A panel electromechanical switch similar to those in use in New York until the 1970s. They were installed in the 1920s.

As late as the 1970s, New York Telephone (today Verizon) was still maintaining electromechanical panel switches in its telephone exchanges that were developed in the middle of World War I and installed in Manhattan between 1922-1930. Reliance on infrastructure 40-50 years old is nothing new for telephone companies across North America. A Verizon technician in New York City is just as likely to descend into tunnels constructed well before they were born as is a Bell technician in Toronto.

Slightly marring last week’s ambitious announcement Bell (Canada) was going to commence an upgrade to fiber to the home service across the Greater Toronto Area came word from a frank Bell technician in attendance who predicted Bell’s plans were likely to run into problems as workers deal with aging copper infrastructure originally installed by their fathers and grandfathers decades earlier.

The technician said some of the underground conduits he was working in just weeks earlier in Toronto’s downtown core were “easily 60-70 years old” and the existing optical fiber cables running through some of them were installed in the mid-1980s.

At least that conduit contained fiber. In many other cities, copper infrastructure from the 1960s-1980s is still in service, performing unevenly in some cases and not much at all in others.

Earlier this year, several hundred Verizon customers were without telephone service for weeks because of water intrusion into copper telephone cables, possibly amplified by the corrosive road salt dumped on New York streets to combat a severe winter. Verizon’s copper was down and out while its fiber optic network was unaffected. On the west coast, AT&T deals with similar outages caused by flooding. If that doesn’t affect service, copper theft might.

Fiber optic cable

Telephone companies fight to get their money’s worth from infrastructure, no matter how old it is. Western Electric first envisioned the panel switches used in New York City telephone exchanges until the end of the Carter Administration back in 1916. It was all a part of AT&T’s revolutionary plan to move to subscriber-dialed calls, ending an era of asking an operator to connect you to another customer.

AT&T engineer W.G. Blauvelt wrote the plan that moved New York to fully automatic dialing. By 1930, every telephone exchange in Manhattan was served by a panel switch that allowed customers to dial numbers by themselves. But Blauvelt could not have envisioned that equipment would still be in use fifty years later.

As demand for telephones grew, the phone company did not expand its network of panel switches, which were huge – occupying entire buildings – loud, and very costly to maintain. It did not replace them either. Instead, newer exchanges got the latest equipment, starting with more modern Crossbar #1 switches in 1938. In the 1950s, Crossbar #5 arrived and it became a hit worldwide. Crossbar #5 switches usually stood alone or worked alongside older switching equipment in fast growing exchanges. It occupied less space, worked well without obsessive maintenance, and was reliable.

It was not until the 1970s that the Bell System decided to completely scrap their electromechanical switches in favor of newer electronic technology. The advantages were obvious — the newer equipment occupied a fraction of the space and had considerably more capacity than older switches. That became critical in New York starting in the late 1960s when customer demand for additional phone lines exploded. New York Telephone simply could not keep up with and waiting lists often grew to weeks as technicians looked for spare capacity. The Bell System’s answer to this growth was a new generation of electronic switches.

The #1 ESS was an analog electronic switch first introduced in New Jersey in 1965. Although it worked fine in smaller and medium-sized communities, the switch’s software bugs were notorious when traffic on the exchange reached peak loads. It was clear to New York Telephone the #1 ESS was not ready for Manhattan until the bugs were squashed.

Bell companies, along with some independent phone companies that depended on the same equipment, moved cautiously to begin upgrades. It would take North American phone companies until August 2001 to retire what was reportedly the last electromechanical switch, serving the small community of Nantes, Quebec.

A notorious 1975 fire destroyed a phone exchange serving lower Manhattan. That was one way to guarantee an upgrade from New York Telephone.

On rare occasions, phone companies didn’t have much of a choice. The most notorious example of this was the Feb. 27, 1975 fire in the telephone exchange located at 204 Second Avenue and East 13th Street in New York. The five alarm fire destroyed the switching equipment and knocked out telephone service for 173,000 customers before 700 firefighters from 72 fire units managed to put the fire out more than 16 hours later. That fire is still memorialized today by New York firefighters because it injured nearly 300 of them. But the fire’s legacy continued for decades as long-term health effects, including cancer, from the toxic smoke would haunt those who fought it.

The New York Telephone building still stands and today also houses a street level Verizon Wireless retail store.

New York Telephone engineers initially rescued a decommissioned #1 Crossbar switch waiting to be melted down for scrap. It came from the West 18th Street office and was cleaned and repaired and put into emergency service until a #1 ESS switch originally destined for another central office was diverted. This part of Manhattan got its upgrade earlier for all the wrong reasons.

Throughout the Bell System in the 1970s and 80s, older switches were gradually replaced in favor of all electronic switches, especially the #5 ESS, introduced in 1982 and still widely in service today, serving about 50% of all landlines in the United States. Canadian telephone companies often favored telephone switches manufactured by Northern Telecom (Nortel), based in Mississauga, Ontario. They generally worked equally well as the American counterpart and are also in service in parts of the United States.

The legacy of more than 100 years of telephone service has made running old and new technology side by side nothing unusual for telephone companies. It has worked for them before, as has their belief in incremental upgrades. So Bell’s announcement it would completely blanket Toronto with all-fiber service is a departure from standard practice.

For Bell in Toronto, the gigabit upgrade will begin by pushing fiber cables through existing conduits that are also home to copper and fiber wiring still in service. If a conduit is blocked or lacks enough room to get new fiber cables through, the Bell technician predicted delays. It is very likely that sometime after fiber service is up and running, copper wire decommissioning will begin in Toronto. Whether those cables remain dormant underground and on phone poles for cost reasons or torn out and sold for scrap will largely depend on scrap copper prices, Bell’s budget, and possible regulator intervention.

But Bell’s upgrade will clearly be as important, if not more so, than the retirement of mechanical phone switches a few decades earlier. For the same reasons — decreased maintenance costs, increased capacity, better reliability, and the possibility to market new services for revenue generation make fiber just as good of an investment for Bell as electronic switches were in the 1970s and 1980s.

[flv]http://www.phillipdampier.com/video/ATT Reconnecting 170000 Phone Customers in NYC After a Major Fire 1975.mp4[/flv]

AT&T produced this documentary in the mid-1970s about how New York Telephone recovered from a fire that destroyed a phone exchange in lower Manhattan and wiped out service for 173,000 customers in 1975. The phone company managed to get service restored after an unprecedented three weeks. It gives viewers a look at the enormous size of old electromechanical switching equipment and masses of phone wiring. (22:40) 

In the last three years, several Wall Street analysts have called on cable and telephone companies to raise the price of broadband service to make up for declining profits selling cable TV. As shareholders pressure executives to keep profits high and costs low, dramatic price changes may be coming for broadband and television service that will boost profits and likely eliminate one of their biggest potential competitors — Sling TV.

For more than 20 years, the most expensive part of the cable package has been television service. Cable One CEO Thomas Might acknowledged that in 2005, despite growing revenue from broadband, cable television still provided most the profits. That year, 64% of Cable One’s profits came from video. Three years from now, only 30% will come from selling cable TV.

While broadband prices remained generally stable from the late 1990’s into the early 2000’s, cable companies were still raising cable television prices once, sometimes twice annually to support very healthy profit margins on a service found in most American homes no matter its cost. Despite customer complaints about rate hikes, as long as they stayed connected, few providers cared to listen. With little competition, pricing power was tightly held in the industry’s hands. The only significant challenge to that power came from programmers demanding (and consistently winning) a bigger share of cable’s profit pie.

The retransmission consent wars had begun. Local broadcast stations, popular cable networks, and even the major networks all had hands out for increased subscriber fees.

Rogers

In the past, cable companies simply passed those costs along, blaming “increased programming costs” in rate hike notifications without mentioning the amount was also designed to keep their healthy margins intact. Only the arrival of The Great Recession changed that. New housing numbers headed downwards as children delayed leaving to rent their own apartment or buy a house. Many income-challenged families decided their budgets no longer allowed for the luxury of cable television and TV service was dropped. Even companies that managed to hang on to subscribers recognized there was now a limit on the amount customers would tolerate and the pace of cable TV rate hikes has slowed.

For a company like Cable One, the impact of de facto profit-sharing on cable television service was easy to see. Ten years ago, only about $30 of a $70 video subscription was handed over to programmers. This year, a record $45.85 of each $81 cable TV subscription is paid to programmers. The $35.50 or so remaining does not count as profit. Cable One reported only $10.61 was left after indirect costs per customer were managed, and after paying for system upgrades and other expenses, it got to keep just $0.96 a month in profit.

To combat the attack on the traditional video subscription model, Cable One raised prices in lesser amounts and began playing hardball with programmers. It permanently dropped Viacom-owned cable networks to show programmers it meant business. Subscribers were livid. More than 103,000 of Cable One’s customers across the country canceled TV service, leaving the cable company with just over 421,000 video customers nationwide.

Some on Wall Street believe conducting a war to preserve video profits need not be fought.

U.S. broadband providers already deliver some of the world’s most expensive Internet access.

Analysts told cable companies that the era of fat profits selling bloated TV packages is over, but the days of selling overpriced broadband service to customers that will not cancel regardless of the price are just beginning.

Cablevision CEO James Dolan admitted the real money was already in broadband, telling investors Cablevision’s broadband profit margins now exceed its video margins by at least seven to one.

The time to raise broadband prices even higher has apparently arrived.

“Our work suggests that cable companies have room to take up broadband pricing significantly and we believe regulators should not oppose the re-pricing (it is good for competition & investment),” wrote New Street Research’s Jonathan Chaplin in a recent note to investors. The Wall Street firm sells its advice to telecom companies. “The companies will undoubtedly have to take pay-TV pricing down to help ‘fund’ the price increase for broadband, but this is a good thing for the business. Post re-pricing, [online video] competition would cease to be a threat and the companies would grow revenue and free cash flow at a far faster rate than they would otherwise.”

If you are already a triple play cable television, broadband, and phone customer, you may not notice much change if this comes to pass, at least not at first. To combat cord-cutting and other threats to video revenue, some advisers are calling on cable companies like Comcast, Time Warner Cable and Charter to re-price the components of their package. Under one scenario, the cost of cable television would be cut up to $30 a month while the price of Internet access would increase by $30 or more a month above current prices. Only customers who subscribe to one service or the other, but not both, would see a major change. A cable TV-only subscriber would happily welcome a $50 monthly bill. A broadband-only customer charged $80, 90, or even 100 for basic broadband service would not.

Neither would Sling CEO Roger Lynch, who has a package of 23 cable channels to sell broadband-only customers for $20 a month.

“They have their dominant — in many cases monopolies — in their market for broadband, especially high-speed broadband,” Sling CEO Roger Lynch told Business Insider in an interview, adding that some cable companies already make it cheaper for people to subscribe to TV and broadband from a cable company than just subscribe to broadband.

A typical Sling customers would be confronted with paying up to $100 a month just for broadband service before paying Sling its $20 a month. Coincidentally, that customer’s broadband provider is likely already selling cable TV and will target promotions at Sling’s customers offering ten times the number of channels for as little as a few dollars more a month on top of what they currently pay for Internet access.

Such a pricing change would damage, if not destroy, Sling TV’s business model. Lynch is convinced providers are seriously contemplating it to use “their dominant position to try to thwart over the top services.”

At least 75% of the country would be held captive by any cable re-pricing tactic, because those Americans have just one choice in providers capable of meeting the FCC’s minimum definition of broadband.

Even more worrying, FCC chairman Thomas Wheeler may be responsible for leading the industry to the re-pricing road map by repeatedly reassuring providers the FCC will have nothing to do with price regulation, which opens the door to broadband pricing abuses that cannot be easily countered by market forces.

Lynch has called on the FCC to “protect consumers” and “make sure there’s innovation and competition in video.”

Unfortunately, Wheeler may have something else to prove to his critics who argued Net Neutrality and Title II oversight of broadband would lead to rampant price regulation. Wheeler has hinted repeatedly he is waiting to prove what he says — an allusion to hoping for a formal rate complaint to arrive at the FCC just so he can shoot it down.

Verizon Communications this morning announced it will buy AOL, Inc., in a $4.4 billion cash deal that will provide Verizon with powerful mobile video and advertising platforms.

Originally known for its ubiquitous dial-up Internet access, AOL today is better described as a content and advertising aggregator — putting online video in front of viewers bolstered by AOL’s powerful advertising technology that can match a targeted advertising message to a specific viewer in milliseconds.

AOL’s portfolio also includes the well-known Engadget, TechCrunch and Huffington Post websites, which many analysts expect will not be part of the deal, quickly spun off to a new owner(s) to avoid any political headaches over Verizon’s control of the well-known content sites, some including coverage critical of Verizon.

All signs point to the AOL acquisition as more evidence Verizon management is shifting priorities to its mobile business, Verizon Wireless. In 2014, Verizon acquired the assets of Intel Media, which was planning an Internet TV service called OnCue. Verizon’s acquisition will help it develop an alternative television platform and many analysts expect it will primarily reach Verizon Wireless customers.

Complimenting online video with AOL’s ad placement and insertion platform will likely be the best chance Verizon has to monetize that video content.

“Certainly the subscription business and the content businesses are very noteworthy,” confirmed Verizon’s president of operations, John Stratton. “For us, the principal interest was around the ad tech platform.”

[flv]http://www.phillipdampier.com/video/Bloomberg Why Verizon Coveted AOLs Ad Technology and Mobile Video 5-12-15.flv[/flv]

Bloomberg says Verizon’s real interest in AOL is their online advertising platform, which can bolster Verizon Wireless’ mobile video service. (2:39)

Verizon’s $4 billion investment in AOL did not go into expanding its fiber optic platform FiOS.

Verizon Wireless Multicast

“For the price it’s paying for AOL, Verizon could deploy its FiOS broadband service across the rest of its service area, bringing much-needed services and competition to communities like Baltimore, Boston and Buffalo,” said Free Press research director S. Derek Turner. “Instead, the company is spending a fortune to wade into the advertising and content-production markets. In terms of the latter, Verizon has already shown a willingness to block content and skew news coverage.”

As Stop the Cap! reported last week, that isn’t a surprise to some utility companies that believe all signs point to Verizon’s growing disinterest in its wireline division. Florida Power & Light expects Verizon will become a wireless only company within the next 10 years.

While AT&T explores expanding its wireless service internationally and seeks approval for its acquisition of satellite service DirecTV, Verizon Wireless is moving to monetize increased customer usage of its network with the forthcoming introduction of a video service this summer. The product would offer a mix of ad-supported and paid short video content and may offer live multicast programming that can reach a larger audience without disrupting network capacity.

Increased viewing of high bandwidth video will force Verizon customers to continually upgrade data plans, further monetizing Verizon’s wireless business. AOL’s ad insertion technology will allow Verizon to earn advertising income from viewers, creating a dual revenue stream.

Verizon can also sell advertisers information about its massive customer base of wired and wireless customers, including their browsing habits and demographic profile to deliver “data-driven marketing and addressable advertising.”

[flv]http://www.phillipdampier.com/video/Bloomberg Verizon-AOL Deal 1999 All Over Again 5-12-15.flv[/flv]

Bloomberg News puts together several of Verizon’s puzzling recent acquisitions, which point to a shift of Verizon’s business towards its mobile and content platforms. (5:42)

Cablevision’s broadcast TV surcharge increased in January to $5.98 a month, which amounts to $71.76 a year, on top of your usual cable TV bill.

No it isn’t your imagination. While a growing number of cable television subscribers now face a “broadcast programming surcharge” on their cable bill to compensate television stations and networks for cable carriage, those same channels are larding up their programming with ever-increasing advertising. One quarter of every hour of network television is now littered with commercials — an all-time high for broadcast networks seeking to maximize advertising revenue.

Show openings have been cut to seconds, credits roll by at fast-forward speed – usually compressed into illegibility, and some cable networks have returned to the practice of chopping bits of shows and compressing playback of others to accommodate more commercials. That does not include product placement or “in-program” compensated advertising, which appears when a character picks up a can of Pepsi, walks by a Subway outlet, or reaches for a Pop-Tart for breakfast.

As early as 2009, TNS Media Intelligence found at least 36% of today’s network primetime shows were advertising-oriented. That included 7:59 of in-show brand appearances and 13:52 of commercial advertisements, for a combined total of 21:51 of marketing content.

Reality shows, as well as being cheap to produce, are product placement gold. America’s Toughest Jobs contained 44:50 per hour of advertising messages and product placement, The Biggest Loser ran up 40:37. Before the reality show craze, game shows were program-length commercials in disguise. Game show producers received an endless supply of prizes to give away in return for viewers enduring relentless 10-15 second pitches for Rice-a-Roni, crock pots, living room furniture sets, and current model cars and trucks. Viewers did not escape traditional advertisements along the way either.

Through much of the 1970s and early 1980s, an average hour of network television was between 48-52 minutes of programming, 8-12 minutes of network and local commercials. Short news breaks and public service announcements were often included during those breaks. Shows targeting children usually contained less advertising.

In 1984, the Reagan Administration deregulated broadcasters, claiming the free market was best equipped to contain any abusive practices as consumers theoretically could tune out stations and networks that allowed things to get out-of-hand.

In reality, what one network decided, the others usually followed. Outside of watching commercial-free PBS (although those sponsorship messages increasingly began to resemble traditional advertising over the years), viewers didn’t have much choice. For the last 31 years since deregulation, advertising has increased while show length has decreased. In the 1970s and 80s, pieces of rerun television shows created when ad loads were shorter were often cut from shows to make room for an extra ad or two. What was left after a trip to the cutting room was often played slightly sped-up, which made room for even more advertising. By the 1990s, producers created their shows with increasing advertising loads in mind. Short sacrificial 60-90 second end scenes, deemed non-essential to the show’s integrity, were often chopped when a show entered syndication.

In the 2000s, network executives started demanding producers drastically cut the length of show opening and closing themes. If producers didn’t, studios did it for them when a show was resold to a cable network. A rerun of Law & Order now features a 24-second opening, a big difference from the original 1:45 second opening the show had when it originally aired on NBC. End credits were usually squished on-screen to allow a 15-second network promotion to run at the top. Some networks even began their next show in one window while showing end credits of the last program in another.

But nothing affected commercial loads more than the 2008 Great Recession. Advertising revenue tumbled, along with the economy, and advertisers balked at paying traditional ad rates when online advertising was available for much less. The answer? Sell more ads… at a lower price. Once again, program lengths had to be cut to make room for the increasing number of commercials. By 2009, average network ad loads were up to 13:25 per hour. Just four years later in 2013, that number spiked to 14:15. It’s now 15 minutes and up at some networks, depending on the type of program.

As commercials neared comprising 25% of every hour of television, sponsors finally began to rebel. They were reacting to the pervasive growth of the DVR, which allowed consumers to record their favorite shows, if only to fast forward past the dense thicket of commercials. They sought a ceiling on ad loads and more creative ways to reach ad-skipping audiences numbed by relentless advertising. That meant even more product placement.

Although sponsors of expensive NBC, CBS, ABC, and FOX shows may have rebelled at the 15-minute mark, the same isn’t true with cable networks where ad loads are as high as 24 minutes per hour. In 2009, the average cable network aired 14:27 of advertisements an hour. This year, it’s up to 15:18 and still rising. Among the worst offenders:

To keep the money flowing from every direction, both over-the-air and cable networks, including those noted above, continue to seek additional compensation from your provider in the form of retransmission consent and carriage agreements. Whether you watch a channel or not, you are paying for it. Some of these compensation agreements are experiencing rate increases approaching 10% annually.

To the surprise of many industry analysts, some of the worst offenders are networks with declining ratings who risk further alienating viewers with even more advertising just to keep revenue numbers up. While traditional ads actually declined by 2% on most over the air networks this year, FOX more than made up for that with a 15% increase in advertising time. The cable networks with the highest ad increases this year were Viacom-owned channels (Comedy Central, Spike, MTV, Nickelodeon) jumping 13%, A+E Networks (A&E, Crime & Investigation, Lifetime, History) increasing 10%, and 9% at Discovery Networks. Which networks increased ads the least? Those owned by Disney, independent cable networks, and Time Warner (Entertainment).

“Generally speaking, the ratings winners (Disney, 21st Century Fox, Scripps Networks) are increasing investment in original content (and not abusively increasing ad loads), whereas the losers (A+E Networks, Viacom, NBCUniversal) and the neutrals (Discovery, AMC Networks) are decelerating investment in original content and stuffing more ad spots into their shows,” said analyst Todd Juenger of Sanford C. Bernstein.

Michael Nathanson of MoffetNathanson Research worries television is repeating the mistakes commercial radio made post-deregulation, when massive increases in advertising accompanied by decelerating investment in programming repelled many listeners, perhaps for good. Some have permanently abandoned commercial over the air radio in favor of commercial free music services, satellite radio, and streaming services.

“Networks can offset ratings challenges and pricing weakness with more inventory, however, we worry that it is a dangerous long-term game that ultimately devalues the consumer experience and reduces ad efficacy,” Nathanson said. “As we saw with radio, once the increased commercial load genie is out of the bottle, it is nearly impossible to put it back in.”

When Stephen Cox was watching The Wizard of Oz on TBS last November, something didn’t sound quite right to him about the Munchkins, who are near and dear to his heart. He wasn’t imagining things. Time Warner-owned TBS used compression technology to speed up the movie. The purpose: stuffing in more TV commercials.

“Their voices were raised a notch,” Cox, the author of several pop-culture books including one about the classic 1939 film, told the Wall Street Journal. “It was astounding to me.”

Time Warner Cable held its first post-merger-flop conference call with investors this morning and reported surprisingly good subscriber numbers for the first quarter of 2015.

Despite disappointing investors for not meeting projected profit and revenue numbers for the first three months of the year, Time Warner managed to add 30,000 net video customers for the first time since 2009. High-speed data customers grew by 315,000, compared with 269,000 a year ago, while voice customers increased by 320,000, compared with 107,000 in the prior-year period. The company also reported $26 million in wasted merger-related costs.

Time Warner’s latest triple play promotion has fewer gotchas in the fine print than usual, but the modem fee is still there so buy your own.

A renewed love for Time Warner Cable was not the reason the cable company added customers. Aggressive pricing with fewer fine print “gotchas” and Time Warner Cable Maxx upgrades helped the company pick up new subscribers. Last October, Time Warner added a $90 triple play offer valid across much of its service area, offering unlimited calling phone, Preferred TV, and 30Mbps broadband with one set-top box for $89.99 a month for one year, an offer Artie Minson, chief financial officer of Time Warner Cable called “clean.”

For the last two years, Time Warner Cable executives decided to de-emphasize promotional pricing on phone service, preferring to draw more attention to its double-play television and broadband offers. This year, that thinking is long gone as the cable company re-emphasizes its triple-play packages and offers current customers the chance to add phone service for as little as $10 a month. The strong growth in new phone customers during the quarter reflects the success of those promotions.

Minson was less impressed with the sales of “skinny bundles” of bare basic cable television, HBO, and broadband service, noting it had little impact on Time Warner’s subscriber growth. The allure of its $14.99 everyday low price, low speed Internet offer has also waned.

“There’s a lot of attraction in the press about skinny packages,” echoed Dinesh C. Jain, chief operating officer of Time Warner Cable. “I think a lot of the times, customers don’t want to get bogged down in a lot of choices to make on those kinds of things. There’s a lot of value in our triple-play packaging right now and it’s a simpler sale.”

Marcus used the conference call to re-emphasize the company has not been distracted by 14 months of merger talks with Comcast and has executed on its pre-merger business plan all along.

Coming in 2017 (If We Live That Long)

Network upgrades under the TWC Maxx program are continuing on schedule.

“New York City, LA and Austin are complete, Dallas, San Antonio and Kansas City are underway and Charlotte, Raleigh and Hawaii on the docket for later in the year,” said Marcus. “We also plan to begin the Maxx process in San Diego this year and finish up in early 2016. It’s still early days, but Maxx certainly appears to be making a difference. Customer feedback has been great and churn among Maxx customers with new DOCSIS 3.0 modems is dramatically lower.”

But it will take another two years to complete the entire Time Warner footprint, of which 40-50% will be upgraded by the end of this year.

“The exact pace at which we continue that process in 2016 and 2017 depends on the experience we have in 2015. We’re feeling better about our ability to roll out all-digital this year than we did last year, which was really the first year of the program,” said Marcus. “And we’ll evaluate, as we go into 2016, how quickly we think we can ramp the next batch of systems.”

In a recurring theme throughout the conference call, executives emphasized Time Warner does not want to pioneer tinkering with the traditional cable package.

For example, Marcus acknowledged Cablevision’s experiment with Wi-Fi calling as a cellular replacement strategy, but said Time Warner Cable will take a wait and see approach.

“I’m inclined to watch and see how that evolves and then we’ll see how best to develop our own strategy on that front,” Marcus said.

Marcus

“There’s a lot of talk and a lot of work going on out there from other guys,” said Jain, referring to slimmed down cable packages and unbundling. “And if any of their things work, we’ll just be fast followers on that stuff because I think there are some segments of our customer base where that is going to have appeal.”

Marcus also complained there was far too much attention being paid on Millennials as an excuse to break up the traditional cable experience.

“There tends to be, in my opinion, an obsessive interest in Millennials, maybe at the expense of the broader customer base,” Marcus said. “For the vast majority of our customers, the way we currently deliver the video product is pretty darn attractive. That said, sure, there’s a group of customers who might very well like to access video via other means. So it is definitely the case that over time, I can see a world where more and more customers consume our offering without needing to lease a set-top box from us. But that doesn’t mean we’re going to abandon the largest portion of our customers who actually do like the current model.”

On other subjects, the implementation of Net Neutrality under Title II regulations will have no impact on Time Warner’s future plans or investments, according to Marcus.

“We’ve said in the past that our normal business practices comply entirely with the notion of the open Internet, no blocking, no discrimination, no throttling, and transparency are fundamental parts of the way we do business. So to the extent that that’s the full scope of what’s getting incremented under Title II, I think you won’t see a change in the way we do business.”

But he warned if the FCC intends to more broadly regulate Internet access, that could have an impact on pricing and future investment.

Marcus also re-emphasized his intention not to change the way Time Warner sells broadband. That means no compulsory usage caps or usage-based pricing.

“We’re very focused on delivering compelling products to customers at a price that delivers real value,” said Marcus. “We can’t think in terms of taking gross margin dollars that are lost because we lose a video customer and somehow embedding those into high-speed data [with usage pricing] and not seeing an impact on high-speed data.”