It’s all hands on deck for a cable industry desperate to protect billions in revenue earned from a monopoly stranglehold on the set-top box, now under threat by a proposal at the FCC to open up the market to competition.

While cable industry groups decry the proposal as a solution looking for a problem, at least 99 percent of cable customers are required to lease the equipment they need to watch pay television. That has become a reliable source of revenue for the industry and set-top box manufacturers, who share the $231 each customer pays a year in rental fees. Collectively that amounts to $20 billion in annual revenue. The FCC argues there is ample evidence cable operators and manufacturers are taking advantage of that captive marketplace, raising rental fees an average of 185% over the last 20 years while other electronic items have seen price declines as much as 90 percent.

With that kind of money on the line and a recent statement from the Obama Administration it fully supports FCC Chairman Thomas Wheeler’s proposal, Wall Street has gotten jittery over cable stocks — a clear sign investors are worried about the economic impact of additional competition and lower prices.

Wheeler

“Instead of spending nearly $1,000 over four years to lease a set of behind-the-times boxes, American families will have options to own a device for much less money that will integrate everything they want — including their cable or satellite content, as well as online streaming apps — in one, easier-to-use gadget,” Jason Furman, chairman of the Council of Economic Advisers, wrote in a White House blog post.

The proposal would coordinate the establishment of an “open standard” for set-top box technology, making it possible for multiple manufacturers to enter the market and compete.

The idea is not without precedent. The cable modem marketplace uses a DOCSIS standard any manufacturer can use to launch their own modem. Once the modem is certified, broadband consumers can choose to either rent the modem from their cable operator ($10 a month from Time Warner) or buy one outright, usually for less than $70, easily paying for itself in less than one year.

But the set-top box proposal just doesn’t add up, argues Comcast — one of the strongest opponents of Chairman Wheeler’s proposal.

“A new government technology mandate makes little sense when the apps-based marketplace solution also endorsed by the FCC’s technical advisory committee is driving additional retail availability of third-party devices without any of the privacy, diversity, intellectual property, legal authority, or other substantial concerns raised by the chairman’s mandate,” wrote David Cohen, Comcast’s top lobbyist.

The National Cable and Telecommunications Association (NCTA) — the country’s largest cable industry lobbying group, said much the same thing.

The Roku set-top streaming device.

“By reading the White House blog, you have to wonder how they could ignore that the world’s largest tech companies — which are often touted in other Administration initiatives — including Apple, Amazon, Google, Netflix and many others are providing exactly the choice in video services and devices that they claim to want,” the NCTA wrote.

Their argument is that a competitive set-top box market has already emerged without any interference from the FCC. Time Warner Cable, for example, voluntarily offers most of its lineup on the Roku platform. Comcast’s XFINITY TV app allows subscribers to watch cable channels over a variety of iOS and Android devices. Several operators also support videogame consoles as an alternative to renting set-top boxes.

But few allow customers to completely escape renting at least one set-top box, especially for premium movie channels. Others don’t support more than one or two streaming video consoles like Roku, Apple TV, or Amazon Fire TV.

In Canada, cable customers can often buy their own set-top boxes and DVRs (known as PVRs up north) from major electronics retailers like Best Buy. For example, Shaw customers in western Canada can purchase a XG1 500GB HD Dual Tuner PVR with 6 built-in tuners and a 500GB hard drive (upgradable), which supports recording up to 6 HD shows simultaneously, for under $350. With some cable companies charging up to $15 a month for similar equipment, it would take just under two years to recoup the purchase cost. Many cable subscribers rent the same DVR for as long as five years before the hard drive starts acting up, necessitating replacement (of the drive).

Endangered cable network? Minority programmers say set-top box competition will destroy their networks.

Arguing the technical issues of cable box competition isn’t apparently enough of a winning argument, so the industry has drafted the support of minority cable programmers and friendly legislators who have taken Hyperbole Hill with declarations that set-top box competition will result in “the ultimate extinction of minority and special-interest programmers.”

How?

A competitive set-top box manufacturer may decide to ignore the way cable channels are now numbered on the cable dial. With everything negotiable, many programmers offer discounts or other incentives to win a lower channel number, avoiding the Channel Siberia effect of finding one’s network on a four digit channel number that channel surfers will likely never reach.

Their fear is that an entity like Google or Apple will pay no attention to how Comcast or Time Warner chooses to number its channels, and will use a different system that puts the most popular channels first.

Fees: $34.95 for TV package, $35.90 in equipment and service fees.

But that assumes consumers care about channel numbers and not programs. Those who argue the days of linear TV are coming to an end doubt opening the set-top box market up for competition presents the biggest threat to these minority and specialty programmers. Those that devote hours of their broadcast day to reruns and program length commercials are probably at the most risk, because they lack quality original programming viewers want to see.

Hal Singer, who produces research reports for the telecom industry-backed Progressive Policy Institute, even goes as far as to suggest competitive set-top boxes will discourage telephone companies from building fiber to the home service, because they won’t get the advertising revenue for TV service they might otherwise receive from a captive set-top box market. But Singer ignores the fact Verizon effectively stopped substantial expansion of its FiOS network in 2010 (except in Boston) and AT&T now focuses most of its marketing on selling DirecTV service to TV customers, not U-verse – it’s fiber to the neighborhood service.

But Singer may be accurate on one point. If the cable industry loses revenue from set-top box rental fees, it may simply raise the rates it charges for cable television to make up the difference.

“So long as high-value customers for home video also demand more set-top boxes—a reasonable assumption—then pay TV operators can use metering to reduce the total price of home entertainment for cable customers,” Singer opines. “If this pricing structure were upended by the FCC’s proposal, economic theory predicts that pay TV prices would rise, thereby crowding out marginal video customers.”

Comcast is taking its well-known reputation for being loathed in the cable business to the world of theme parks, where a trip to Comcast-owned Universal Studios Hollywood will now cost visitors 21% more for a walk-up one-day pass.

The cable operator believes it has left your money on the table, under charging for visits to the popular tourist destination. It has corrected that with the introduction of “on-demand pricing,” just a few weeks before the April 7 opening of its new Harry Potter attractions.

Steve Burke, who runs Comcast’s theme park and entertainment divisions, realized Comcast has “underestimated the theme parks business.” So it has raised prices… a lot, just in time for the arrival of The Wizarding World of Harry Potter, featuring a giant castle, magic wand shops and a simulated ride on a broomstick that has caused even seasoned employees at the park to retch.

Also likely to turn stomachs is the new $115 per adult one-day pass price. One theme park designer told Bloomberg News he anticipated Harry Potter-related attractions will bring at least one million new visitors to the park, which will deliver a handsome $115 million to Comcast’s coffers.

Those looking for a less expensive ticket will need to plan well ahead and visit when park attendance is at its lowest, typically on weekdays. The new “on-demand pricing” means visitors will buy tickets like airline seats. Monday-Friday visits in April will cost $95, according to the website. Advance purchases of tickets good only on a specified Saturday or Sunday cost $105. If you don’t want to wait in line, you can buy “front of the line” passes for $179-239 per person. The $115 ticket is what visitors will get when they don’t buy tickets in advance.

But Comcast stands ready to collect even more from your visit, from food and beverage sales to ubiquitous Harry Potter merchandise. An “interactive wand” will set you back $48, a Hogwarts-approved tie costs $32, and a wizarding robe will make your pocketbook disappear at $110 each.

Comcast isn’t the only theme park owner in a hurry to raise rates. Variable pricing has also taken hold at Walt Disney theme parks. Ticket price inflation is already putting a strain on many visitors’ vacation budgets. At the Magic Kingdom in Walt Disney World in Orlando, single-day adult admission rose from $85 in 2011 to $89 in 2012, $95 in 2013, $99 in 2014, to $105 in 2015.

The Communications Workers of America has told the New York Public Service Commission it should reject Altice’s proposal to buy Cablevision for more than $17 billion, claiming it’s a bad deal for customers and employees alike.

Citing Altice’s massive debt and the company’s documented history of cutting expenses and investment, Dennis Trainor, vice president for the CWA-District One, said approving the deal would load Cablevision down in debt, making any significant investments in Cablevision’s future doubtful.

“This is a bad deal for Cablevision customers and employees,” Trainor said. “Altice overpaid for Cablevision, and is financing that overpayment by loading Cablevision with debt. That will inevitably lead to worse service for customers.”

The CWA also heavily criticized Altice and Cablevision for stalling sharing documentation with the labor union as ordered by a New York Administrative Law Judge. It filed initial comments opposing the transaction with the PSC under protest.

“As late as the morning of Feb. 5, [the Joint Applicants] have continued their grudging and incomplete disgorgement of relevant and probative material to which CWA is entitled,” the CWA wrote. “CWA now possesses documents and data which are contradictory and require reconciliation.”

The CWA considers the deal good for Altice and Cablevision’s owners and investors, but a raw one for customers.

“For example, Cablevision’s top five executives will have almost $160 million in ‘golden parachute’ compensation available to them under certain circumstances if the transaction is approved, of which almost $100 million will become automatically triggered and payable upon consummation of the merger,” the CWA stated. “In sum, after the transaction closes, Cablevision will be the same company, with the same plant and equipment, but with substantially more debt and relatively little cash on hand,” the CWA concluded.

The CWA also cited Stop the Cap!’s own reporting of the consequences of increasing debt and reduced investment at SFR, an Altice-owned telecommunications provider in France:

“We refer the Commission to publicly available reports of a collapse of service quality for customers of SFR, one of France’s largest telecom service providers, owned by Altice. This has caused a doubling of complaints from wired customers between 2014 and 2015 and a corresponding increase in complaints about wireless service of 50%. Altice had two responses: First, it blamed the company it purchased SFR from ‘we pay the price of underinvestment from the previous [owner]’. Second, it disputes whether the level of complaint is unacceptable ‘For now, we are not very good, but we are not bad.'”

New York City’s Office of the Public Advocate is no fan either. In its filing, the OPA also cited Altice’s enormous debt load, which has increased dramatically over the last four years.

“[Altice CEO Patrick] Drahi has already driven away customers and alienated employees in France since his acquisition [of SFR],” writes the OPA. “In SFR’s case, Altice eliminated costs to boost SFR’s profit margins. Among Altice’s practices with SFR were: efforts to stall payments for suppliers, initiating salary and job cuts, and a reduction in spending on meaningful service upgrades.”

The OPA also cites reporting by Stop the Cap! documenting how SFR performed after being acquired by Altice.

Leticia James, Public Advocate for the City of New York

“We know, for example, SFR was forced to completely stop paying suppliers in order to force a renegotiation for cheaper supplies,” writes the OPA. “The French government appointed a mediator to resolve the issues. Moreover, these business practices failed to effectuate Altice’s goals. Just four months ago, Altice reported ‘worse-than-expected’ third quarter results for SFR that drove the company’s shares down 10 percent. In fact, SFR lost one million customers in just one year. Investors correctly attribute customer losses to Altice’s aggressive cost-trimming. As one expert explains, ‘the savings came first immediately and now the churn (or customer defection) goes up.’ Another analyst describes Altice’s ‘dangerous’ actions as not only cutting out the fat, but also the meat and the bones.”

The PSC staff reviewing the transaction also expressed concern that Altice’s willingness to keep data caps at its other acquisition Suddenlink may result in similar data caps being implemented on Cablevision customers after the merger.

Especially notable to the PSC staff was the fact that under Suddenlink’s 1000/50Mbps data-capped plan, “if the connection is utilized at its rated speeds […] a customer could reach the data cap in less than two hours.”

“If Altice were to import Suddenlink’s pricing into Cablevision service territory and impose data caps on its existing plans, some customers would be forced to upgrade not for the increased speed, but for larger data caps,” the PSC staff wrote. “For example, customers on Cablevision’s low-end 5Mbps plan, if limited to a 250GB monthly cap, would technically be able to hit their cap after just five days of constant use. More practically, they would be limited to approximately 83 hours (a little less than three hours a day) of video streaming, if the connection were not used for anything else.”

“Simply put, the introduction of Suddenlink-type data caps in Cablevision’s New York service territory post-transaction would limit the ability of New York consumers to utilize their broadband connections at their own discretion, as they currently enjoy with Cablevision service today, and would lessen the ability of over-the-top voice and video providers to compete with Cablevision’s bundled services,” the PSC staff concluded. “The imposition of Suddenlink-type data caps would be a significant detriment to New York consumers, and should not be allowed as a condition of the transaction.”

DirecTV under AT&T’s ownership is turning out to be no bargain for customers finding it increasingly tough getting a promotional rate package with the satellite provider.

Fred Johnson has been a DirecTV customer in rural Iowa for almost six years and has had to call DirecTV every time his on-contract promotion nears an end. Off-contract customers generally do not receive the best promotions and DirecTV’s regular prices can make the average cable company blush.

“It is not unusual for DirecTV customers to get quoted rates of $80 a month for satellite television and then receive a bill for over $100 once the surcharges, rental fees, taxes, and other hidden fees are added to your bill,” Johnson tells Stop the Cap! “There are months when the bill can go up even higher with no explanation, and even the customer service department cannot explain all the mysterious charges.”

At the end of the usual two-year contract, it has become customary for many long time DirecTV customers to call and threaten to cancel if they cannot get a renewed promotional rate, and for years DirecTV had been happy to oblige.

In 2015, AT&T bought the satellite provider and is in the process of integrating it as part of the AT&T family of services, next to U-verse, AT&T Mobility, and traditional landline service. That is the year the discounts seemed to evaporate for customers like Johnson and Evelyn Wiedmer, who subscribes to DirecTV for the family’s recreational vehicle.

Recreational vehicle owners are among the most loyal to satellite television.

“We were just told our bill was going to increase $45 a month starting in February and there is little we can do about it,” Wiedmer tells us. “The call center lady mentioned that the new owner of DirecTV is going in a different direction with promotions and we no longer qualify for any specials, unless we also want to get an AT&T cell phone.”

Wiedmer and her husband are retired and travel the country in their RV and do not have room in the budget to pay AT&T an extra $540 a year for the same package of channels they used to get for about $65 a month.

“They apparently do not want us to be customers anymore because DISH Networks will sell us a comparable package for about $60 a month, which is much less than the $105 DirecTV is charging us starting next month,” Wiedmer writes. “It looks like DirecTV won’t be competing with AT&T U-verse and the cable company anymore at their prices.”

Critics charge that is exactly the point. Adam Levine-Weinberg called the AT&T-DirecTV merger “one more step towards oligopoly,” warning approval of the merger would remove a serious competitor for tens of millions of customers also served by AT&T U-verse.

“That means there [were] tens of millions of people who [had] a choice between AT&T and DirecTV (as well as the local cable company and satellite TV rival DISH Networks,” said Levine-Weinberg. “The merger [reduced] many consumers’ pay-TV options from four to three, giving the remaining companies more pricing power.”

AT&T is flexing that pricing power by pulling back on promotions and discounts. In addition to curtailing retention plans and promotions for existing customers, AT&T also announced rate increases for DirecTV that take effect tomorrow:

The monthly pre-tax price of DirecTV’s “Select” and “Entertainment” programming tiers will go up by $2, to $51.99 and $61.99, respectively. The “Choice” and “Xtra” bundles will increase $4 to $74.99 and $81.99, respectively; the “Ultimate” pack will go up $5 a month to $91.99; and the “Premier” bundle will grow by $8 to $144.99. That is well over $150 a month after taxes and fees are added, just to watch television. AT&T is also applying a 50 cent increase to a fee DirecTV charges for… selling television service. The so-called “TV Fee” will now cost $7.00 a month.

(Courtesy: zidanetribal17)

“You used to switch to satellite to save money, but now cable companies offer returning customers lower prices than what DirecTV will offer,” notes Johnson. “It’s almost like they want to drive customers away. It worked. Our neighbors are now collecting money to convince Mediacom to extend their cable down our rural street and after these price increases we finally have enough willing to contribute to switch to cable television and remove the satellite dishes from our rooftops.”

Wiedmer has also canceled her DirecTV service this week, switching to DISH Networks.

“Would you sign another two-year contract agreeing to pay $540 more a year for two years with nothing in return for the extra money?” Wiedmer asks. “AT&T and DirecTV can take a hike.”

A behind the scenes struggle between DISH Networks and Charter Communications over DISH’s online video service Sling TV has led to an admission by a Wall Street analyst that “usage-based billing” is an important tool for stifling over-the-top online video competition.

On Dec. 21, DISH’s legal team sent a letter to the FCC complaining about Charter’s attempts to “address” the competitive threat of Sling TV, DISH’s online video alternative to cable television.

“Charter’s laser-like focus on Sling TV shows that it views Sling TV as a serious competitive threat rather than a benign interest,” wrote DISH’s attorneys. “Charter is focused on protecting its video subscriber base rather than enhancing the broadband Internet experience for its subscribers. Charter’s documents further reveal thinly veiled complaints to programmers about making their programming available to Sling TV and other [online video] products.”

In the highly redacted filing, Dish suggested Charter was making thinly veiled threats to Disney and Scripps Networks over their willingness to allow their content to be included on Sling TV. DISH has complained to the FCC the cable company was attempting to undermine the new competitor.

A sample from DISH lawyer’s highly redacted submission to the FCC shows much of this fight is occurring out of public view.

On Thursday, the FCC also received an ex parte filing alerting the public that Time Warner (Entertainment) and HBO executives privately met with FCC staff last week, at their invitation, telling them Charter was likely threatening other programmers with unspecified action if they continued to allow their programming to appear on Sling TV.

In that meeting, HBO executives suggested “New Charter” — the combination of Charter Cable, Time Warner Cable, and Bright House Networks — “would be inclined to take action directed at programmers” if services like Sling TV continued to grow. Those threats seem to have been confirmed by Charter CEO Thomas Rutledge, who warned the company would take ‘competitive action’ against programmers selling content to the competition.

In the past, several cable executives have hinted that allowing wider distribution of cable networks over competitors’ networks or direct-to-consumer would dilute the value of those networks to cable operators. That would likely lead to demands for reduced prices when cable networks sought contract renewal. Some cable companies might also drop those networks altogether, arguing customers can get them elsewhere. Either retaliatory move would cut viewer numbers, which in turn would force networks to charge less for advertising.

That the FCC would invite further discussions on the issue of online video competition has some on Wall Street concerned about the prospects of Charter winning approval to buy Time Warner Cable and Bright House.

On Friday, BTIG analyst Richard Greenfield wrote investors, wondering if “we should be less confident in deal approval than we currently are.” With both the Justice Department and the Obama Administration pushing hard for competitive online alternatives to cable television, the FCC may be worried allowing New Charter to have 25-30 percent of the broadband market. With broadband a prerequisite for signing up for services like Sling TV, Rutledge’s “competitive action” could dissuade consumers from choosing online video instead of cable television.

New Street Research analyst Jonathan Chaplin admitted one of Charter’s strongest potential weapons against online video competitors is usage-based Internet billing. That Charter has committed to avoiding usage pricing for the next three years would seem to delay any attempt by Charter to deploy usage caps and usage pricing to stop online competition.

But three years may also not be long to wait, especially if the current “cap-free” commitment helps win merger approval. Chaplin believes Charter’s current commitment to not impose usage caps weakens DISH’s argument, but it could be the subject of special conditions from regulators if the deal is ultimately approved.

The topic appears to be sensitive enough to have provoked Charter to push back hard against DISH and Time Warner (Entertainment) in a blog post published last Friday afternoon.

We are happy to report that the vast majority of stakeholders are pleased with the merger and excited about New Charter.  It’s no surprise, though, that there are some who seek to use the regulatory review process to extract concessions or conditions that further their business goals.  Following the well-worn play book, to achieve that goal, they must first try to discredit the merger, but their allegations are often not based on the facts. For example, charges by Dish and Time Warner’s HBO that New Charter will harm Online Video Distributors simply do not make sense. As we have demonstrated, there is no more OVD-friendly provider than Charter, with our slowest speed at 60Mbps, no data caps, no usage-based billing, no annual contracts and no modem fees. Additionally, we’ve committed that New Charter will offering settlement-free peering to Internet companies, which means we will continue to invest in interconnection to avoid congestion. Netflix CEO Reed Hastings, a supporter of the transaction, stated “the key thing about the Charter deal is it’s all Internet companies that benefit — us, Hulu, Amazon, HBO Now — so that we can all compete for consumers’ affection.”