A class action lawsuit accusing AT&T of methodically over-measuring wireless customers’ usage and subjecting them to overlimit fees has been re-assigned to arbitration because AT&T wrote terms into contracts denying customers the right to pursue grievances any other way.

Plaintiff Patrick Hendricks claimed AT&T was systematically overstating customer usage by 7-14 percent with a rigged usage meter.  Hendricks claims some customers were overbilled by as much as 300 percent for phantom data usage that he claims never took place.  The measuring errors found in a two-month study cited by Hendricks were in AT&T’s favor, potentially exposing customers to surprise overlimit fees or, more recently, speed throttles.

But U.S. District Judge Charles Breyer shut down the court case, heard in a San Francisco federal courtroom.  Breyer ruled that since AT&T’s contracts bar lawsuits by customers, Hendricks must pursue his case in the venue required by AT&T — arbitration.

“[AT&T’s contract] requires the use of arbitration on an individual basis to resolve disputes, rather than jury trials or class actions, and also limits the remedies available … in the event of a suit,” Breyer ruled.

Ironically, Breyer is the same judge that dissented from an earlier case — AT&T v. Concepcion, that ultimately set the stage allowing AT&T to force consumers to pursue arbitration and practically speaking, remove their right to pursue class action relief.

“What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?,” Breyer wrote. “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30’.”

Brandi M. Bennett, a California attorney who specializes in intellectual property law, considers arbitration clauses to be a major threat to class action cases:

“Class actions make it possible to find recourse for individuals with damages that make traditional litigation impractical. AT&T Mobility v. Concepcion appears to leave the average consumer at risk of being defrauded by corporations for $10, $20, $50 without any practical remedy. If one million customers are damaged for $20 each, a corporation can improperly realize a $20 million gain. Class actions serve to prevent that.”

Arbitration can offer a poor substitute, because most arbitration firms are beholden to their corporate clients for repeat business.  An arbitrator perceived to be exceptionally pro-consumer stands little chance of being retained when corporate defendants pay the arbitration firm for its services.  Some arbitration policies require consumers and the company to split the costs of arbitration, but those costs often easily exceed the value of the original claim, discouraging customers from pursuing a refund settlement.

Companies understand that reality, which is why clauses requiring arbitration to settle disputes are increasingly common in service contracts.

Hendricks’ original suit sought restitution for the entire class of consumers and damages for breach of contract, unjust enrichment, unfair and fraudulent business practices, unfair competition, and violations of the federal Communications Act.  Most arbitration clauses require consumers to file individual complaints, which few may ultimately do considering arbitration proceedings may occur in another city and often requires the complainant to appear in person to provide testimony.

Cablevision executives reported dismal financial numbers for the third quarter of this year, as the cable company lost 19,000 cable television customers while profits plummeted some 65% at the Bethpage, N.Y.-based company.

Not even 17,000 new broadband customers could erase the damaging losses incurred by Cablevision cord-cutting, some of it as a result of the cable operator’s damaging retransmission consent disputes that deprived viewers of popular local broadcast outlets and cable channels.  The company lost so much subscriber goodwill, company executives admitted they pared back an anticipated rate increase just to protect themselves from further customer defections.

Programming disputes like this one with WABC-TV and their parent company Disney caused more than a few Cablevision customers to head for the competition.

Cablevision, like Time Warner Cable before it, won’t admit that cable cord-cutting is responsible for what one investment bank fears could be the start of an “ex-growth” era in cable television.  Instead, Cablevision executives continue to blame the poor economy for subscription losses, as well as aggressive pricing competition from their biggest rival — Verizon FiOS.  Adding pressure is the relentless demand for higher programming fees, which directly translates into relentless annual rate increases for cable television service.

“With regard to programming [costs, they are] an issue and it is an expensive part of our business.  It is the single biggest cost item we have,” said Gregg G. Seibert, Cablevision’s chief financial officer and executive vice-president. “And the fact that retransmission consent became necessary from the eyes of broadcasters, particularly after the 2008 recession, has been flowing through our business, and there was a large step up [in fees]. I think that the overall rate of programming [costs] going forward will moderate to some extent naturally.”

Seibert called the aggressive retransmission consent fee disputes between broadcasters and cable operators evidence of the collapse of the traditional “free TV” business model.  Because ad revenues are down, broadcasters are increasingly dependent on fees charged to cable operators for permission to include their stations on the cable dial.  That means cable subscribers are increasingly subsidizing the broadcast television business.

Seibert

Seibert’s revelation came too late to stop some of the nation’s most visible retransmission consent battles between Cablevision and network-owned New York-area television stations and cable networks.  When Cablevision blacked out a local station showing coverage of the World Series during the last dispute, fed up customers decided to take their cable business to Verizon or a satellite TV provider.

Cablevision has been trying to lick their wounds ever since, launching increasingly aggressive pricing promotions and “free gift” offers to keep existing customers while trying to win back old ones.

“We’ve recently introduced an offer that includes a new Apple iPod Touch primarily for win back situations,” said Thomas M. Rutledge, chief operating officer.  “Selling for the Triple Play package of video, data, and voice is now at 74% and roughly half of this selling is for our new Ultimate Triple Play, which includes a new higher-priced Boost Plus [broadband] service and a wireless router.”

Cablevision achieves triple-play signups by heavily discounting the package for new and returning customers.  It also hopes to succeed with a ‘more for less’ pricing strategy, delivering new features and services without necessarily charging extra for all of them.  With discounts, free gifts, and additional services, Cablevision is getting some of their old customers back.

Selling faster broadband is a key component in Cablevision's strategy to attract more broadband customers. Boost Plus delivers 50/8Mbps service for an additional $14.95 a month.

“As of September 30, our win back total is more than 45% of customers who once tried Verizon FiOS,” Rutledge claims.

Rutledge noted Cablevision’s participation in the industry’s TV Everywhere online video initiative has grown even stronger with the recent agreement to provide Cablevision cable-TV customers free access to Turner-owned cable network programming.

Seibert admits the more competitive business environment and high profile programming disputes in suburban New York City are impacting profits.

“We had a few significant items in the quarter affecting our results including higher programing costs and higher sales in marketing as we continue to aggressively promote our products and services while revenue growth was essentially flat,” Seibert said.

Those challenges are creating a sense of unease on Wall Street regarding the cable business’ core product: cable television and the increasingly aggressive pricing promotions necessary to keep customers from disconnecting service.

“There is growing concern among the investor community about [the] whole [cable] industry going to ex-growth,” said Jason Bazinet from Citigroup.

Rutledge

“Programming costs are rising faster than video revenues,” Sanford C. Bernstein, an analyst for Craig Moffett, told the Wall Street Journal. “Unless there’s growth somewhere else in the business model, you’ve got the worst of all worlds: a slow-or no-growing business with lower margins.”

Rutledge outlined Wi-Fi and broadband enhancements as part of Cablevision’s priorities for the upcoming quarter:

“We’ve been building out a Wi-Fi network and we’ve had continuous subscriber utilization increases on that network.  We now have more than one-half-million devices out there that can use Wi-Fi and watch our full cable television service in the home.

“And we’re deploying a new Boost product with higher speed broadband, which includes a more sophisticated wireless router as part of that package.

“We think Wi-Fi is a major strategic part of our business. We think that we can continue to take advantage of that. We think our video product today as a result of Wi-Fi is a superior product to our competitors – all of our competitors, and we think that our data service is enhanced by the Wi-Fi outside the home, and we continue to try to build value for our customers and take market share.”

The cable company is already aggressively marketing its Boost Plus service, which delivers 50/8Mbps broadband for an additional charge of $14.95 a month on top of the standard broadband rate.

Time Warner Cable experienced another challenging quarter, continuing to lose cable TV customers who either drop or pare back their television service, often in favor of broadband.

The company reported losses of an additional 128,000 video subscribers during the third quarter, but is partly winning that revenue back with new broadband customers — 89,000 of them in the last three months.

“Broadband is a powerful service for which there appears to be unquestionable consumer thirst,” Time Warner Cable CEO Glenn Britt said on the investor call. “Over time, we will contribute more of our plant’s capacity to broadband.”

The company is also poised to expand its marketing to win new broadband customers away from their primary competition — telephone company DSL service.  Company officials remain confounded by customers who subscribe to Time Warner’s cable TV service and take broadband from “inferior” phone company-delivered DSL.  Time Warner will continue to target these customers with win-over promotions offering a year of Road Runner Standard Service at the $29.95 promotional price point.

For the company as a whole, this is the tenth consecutive quarter of year-over-year residential broadband revenue improvement, coming from a combination of higher-priced, faster speed tiers, price increases, and subscriber additions.  The company’s DOCSIS 3 upgrade has proven itself a winner for customers and the company, with 18 percent of Time Warner subscribers now choosing 30 or 50Mbps broadband services.

Wall Street expressed some concern about statements from CEO Glenn Britt that the company was going to expand capital spending on broadband to handle increasing demand, especially from online video.  That concern comes despite the fact the company’s “capital intensity” (spending) from January-September was the lowest in the history of the company.  The full year’s capital spending is on track to reach up to $3 billion, which is consistent with what the company spent last year.

Glenn Britt

So despite the plans to spend more on broadband, that spending is actually in line with previous years.

In response to an opening question from Deutsche Bank’s Doug Mitchelson, Britt delivered an extended explanation downplaying the company’s spending plans:

In a way, there’s nothing really new here. I think you’ve seen this trend for a while. Our broadband product is very strong.

As most people know, the usage of broadband is skyrocketing, as it has been for some time. And that means that we will need to spend more money on it. We have been already, both in capital and operating expenses.

The great thing about the Internet is lots of third parties dream up lots of new applications that require more speed and more bandwidth. And we anticipate that we’re going to have to devote more capacity to that over time. We will do that by gradually removing our analog signals from our — analog TV signals from our plan. We’ve been doing that over the last several years by migrating to digital using Switched Digital technology. And over the next several years, we’ll be going all digital in the TV space.

I don’t see this driving a dramatic change in our cap spending, I think, to the core of your questions. The spending has been going on for a while, and I think you’re seeing a change in mix. The video spending is going down over time. The business services is going to go up, although it didn’t this quarter. And you’re going to see the spending on broadband going up. But I don’t think the overall trajectory is mutually different.

This quarter, the company’s conference call seemed to embrace greater broadband usage, and pondering Internet Overcharging schemes like usage caps or usage-based billing never came up.  But Richard Greenfield from BTIG alluded to usage in his questions to Rob Marcus, president and chief operating officer at Time Warner Cable.

“I think we’re somewhere in the 7GB a month [range] of downstream bandwidth on a median basis,” Marcus said. “The average is much higher given the disproportionate usage by our high-end users.”

There were plenty of other facts to be gleaned from this morning’s conference call:

TV

• Whole Home DVR service has been introduced nationwide.  In the coming year, Time Warner will begin deploying “home gateways,” which reduce equipment costs;
• Time Warner is testing improved cloud-based set top boxes with home networking capabilities in parts of Syracuse, Los Angeles and Dallas.  These boxes will expand across the country in 2012.  They offer better search capability and deliver an improved user experience;
• 60% of customers reject “triple-play” offers from Time Warner and choose either “single” or “double-play” service instead;
• Much of Time Warner’s revenue growth is coming from rate increases on programming, services, and equipment;
• TV Essentials, the smaller, less expensive video package, is now available in New York City and Northeast Ohio, as well as upstate New York. It will launch nationwide by year end.  Unsurprisingly, company officials admit the less-than-attractive channel lineup has resulted in the vast majority of customers calling about the offering taking the traditional video package instead;
• Customers continue to drop ancillary services to cut their cable bill.  The increasingly expensive DVR box is a new target for cutting, and premium movie channels, adult pay-per-view, and mini-pay services all continue to suffer significant declines in business;
• The Google-Motorola deal will likely have little impact on Time Warner’s set top boxes, which primarily come from Cisco and Samsung.

Broadband

• By the end of the year, Time Warner plans to offer an Android-based TV Everywhere application similar to the existing iPad application, which will also continue to be upgraded to include on-demand offerings;
• Time Warner will make their TV Everywhere service available on game consoles, smart TVs and PCs in the near future;
• New York City customers will soon be able to select from a range of local broadcast stations on the company’s iPad app.  Other markets will start to see local channels added to this app in 2012;
• Major parts of Time Warner’s capital investments this year are: building data centers in Charlotte and Denver, conversion to all-digital in Maine to make room for enhanced broadband, and the continued rollout of DOCSIS 3.0. The company is also continuing to spend significantly on wiring commercial buildings to sell services to business customers;
• TV Essentials customers will soon be offered a “lite user” slower speed discount broadband plan to accompany their video package;
• In Los Angeles, Wideband 50Mbps customers also get 2 gigabytes of 4G/3G mobile broadband for no additional monthly charge on the company-branded Clearwire service. For Turbo Plus and Wideband 30Mbps customers, they can get the same 4G/3G capability for an additional $10 a month. Standard and Turbo customers can get it for an extra $20.  The company’s mobile broadband add-on product has not enjoyed much success with paying customers, however.  Time Warner hopes the value-added bundling of mobile broadband will attract more interest.

Phone

• Cord-cutting is now impacting Time Warner “digital phone” service, too.  Customers are increasingly reluctant to purchase phone service from any landline provider.  Now Time Warner’s regular pricing is starting to cost them business.  Executives revealed Time Warner’s “digital phone” service costs the company $9.06 to provide.  They charge consumers $30.  With that kind of profit margin, the company admits it will have to get more aggressive in pricing to attract new customers (and potentially keep existing ones);
• Time Warner lost 8,000 residential voice line customers last quarter, cushioned by net additions of 13,000 business line customers;
• The company continues to show little interest in selling cell phone products or services, either owned by themselves or others.  Mobile data remains an exception.

While British Telecom and Virgin rely on partial fiber networks to deliver faster broadband, they can’t touch the speeds on offer from Hyperoptic, a new start-up fiber t0 the home provider competing for broadband customers in London.  For just under $80 a month, customers can purchase the UK’s first 1Gbps broadband offering, which lets you download an HD movie in about 40 seconds.

Hyperoptic’s fast speeds come from the fact it is a true fiber-to-the-home provider.  As a startup, the company is being very selective about where it is deploying service, starting with housing estates and multi-dwelling units where a significant number of customers can be reached within a single building or complex.  The first completed fiber build serves 133 apartments in a building in Battersea.  The company plans to extend the service to the rest of the complex in the coming months, and their effort has been aided by the fact the building is already “fiber-ready,” with pre-existing fiber faceplates ready for hookup.  Hyperoptic is expected to first focus on more modern housing estates that have already made accommodations for modern telecommunications, be it coaxial cable, Ethernet, or fiber.

The company is competing with providers who already claim to deliver a fiber experience, but the company founder says those claims are based on half-truths.

“We are basing our platform on bringing fiber direct to the customer,” Hyperoptic founder and chairman Boris Ivanovic told PC Pro. “There’s been a lot of different marketing speak going on in the UK talking about what real fiber is and everyone is taking credit for doing fiber. But BT Infinity and Virgin – what they are doing is only partial fiber, and what we are doing here is bringing fiber into the buildings and directly to customers and that allows us to deliver 1Gbps.”

Hyperoptic’s services are priced to aggressively compete with other providers:

• 20/20Mbps:  $20/mo
• 100/100Mbps:  $40/mo
• 1000/1000Mbps: $80/mo

A $19.95 phone line rental charge and $64 installation fee applies.