Requiring Frontier Communications to increase broadband speeds could make the service unaffordable for rural and poor Americans, the company is arguing before federal and state regulators.

In separate filings with the New York Public Service Commission and the Federal Communications Commission, Frontier has asked both for further deregulation and less oversight to ease everything from minimum broadband speed definitions to video franchising regulations.

Frontier’s market focus is primarily on rural communities where it delivers traditional DSL broadband service, typically up to 6Mbps, although many customers complain they get lower speeds than advertised. The FCC is working to modernize the Lifeline program, which offers substantial discounts on basic telephone service to low-income Americans. The Commission is studying the possibility of requiring providers to offer Lifeline Internet access for the first time. What worries Frontier is the Commission’s proposed requirement that providers offer Lifeline Internet speeds starting at 10/1Mbps, something Frontier strongly opposes.

Frontier’s ability to deliver consistent 10Mbps service in rural areas is the issue.

“Certain rural consumers […] may not currently have access to 10/1Mbps fixed Internet speeds and would thus be prevented from choosing to use Lifeline for a fixed Internet service,” Frontier wrote in its filing with the Commission. “Even if higher speeds are available, a minimum speed standard may prevent a customer from opting for a lower speed plan that may better meet their budget.”

Frontier told the Commission that most subscribers are happy buying 6Mbps service from Frontier, coincidentally the same speed it advertises as widely available across its service areas. Frontier argues if it was required to consistently provide 10Mbps service, the cost of the service may become unaffordable to many.

While Frontier argues against speed standards that are difficult for its aging copper-based network to consistently provide, it is using that same copper network as an argument against further regulation and oversight in New York.

“Traditional telephone service providers like Frontier continue to be legitimate and viable competitors in the marketplace—a testament to our tenacity and the quality of our services,” Frontier wrote in comments to the Public Service Commission. “To ensure that this continues to be the case, in the near-term, an immediate no-cost investment that the State can make in the existing copper-based network is to eliminate the regulatory requirements that apply to [traditional phone companies] but that do not apply to other telecommunications providers.

Frontier added, “consumers have a multitude of communications channels available to them including wireline and wireless voice services and wireline, wireless, cable and satellite broadband services.”

Frontier did West Virginia few favors when it took over Verizon’s landline business in the state.

Ironically, Frontier argued New York’s allegedly robust and fast broadband networks (offered by its competitors but usually not itself) are reason enough to support a “light regulatory touch.”

“Today, every municipality in New York has access to one or more wired or wireless networks that can provide voice, video and data services to residents and businesses,” Frontier claimed. “Over 95% of the state has access to the FCC benchmark speed of 25/3 Mbps and 98% of the State has 200kbps speed in at least one direction. New York’s broadband speeds are significantly faster than the national average and other countries.”

But Frontier failed to mention it is incapable of providing consistent access at or above the FCC benchmark speed because it still relies on a antiquated copper-based network throughout most of its New York service areas. Despite Frontier’s claims of offering quality service, the J.D. Power U.S. Residential Telephone Service Provider Satisfaction Study (2015) ranks Frontier dead last among all significant providers in the eastern U.S. It dropped Frontier this year from consideration for its Internet Provider Satisfaction Study, but a year earlier rated Frontier the worst ISP in the eastern U.S.

Although Frontier suggests it faces “robust competition” from “over 100 different broadband providers, especially at lower speeds,” in most of its service areas in New York it faces Time Warner Cable or no competitor at all.

Frontier’s latest defense over why it has failed to significantly upgrade its network infrastructure to remain competitive with cable is ‘customers don’t want or need faster speeds.’ While advertising lightning fast service on its acquired Verizon FiOS and AT&T U-verse networks, Frontier argues New York regulators “must keep in mind the consumer demands on broadband speeds.”

Frontier points to two rural broadband projects in New York, one in Hamilton County and the other in Warren County to make its speed argument (emphasis ours):

“These projects are examples of the importance of collaboration and innovation—rather than dogmatic adherence to performance requirements that are largely aspirational for many NYS citizen—in bringing high quality and transformative broadband access to unserved and underserved communities. Flexibility with regard to technology and broadband speed will enhance an already robust marketplace and result in greater affordability and access.”

Frontier has also told New York officials it wants to eliminate local oversight of video franchising and move New York to a “statewide video franchising” system to “promote competition and to streamline competitive entry into the video market in the state.”

“This will provide enhanced consumer choice as well as additional investment in broadband and video services,” Frontier argued. “In other states that have followed this model, such as Connecticut, consumers have a rich array of video providers and services from which to choose at competitive prices.”

That “rich array of video providers” in Connecticut is primarily Cablevision and Frontier. Frontier acquired a pre-existing U-verse network originally owned and operated by AT&T in the state.

If the Federal Communications Commission weighed comments for and against the merger of Charter-Time Warner Cable-Bright House Networks based on volume, it would likely be a done deal.

A major lobbying effort by the cable companies involved in the transaction has been underway to encourage politicians, business associations, non-profit groups, and programmers to write the FCC asking the deal be approved. Many are responding, including politicians receiving political donations and/or seeking expanded service for their communities, non-profits that depend on financial contributions from one or more of the companies involved, programmers that live or die based on winning carriage agreements with Charter, Bright House, and Time Warner Cable, and other groups with missions that seem miles away from a multi-billion dollar cable merger.

Stop the Cap! examined many of these curious letters of support. What, for instance, might motivate the New York Snowmobile Association to navigate the cumbersome comment filing systems of both the New York Public Service Commission and the Federal Communications Commission to express glowing support for a cable merger?

The International Soap Box Derby is all-in on the merger of Charter-TWC-Bright House.

What made the Maccabi World Union, the largest Jewish sports organization in the world, enthusiastic enough to dwell on a marriage of three cable companies?

How could the Montana Stockgrowers Association set aside their interest in helping state cattle ranchers to deliver safe and wholesome beef to American dinner tables to ponder modem fees in their letter to the Commission?

One Los Angeles non-profit organization contacted by Stop the Cap! shed some light on the subject, if we agreed to keep their name private.

“Like many non-profits, when Time Warner Cable makes a financial contribution to our organization, they attempt to find ways where both our organization and their company can benefit from goodwill generated by charitable contributions,” the director told Stop the Cap! “When the deal with Charter and Time Warner was announced, we received a gently worded request to participate in the public discussion about the merger.”

The group received information containing talking points about the deal’s benefits to consumers and businesses and was asked to consider using those points in a letter to state and federal regulators that would present a positive view of the deal.

“Non-profits need the contributions of large companies like Time Warner Cable and Charter, which both serve parts of Los Angeles County, to fund our programs,” the director said. “There isn’t any pressure on us to write the letters, but since they are in the public record, we know the cable companies know who wrote and who did not.”

The director of this particular organization had qualms about getting involved in a regulatory matter that did not involve the organization he leads, but he was overruled by his board of directors.

“Money is tight,” the director added. “I don’t want to comment on Charter Cable’s performance in Los Angeles except to say it is the main reason I use someone else.”

The director of the group would not comment when asked if it was uncomfortable signing a letter in support of a company who has failed to meet their personal expectations.

The fact non-profit groups spend time and resources writing letters on behalf of their donors bothers others as well.

Shawn Sheridan of Turlock, Calif. exhaustively researched over 250 pieces of correspondence the FCC has received in favor of the Charter acquisition, and he is not happy about what he found.

“The current public comments process has been infiltrated to purposely influence the independent review process,” Sheridan writes in a letter to the FCC. “I suggest to the Commission that conducting an independent analysis of the comments received from the public for [this merger] would reveal a nationwide campaign to improperly affect the Commission’s independent review of the applications, and reveal unique characteristics of who has and has not commented publicly.”

Sheridan categorized all the letters arriving from state/local representatives, Chamber of Commerce chapters, and non-profit groups:

Letters from different chapters of the Chambers of Commerce, which typically count Time Warner Cable, Charter Communications, and/or Bright House Networks as dues-paying members, were oddly uniform in their praise of the transaction.

The Minnesota Chamber of Commerce, for example, didn’t seem too interested in getting into the specifics of the deal, satisfied instead to request “the FCC approve all matters related to this merger promptly.”

Dozens of other chapters of the business association used similar language praising the merger proposal. Notice the references to “$2.5 billion” promised to be spent on commercial fiber optics and “one million new residential lines” mentioned in a handful of the filings with the FCC:

The Minnesota Chamber of Commerce advocates giving Charter whatever it wants.

• “The Missoula Area Chamber of Commerce is the voice of business in Missoula County….We are excited by New Charter’s commitment to invest $2.5 billion into networks in commercial areas.”
• “As a member-driven organization, the Montana Chamber of Commerce represents the interests of business, ranging from small mom-and-pop operations to large companies….The new company would commit $2.5 billion to the commercial sector and would build out residential lines, improving both industry competition and local infrastructure.”
• “With nearly 700 members that employ more than 12,000 people, the Fremont Chamber of Commerce represents a vibrant, regional business community in eastern Nebraska….Specifically, we are told, the greater financial strength of the unified operations would lead to investment of at least $2.5 billion to upgrade commercial lines to fiber-optics….Therefore, based on their assurances to us, we believe New Charter would be a great partner….”
• “The Florida Chamber of Commerce is pleased to support Bright House Network’s merger with Charter Communications and Time Warner Cable into New Charter….New Charter would be committed to infrastructure investment. It would devote at least $2.5 billion towards commercial networks, contributing important upgrades and competition into this influential market.”
• [Clearwater Regional Chamber of Commerce:] “We understand that New Charter plans to invest $2.5 billion toward commercial networks, contributing important upgrades and competition
• into this influential market and to provide substantial investment throughout the entire State.”
• [Lakeland Area Chamber of Commerce:] “For example, New Charter has committed to $2.5 billion in commercial networks and would build out one million residential line extensions.”
• [San Diego Regional Chamber of Commerce:] “The proposal promises to bring in at least $2.5 billion in new commercial infrastructure investment, much of which will be invested in areas
  where the Charter Communications currently does not operate.”
• “With more than 10,000 members, the Greater Cleveland Partnership (GCP) is a membership association of Northeast Ohio companies and organizations and one of the largest metropolitan
  chambers of commerce in the nation….Specifically, it would commit at least $2.5 billion to build out commercial network lines and put up one million new residential lines….”
• “The Buffalo Niagara Partnership is the region’s private sector economic development organization and regional chamber of commerce….In the near future, our state will benefit from
  a $2.5 billion expansion in the build-out of networks into commercial sectors.”
• “At the Finger Lakes Chamber of Commerce, we serve as the voice of our local business community….We have [been] made aware of a major change in the cable broadband industry. The potential merger of Charter Communications, Time Warner Cable, and Bright House Networks into New Charter….”

The language that implies these are not spontaneous, coincidental pieces of correspondence was couched using phrases like, “we are told,” “we understand,” and “we have [been] made aware.”

These talking points actually originate from Charter Communications’ Resource Center, which distributes pro-merger information to organizations in Time Warner Cable and Bright House Networks’ service areas. The references to $2.5 billion for commercial upgrades and line extensions to one million new residential customers originate in documents like this, tailored in this case to New Yorkers.

Some organizations devote more time to customizing their correspondence than others. The Business Council of New York State and the Orange County Partnership couldn’t be bothered, and essentially cut and paste nearly identical language in their “individual” letters of support:

“We recognize that the information and communications sector is an increasingly critical component of a healthy economy….The Business Council understands that access to a reliable 21st Century communications infrastructure—with competitive options for service—is essential for New Yorkers in their homes, schools and workplaces.“

“The Partnership recognizes that the information and communication sector is an increasingly critical component of a healthy economy….We also understand that access to reliable 21st Century communications infrastructure, with competitive options for service, is a necessity for Orange County residents in their homes, schools and workplaces.“

…and the chances of a multibillion dollar cable merger winning regulatory approval.

Dominic J. Jacangelo was so nice, he liked Charter Communications’ merger twice — once on the letterhead of the New York Snowmobile Association, where he serves as executive director, and in a nearly identical letter signed by Jacangelo as Supervisor of the Town of Poestenkill, N.Y. He cited the same talking points the various Chambers of Commerce did.

Representing the interests of 2.5 million people worldwide or its member Time Warner Cable?

Sheridan disputes how merger supporters often attempt to give their views more weight by implying their positions are shared by their constituents. The Orange County Business Council claimed in its letter it represented nearly 300 Southern California businesses employing over 250,000 in the region and more than two million globally. Sheridan doubts more than 2.25 million people, many working outside the country, support the cable merger as much as OCBC suggests.

A larger question is what motivates the letter writers to weigh in on a cable merger in the first place?

For the ranchers in Montana, the desire for more rural broadband is well known. Cable operators usually don’t provide service to large, expansive ranches where a herd of cattle often vastly outnumbers the local population.

For Mr. Jacangelo, his LinkedIn page cites his talents for developing “professional relationships with business sponsors and [supporters], which might be helpful as the town of Poestenkill, like many other rural communities in upstate New York, seek expanded broadband service.

In 2009, the Maccabi World Union partnered with Jewish Life Television to provide in-depth coverage of the Maccabiah Games, a global sporting event. U.S. viewers see coverage of those games over Jewish Life TV, a cable network that reaches Time Warner Cable and Bright House customers, but not Charter Cable customers. A takeover of Time Warner and Bright House by Charter Communications could risk the end of that carriage agreement. Supporting Charter at its time of need may establish enough goodwill to guarantee JLTV will be a part of the “New Charter” lineup.

Sheridan’s research also discovered, as of Oct. 9, 2015:

• With a total of 31 letters from politicians in the state of Texas, not one came from a local official. Eighteen Chambers of Commerce in Texas sent letters in support of the deal;
• No state-level representatives weighed in on the deal in New York either, although 30 local and county leaders gave their support;
• One third of the 28 states where Charter provides service had no comment on the merger, pro or con, hardly representing a nationwide groundswell of support;
• Charter Communications’ corporate headquarters, formerly in Missouri and now in Connecticut, also drew little hometown interest. Just one letter from a state-level politician in Missouri reached the FCC. There were no letters from Connecticut at all;
• Of 258 unique commenters sending letters in support of the merger, 211 (82%) claimed to represent the interests of their members and affiliates without providing supporting evidence that was true. Most of those organizations received direct financial support or in-kind contributions from one or more of the involved cable operators or counted them as dues-paying members;
• Not counting Time Warner Cable or Bright House’s combined 13+ million customers, only about 30 unique consumers submitted a comment to the FCC regarding the merger, representing 0.000005% of Charter’s six million customers.

FEDERAL COMMUNICATIONS COMMISSION

_______________________________________

Applications of Charter Communications, Inc., Time
Warner Cable Inc., and Advance/Newhouse
Partnership for Consent to the Transfer of                        MB Docket No. 15-149

Control of Cable Television Relay Service
Applications         

_______________________________________

Statement of Opposition

(Click here to download a copy in PDF format.)

October 10, 2015

Stop the Cap! is a Rochester, N.Y.-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

It is our view that the application of Charter Communications to effectively acquire Time Warner Cable and Bright House Networks offers no compelling public interest benefit and is therefore not in the public interest.

Our organization represents the interests of consumers and customers who face ever-growing broadband and television bills. Since its founding in 2008, we have witnessed a gap between the promised benefits of telecom mergers and what actually materializes for customers. Our conclusion is that consumers rarely benefit from these transactions. Prices continue to rise, customer service does not significantly improve, competition suffers, and conditions imposed by regulators to protect consumers or improve service are either not meaningfully met, expire too soon, or are too limited to be useful.

Charter’s claimed public interest benefits from its acquisitions are woefully inadequate and will, in fact, harm consumers if this merger is permitted.

The proposal asks the Commission to approve Charter’s acquisition of not one, but two established cable providers, one considerably larger than Charter itself:

• Time Warner Cable, the second largest U.S. cable operator with more than 11 million residential and business customers[1];
• Bright House Networks, the sixth largest U.S. cable operator with approximately 2.5 million customers.[2]

Charter Communications is about half the size of Time Warner Cable.[3]

Charter’s broadband customer satisfaction scores are nothing to write home about. Time Warner is no prize either, especially in areas where Maxx upgrades are not yet available.

In the 2015 J.D. Power U.S. Residential Television Service Provider Satisfaction Study, Charter rated poor — second to last place behind five other providers in the North West region, fourth from last behind six others in the South region, and third from last behind five other providers in the West. In fact, at no time did Charter rank anything higher than “about average” for television, broadband, and telephone service and often scored worse.[4]

This is a critical measurement of how Charter is likely to perform in areas currently served by Time Warner Cable and Bright House, should the merger be approved.

“The ability to provide a high-quality experience with all wireline services is paramount, as performance and reliability is the most critical driver of overall satisfaction,” said Kirk Parsons, senior director and technology, media & telecom practice leader at J.D. Power. “The fact that households continue to choose to upgrade their wireline connection to digital service is a testament to its improved performance and benefits, such as higher quality video and faster Internet speeds.”

FCC Chairman Thomas Wheeler has publicly stated his four preferences for telecommunications policies that promote competition and foster enhanced service.[5]

1. “First, where competition exists, the Commission will protect it,” Wheeler said. “Our effort opposing shrinking the number of nationwide wireless providers from four to three is an example. As applied to fixed networks, the Commission’s Order on tech transition experiments similarly starts with the belief that changes in network technology should not be a license to limit competition.”
2. “Communications policy has always agreed on one important concept: the exercise of uncontrolled last-mile power is not in the public interest,” Wheeler said. “This has not changed as a result of new technology. When network operators have unrestrained last-mile power, public policy can step in to protect consumers and innovators. When cable companies, for instance, were accused of using their control over the last-mile distribution of video programing to harm competition by keeping content from others, Congress stopped that practice in the 1992 Cable Act. There are two important lessons from this: First, last-mile power cannot be a lever for gaining an unfair advantage. Second, rules of the road can provide guidance to all players and, by restraining future actions that would harm the public interest, incent more investment and more innovation.”
3. “Where meaningful competition is not available, the Commission will work to create it. For instance, our efforts to expand the amount of unlicensed spectrum create alternative competitive pathways. And we understand the petitions from two communities asking us to pre-empt state laws against citizen-driven broadband expansion to be in the same category, which is why we are looking at that question so closely.”
4. “Where competition cannot be expected to exist, we must shoulder the responsibility of promoting the deployment of broadband. One thing we already know is the fact that something works in New York City doesn’t mean it works in rural South Dakota. We cannot allow rural America to be behind the broadband curve. Our universal service efforts are focused on bringing better broadband to rural America by whomever steps up to the challenge—not the highest speeds all at once, but steadily to prevent the creation of a new digital divide.”

We will return to these four themes in our statement to see if Charter’s application helps or hinders these priorities. It is our contention Charter’s application does not meaningfully advance the stated goals of the Chairman or the Commission. In fact, Charter’s proposal impedes achievement of some of these goals significantly.

In our presentation, we will regularly refer to Charter’s existing product suite, usually referred to as “Charter Spectrum.” We will also refer to two different types of service from Time Warner Cable.

Wheeler

On January 30, 2014, Time Warner Cable announced its new TWC Maxx initiative that substantially improved broadband speeds for customers without a corresponding rate increase. The upgrade also introduced a new class of cable equipment for video customers offering an enhanced viewing experience, increased plant/service reliability, improved customer support – including more options for in-home service calls, and retained and improved existing budget-priced broadband tiers for fixed and low-income customers.[6]

We will therefore refer to both Time Warner Cable Maxx-upgraded service areas defined above and “legacy service areas” that are currently awaiting Maxx upgrades and now offer slower top Internet speeds ranging from 50-100Mbps.

It is our contention that Charter’s proposal to bring improved broadband speeds, better set-top boxes, faster upgrades, and a three-year commitment to voluntarily adhere to Net Neutrality/Open Internet policies and not impose usage caps on residential broadband service offers little because Time Warner Cable Maxx already offers consumers a more compelling offer on an upgrade timeline nearly equivalent to that proposed by Charter Communications.

Time Warner Cable has also never been credibly accused of violating Net Neutrality principles, is unlikely to do so in the future, and has repeatedly insisted it will not impose compulsory usage caps on its customers. We also argue Charter Communications’ heavy indebtedness as a result of this transaction will likely pose a challenge to complete the company’s promised upgrade plan and its ongoing operations.

In short, consumers are much better off remaining Time Warner Cable and Bright House Networks customers as opposed to Charter Communications customers.

Should the FCC ultimately disagree with our contention, we urge you to impose our ideas for strong and meaningful conditions to protect consumers. Without this, we fear the executives of both companies and their shareholders will be the only ones to actually benefit from this transaction. Consumers will be left with little more than a higher bill.

Discussion

Charter Communications’ proposition to the Commission and customers is to deliver a more compelling product suite offering faster Internet speeds, better set-top equipment, and a three-year commitment to adhere to the Commission’s Open Internet principles and not impose usage caps or modem rental fees on customers.

While on the surface these commitments may seem laudable, when they are closely examined it quickly becomes apparent they offer little to Time Warner Cable customers, particularly the approximately 45% of which will have been upgraded to “Maxx” service by the end of 2015.[7]

Charter customers can generally choose from two tiers of Internet service, according to Charter’s website[8]:

We offer two different Charter Internet connection packages:

Plus – up to 30Mbps Download and 4Mbps upload

Ultra – up to 100Mbps Download and 5Mbps Upload

With Charter Internet Ultra, network speeds can reach up to 100 Megabits per second (Mbps). Your exact speed will depend on the service level to which you subscribe.

Charter charges new customers an introductory monthly price ranging from $29.99 (when Internet service is bundled with video/phone service) to $39.99 (Internet-only service) for its 60Mbps Standard broadband tier.[9] It is this promotional rate Charter is proposing to extend to Time Warner Cable and Bright House Networks customers. But Charter does not commit to a specific time frame under which this promotional rate will apply to these customers. According to Charter’s disclaimer, the promotional rate expires after one year, after which the rate resets to a “standard rate,” currently $59.99 a month.[10]

In contrast, Time Warner Cable offers a much larger variety of Internet tiers, starting at $14.99 a month and generally increasing in $10 increments, based on offered speed.[11] In legacy service areas, Time Warner Cable’s pricing can be more compelling, even with the slower Internet speeds, because income-challenged consumers may feel a need to buy service based on price, not performance. Charter all but eliminates these lower-cost options, except in limited circumstances where a customer manages to meet onerous requirements to qualify for a low-income broadband discount plan.

Achieving faster Internet speeds is another priority for Chairman Wheeler. At a speech last fall at 1776, the Chairman said, “a 25Mbps connection is fast becoming ‘table stakes’ in 21st century communications.”[12]

Both Time Warner Cable and Charter Communications will deliver twice or more that minimum speed as their Standard tier offering. Time Warner already achieves this goal in their Maxx service areas, where 50Mbps is the new Standard speed tier. Charter proposes to take more than two years to upgrade Time Warner Cable customers to an incrementally faster 60Mbps speed tier. Additionally, Time Warner Cable Maxx customers are assured they can further upgrade that speed in increments up to 300Mbps. Charter, in contrast, offers most customers a maximum of 100Mbps.[13]

The most important question before the Commission is which cable operator is better positioned to deliver the services customers want and/or need. We argue Time Warner Cable and Bright House, not Charter Communications, are both in a stronger position to deliver.

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. Bright House Networks’ owners have taken the company private, but their ongoing investments in a robust Wi-Fi platform, their high consumer satisfaction scores, and their investments in ongoing upgrades to meet challenges of competitors like Verizon FiOS suggest the company is in healthy financial shape.

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[14]:

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. Marcus has indicated additional cities will receive upgrades in 2016.[15]

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.[16] 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. “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[17], 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. Notably, the staff of the New York Department of Public Service found, while investigating this deal, “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.”[18]

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.

We are also very concerned about Charter’s plans to deliver affordable Internet access. Chairman Wheeler expressed his concerns about the digital divide in broadband. The cost of access is perhaps the most important factor for getting broadband service in income-challenged households. If Charter’s price is too high, many will go without service.

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 $14.99 tier without preconditions, restricted qualifiers, contracts, or limits on what types of services can be bundled with it. Any consumer can buy the service and 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 households and senior citizens. During the Comcast-Time Warner Cable merger hearings in New York, no topic elicited as much interest as Internet affordability and the onerous restrictions cable operators place on their income-qualified budget Internet plans.[19] The same concerns exist today with Charter’s application. 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 customers 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 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[20]:

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 that threatens to dampen and discourage participation.

Charter’s claimed interest to meet the needs of low-income customers might be more honorable if not for their insistence otherwise-qualified existing customers cannot downgrade their regular price broadband plan to Connect2Compete unless they voluntarily go without Internet access for three months.

Time Warner Cable goes out of its way to advertise “No Data Caps.”

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 offer for lower-income Americans is inadequate, and so is their plan 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[21]:

Charter Communications’ commitment to not impose “usage caps” for three years is inadequate. As we have learned from Comcast, the industry definition of a “usage cap” differs widely from the definition understood by most consumers.

Charter’s commitment must be expanded to prohibit all forms of usage pricing, such as those similar to what Comcast is market testing in several of its service areas.[22] In these markets, Comcast has established an arbitrary usage allowance and charges punitive overlimit fees to customers that exceed it. Comcast has repeatedly denied it has “usage caps” because its so-called ‘data plans’ allow customers to voluntarily exceed their usage allowance, at a cost. Without a commitment Charter will also not impose usage-based pricing, its commitment to regulators not to impose “usage caps” is largely meaningless.

More concerning, 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.[23] The FCC itself is investigating this and other related issues as part of this proceeding.[24]

Consumers have shown no interest in usage-based pricing or usage-capped wired Internet and strongly prefer unlimited access. One only need look at Time Warner Cable’s own results when offering an optional discounted Internet plan for customers volunteering to limit their usage.

Time Warner Cable CEO Rob Marcus noted customers strongly want to keep their unlimited use plans, even if they cost more. Speaking at the Deutsche Bank Media, Internet, and Telecom Conference, Marcus noted:

“If you take the 30GB a month and compare it to what median usage is, let’s say high 20s — 27GB a month, that would suggest a whole lot of customers would do well by taking the 30GB service,” Marcus said. “Notwithstanding that, very few customers — in the thousands — have taken the usage based tiers and I think that speaks to the value they place on unlimited — not bad because we plan to continue to offer unlimited for as far out as we can possibly see.”[25]

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, N.Y., Greensboro, N.C., and Austin, San Antonio, and Beaumont, Tex. in April 2009[26]. 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.[27]”

A deal with Charter would mean Time Warner Cable’s bonds would be downgraded to junk status.

Time Warner Cable again offers a superior choice for Americans, and it is an important one. Chairman Wheeler said “last-mile power cannot be a lever for gaining an unfair advantage.” With many consumers having no practical choice for an alternative broadband provider, allowing Charter to impose usage limits or forcing customers into even higher-priced usage billing plans would deliver a major unfair advantage into the hands of the cable operator, always concerned with protecting its cable television package from emerging online video competition.

In fact, almost all of Charter’s so-called customer-friendly commitments and policies have a very unfriendly expiration date of just 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 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 the strongest incentives for rate increases is the level of debt Charter Communications will assume in this transaction. The Department of Public Service staff in New York concluded New Charter’s debt and lowered credit rating “represents the single most substantial risk of the proposed transaction.”[28]

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.

Charter’s general offer to consider expanding service into unserved areas is vague, or has been redacted. We remind the Commission 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 areas outside of existing video franchise areas.

Compelling Charter Communications to adopt universal service obligations within all existing Time Warner Cable and Bright House 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. This also would achieve the Chairman’s goal to facilitate rural broadband where incumbents have generally failed to provide the service.

The Commission must carefully consider Charter’s financial capacity to meet these obligations as well. 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. It also risks the much higher scores Bright House customers have given to that company for its superior customer service.

Competition is the biggest incentive to improve customer service and responsiveness, and that is unlikely to deliver much pressure on cable companies like Charter over the next few years. In fact, we argue customer service is likely to deteriorate in the short term because of the disruptiveness of any ownership change and eventual billing system integration.

Consumer Reports already rates Time Warner and Charter’s Internet Service poorly[29]:

• 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

Charter Communications’ proposed benefits to Time Warner Cable and Bright House cable television customers are also weak and not compelling. Both Time Warner Cable and Charter proposed to move to all-digital cable television to free up bandwidth to offer improved broadband before the merger deal was announced. Bright House was also headed in the same direction.

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 preference for “simplified pricing,”[30] 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.[31]

Unfortunately, any benefits from an all-digital television package are likely to be diluted when customers get the bill. Currently, many Time Warner Cable customers watch analog 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, according to 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).[32]

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 do note the current generation of digital set-top boxes leased by Charter cost customers $6.99 a month each, slightly less than the national average.[33] We anticipate this fee may rise after the introduction of more advanced equipment. We note Charter also charges its television customers in a city like St. Louis an extra $6.05 a month for the “Broadcast TV Service Charge” and $4.99 a month for “Whole House Wire Maintenance.”[34]

Other points the Commission should consider in reviewing this transaction:

1. 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.[35]The cost barrier for new, directly competing entrants into the cable television business is well-recognized, especially by smaller independent cable television providers that 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.[36]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 Time Warner Cable customers in legacy service areas be treated the same as those already upgraded to Maxx service. If the deal is approved, Charter must be compelled to commit to continue Time Warner Cable’s Maxx upgrade initiative across the entire footprint of Time Warner Cable’s former service areas, to be completed within 30 months. We also agree with the staff recommendation of the N.Y. Department of Public Service that Charter also be compelled to upgrade its facilities to support gigabit broadband, but this should be extended to include all of its service areas, not just the largest cities.This does not pose a significant challenge to cable operators. With the upcoming introduction of DOCSIS 3.1 technology, operators even smaller than Charter will support 1Gbps broadband speeds as they drop analog television signals. Suddenlink[37], MidContinent[38], Cox[39], and Mediacom[40] already have gigabit deployment plans underway.
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 or Bright House 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 wholesale 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, directly relevant to the majority of customers, and ongoing.

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 the Commission must realize, this transaction does not just involve entertainment. Recently, the Obama Administration declared broadband Internet access a “core utility.”[41]

“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.”

Our group strongly believes regulators should not take a risk on Charter’s less-then-compelling offer when Time Warner Cable and Bright House have both demonstrated a better financial position. Time Warner 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 consumers, offers more broadband options and faster speeds for entrepreneurs 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.

At the start of our presentation, we referred to the Chairman’s four stated goals for improving broadband and competition. At this point, it should be obvious that shrinking the number of companies providing service has not delivered significant service improvements. In fact, for many customers, Charter’s offer is worse.

Allowing further marketplace consolidation widens the gap for cable television programming costs, which could deter new competitors from entering the market. Small providers pay dramatically higher programming costs while the largest receive substantial volume discounts. That is contrary to the Chairman’s goal of protecting last-mile competition.

Online video has created the “cord-cutting” effect, allowing consumers to shop for better video values beyond the local cable company. Without a permanent ban on usage caps and usage pricing, providers like Charter (that maintained usage caps until a few months before this application was filed) have a strong incentive to resume them after the deal’s token three-year commitment expires. Without also closing the obvious loophole of “usage pricing,” nothing precludes Charter from imposing usage-based pricing on consumers immediately after the deal is approved.

Promoting expanded rural broadband, another priority of the Commission, does little if the incumbent providers refuse to offer it. We see nothing in Charter’s public application that commits them to extending service to specific areas Time Warner Cable or Bright House do not service today. In fact, before this application was filed, Charter’s willingness to provide service to unserved areas in their own existing franchise areas was not always evident.[42] It is hard to believe Charter will voluntarily disregard their own Return On Investment formula to provide the service many rural customers eagerly hope might be forthcoming if the provider was somebody other than Time Warner Cable or Bright House.

We urge the FCC to deny Charter’s application. If it sees fit to make a different choice, we strongly recommend you demand Charter meet, at the minimum, the same level of service Time Warner Cable Maxx provides across the entire existing Time Warner franchise area, achieve the same customer service standard well-regarded Bright House manages for its customers, and a better deal for consumers that continue to face spiraling cable bills, few competitive choices, and no new alternatives on the horizon.

• [1] https://dealbook.nytimes.com/2014/02/13/the-comcast-time-warner-deal-by-the-numbers/?_r=0
• [2] https://newsroom.charter.com
• [3] https://www.spectrum.com/about
• [4] http://www.jdpower.com/press-releases/2015-us-residential-television-internet-telephone-service-provider-satisfaction
• [5] https://arstechnica.com/information-technology/2014/09/most-of-the-us-has-no-broadband-competition-at-25mbps-fcc-chair-says/
• [6] https://www.theverge.com/2014/1/31/5365816/time-warner-cable-maxx-plans-broadband-cable-improvements-in-nyc-la
• [7] https://www.fiercecable.com/cable/twc-promises-maxx-to-reach-45-customers-by-end-year-tivo-to-support-apple-s-airplay
• [8]
• [9] https://www.spectrum.com/packages
• [10] http://stopthecap.com/wp-content/uploads/2015/09/psc-staff-recommend-charter-twc-15-m-0388.pdf
• [11] https://www.spectrum.com/internet?cmp=TWC&iid=internet-lob:1:1:compareplans
• [12] https://arstechnica.com/information-technology/2014/09/most-of-the-us-has-no-broadband-competition-at-25mbps-fcc-chair-says/
• [13]
• [14] http://www.twcableuntangled.com/2015/04/twc-gains-momentum-with-best-ever-subscriber-growth-customer-enhancements/
• [15] https://newsroom.charter.com/
• [16] https://seekingalpha.com/article/2864536-time-warner-cables-twc-ceo-rob-marcus-on-q4-2014-results-earnings-call-transcript
• [17] http://www.twcableuntangled.com/2014/01/get-the-details-on-twcs-plan-to-transform-ctv-internet-experience/
• [18] http://stopthecap.com/wp-content/uploads/2015/09/psc-staff-recommend-charter-twc-15-m-0388.pdf
• [19] See e.g., Case 14-M-0183, Joint Petition of Comcast Corporation and Time Warner Cable, Inc. for Approval of a Transfer of Control of Subsidiaries and Franchises, Information Forum/Public Statement Hearing (dated June 19, 2014) Tr. 29-33.
• [20] http://stopthecap.com/2015/06/25/bright-houses-mysterious-internet-discount-program-charter-wants-to-adopt-nationwide/
• [21] http://www.timewarnercable.com/en/enjoy/better-twc/internet.html
• [22] https://www.xfinity.com/support/articles/data-usage-plan
• [23] http://stopthecap.com/2015/09/23/fcc-demands-details-about-charters-suddenly-retired-usage-caps/
• [24] https://www.fcc.gov/document/request-information-sent-charter-communications-inc-0
• [25] http://stopthecap.com/2014/03/13/time-warner-cable-admits-usage-based-pricing-is-a-big-failure-only-thousands-enrolled/
• [26] http://abcnews.go.com/Technology/story?id=7368388
• [27] http://stopthecap.com/2014/10/30/time-warner-cable-recommits-mandatory-usage-caps-long-company-remains-independent/
• [28] http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={C60985CC-BEE8-43A7-84E8-5A4B4D8E0F54} (p.39)
• [29] http://www.consumerreports.org/cro/electronics-computers/computers-internet/telecom-services/internet-service-ratings/ratings-overview.htm
• [30] http://www.reuters.com/article/2014/01/30/us-charter-timewarnercable-rutledge-anal-idUSBREA0T01D20140130
• [31] https://www.spectrum.com/cable-tv#/channel-lineup
• [32] http://www.markey.senate.gov/news/press-releases/markey-blumenthal-decry-lack-of-choice-competition-in-pay-tv-video-box-marketplace
• [33] https://www.charter.com/browse/content/rate-card-info (city of St. Louis, Mo.)
• [34] https://www.charter.com/browse/content/rate-card-info (city of St. Louis, Mo.)
• [35] http://www.usatoday.com/story/money/2015/07/24/fcc-approves-ts-acquisition-directv/30626421/
• [36] http://www.americancable.org/node/5229
• [37] http://www.multichannel.com/news/technology/suddenlink-boots-1-gig-broadband/392087
• [38] https://www.midco.com/PressRoom/2014/midcontinent-bringing-gigabit-internet-access-to-the-northern-plains/
• [39] http://www.multichannel.com/news/distribution/cox-plots-docsis-31-plans/393996
• [40] http://www.multichannel.com/news/cable-operators/mediacom-sets-residential-1-gig-rollout/393585
• [41] http://thehill.com/policy/technology/254431-obama-administration-declares-broadband-core-utility-in-report
• [42] http://www.dslreports.com/forum/r28864058-Why-won-t-Charter-come-another-1-2-mile-for-more-customers

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

Critics question the wireless industry’s claim LTE-U and Wi-Fi can co-exist peacefully. (Image: EVOLVE)

Consumer groups and cable operators are warning the Federal Communications Commission a plan by the nation’s largest wireless carriers to introduce premium Wi-Fi services for their mobile customers may create serious interference problems for existing Wi-Fi users.

AT&T, Verizon, and T-Mobile are all members of EVOLVE, a group advocating for LTE-U and LAA, technologies that will depend largely on the unlicensed Wi-Fi bands to deliver wireless data to their mobile customers.

Cable operators fear the proposal will give mobile providers an unfair advantage, introducing more traffic into the already crowded Wi-Fi bands while mobile operators reserve the right to use a licensed control channel to shift their customers’ traffic back and forth between unlicensed and licensed spectrum at will. Cable industry critics of the plan claim allowing mobile operators to dump customer traffic into the Wi-Fi bands is likely to worsen interference, harming the cable operators’ investment in a growing network of Wi-Fi hotspots and in-home Wi-Fi.

Consumer groups agree with the cable industry.

The Open Technology Institute at New America, Public Knowledge, Free Press, and Common Cause have filed a joint statement with the FCC warning the agency “mobile carriers will have both the ability and strong incentives to use LTE-U and LAA to engage in anti-competitive behavior harmful to consumers,” all while making a tidy profit charging customers for the use of a service comparable to Wi-Fi, now a free alternative to the carriers’ 3G and 4G data networks.

The groups argue Wi-Fi standards were developed with unlicensed users in mind, able to co-exist peacefully with other similar Wi-Fi signals. The proposed LTE-U technology from wireless carriers is far less sensitive to neighboring signals.

“LTE-U/LAA is designed to be centrally controlled by a network anchored in a separate, exclusively licensed frequency band,” the consumer groups wrote. “3GPP, the mobile industry standards body, may ultimately design LAA in a manner that shares fairly with Wi-Fi and other unlicensed technologies; yet several studies filed by commenters demonstrate that the version of LTE-U that U.S. carriers plan to deploy by next year coexists poorly with Wi-Fi, degrading both throughput and latency (delay).”

Critics contend the wireless industry’s proposed service is not as likely to use “Listen Before Talk” effectively, a standard that checks for existing traffic before powering up on an unlicensed frequency. Consumer groups fear mobile carriers will have both the ability and a strong incentive to use LTE-U and LAA to charge consumers for the use of unlicensed spectrum and give themselves an unfair advantage by escaping the interference its own technology can cause other users.

“Carriers also have powerful incentives to use LTE-U to deter mobile market entry by ‘Wi-Fi First’ providers, such as wireline ISPs,” argue the consumer groups, also referring to independent providers like Republic Wireless that depend primarily on Wi-Fi for smartphone connectivity. “Carriers deploying LTE-U will have the apparent option to adjust their access points to introduce just enough latency to frustrate consumer use of real-time applications, such as video calling.”

Another incentive is money. For several years, wireless carriers have encouraged customers to offload their mobile data traffic to Wi-Fi. But since Wi-Fi traffic does not count against the customer’s usage allowance, it also reduces revenue opportunities. LTE-U is a variant of LTE, and carriers traditionally do count that traffic against a customer’s usage allowance. For the first time, mobile customers will accrue usage charges based on their use of unlicensed frequencies. For some, they may have no other choice.

Ellen Satterwhite, a spokesperson for WifiForward, a coalition of companies advocating for more unlicensed spectrum for Wi-Fi, said LTE signals never play well with traditional Wi-Fi.

“When LTE and Wi-Fi signals collide, LTE wins,” Satterwhite said.

“The wireless carriers have completely changed their tune about Wi-Fi—because they have to,” said David Callisch, vice president of corporate marketing for Ruckus Wireless, a Sunnyvale, Calif.-based maker of Wi-Fi hardware, whose customers include Verizon and AT&T. “Wi-Fi for them is like a train going down the track,” Callisch told Bloomberg BNA in an interview. “You could get hit by it or you could jump on the train. They’re jumping on the train.”

“Carriers have historically hated Wi-Fi, because they can’t control it,” Callisch added. “They’ve always liked the licensed band, because they can buy it and they can control it and they can deliver a quality of service to customers over it. With Wi-Fi, you can’t do that.”

But with LTE-U they have the control they crave, able to use network management technology that prioritizes their customers over other conventional Wi-Fi users. Even better, they can charge customers for using it.

Both cable operators and consumer groups want engineers, not business executives, to carefully develop standards and rules that guarantee Wi-Fi users can co-exist with other users of unlicensed frequencies before the technology is switched on.