equipped to run up usage into the ionosphere while giving gigabit customers a free pass? It doesn’t make much sense.

But then usage caps have never made sense or been justified on wired broadband networks and are questionable on some wireless ones as well.

Stop the Cap! began fighting against usage caps and usage pricing in the summer of 2008 when Frontier Communications proposed to limit its DSL customers to an ‘ample’ 5GB of usage per month. That’s right — 5GB. We predicted then that usage caps would become a growing problem in the United States. With a comfortable duopoly, providers could easily ration Internet access with the flimsiest of excuses to boost profits. Here is what we told the Associated Press seven years ago:

“This isn’t really an issue that’s just going to be about Frontier,” said Phillip Dampier, a Rochester-based technology writer who is campaigning to get Frontier to back off its plans. “Virtually every broadband provider has been suddenly discovering that there’s this so-called ‘bandwidth crisis’ going on in the United States.”

That year, Frontier claimed most of its 559,300 broadband subscribers consumed less than 1.5 gigabytes per month, so 5GB was generous. Frontier CEO Maggie Wilderotter trotted out the same excuses companies like Cox and Suddenlink are still using today to justify these pricing schemes: “The growth of traffic means the company has to invest millions in its network and infrastructure, threatening its profitability.”

Just one year later, Frontier spent $5.3 billion to acquire Verizon landline customers in around two dozen states, so apparently Internet usage growth did not hurt them financially after all. Frankly, usage growth never does. As we told the AP in 2008, the costs of network equipment and connecting to the wider Internet are falling. It still is.

“If they continue to make the necessary investments … there’s no reason they can’t keep up” with increasing customer traffic, we said at the time.

We are happy to report we won our battle with Frontier Communications and today the company even markets the fact their broadband service comes without usage caps. In many of Frontier’s rural service areas, they are the only Internet Service Provider available. Imagine the impact a 5GB usage cap would have had on customers trying to run a home-based business, have kids using the Internet to complete homework assignments, or rely on the Internet for video entertainment.

So why do some providers still try to ration Internet usage? To make more money of course. When the public believes the phony tales of network costs and traffic growth, the duped masses open their wallets and pay even more for what is already overpriced broadband service. Just check this chart produced by the BBC, based on data from the Organization for Economic Co‑operation and Development. Value for money is an alien concept to U.S. providers:

The usual method of combating pricing excess is robust competition. With a chasm-sized gap between fat profits and the real cost of the service, competitors usually lower the price to attract more customers. But the fewer competitors, the bigger the chance the marketplace will gravitate towards comfort-level pricing and avoid rocking the boat with a ruinous price war. It is one of the first principles of capitalism — charging what the market will bear. We’ve seen how well that works in the past 100+ years. Back in 2010, we found an uncomfortable similarity between broadband prices of today with the railroad pricing schemes of the 1800s. A handful of executives and shareholders reap the rewards of monopolistic pricing and pillage not only consumers but threaten local economies as well.

The abuses were so bad, Congress finally stepped in and authorized regulators to break up the railroad monopolies and regulate abusive pricing. We may be headed in the same direction with broadband. We do not advocate regulation for the sake of regulation. Competition is a much more efficient way to check abusive business practices. But where an effective monopoly or duopoly exists, competition alone will not help. Without consumer-conscious oversight, the forthcoming gigabit broadband revolution will be stalled by speed bumps and toll booths for the benefit of a few giant telecommunications corporations. That will allow other countries to once again leap ahead of the United States and Canada, just as they have done with Internet speeds, delivering superior service at a lower price.

China now ranks first in the world in terms of the total number of fiber to the home broadband subscribers. So far, it isn’t even close to the fastest broadband country because much of China still gets access to the Internet over DSL. The Chinese government considers that unacceptable. It sees the economic opportunities of widespread fiber broadband and has targeted the scrapping of every DSL Internet connection in favor of fiber optics by the end of 2017. As a result, with more than 200 million likely fiber customers, China will become the global leader in fiber infrastructure, fiber technology, and fiber development. What country will lose the most from that transition? The United States. Today, Corning produces 40% of the world’s optical fiber.

Global optical fiber capacity amounted to 13,000 tons in 2014, mainly concentrated in the United States, Japan and China (totaling as much as 85.2% of the world’s total), of which China already ranked first with a share of 39.8%. Besides a big producer of optical fiber, China is also a large consumer, demanding 6,639 tons in 2014, 60.9% of global demand. The figure is expected to increase to 7,144 tons in 2015. Before 2010, over 70% of China’s optical fiber was imported, primarily from the United States. This year, 72.6% of China’s optical fiber will be produced by Chinese companies, which are also exporting a growing amount of fiber around the world.

John Lively, principal analyst at LightCounting Market Research, predicts China could conquer the fiber market in just a few short years and become a global broadband leader, “exporting their broadband networking expertise and technology, just like it does with its energy and transportation programs.”

Meanwhile in the United States, customers will be arguing with Comcast about the accuracy of their usage meter in light of a 300GB usage cap and Frontier’s DSL customers will still be fighting to get speeds better than the 3-6Mbps they get today.

Comcast plans to upgrade its cable broadband facilities nationwide to support gigabit broadband using DOCSIS 3.1 technology within two years, according to a company official.

DOCSIS 3.1 will allow existing hybrid fiber-coax infrastructure to support broadband service speeds up to 10Gbps, but most consumers would find the equipment costs to support speeds that fast on a home network prohibitive. Commercial customers might not.

“We’re testing it this year,” Robert Howald, Comcast’s vice president of network architecture, told FierceCable. “Our intent is to scale it through our footprint through 2016. We want to get it across the footprint very quickly. We’re shooting for two years.”

Comcast is also claiming to move forward with its 2Gbps fiber to the home service in select areas located close to existing fiber infrastructure, but first promised the service would be available to customers in early summer. To date, Stop the Cap! cannot find any customer actually subscribed to the service.

Customers will be able to lease DOCSIS 3.1 equipment from Comcast starting in early 2016. As more customers get the equipment, Comcast will likely realign its broadband offerings to further boost speeds.

Comcast is rejecting some requests for its new 2Gbps fiber to the home service, claiming construction costs to provide the service to some homes are too high, even for customers living 0.15 of a mile from Comcast’s nearest fiber optic connection point.

Stop the Cap! reader Thomas, who wishes to withhold his last name, was excited at the prospect of signing up for Comcast’s 2Gbps broadband service for his home-based Internet business, despite the steep $1,000 installation fee and $159/mo promotional price he saw in the media.

“For the average person just looking for a faster connection at home, 2Gbps is absolute overkill, but if you run a home-based business that depends on a fast Internet connection, Comcast’s prices are a lot more reasonable than a Metro Ethernet or fiber solution from AT&T,” Thomas said.

Thomas is a Comcast customer in the Chicago area and knew he’d qualify for the service because he watched Comcast crews install/upgrade fiber cables close to his home. Comcast requires customers to live within one-third of a mile of the nearest company-owned fiber connection point to get 2Gbps service. Thomas lives far closer than that and Comcast’s online qualification tool also seemed to show the service would be available to him.

“I assumed it would be easy to order service, but it has not turned out that way at all,” Thomas complained.

Comcast’s regular customer service agents were hit or miss for Thomas. Some are acquainted with Comcast’s Gigabit Pro offering, many others are not. It took three calls for him to find a representative aware of the product, but even then the representative informed him someone would have to call him back to take his order. Two days later, he did receive a call from a Comcast regional office that explained the lengthy ordering and installation procedure. If everything worked as it should, it would take up to three months for Comcast to complete the fiber installation. But Thomas warned there were potential deal-breakers along the way.

Equipment Costs

Comcast will supply some, but not all, of the necessary equipment. A router provided by Comcast adds $19.99/mo to the price, and could be worthwhile to customers wanting to limit their out-of-pocket up front costs. But there are other equipment requirements to consider as well:

• Desktop PC with available PCIe expansion slot
• 1 10G PCIe network interface controller with SFP+ cage ($200-400)
• 1 10G enhanced small form factor pluggable SFP+ transceiver (850nm MMF) ($200-350)
• 1 MMF LC patch cable ($25-30)

To connect multiple devices to the fiber handoff, a compatible and very expensive 10Gbps Layer 3 switch or router is also required, which can run well into the thousands of dollars.

Pricing Gotchas

Installation is $500 and activation costs another $500. There is an early termination fee of $1,100 if you disconnect service before the end of your term contract. On a three-year contract, the amount of the fee is reduced by $100 every three months you keep the service. That $159 promotional price quoted in the press turned out to be another issue. Comcast informed him that offer is only good in the cities of Nashville (a future Google Fiber city also designated for GigaPower U-verse from AT&T) and Chattanooga, Tenn. (which already has gigabit service from EPB). It would cost him $299.95 a month, not $159.

Service Qualification Procedure

Comcast implies any customer within 1/3rd of a mile of their nearest fiber cable is qualified to get Gigabit Pro service, but Thomas tells us that just isn’t true.

“Comcast treats these installations the same way they would running cable into virgin territories like an unserved neighborhood or office park,” Thomas said. “Once you commit to an order, I am convinced they do a Return On Investment (ROI) and cost analysis to decide if it makes financial sense to actually bring fiber to you.”

It begins with an in-office map survey that reviews Comcast’s existing network and verifies a path from Comcast’s existing fiber network to the customer’s home. This process takes up to 14 days, according to Thomas, and makes certain the customer is within the qualified distance for service.

“But I can say it goes beyond this, because Comcast was also looking at proposed routes to get fiber to me, and the representative was concerned about whether Comcast’s cables in my area were on telephone poles or underground in conduit,” reported Thomas. “There was also an issue with a pedestal and I was informed a site survey was required to check whether existing infrastructure in my neighborhood could support the service.”

Comcast said a visit from a technician would be required — another two-week process, and about then he was told “there was indeed a problem with their existing pedestal and they also ran into a conduit issue,” Thomas said. “At that point, I was informed my order could not go ahead because Comcast would have to spend about $17,000 to correct these issues and cover my installation and that evidently failed their ROI and cost analysis.”

Had Thomas passed all the qualification tests, he would have waited up to 13 weeks (more than three months) from the time he ordered service before he could actually use it. Now, he will wait at least a year for Comcast’s suggested alternative — the arrival of DOCSIS 3.1, which is expected to support gigabit speeds over Comcast’s existing coax cable network.

“I honestly felt mislead by Comcast’s press releases that suggested service was just a matter of where you lived without telling customers they will deny service if it costs Comcast over a certain dollar amount, no matter how close you live to their existing fiber,” Thomas added. “Promoting a service and actually providing it are two very different things and it seems Comcast just isn’t providing it, at least to me.”

Have you explored Comcast Gigabit Pro? If so, share your experiences in the comment section. We’d love to hear from you if you actually have the service installed.