Time Warner Cable CEO Glenn Britt considers value conscious customers a nuisance, so much so the company has changed its promotions to make them less attractive to ‘big bang for the buck’-discount hunters.

Speaking at the Bank of America/Merrill Lynch Global Telecom & Media Conference in London, Britt said the company had to beef up its in-house customer retention specialists to try and keep frugal customers who signed up for aggressive triple-play promotions in the last two years that the company now wants to reset to a higher price.

“It’s easy to generate a lot more customers by being very aggressive on price,” Britt said. “It isn’t clear that those customers are profitable. They tend to be lower income — people who tend to rent as opposed to own their dwelling unit. They move a lot and sometimes they don’t pay very well. The real trick is to create the optimum profitability.”

“Going back to fourth quarter of 2011, we pushed too hard on volume and we had very aggressive offers in the marketplace,” Britt explained. “These typically stepped up in price after a year and we kept those offers in place through most of 2012. So we got a lot of customers – particularly voice customers. That seemed good at the time. What we found is as we try to step them up to higher prices, that they are not very sticky. They have worse/bad pay characteristics than our average customers. So that’s all been a problem. Quite frankly we did not prepare our retention centers for the volume of people who are in this. We’ve changed our offers so they are less rich and we’ve stood up and enhanced our retention centers.”

As a result of the changes, Time Warner Cable lost more voice customers than it gained for the first time. That does not bother Britt, who sees selling faster broadband to customers more profitable than discounting phone service to keep phone customer numbers up.

Britt: The Sale is Over

Chief operating officer Rob Marcus told investors this week the company was hiring more in-house customer service representatives in the retention department to keep customers from defecting after their promotional price expires. Time Warner used to outsource many of those last-ditch retention calls, but has now staffed at least 500 new customer service representatives in four retention centers around the country. At least 400 additional hires are expected by the end of the year.

“What that enables us to do is route a greater portion of calls from customers likely to disconnect to these specialists, as opposed to sending them to either our care queue or outsourced reps who we think are less effective at handling those kinds of calls,” Marcus said.

Britt said the biggest segment of customers threatening to disconnect are TV customers who can no longer afford the cable package due to increasing programming costs. Britt does not believe online video cord-cutting is a major threat.

Wireless Industry: We’re running out of spectrum!
Wireless Industry: We’ve got plenty to room for unlimited ESPN!

America is on the verge of a wireless traffic data jam so bad, it could bring America to its knees.

Or not.

Stop the Cap! notices with some interest that while wireless carriers continue to sound the alarm about a spectrum crisis so serious it necessitates further compressing the UHF television dial and forces other spectrum users to become closer neighbors, the same giant phone companies warning of impending doom are negotiating with online video producers to offer customers “toll-free,” all-you-cat-eat streaming video of major sports events that won’t count against your usage allowance.

ESPN is in talks with at least one major carrier (AT&T or Verizon Wireless) to subsidize some of the costs of its streamed video content so that customers can watch as much as they want without running into a provider’s usage limit. Both Verizon and AT&T have signaled their interest in allowing content producers to pay for subscribers’ data usage. In fact, they don’t seem to care who pays for the enormous bandwidth consumed by streaming video, so long as someone does.

At a recent investment bank conference Verizon Wireless chief executive Dan Mead explained the next chapter in monetizing data usage will allow the company to rake in more revenue from third parties instead of customers already struggling with high wireless bills.

“We are actively exploring those opportunities and looking at every way to bring value to our customers,” said Mead.

Content producers are increasingly frustrated with the stingy caps on offer at AT&T and Verizon Wireless because customers stop accessing that content once they near their monthly usage limit. One large provider admitted to ESPN that “significant numbers” of customers are already reaching their cap before the end of their billing cycle, after which their online usage plummets to limit the sting of overlimit charges.

Offering “toll-free” data could dramatically increase the use of high bandwidth applications and increase profits at wireless providers based on new fees they could collect from content producers. Customers would still be subject to usage limits for all non-preferred content, a clear violation of Net Neutrality principles.

The buffet is open.

But in case you forgot, wireless carriers won exemption from Net Neutrality, arguing their networks lack the capacity to sustain a Net Neutral Internet experience. These same companies claim without more frequencies to handle the massive, potentially unsustainable amount of wireless traffic, the wireless data apocalypse could be at hand in just a few years. It was also the most-cited reason AT&T and Verizon discontinued their unlimited use data plans.

But unlimiting ESPN video? No problem.

In January 2010, Verizon Wireless was singing a very different tune to the FCC about the need to control and manage high bandwidth applications like the “toll-free” streaming video service ESPN proposes (underlining ours):

Wireless broadband services face technological and operational constraints arising from the need to manage spectrum sharing by a dynamically varying number of mobile users at any time. Thus, unlike, for example, cable broadband networks, where a known and relatively fixed number of subscribers share capacity in a given area, the capacity demand at any given cell site is much more variable as the number and mix of subscribers constantly change in sometimes highly unpredictable ways.

Are wireless carriers now part of the problem?

For example, as a subscriber using a high-bandwidth application such as streaming video moves from range of one cell site to another, the network must immediately provide the needed capacity for that subscriber, while not disrupting other subscribers using that same cell site. Of course, the problem is magnified many times over as multiple subscribers can be moving in and out of range of a cell site at any given moment. Moreover, the available bandwidth can fluctuate due to variations in radio frequency signal strength and quality, which can be affected by changing factors such as weather, traffic, speed, and the nearby presence of interfering devices (e.g., wireless microphones).

These problems compound those resulting from limited spectrum. As the Commission has repeatedly recognized in proclaiming an upcoming spectrum crisis, “as wireless is increasingly used as a platform for broadband communications services, the demand for spectrum bandwidth will likely continue to increase significantly, and spectrum availability may become critical to ensuring further innovation.”

A wireless carrier cannot readily increase capacity once it has exhausted its spectrum capacity. Thus, wireless broadband providers are left to acquire additional spectrum (to the extent available) or take measures that use their existing spectrum as efficiently as possible, which they do through a combination of investing in additional cell sites and network management practices that optimize network usage and address congestion so as to provide consumers with the quality of service they expect.

Regulators need to ask why wireless companies are telling the FCC there is a bandwidth crisis of epic proportions that requires the Commission to exempt them from important Net Neutrality principles while telling investment banks, shareholders and content producers the more traffic the merrier, as long as someone pays. Customers also might ask why their unlimited use data plans were discontinued while carriers seek deals to allow unlimited viewing with their preferred content partners.

What is the real motivation? The Wall Street Journal suggests one:

“Creating a second revenue stream for mobile broadband is the holy grail for wireless operators but collecting fees from content companies would probably make the FCC take a close look into the policy implications,” said Paul Gallant, managing director at Guggenheim Securities. An FCC spokesman declined to comment.

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The Wall Street Journal takes a closer look at a plan to manage an end run around Net Neutrality by allowing preferred content partners to offer streaming video services exempt from your usage cap. (4 minutes)

The Heeley family have been Cox customers for over 15 years, buying cable television, broadband, and phone service that costs them nearly $200 a month.

With nearly $2,400 a year going into Cox’s bank accounts from their family alone, John Heeley was a little upset Cox sent him a warning message about his family’s “excessive Internet usage.”

“It seems we went over our usage cap by 40GB in April thanks to a rotten spring and a lot of Netflix viewing,” Heeley tells Stop the Cap! “I didn’t even understand the letter because I never knew there was a cap on the Internet.”

Cox, like certain other providers, have arbitrary usage limits on broadband accounts, with larger allowances granted to customers who upgrade to faster speeds for more money.

Heeley’s fiancé Shelley was angry after realizing just how much the couple already spends with Cox.

“I called them on the phone and the first thing they want to do is get you to upgrade and spend even more money with them,” she tells Stop the Cap! “They tried to vaguely threaten our service if we continued to ‘overuse the Internet’ and suggested we cut back or cancel Netflix which they think is the reason we went over the limit.”

Shelley says she was born at night, but not last night.

“How convenient they want you to stop using Netflix, Amazon, or other online video services that their cable TV competes with,” Shelley says. “It is unfair competition.”

Shelley requested a Cox supervisor and threatened the company right back, telling Cox if they sent one more letter like that, the Heeley family would take their business elsewhere.

“He told us quietly we could ignore the letter and any future letters and they will add a note on our account,” Shelley tells us. “He confided they have customers going over the limit all the time and the letter is really about educating customers about usage.”

It seems if Cox threatens you, threatening them back with account cancellation is usually the end of the story.

We found Broadband Reports‘ readers who exceed usage limits with Cox largely unafraid of any consequences:

• Rakeesh: I’ve gone everywhere from 300gb to 700gb over the cap for the last 19 months in a row. You’re fine.
• Skeechan: I have gone over too. The nastygrams seem to only be sent in selective markets. I am on Ultimate, perhaps that is why they haven’t sent me one since I have nowhere to go plan-wise. And being triple play since 1998 offers up a reliable and high ARPU. Of course that assumes they actually give a crap about common sense.
• Maltz: I went over my cap by about 30GB last month and got an email telling me that I was over. That was the end of it.

Stop the Cap! has hammered ISPs for a long time for promising “unlimited” broadband but sneaking in “traffic management speed throttles” they call a matter of fairness and we call deceptive marketing.

Virgin Media’s UK broadband customers have just been introduced to the extreme absurdity of selling “insanely fast” fiber broadband that comes with a sneaky spreadsheet guaranteed to confuse all but the most observant byte counters.

Some customers suspect Virgin Media is just retaliating for repeated findings from British regulators that the company runs dodgy advertising that promises one thing and delivers something entirely different in the fine print. More than two dozen of their TV commercials and print advertisements have been banned for deceptive ad claims, ranging from the “fastest broadband in Britain” (not exactly) to promotions promising “free service” that actually costs around £15 a month (what is a dozen quid or so among friends).

So why does Virgin Media need traffic management? They have oversold the service to too many customers and won’t invest enough in upgrades to keep up with demand.

Network overselling is more common that you might think. ISPs understand that all of their customers will not be online at the same time, so there is only a need to provision enough bandwidth to support their assumptions about anticipated usage. If your ISP serves a gated Luddite community, it won’t need the same data pipe required to provide access along University Row. The trick is to use real science and math to correctly anticipate user demand, but many ISPs answer first to their investors, who simply hate spending good money on upgrades. Expansion proposals are about as popular as North Korea’s Kim Jong-un. The result is “good enough” broadband service that is susceptible to overcrowding during prime usage times.

You already know what happens next. Once the kids are home from school and dinner is finished, your online experience quickly s l  o   w    s     t    o     (buffering).

In Britain, some ISPs are notorious for overselling broadband service that advertises speeds in the dozens of megabits, but can’t even break 1Mbps during peak usage times.

How can this be fixed? With investment in upgrades. What do ISPs do instead? They slap on usage caps and “network management” speed throttles that artificially slow browsing speeds for those considered “heavy users.”

Virgin Media was supposed to be a breath of fresh air from usage caps. Instead, the company promises a truly unlimited experience, with limitations.

Virgin’s latest iteration of its “peak time usage policy” resembles a tax table from the Internal Revenue Service. Can you understand it?

Despite this, Virgin calls its broadband service “to all intents and purposes, completely unlimited.”

Where is that British regulator, again?

The company claims less than 3% of its customers will ever be affected by these limits. They might be right if customers avoid online video, downloading large files or games, cloud storage, or allowing other family members to use their connection at the same time. If one is subjected to the speed throttles, Virgin will take away nearly half of the speed customers were sold.

Here is Virgin’s position on all this:

“Our 100Mb customers receive speeds up to 104.6Mb, proven by Ofcom, and even if you’re one of the 2.3 per cent of heavy users we sometimes, temporarily traffic manage you’ll be receiving speeds of around 60Mb — so you can download and stream as much as you like.Today’s update makes it more flexible and responsive to how people are using our services and is designed to reduce the time customers may spend in traffic management, it could be just one hour. We do not have caps, nor do we charge customers more.”

That is true, but Virgin is charging a premium for broadband service speeds they are prepared to automatically take away when a customer persists in using the service they paid to receive.

Virgin could pay their experts to conjure up speed management charts like the one above, or they could invest in network upgrades that make such network management techniques unnecessary.

Time Warner Cable and Cablevision customers: Is Charter Cable in your future?

The best way the cable industry can grow revenue in the lucrative broadband business is to bring back the same type of collusion and control cable companies maintained over video programming 20 years ago.

Dr. John Malone did not want to sound nefarious in his recent interview with CNBC’s David Faber, but the new part-owner of Charter Communications has built a reputation as cable’s Darth Vader over the last 30 years. His detractors consider his way of doing business akin to a nationwide cable mafia, complete with exclusive, non-competitive territories that assure operators can charge sky-is-the-limit prices.

Malone is now back in the cable business in a big way, and analysts expect he will quickly amass influence in an industry he once led as CEO of the nation’s then-largest cable operator — Tele-Communications, Inc. (TCI).

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Why is John Malone back in the cable business and why buy a piece of Charter Cable? Malone tells CNBC’s David Faber Charter is a company with enormous growth potential through mergers and acquisitions. CNBC says Malone could be targeting Time Warner Cable and Cablevision for acquisition by Charter as early as next year. “There is consolidation yet to be done,” Malone hints.  (7 minutes)

Malone notes the cable industry is on the cusp of transformative consolidation through collaborative agreements, mergers, and outright acquisitions both here and abroad. CNBC speculated that could begin with efforts to further reduce the number of cable operators in the United States, perhaps beginning with a deal by Charter Communications to acquire both Time Warner Cable and Cablevision, which could combine under Malone’s stewardship and Charter’s executive leadership to “compete” with Comcast.

Dr. John Malone

CNBC reporters note Malone has high praise for Thomas Rutledge, CEO of Charter Communications. Rutledge’s earlier experience working for both Time Warner Cable and Cablevision could be an asset in combining all three companies into one. Analysts speculate such a deal could be pitched as early as 2014 when Time Warner Cable will undergo a management makeover with the departure of CEO Glenn Britt. CNBC also noted Cablevision’s imminent sale has been rumored for years, and current leader and family patriarch Chuck Dolan is 87 years old. With cheap credit and Malone’s business savvy, both companies could find themselves part of a Malone-engineered takeover that would vastly expand Charter Communications into the second largest cable operator in the country.

Malone sees the days of traditional cable television coming to an end as consumers turn to “over the top” online video for an increasing share of their viewing time. As cable television rates continue to increase, customers are cutting the cord. Malone believes today’s bloated cable packages are ripe for an upheaval from a-la-carte pricing or theme-based programming bouquets that break expensive sports programming or movie channels out of the traditional basic cable lineup. Malone even suspects a challenge to the industry’s current price models could surprisingly come from the programmers themselves.

Sports networks will be among the first to notice their affiliate revenue collected from cable and satellite companies (and passed on to customers in the form of higher rates) will stagnate as customers drop cable television. Declining viewer ratings also mean lower ad revenues. Malone believes at some point sports teams and/or programming networks will decide that the biggest barrier to winning new viewers is the $70-80 asking price for basic cable. If sports programmers find they can reach new audiences selling their programming online, direct-to-consumer, for $5-10 a month, the basic cable all-for-one-price model will quickly collapse.

“As the cable guys and the satellite guys start to lose customers to the over-the-top guys, some of those economics will be reflected back on the sports guys,” Malone said. “They’ll start losing advertising revenue. They’ll lose affiliate revenue. And they have to face reality that maybe you need to segregate your market like everybody else.”

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John Malone predicts the demise of the traditional bundle of cable television programming within five years. The future is streamed video online, declares Malone, so it is important the cable industry move to manage that competitive threat by acquiring streaming competitors or launching their own services to assure video programming revenue can be protected.  (5 minutes)

Malone sees the future sustainability of the cable industry dependent on the high revenue broadband business.

“I think it is at a point in history when the most addictive thing in the communications world is high-speed connectivity,” Malone told CNBC. “Everywhere in the world that we operate, we’ve just seen the public want more and more data rate. Whether it’s wireless or wired. There’s a big appetite for it. Cable technology right now is the most cost-effective way to deliver that growth in speed.”

Malone believes there is also plenty of room for revenue growth and cost-cutting, which he said can best be accomplished by getting other cable operators together to “cooperate” and “coordinate” broad scale broadband projects that counter competitive threats from third parties.

Malone helped pioneer the cable industry business practice of “don’t compete in my backyard and I won’t compete in yours,” an informal agreement among operators to stay within their own specific territories, safe and secure from competition. In the 1980s and 1990s, Malone’s TCI was one among many cable operators buying and swapping cable systems to build large, regional system “clusters” where only a single cable company provides service, winning economy of scale and a formidable presence that discouraged other wired competitors from entering the business. In most cities, only the deep pockets of AT&T (U-verse) and Verizon (FiOS) have managed to shake things up.

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Bring back the cable mafia? CNBC’s David Faber gets John Malone to admit vertical and horizontal integration — controlling the content and the pipeline — are important factors to protect cable revenue and expand American dominance in cable internationally. Malone is also a big supporter of industry consolidation and believes mergers and acquisitions are necessary to shrink the number of cable operators in the United States. (5 minutes)

The cable mafia?

Malone wants broadband to be carefully managed under the industry’s own control and direction.

Faber asked if Malone wanted to bring back the days of the “cable mafia.”

“Yes, I think we do want to bring back the days of @Home, the days of Ted Turner, the days when we all got together, because together we provided national scale,” Malone said. “Now I think we have the opportunity to create global scale,” he said. “The goal is not to be bigger. The goal is to be more cost-effective.”