Comcast’s David Cohen

Comcast is an American success story, but Americans that do business with the cable giant are getting slighted by overpriced, too-slow broadband service.

In a commentary piece in the Financial Times, Edward Luce indicts the company that bought NBC-Universal for pay-for-play campaign contributions that have kept the company from much  regulatory scrutiny and free to charge whatever it likes for a service now increasingly considered a necessity.

Comcast’s key employee as far as Washington is concerned is its senior vice-president, David Cohen, who also happens to be one of President Barack Obama’s largest fundraisers.

The revolving door between Comcast in Philadelphia and the federal government in Washington is always spinning.

Of Comcast’s 121 lobbyists, 85 are former government employees, according to Open Secrets, which monitors money and politics.

“Comcast employs the royalty of K Street [lobbyists],” says Sheila Krumholz, head of Open Secrets.

In 2011, the year the FCC approved Comcast’s merger with NBCU, the company spent more than $14 million on lobbying – the ninth-highest of any US company (it ranks 49th on the Fortune 100 list).

Luce adds Meredith Atwell-Baker, a former Republican FCC commissioner, took an executive position at Comcast shortly after voting to approve the merger-buyout between the cable operator and NBC.

This month Comcast acquired the 49 percent of NBC-Universal it did not already own in a $16.7 billion transaction that got less attention at the FCC than the lunch menu at the Chinese takeout down the street.

So while Comcast enriches itself, customers are left with Internet service that is nothing to brag about.

While only 7% of the U.S. is wired for fiber broadband, more than half of South Korea and Japan can buy fiber-fast broadband service from a range of broadband suppliers. Back home, Comcast and the local phone company have built a comfortable duopoly:

The company’s meteoric rise in the past decade parallels the relative decline of Internet service in the US. In the late 1990s the US had the fastest speeds and widest penetration of almost anywhere – unsurprisingly given that it invented the platform. Today the US comes 16th, according to the OECD, with an average of 27 megabits per second, compared with up to quadruple that in countries such as Japan and the Netherlands.

The contrast on price is just as unflattering. The average US cost for 1 Mbps is $1.10 compared with $0.42 in the UK, $0.34 in France and $0.21 in South Korea. It is not only places such as Hong Kong that put the US into the shade. Countries such as Estonia, Portugal and Hungary offer a significantly better Internet service. South Koreans joke that when they visit the US they are taking an Internet vacation. Yet bringing the US up to speed appears to be low on Mr Obama’s list of priorities (it did not even get a mention in his State of the Union address last month).

Malone

Dr. John Malone is a force to be reckoned with and the British are about to get an introduction with this morning’s announcement Liberty Global has acquired Virgin Media in a blockbuster $16.3 billion acquisition deal that will make Malone and Liberty one of the biggest broadband providers in the world. (The deal is valued at $23.3 billion after Liberty agrees to take on Virgin Media’s existing debts.)

Malone will take control of Britain’s largest cable operator and will now also control another 18 million broadband customers in Europe, particularly in Germany and Belgium. His biggest rival will be News Corp.’s Rupert Murdoch who controls BSkyB, Britain’s largest multichannel provider.

Malone’s reputation for ruthlessness precedes him. In the early 1990s, then Sen. Al Gore, Jr., called Malone the Darth Vader of the cable industry. Gore also referred to Malone as the head of a mafia-like “cable industry Cosa Nostra” best known for customer abuse, cold-hearted mergers and acquisitions, and endless rate increases. In the 1980s and 1990s, Malone appeared regularly at congressional hearings to discuss cable industry abuses. At the time, Malone was CEO of America’s largest cable operator Tele-Communications, Inc. (TCI). Today, most of those cable systems are known by another name — Comcast.

In the late 1980s, TCI got the ball rolling on massive rate increases for basic cable service. Other operators quickly followed. As rates exploded upwards, the phones began ringing in Washington from outraged constituents. Gore recounted several recent rate hikes in his own home state of Tennessee in one hearing:

• In three years, rates increased 71% in Memphis,
• 99% in Crossville,
• 113% in Nashville,
• 115% in Chattanooga,
• and 116% in Knoxville.

Under Malone’s leadership, TCI Cable raised rates 60 percent in 1992 alone, helping drive the enactment of the 1992 Cable Act which began to slow the pace of rate hikes. The bill was vetoed by then President George H.W. Bush but overridden in Congress after tens of thousands of constituent complaints poured into Washington. It was sweet justice for many elected officials who were on the receiving end of Malone’s hardball tactics for nearly 20 years. Malone was well known for retaliating against local officials who opposed his unfettered rate increases by suddenly cutting off service to customers and putting up on-screen messages in the place of favorite channels with the names and phone numbers of elected officials Malone claimed were responsible.

Under Malone’s leadership, city officials and consultants working to bring a competing cable operator into Jefferson City, Mo., got a taste of TCI’s ruthlessness when Paul Alden, TCI’s vice president and national director of franchising personally threatened the mayor and a consultant working on the project.

“We know where you live, where your office is and who you owe money to. We are having your house watched and we are going to use this information to destroy you. You made a big mistake messing with TCI. We are the largest cable company around. We are going to see that you are ruined professionally.” Alden warned.

TCI later also claimed it had a First Amendment right to provide service wherever it wanted, with or without a cable franchise. It also threatened any would-be competitor with ruin. In Jefferson City, that would-be competitor eventually won $35 million in damages in a jury trial over TCI’s tactics.

Malone has made no secret he believes government officials are simply getting in his way. In 1999, The Guardian noted Malone is a big believer in telecom oligopolies:

He is scathing about regulatory attempts to prevent monopolies and mergers. Governments, he says, are “antediluvian” in their approach to the emerging new world economic order. Instead of trying to prevent mergers and collusion between media and communications companies, Malone says governments should actually promote the creation of “super-corporations” (such as his own) with enough capital to exploit the potential of new technology.

Malone has plenty of money to throw around. He engineered the sale of TCI Cable to AT&T and personally earned billions from the transaction. Three years later, AT&T sold those systems to Comcast.

Liberty Global has stayed on the sidelines of the cable business domestically, preferring to invest in cable networks and programming. Malone’s firm owns Starz!, which gave Netflix considerable trouble when the online video service lost the rights to a large number of recent movie titles. Netflix had negotiated a $30 million yearly deal with Liberty in 2008 which expired in early 2012. Renewal talks fell through when Liberty demanded $200 million annually to let Netflix keep streaming its movies.

Consumers in the United Kingdom may experience Dr. Malone’s idea of finesse soon enough, if shareholders and British regulators approve the buyout deal.

[flv width=”384″ height=”236″]http://www.phillipdampier.com/video/BBC News Liberty Global to buy Virgin Media for 23bn 2-6-13.flv[/flv]

BBC News reports the blockbuster deal will pit Dr. John Malone against his biggest rival, Rupert Murdoch. Virgin has five million customers in the UK and provides the country’s fastest broadband service. (2 minutes)

FCC Chairman Julius Genachowski’s cowardly lion act. The rhetoric rarely matched the results.

Washington insiders are predicting Federal Communications Commission chairman Julius Genachowski will leave his position early in President Obama’s second term.

It cannot come soon enough, as far as we’re concerned.

One of the biggest disappointments of the Obama Administration has been the poor performance of a chairman that originally promised a departure from the rubber stamp-mentality that allowed Big Telecom providers to win near-instant approval of just about anything asked from the Republican-dominated FCC of the Bush Administration. If only to underline that point, former FCC Chairman Michael Powell joined Republican ex-commissioner Meredith Atwell-Baker on a trip through the D.C. revolving door, taking lucrative jobs with the same cable industry both used to oversee.

We had high hopes for Mr. Genachowski when he took the helm at the FCC — particularly over Net Neutrality, media consolidation, and predatory abuse of consumers at the hands of the comfortable cable-telco duopoly. Genachowski promised strong Net Neutrality protections, better broadband — especially in rural areas, an end to rubber stamping competition killing mergers and acquisitions, and more aggressive oversight of the broadband industry generally.

What we got was the reincarnation of the Cowardly Lion.

The Washington Post reviews Genachowski’s tenure during the first term of the Obama Administration and reports he has few unabashed supporters left. Telecom companies loathe Genachowski’s more cautious approach and consumer groups hate his penchant for caving in when lobbyists come calling. In short, another Democrat that talks tough and caves in at the first sign of trouble.

“His tenure has been nothing but a huge disappointment because he’s squandered an opportunity to give consumers the competitive communications market they deserve,” Derek Turner, head of policy analysis at public interest group Free Press told the Post. “If someone like him upholds compromise, it quickly leads to capitulation, which is what he’s done. He folds…to the pressure of big companies.”

Genachowski’s Record:

• Heavily promoted rural broadband and oversaw a review program measuring actual broadband speeds against those claimed by providers. But much of the money available for improving rural broadband has been separately awarded to “middle mile” and “institutional networks” that are not accessible to most consumers or businesses. Genachowki has heaped automatic praise on many of the phone companies winning broadband funding, despite the fact many of them are satisfied giving consumers no better than 4Mbps service;
• Reformed the outdated Universal Service Fund, which long outlived much of its usefulness, into a broadband expansion fund. But some unintended consequences have led to some rural providers suspending network upgrades because of funding uncertainties still unresolved;
• Approved a blockbuster merger deal between Comcast and NBC-Universal that included temporary “hard-won” concessions Comcast later admitted they were going to offer anyway – merger or not. The result is a new high bar for tolerating super-sized media consolidation with no serious consideration of the impact on consumers. The latest evidence: support for Rupert “Phone Hacker” Murdoch’s latest efforts to buy more newspapers in the United States;
• Rejected an AT&T/T-Mobile merger deal, but only after the Justice Dept. took the lead dismissing it as an anti-consumer, anti-competition nightmare. Within hours, Genachowski’s office issued a “me, too” press release condemning the deal he said little about earlier;
• Demanded a strong Net Neutrality framework to protect the open Internet, but utterly caved under pressure from politicians receiving hefty corporate contributions from AT&T and others. The resulting loophole-ridden “protections” do not apply to wireless, and the industry-approved compromise is now the subject of a lawsuit filed by some of the same companies that earlier applauded Genachowski’s flexibility;
• Genachowski handed out his direct phone numbers to the CEO’s of the top Big Telecom companies, and has been directly lobbied by those “super-citizens,” while ordinary consumers are stuck filing comments with the FCC’s arcane Electronic Comment Filing System. Genachowski also directed closed-door meetings be held on the subject of Net Neutrality with large telecom companies. These meetings were closed to the public with no consumer representatives on hand;
• Genachowski refused to reclassify broadband as a “telecommunications service,” which would give the agency clear-cut authority to oversee the service. Instead, he has stuck with former FCC Chairman Michael Powell’s odd interpretation of broadband as “an information service,” not subject to much review by the agency;
• Appropriately nixed Philip Falcone’s LightSquared venture, the biggest threat to GPS navigation around. But Genachowski’s controversial early boosting of the venture, including support for expedited special permission to launch the network without the usual scrutiny, resulted in an embarrassing about-face after long-standing critics’ fears of navigation interference were vindicated;
• In 2012, Genachowski’s cozy relationship with the industry reached whole new levels with unabashed support for Internet Overcharging schemes like usage caps and consumption billing, despite no evidence justifying them. The FCC has continued to ignore repeated requests for a review of these pricing schemes.

Cohen

Comcast’s chief lobbyist stalled plans to unveil cheaper Internet service for the financially disadvantaged to use as bait to win regulator approval of its 2009 merger with NBC-Universal.

The Washington Post today reports David Cohen’s influence at the cable operator as its chief of lobbying has helped the cable company achieve its status as America’s largest cable operator and entertainment conglomerate.

Cohen has friends in high places thanks to his status as a Democratic Party money bundler. A self-styled “consigliere” to the Roberts family that controls the company, Cohen has overseen a transformation of Comcast from one cable operator among many into a high-powered force not to reckoned with in Washington or Silicon Valley.

Comcast’s growth into a mega-corporation with $58 billion in annual revenues came, in part, from dealmaking that won regulator approval in D.C. Maintaining good relations with those regulators is a Cohen specialty. It did not take the Post too long to find former FCC officials giving Cohen high praise:

• “Every meeting with David is incredibly substantive,” Eddie Lazarus, former chief of staff to the FCC told the newspaper. “He always comes with a willingness to find solutions.”
• “David loves politics, he loves government and he has incredible situational awareness — a 360-degree view of business,” said Blair Levin, a former senior adviser to FCC Chairman Julius Genachowski. “He’s just so good at what he does.”

Under Cohen’s leadership, Comcast has spent lavishly on its corporate lobbying and legal team. Today, 20 full time lobbyists work under Cohen’s direction, with dozens of others available on retainer. The company spent $8.3 million of its subscribers’ money solely on lobbying. The Post reports that makes Comcast the ninth biggest K Street spender, above Verizon.

The poor and disadvantaged had to wait for Comcast to seal the deal on their $30 billion acquisition of NBC-Universal before affordable Internet could become reality for them.

In 2009, Comcast insiders were hard at work on a discount program for the disadvantaged who could not afford Comcast’s regular prices for broadband service. But the program was stalled at the direction of Cohen, who wanted it to be a chip with regulators to win approval of its acquisition of NBC-Universal. The program, sure to be popular among advocates of the digitally disadvantaged, was a key part of approving the $30 billion deal.

“I held back because I knew it may be the type of voluntary commitment that would be attractive to the chairman [of the FCC],” Cohen said in a recent interview.

Regulators promoted Comcast’s “concession” to offer the discounted Internet service as a win for consumers as part of the final approval of the deal. In reality, Comcast was planning to offer the service anyway and finally introduced it in 2011 — two years after first being proposed inside the company.

That fact is a slight embarrassment to current FCC chairman Julius Genachowski, who has told audiences the discounted Internet program was partly to his credit.

“This particular program came from our reviewing of the Comcast NBC-U transaction,” Genachowski said in a speech. “Comcast embraced it as good for the country, as well as good for business. And I’m fine with that.”

Cohen defends Comcast’s lobbying expense as part of the company’s effort to combat scrutiny and challenges to its all-or-nothing video business model, denying customers access to a-la-carte programming.

Comcast’s scope has now grown so large, it has become a force few companies are willing to challenge, and those that try are quick to run into a blockade of Comcast lawyers, lobbyists, and carefully constructed contracts that protect the company’s bottom line from would-be competitors.

Deep pockets like Verizon, Apple, Netflix and Google have all tried… and failed to recast the cable television experience with on-demand programming, a-la-carte channels, and cord-cutting technology.

In response, Comcast has kept competitors tied down to the same cable packages that require subscribers to pay for everything, even if they seek only a few channels. Comcast leverages its broadband network with usage limits that effectively curtail cord-cutting among consumers looking to skip the TV package. Anyone seeking a place in today’s entertainment industry ends up dealing with Comcast sooner or later.

“They are hugely important because they can singlehandedly sink or swim multiple businesses that rely on the Internet ecosystem by virtue of controlling the dissemination of information through their pipes and now by supplying so much of the content,” said Joel Kelsey, a policy director at consumer interest group Free Press. “So many companies have come to us and ask we fight their battles for them because they are afraid of retribution.”

Cohen is well-compensated for his effectiveness. His latest three-year contract makes him one of the highest paid corporate lobbyists in Washington, with a $15 million annual compensation package and $3 million in bonuses, not including his ample stock holdings in Comcast.

His influence extends to the highest levels of the Obama Administration. Last summer, the family hosted a $1.2 million campaign fundraiser for President Obama, and the Cohens have separately contributed $877,000 to various campaigns. Comcast itself has spent $3.3 million in campaign contributions so far this year.

Softbank’s marketing is baffling to Americans. The company has produced more than 150 different ads featuring a “typical Japanese family” that is anything but. The Otosan (father) is portrayed as a white dog, accompanied by a more familiar Japanese mother, a daughter played by a famous Japanese pop star, and her African-American brother.

Softbank, Japan’s third largest cell phone company, is said to be in advanced talks with both Sprint-Nextel and Clearwire to acquire a $12.8 billion majority ownership interest in both companies, according to a report from Bloomberg News.

Softbank’s primary motivation isn’t a sudden interest in serving American cell phone users. It wants bigger discounts for expensive smartphones and other mobile equipment for its Japanese customers, and volume discount opportunities are wide open if the company can pool Sprint, Clearwire, and Softbank together as a single buyer.

CNBC reports Softbank originally sought a blockbuster deal with Deutsche Telekom’s T-Mobile USA, Sprint, and Clearwire to form one super-sized carrier, but the German owners of T-Mobile got cold feet and pulled out, fearing the Obama Administration’s antitrust concerns could ultimately torpedo the deal. DT recently proposed an offer for MetroPCS instead, a deal much more likely to pass regulator review.

The deal could provide much-needed financial backing for Sprint, currently embarked on its costly Network Vision plan to upgrade to 4G LTE service. Softbank also sees synergy with Clearwire, because both companies share the same frequencies and TDD LTE network technology, meaning smartphones compatible on one network will work on the other.

Sprint is still said to be considering making a counteroffer for MetroPCS, potentially pulling that company away from T-Mobile, while Leap Wireless’ Cricket also remains a potential takeover target.

Wall Street thinks a foreign player entering the U.S. market will have a much easier time winning regulator approval, because Softbank has no other interests in the U.S. market. The Justice Department and the Federal Communications Commission both ultimately rejected a previous attempt to merge AT&T and T-Mobile, fearing a larger AT&T would reduce competition and stifle innovation.

Softbank is a disruptive competitor in the Japanese cell phone market. It aggressively competes with KDDI and market leader NTT Docomo. The company is perhaps best known for its oddball, often mystifying marketing which features a talking dog interacting with well-known Hollywood stars, including Brad Pitt, Quentin Tarantino, and Tommy Lee Jones.

Ads feature a typical Japanese family played by atypical actors — a strict father played by a talking dog, a more familiar Japanese mother, a daughter played by a famous Japanese pop star, and her African-American brother. The ads are almost incomprehensible to North American audiences used to a more direct marketing approach. But Japanese audiences love the ads they consider both funny and more importantly, unexpected.

That latter theme is particularly important to Softbank’s image in the Japanese cell phone market. With 98.6% of the country ethnically Japanese, the unexpected family underlines the company’s efforts to shake up conventional cell phone service. Softbank is known for introducing unique plans that target different groups of cell phone users often neglected by larger carriers. First to take a chance with the iPhone to appeal to youth, Softbank also sells plans targeting older users that emphasize unlimited calling to family members.

If Softbank brings this type of marketing to the United States, it could challenge T-Mobile as America’s most disruptive carrier. Just don’t expect a talking dog to close the sale.

[flv]http://www.phillipdampier.com/video/CNBC Softbank Said to Be in Talks to Buy Sprint Nextel 10-11-12.flv[/flv]

CNBC covers the deal between Sprint, Clearwire, and Softbank that originally also included T-Mobile USA.  (3 minutes)

 [flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Softbank Tommy Lee Jones.flv[/flv]

Softbank’s legendary ads have been running since June, 2007 and are beyond prolific. More than 150 different ads featuring “the Shirato family” have been produced so far, often with blockbuster Hollywood talent playing along. But most prove baffling to English-speaking audiences, such as this one featuring Tommy Lee Jones as a threatening maid with a uni-brow. (1 minute)

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/SoftBank Quentin Tarantino.flv[/flv]

Quentin Tarantino hams it up in these two impenetrable ads for Softbank. The rough translation from Japanese does not help much. It starts with the older woman asking Otosan (the dog) if he’s going to a town called Tosa. Otosan says yes. Then, the younger woman asks if Tarantino is also going, and he replies: “I am Tara!” (In the longer version, Tarantino does his Samurai impression “Hai-ya! Samurai spirit! Get him with the Samurai sword! Ho-ha!”)  Otosan responds, “I’m determined to go to Tosa!” The older woman tells Tarantino to calm down. When the phone rings, the younger woman says, “It’s the phone,” and the older woman says, “It’s your wife.” Tarantino gasps. The wife asks for Tara. Tarantino responds, “I am Tara!” His wife yells, “Get home right now!” (1 minute)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/SoftBank Brad Pitt.flv[/flv]

Not every ad features the Shirato family. A barely recognizable Brad Pitt helps out while showing off some creative ways to use his built-in cell phone camera. (1 minute)