“Hey look, is that the Verizon FiOS truck?”

New York City comptroller Scott Stringer is lukewarm at best about the idea of Comcast taking over for Time Warner Cable. In a letter to the New York Public Service Commission released today, Stringer says the deal needs major changes before it comes close to serving the public interest.

“As New York City residents know all too well, our city is stuck in an Internet stone age, at least when compared to other municipalities across the country and around the world,” Stringer wrote. “According to a study by the Open Technology Institute at the New America Foundation, New Yorkers not only endure slower Internet service than similar cities in other parts of the world, but they also pay higher prices for that substandard service. Tokyo residents enjoy speeds that are eight times faster than New York City’s, for a lower price. And Hong Kong residents enjoy speeds that are 20 times faster, for the equivalent price.”

Stringer should visit upstate New York some time. While the Big Apple is moving to a Verizon FiOS and Time Warner Cable Maxx or Cablevision/Optimum future, upstate New York is, in comparison, Raquel Welch-prehistoric, especially if your only choice is Verizon “No, We Won’t Expand DSL to Your House,” or Frontier “3.1Mbps is Plenty” Communications. If New York City’s speeds are slow, upstate New York speeds are glacial.

“The latest data from the FCC shows that, as of June 30, 2013, over 40 percent of connections in New York State are below 3Mbps,” Springer added.

Come for the Finger Lakes, but don’t stay for the broadband.

Should the merger be approved, Comcast would be obligated to comply with the existing franchise agreement between Time Warner Cable and the City of New York. However, in order for the proposed merger to truly be in the public interest, Comcast must have a more detailed plan to address these ongoing challenges and to further close the digital divide that leaves so many low-income New Yorkers cut off from the information superhighway. To date, Comcast’s efforts to close the digital divide have focused on its “Internet Essentials” program, which was launched in 2012.iii The program offers a 5 megabit/second connection for $9.95/month (plus tax) to families matching all of the following criteria:

• Located within an area where Comcast offers Internet service
• Have at least one child eligible to participate in the National School Lunch Program
• Have not subscribed to Comcast Internet service within the last 90 days
• Does not have an overdue Comcast bill or unreturned equipment

While the aim of the program is laudatory, its slow speed, limited eligibility, and inadequate outreach have kept high-quality connectivity beyond the reach of millions of low-income Americans. Not only are the eligibility rules for Internet Essentials far too narrow, but the company has done a poor job of signing up those who do meet the criteria. In fact, only 300,000 (12 percent) of eligible households nationwide have actually signed up since the program was launched in 2011.

It is critical that the PSC not only press Comcast to significantly expand the reach of Internet Essentials, but also that it engage in appropriate oversight to ensure that the company is meeting its commitments to low-income residents of the Empire State.

Phillip “Comcast isn’t the answer, it’s the problem” Dampier

In fact, the best way New York can protect its low-income residents is to keep Comcast out of the state. Time Warner Cable offers everyday $14.99 Internet access to anyone who wants it as long as they want it. No complicated pre-qualification conditions, annoying forms, or gotcha terms and conditions.

When a representative from the PSC asked a Comcast representative if the company would keep Time Warner’s discount Internet offer, a non-answer answer was the response. That usually means the answer is no.

“We have seen how telecommunications companies will promise to expand access as a condition of a merger, only to shirk their commitments once the merger has been approved,” Springer complained. “For instance, as part of its 2006 purchase of BellSouth, AT&T told Congress that it would work to provide customers ‘greater access and more choices for broadband, no matter where they live or work.’ However, later reports found that the FCC relied on the companies themselves to report their own merger compliance and did not conduct independent audits to verify their claims.”

Big Telecom promises are like getting commitments from a cheating spouse. Never trust… do verify or throw them out. Comcast still has not met all the conditions it promised to meet after its recent merger with NBCUniversal, according to Sen. Al Franken (D-Minn.).

Stringer also blasted Comcast for its Net Neutrality roughhousing:

While the FCC has not declared internet providers to be “common carriers”, state law has effectively done so within the Empire State. Under 16 NYCRR Part 605, a common carrier is defined as “a corporation that holds itself out to provide service to the public for hire to provide conduit services including voice, data, or video by electrical, electronic, electromagnetic or photonic means.”

Importantly, the law requires these carriers to “provide publicly offered conduit services on demand to any similarly situated user on substantially similar terms, subject to the availability of facilities and capacity.”

In recent months, Comcast has shown that it is willing to sacrifice net neutrality in order to squeeze additional payment out of content providers, such as Netflix. As shown in the chart below, Netflix download speeds on the Comcast network deteriorated rapidly prior to an agreement whereby Netflix now pays Comcast for preferential access.

Consumers have a legitimate fear that if access to fiber-optic networks is eventually for sale to the highest bidder, then not only will it stifle the entrepreneurial energy unleashed by the democratizing forces of the Internet, but will also potentially lead to higher prices for consumers in accessing content. Under that scenario, consumers are hit twice—first by paying for Internet access to their home and second by paying for certain content providers’ preferred access.

Internet neutrality has been a core principle of the web since its founding and the PSC must examine whether Comcast’s recent deal with Netflix is a sign that the company is eroding this principle in a manner that conflicts with the public interest.

Stringer may not realize Comcast also has an end run around Net Neutrality in the form of usage caps that will deter customers from accessing competitors’ content if it could put them over their monthly usage allowance and subject to penalty rates. Comcast could voluntarily agree to Net Neutrality and still win by slapping usage limits on all of their broadband customers. Either causes great harm for competitors like Netflix.

“I urge the Commission to hold Comcast to that burden and to ensure that the merger is in the best interest of the approximately 2.6 million Time Warner Cable subscribers in New York State and many more for whom quality, affordable Internet access remains unavailable,” Stringer writes. “And I urge Comcast to view this as an opportunity to do the right thing by introducing itself to the New York market as a company that values equitable access and understands that its product—the fourth utility of the modern age—must be available to all New Yorkers.”

If Comcast’s existing enormous customer base has already voted them the Worst Company in America, it is unlikely Comcast will turn on a dime for the benefit of New York.

The best way to ensure quality, affordable Internet access in New York is to keep Comcast out of New York.

No cable company has ever resolved the rural broadband problem. Their for-profit business model depends on a Return on Investment formula that prohibits expanding service into unprofitable service areas.

These rural service problems remain pervasive in Comcast areas as well, and always have since the company took over for AT&T Cable in the early 2000s. Little has changed over the last dozen years and little will change in the next dozen if we depend entirely on companies like Comcast to handle the rural broadband problem.

A more thoughtful solution is encouraging the development of community co-ops and similar broadband enterprises that need not answer to shareholders and strict ROI formulas.

In the meantime, for the good of all New York, let’s keep Comcast south (and north) of the border, thank you very much.

Phillip “The new unofficial spokesperson for Time Warner Cable?” Dampier

I testified last evening at the Buffalo Public Information Meeting held by the New York Public Service Commission on the merger of Comcast and Time Warner Cable.

The regulator invited four witnesses to testify about the merger last evening. The other three:

• Mark E. Reilly, Comcast’s senior vice president of government affair, northeast division (for);
• Aaron Bartley, executive director of PUSH Buffalo (against);
• Christine Carr, executive director of Computers for Children (neutral).

The meeting was sparsely attended with only about two dozen in the audience, a good number of those arriving from Rochester. Also in attendance were groups with direct financial connections to Comcast, some partly disclosed during the evening, others not. Readers will not be surprised they were strongly in favor of the merger. Common Cause was represented and was clearly against the merger, although their representative also had harsh words for Time Warner Cable.

Niagara County Legislator David E. Godfrey (R-Wilson) and Orleans County Legislator Lynne M. Johnson (R-Lyndonville), representing the Niagara Orleans Regional Alliance, spoke on behalf of rural New Yorkers who lack broadband service. Neither went on record opposing the merger but seemed to suggest its approval be tied to a rural broadband solution. The record on successfully pulling that off in earlier deals has been mixed at best. The cable industry treats its Return On Investment formulas like a biblical text. If expanding service isn’t going to make the companies money in the short term, it is very unlikely to happen. We believe New York’s broadband subsidy program is a better deal for consumers if it means keeping Comcast out of New York.

The audience was almost entirely silent during the event and it wrapped up earlier than originally planned. Buffalo seemed less engaged on broadband issues than I would have expected. Had the hearing been held in Rochester, I have no doubt the audience would have been far larger. Broadband matters in Rochester have always drawn crowds and significant news coverage. One Buffalo resident offered that the PSC chose its meeting location poorly — on “an out of the way” college campus in Amherst now in summer session that charges for parking (although we did park for free). Others have told us the meetings were poorly advertised. Thankfully, the PSC is keeping the record open for comments in writing and by phone.

The strongest contrast of views came from testimony from Mr. Reilly and myself, although the meeting was not configured as a debate.

Reilly

Mr. Reilly did not seem well-informed about specifics regarding Comcast’s products and pricing. He stumbled through incomplete answers when asked directly (twice) to compare Comcast’s prices against Time Warner Cable. Unfortunately, the question and answer session did not allow for interjection from other witnesses, because if it did, I was more than ready to help Mr. Reilly answer that question because I brought the rate cards for both companies with me. Perhaps he did not want to answer, because as the evidence clearly shows, Comcast costs more.

He also implied Comcast had widely deployed up to 505Mbps broadband service in its service area. Speeds of 300-500Mbps are offered only to a limited number of customers that can, number one afford the high asking price ($300/month plus installation fee) and second are passed by Comcast’s fiber or Metro Ethernet networks.

We also disagreed over usage caps. Reilly claimed the average Comcast customer used just 17GB a month. Comcast’s own website claims median monthly data usage is 20-25GB per month. But according to Digital Trends, the average family with Internet-only service uses 212GB of data each month — more than seven times those who watch traditional television. That is because after cutting cable-TVs cord, they are watching shows over their broadband connection. That number is rising, and fast. Over the four years Comcast had a nationwide cap, it did not adjust it upwards even once to account for broadband growth.

Independent analysis from Sandvine found that Internet users, in general, are accessing increasingly larger amounts of data. The overall mean usage on North American fixed-access networks (as opposed to mobile networks) was 51.4 GB in March, which is up from the 44.5 GB noted in Sandvine’s most recent previous study. Cord-cutters as a whole now dominate network usage, accounting for a 54-percent majority of total monthly network traffic. Cord-cutters are also responsible for some of the cable industry’s biggest revenue challenges with their television packages.

The old industry meme that usage caps affect only a tiny minority of customers was also trotted out. We did not have the opportunity to ask, “if only a tiny percentage of customers exceed their allowance, why bother with usage caps at all?”

Time Warner Cable was not represented at the meeting, and in an ironic twist, that left me as their unofficial spokesbooster. In fact, nobody seemed aware of Time Warner Cable’s Maxx upgrade program which is delivering faster, more affordable Internet access than Comcast offers over its cable broadband network without the threat of looming usage caps.

Jump through hoops for $9.95 Internet

Internet affordability emerged as a major topic last evening. Predictably Comcast touted its $9.95 Internet Essentials program without mentioning its highly restrictive pre-qualification requirements:

The program is only available to households that (i) are located where Comcast offers Internet service; (ii) have at least one child who receives free/reduced rate school lunches through the National School Lunch Program (the “NSLP”) and as confirmed annually while enrolled in the program; (iii) do not have an overdue Comcast bill or unreturned equipment; and (iv) have not subscribed to any Comcast Internet service within the last ninety (90) days (sections 1(i)-(iv) collectively are defined as “Eligibility Criteria”). The program will accept new customers for three (3) full school years, unless extended at the sole election of Comcast. Comcast reserves the right to establish enrollment periods at the beginning of each academic year in which it accepts new customers that may limit the period of time each year in which you have to enroll in the program.

2. In order to confirm your eligibility for the program, Comcast will need to verify that your children receive free/reduced rate school lunches through the NSLP in the initial enrollment year and each subsequent year you are enrolled in the program. In order to confirm eligibility, participants in the program will be required to provide copies of official documents establishing that a child in the household is currently receive free/reduced rate school lunches through the NSLP. Each year you will be required to reconfirm your household’s current eligibility by providing Comcast or its authorized agent with up-to-date documentation. If you fail to provide documentation proving your eligibility in the program, you will be deemed no longer eligible to participate in the program.

3. You will no longer be eligible to participate in the program if (i) you no longer have at least one child living in your household who receives free/reduced rate school lunches under the NSLP; (ii) you fail to maintain your Comcast account in good standing; (iii) Comcast ceases to provide the Covered Service to your location; or (iv) your account opened under the program is closed. A change in address may result in your account being closed, even if you continue to receive Comcast services at a different address. Program participation also may be terminated if the Covered Service is upgraded, altered or changed by you for any reason. If you are no longer eligible for the program, but continue to receive the Covered Service from Comcast, regular rates, and any other applicable terms and conditions will apply to the Covered Service.

In brief, you can only qualify if you don’t have Comcast Internet service already. If you do, Comcast demands you stay without Comcast Internet service for at least 90 days before applying (good luck making that work). This is nothing more than a revenue protection mechanism for Comcast so that customers don’t downgrade to discounted Internet. Only poor families with school age children qualify and Comcast intrusively re-verifies eligibility regularly. Had a past due bill in the past or loss/stolen equipment? You are not qualified. Miss a payment? Comcast can kick you off the program. Try to upgrade any part of your Comcast package? You are done with Internet Essentials. Move to a new address? Your Internet discount isn’t going with you.

John Randall from the Roosevelt Institute came to a similar conclusion:

Comcast’s Internet Essentials program does more to benefit Comcast’s customer acquisition, public relations, and lobbying departments than to help people in America who need high-speed Internet access at a reasonable price. The reality is that the program is a cleverly designed customer acquisition program that benefits Comcast’s bottom line.

It was also a cynical way to help Comcast win approval of its merger with NBCUniversal. Comcast held back the program until they could use it as a political chip in their merger lobbying campaign. As we reported back in 2012:

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.

You would probably take this used car to a mechanic before deciding whether to buy. Why doesn’t Comcast know the state of Time Warner’s cable systems before they made a $45 billion offer?

Lastly, Mr. Reilly repeatedly confessed Comcast did not know the state of Time Warner Cable’s system and equipment and could not answer questions about precisely how much Comcast would invest in upgrades. He admitted Comcast’s part-acquisition of Adelphia Cable (its systems were largely divided up between Comcast and Time Warner) resulted in a major under-estimate of repair and upgrade work required.

If I buy a used car, I take it to an expert who can describe its current condition, alert me to likely service required both now and in the near future, and predictions about the vehicle’s anticipated lifetime. Apparently Comcast buys cable systems sight-unseen.

It was widely known in the industry at the time that troubled Adelphia Cable properties were neglected as the company neared bankruptcy. Imagine Adelphia as a metaphor for the state of Sears or K-Mart these days.

Two members of the Rigas family that founded Adelphia were convicted on multiple charges of securities fraud, conspiracy to commit bank fraud and bank fraud. Prosecutors said the Rigases hid the fact the company was dangerously overextended with $2.3 billion in unreported debts. The family used the company’s bank accounts to finance a range of personal follies, including 100 pairs of slippers for Timothy Rigas and more than $3 million to produce a film by John Rigas’ daughter. We don’t know if the film was actually any good.

At the end of the evening in Buffalo, we were still left with the impression Comcast’s promises and commitments were vague and the much-touted benefits were much to be desired as soon as you began reading the fine print.

But frankly, I was disappointed by the low turnout. Consumers who do not want Comcast to be their next Internet provider -must- make their feelings known or that is precisely what is going to happen. We need all New Yorkers within travel distance of Albany or New York City to pack the PSC’s meeting rooms and have the courage to get up and speak. You can talk for 30 seconds or 3-5 minutes. You can also write or call the PSC if you want to extend your remarks in writing. New Yorkers have the power to throw a major wrench into a deal very few of us wants. But only if they make their voices heard:

Wednesday, June 18

SUNY Albany
Performing Arts Center
1400 Washington Avenue
Albany

6:00 pm: Informational Forum
7:30 pm: Public Statement Hearing

Thursday, June 19

NYS DPS Office
90 Church Street
New York

Please bring ID with you.

6:00 pm: Informational Forum
7:30 pm: Public Statement Hearing

Those who cannot attend or prefer not to speak at a public statement hearing may comment electronically to Hon. Kathleen H. Burgess, Secretary, at [email protected] or by mail or delivery to the Secretary at the Public Service Commission, Three Empire State Plaza, Albany, New York 12223-1350. Comments should refer to “Case 14-M-0183, Petition of Comcast Corporation and Time Warner Cable Inc.”

Toll-Free Opinion Line: You may call the Commission’s Opinion Line at 1-800-335-2120. This number is set up to take comments about pending cases from in-state callers, 24 hours a day. Press “1″ to leave comments, mentioning the Comcast/Time Warner merger.

All comments provided through these alternative methods should be submitted, or mailed and postmarked, no later than July 31, 2014. All such statements and comments will become part of the record and be reported to the Commission for its consideration.

All submitted comments may be accessed on the Commission’s Web site at www.dps.ny.gov, by searching Case 14-M-0183.

CenturyLink does not believe it will face much of a competitive threat from AT&T and Verizon’s plans to decommission rural landline service in favor of fixed wireless broadband because the two companies’ offers are too expensive, overly usage-capped and too slow.

Both AT&T and Verizon have proposed mothballing traditional landline service in rural areas because both companies claim wireline financial returns are too low and ongoing maintenance costs are too high. In its place, both companies are developing rural fixed wireless solutions for voice and broadband service that will rely on 4G LTE networks.

CenturyLink does not traditionally compete against either AT&T or Verizon because their landline service areas do not overlap. But as both AT&T and Verizon Wireless continue to emphasize their nationwide wireless networks, independent phone companies are likely to face increased competition from wireless phone and broadband services.

CenturyLink isn’t worried.

“About two-thirds of our customers can get access to 10Mbps or higher [from us and] that continues to increase year by year,” CenturyLink chief financial officer Stewart Ewing told attendees at Bank of America Merrill Lynch’s 2014 Global Telecom & Media Conference. “Our belief is that with the increasing demands customers have for bandwidth — the Netflix bandwidth requirement — just the increasing amount of video that customers are watching and downloading over their Internet pipes, we believe will drive customers to using a provider that basically has a wire in their home because we believe you will get generally higher bandwidth and a much better experience at lower cost.”

Ewing

CenturyLink customers consume an average of slightly less than 50GB of Internet usage per month, and that number is growing. Ewing said that CenturyLink has long believed that as bandwidth demand increases, wireless becomes less and less capable of providing a good customer experience.

“At this point, we don’t really have any concerns because people on the margin — the folks that don’t use much bandwidth — probably use a wireless connection today to download,” Ewing said. “But as the bandwidth demands grow, the wireless connection becomes more and more expensive and that could tend to drive people our way. So as long as we have 10Mbps or better to the customers, we don’t really think there is that much exposure.”

CenturyLink does not measure the difference in Internet usage between urban and rural residential customers, but the company suspects rural customers might naturally use more because alternative outlets are fewer in number outside of urban America.

“Folks in rural areas might actually can use Internet more for buying things that they can’t source [easily], but it’s hard to really count,” said Ewing. “I think our customers in the rural areas probably are not that much different from folks in urban areas.”

Prism is CenturyLink’s fiber to the neighborhood service, similar to AT&T U-verse. It is getting only a modest expansion in 2014.

CenturyLink’s largest competitor remains Comcast, which co-exists in about 40% of CenturyLink’s markets. The merger with Time Warner Cable won’t have much impact on CenturyLink, increasing Comcast’s footprint in CenturyLink territory by only about only 6-7%. CenturyLink believes most of any new competition will come in the small business market segment. Comcast’s residential pricing is unlikely to attract current CenturyLink customers in Time Warner Cable territory to consider a switch to Comcast if the merger is approved.

Ewing also shared his thinking about several other CenturyLink initiatives that customers might see sometime this year:

• Don’t expect CenturyLink to expand Wi-Fi hotspot networks. The company found they are difficult to monetize and is unlikely to expand them further;
• Any change in the FCC’s definition of minimum broadband speed to qualify for federal broadband expansion funds would slow rural broadband expansion. Ewing admitted a 10Mbps speed minimum is considerably more difficult to achieve over DSL than a 4 or 6Mbps minimum;
• Don’t expect any more merger/acquisition activity from CenturyLink in the Competitive Local Exchange Carrier business. CenturyLink shows no sign of pursuing Frontier, Windstream, FairPoint, or other independent phone companies. It is focused on expanding business services, where 60% of CenturyLink’s revenue now comes;
• CenturyLink fiber expansion will primarily be focused on reaching business offices and commercial customers in 2014;
• CenturyLink will only modestly expand PrismTV, its fiber-to-the-neighborhood service, to an additional 300,000 homes this year. The company now offers the service to two million of its customers, with 200,000 signed up nationwide. Last year, CenturyLink expanded PrismTV availability to 800,000 homes.

[flv]http://www.phillipdampier.com/video/WSJ ATT Buys DirecTV 5-19-14.flv[/flv]

For $48.5 billion, AT&T will vault itself into second place among the nation’s largest pay television providers with the acquisition of DirecTV. The Wall Street Journal reports the executives at AT&T have been looking to for a giant deal for several years. Most executives earn special bonuses and other incentives worth millions for successfully completing these kinds of transactions. (3:03)

AT&T plans to spend $48.5 billion to acquire the nation’s biggest satellite television provider, allowing AT&T to become the second largest pay television company, behind a merged Comcast and Time Warner Cable.

The deal, finalized on Sunday, pays $95 per DirecTV share in a combination of stock and cash, about a 10% premium over DirecTV’s closing price on Friday. Including debt, the acquisition is AT&T’s third-largest deal on record, behind the purchase of BellSouth for $83 billion in 2006 and the deal for Ameritech Corp., which closed in 1999, according to data compiled by Bloomberg.

“This is a unique opportunity that will redefine the video entertainment industry and create a company able to offer new bundles and deliver content to consumers across multiple screens – mobile devices, TVs, laptops, cars and even airplanes. At the same time, it creates immediate and long-term value for our shareholders,” said Randall Stephenson, AT&T chairman and CEO. “DirecTV is the best option for us because they have the premier brand in pay TV, the best content relationships, and a fast-growing Latin American business. DirecTV is a great fit with AT&T and together we’ll be able to enhance innovation and provide customers new competitive choices for what they want in mobile, video and broadband services. We look forward to welcoming DirecTV’s talented people to the AT&T family.”

The announced acquisition has left some on Wall Street scratching their heads.

“Like any merger born of necessity rather than opportunity, the combination of AT&T and DirecTV calls to mind images of lifeboats and rescues at sea,” telecommunications analyst Craig Moffett of MoffettNathanson Research wrote this week. AT&T, Moffett wrote, is in “dire need of a cash producer to sustain their dividend.”

[flv]http://www.phillipdampier.com/video/Bloomberg ATT DirecTV Deal a Head Scratcher 5-19-14.flv[/flv]

Craig Moffett, founder of MoffettNathanson LLC, talks about AT&T Inc.’s plan to buy DirecTV for $48.5 billion. Moffett speaks with Tom Keene, Scarlet Fu, William Cohan, and Adam Johnson on Bloomberg Television’s “Surveillance.” StockTwits founder Howard Lindzon also speaks. (5:12)

The deal would combine AT&T’s wireless, U-verse, and broadband networks with DirecTV’s television service, creating bundling opportunities for some satellite customers. As broadband becomes the most important component of a package including phone, television, and Internet access, not being able to offer broadband has left satellite TV companies at a competitive disadvantage. AT&T’s U-verse platform – a fiber to the neighborhood network – has given AT&T customers an incremental broadband speed upgrade, but not one that can necessarily compete against fiber to the home or cable broadband.

Some analysts are speculating AT&T will eventually shut down its U-verse television service and dedicate its bandwidth towards a more robust broadband offering. Existing television customers would be offered DirecTV instead.

But deal critics contend AT&T is spending a lot of money to buy its competitors instead of investing enough in network upgrades.

“The amount of cash alone AT&T is spending on this deal — $14.55 billion — is as much as it cost Verizon for its entire FiOS deployment, which reaches more than 17 million homes,” Free Press’ Derek Turner tells Stop the Cap! “Add in the $33 billion in AT&T stock and $18.6 billion in debt, and you can see just how wasteful this merger is.”

In effect, AT&T is spending nearly $50 billion to buy DirecTV’s customer relationships, its satellite platform, and its agreements with programmers, all while removing one competitor from the market. Cable has 54 percent of the pay TV market, satellite has 34 percent, and AT&T and Verizon share 11 percent. AT&T’s U-verse has 5.7 million TV customers. DirecTV has 20.3 million. Combining the two gives AT&T 26 million television customers, second only to Comcast/Time Warner Cable.

Rural Americans will effectively see their choice in competitors drop by one-third, giving them the option of the phone company or Dish Network.

AT&T intends to persuade regulators to approve the deal despite its antitrust implications by offering several commitments the company says are in the public interest and protect consumers:

• 15 Million Customer Locations Get More High Speed Broadband Competition. AT&T will use the merger synergies to expand its plans to build and enhance high-speed broadband service to 15 million customer locations, mostly in rural areas where AT&T does not provide high-speed broadband service today, utilizing a combination of technologies including fiber to the premises and fixed wireless local loop capabilities. This new commitment, to be completed within four years after close, is on top of the fiber and Project VIP broadband expansion plans AT&T has already announced. Customers will be able to buy broadband service stand-alone or as part of a bundle with other AT&T services.
• Stand-Alone Broadband. For customers who only want a broadband service and may choose to consume video through an over-the-top (OTT) service like Netflix or Hulu, the combined company will offer stand-alone wireline broadband service at speeds of at least 6Mbps (where feasible) in areas where AT&T offers wireline IP broadband service today at guaranteed prices for three years after closing.
• Nationwide Package Pricing on DIRECTV. DIRECTV’s TV service will continue to be available on a stand-alone basis at nationwide package prices that are the same for all customers, no matter where they live, for at least three years after closing.
• Net Neutrality Commitment. Continued commitment for three years after closing to the FCC’s Open Internet protections established in 2010, irrespective of whether the FCC re-establishes such protections for other industry participants following the DC Circuit Court of Appeals vacating those rules.
• Spectrum Auction. The transaction does not alter AT&T’s plans to meaningfully participate in the FCC’s planned spectrum auctions later this year and in 2015. AT&T intends to bid at least $9 billion in connection with the 2015 incentive auction provided there is sufficient spectrum available in the auction to provide AT&T a viable path to at least a 2×10 MHz nationwide spectrum footprint.

[flv]http://www.phillipdampier.com/video/CNN ATT DirecTV Merger 5-19-14.flv[/flv]

CNN says AT&T’s buyout of DirecTV is about getting video programming to customers using all types of technology, but public interest groups suspect it’s about reducing competition. (1:17)

A closer look at AT&T’s commitments exposes several loopholes, however.

AT&T U-verse and DirecTV compete head-on in these areas.

• AT&T’s “commitment” to expand broadband to 15 million new locations is in addition to their Project VIP U-verse expansion now underway. However, AT&T does not say how many rural customers will see wired U-verse service finally become available vs. how many will lose their landlines permanently and have to rely on AT&T’s wireless landline replacement and expensive, usage-capped wireless broadband;
• AT&T’s speed commitment is largely unenforceable and falls apart with language like, “where feasible.” Anywhere they don’t deliver 6Mbps DSL speed can easily be explained away as “unfeasible.” AT&T also only commits to providing DSL where it already offers DSL, so no expansion there;
• The FCC’s Net Neutrality protections never covered wireless and three years is a very short time to commit to the “light touch” approach the FCC had with Net Neutrality back in 2010;
• AT&T’s wireless auction commitment comes with loopholes like “meaningfully,” “provided there,” and “a viable path to at least.”

“You can’t justify AT&T buying DirecTV by pointing at Comcast’s grab for Time Warner, because neither one is a good deal for consumers,” said Delara Derakhshani, policy counsel for Consumers Union, the advocacy arm of Consumer Reports. “On the heels of Comcast’s bid for Time Warner Cable, AT&T is going to try to pull off a mega-merger of its own. These could be the start of a wave of mergers that should put federal regulators on high alert.  AT&T’s takeover of DirecTV is just the latest attempt at consolidation in a marketplace where consumers are already saddled with lousy service and price hikes. The rush is on for some of the biggest industry players to get even bigger, with consumers left on the losing end.”

“The captains of our communications industry have clearly run out of ideas,” said Craig Aaron, president of Free Press. “Instead of innovating and investing in their networks, companies like AT&T and Comcast are simply buying up the competition. These takeovers are expensive, and consumers end up footing the bill for merger mania. AT&T is willing to pay $48.5 billion and take on an additional $19 billion in debt to buy DirecTV. That’s a fortune to spend on a satellite-only company at a time when the pay-TV industry is stagnating and broadband is growing. For the amount of money and debt AT&T and Comcast are collectively shelling out for their respective mega-deals, they could deploy super-fast gigabit-fiber broadband service to every single home in America.”

[flv]http://www.phillipdampier.com/video/CNN Al Franken Skeptical About DirecTV Deal 5-19-14.flv[/flv]

Sen. Al Franken (D-Minn.) appeared on CNN’s New Day this morning to express his skepticism about the consumer benefits of a merger between AT&T and DirecTV. “We need more competition, not less.” (2:40)

Rensselaer County is just a short drive to the east of New York’s capital city Albany, but for residents in the southern half of the county, it might as be in the middle of nowhere.

Welcome to the world of broadband have’s and have-nots. If you live in the county seat — Troy, Internet access is widely available. But if you live in a community like Nassau, in the southern part of the county, getting Internet access is strictly a hit or miss affair, and in practical terms, the only entity that will decide if you have reasonable access to broadband is Time Warner Cable.

Verizon has decided that the days of expanding DSL in rural areas are over. There is no possibility those without access to DSL now will ever see Verizon’s fiber network FiOS coming their way either. That has left many residents with an unfortunate choice between heavily usage-capped and slow satellite Internet access or heavily usage-capped and expensive wireless Internet from a cell phone company.

Nassau does have a franchise agreement with Time Warner Cable, the only cable operator willing to offer service in this part of upstate New York. The contract specifies Time Warner will bring service to any neighborhood where there are at least 20 residences within a one-mile radius.

The Record News covered negotiations for a franchise renewal for the cable company last year, and found Time Warner Cable held all the cards and the town had almost no leverage in the negotiations:

A rare sight in southern Rensselaer County.

“We really have no negotiating leverage or power and the Public Service Commission (PSC) was helpful in looking at the contract, but told us we were basically out of luck with any efforts to require anything,” said town Supervisor David Fleming, who said he was told by Time Warner Cable that specific areas in Nassau are “not currently serviceable.”

The town had marked out all the areas that were not served and met with Time Warner to try to gain extensions of service.

“This only succeeded in a couple of areas,” he said. “This is because PSC told us we have no bargaining power. The only big concession we were able to get was to reduce the number of houses per mile needed for service, but this was a pretty standard fall back for Time Warner.”

The town succeeded in negotiating standards down to 20 dwellings per cable mile from 30. “We continue to explore this matter, but frankly, there has been a great deal of unwillingness to expand service in our community,” Fleming said. “The state has been of no help in expanding services.”

As a result, Time Warner has been generally adamant about not expanding service to residents like Alan Austin, who lives on a street where 11 houses are built within a half-mile, technically the same ratio required by Time Warner Cable.

“We’ve asked them to bring the service and they won’t,” Austin told the newspaper.

Actually, Time Warner is willing to expand into Austin’s neighborhood — for the right price.

Time Warner agreed it would install cable service if the 11 homes collectively paid a $12,000 installation fee.

“We’re out of luck because we’re never going to get another nine houses in this mile,” Austin said. “We can’t get anybody to bring service here, unless we’re willing to pay an exorbitant amount.”

As for alternatives, don’t call Verizon, they’ll call you. The phone company has suggested rural residents consider their wireless broadband and phone service, assuming a cell tower can reach them with a reasonable signal. But the cost is very high — at least $50 for only 4GB of usage per month and another $20 for telephone service.

Austin is lucky enough to receive some reception from Sprint, which is slightly more reasonably priced. But to get a reliable signal, he has to place his mobile Wi-Fi hotspot in his non-climate-controlled attic. When temperatures fall or soar, the hotspot stops working. Austin has rigged a remote-powered fan in the attic to blow cool air on the hotspot this summer to keep it up and running.

“It’s ridiculous,” he admitted. “People don’t believe me when I tell them these things, but that’s what we deal with.”

The newspaper also pondered the impact of being an Internet have-not with respect to education. In more than a few communities in the county, teachers avoid giving assignments that require students to do research over the Internet, putting them at a potentially serious disadvantage when they attend college.

Businesses also avoid areas where broadband poses a significant challenge, which affects jobs. Selling a home in a broadband blackout zone can also be difficult as savvy buyers increasingly now insist on Internet accessibility.

Without the benefit of bundling discounts, rural Americans pay substantially higher prices for telecommunications services. A promotional bundle from Time Warner Cable can provide phone, Internet, and television service for less than $100 a month. Austin says his package costs more than twice that — more than $220 monthly between paying bills for Verizon phone service, DirectTV television and Sprint for broadband Internet.

These kinds of challenges are ready-made to be addressed on the local government level, but cable and phone companies lobbied successfully for near-total deregulation, making it impossible for town officials to provoke change. In fact, had the community successfully revoked Time Warner Cable’s franchise, no other commercial provider would be willing to step in. That remains common in every community considering its future relationship with the area’s cable company. An informal understanding between cable operators keep them from competing outside of their defined territories.

That leaves Nassau officials with no options, except whether to renew Time Warner’s franchise on the company’s terms for five or ten years. Time Warner wouldn’t hear of a five-year contract so the town capitulated and agreed to a 10-year franchise renewal that will continue to leave residents like Austin without much hope for cable broadband service indefinitely.