AT&T violated the transparency rules of the Federal Communications Commission not less than a million times by allegedly deceiving customers about an unlimited data plan that was speed throttled to unusability after as little as 3GB of usage a month. As a result, the FCC today fined AT&T $100,000,000.

“Consumers deserve to get what they pay for,” said FCC chairman Tom Wheeler. “Broadband providers must be upfront and transparent about the services they provide. The FCC will not stand idly by while consumers are deceived by misleading marketing materials and insufficient disclosure.”

From the Notice of Apparent Liability:

Based on the facts and circumstances before us, we find that AT&T apparently willfully and repeatedly violated Section 8.3 of the Commission’s Rules by:

1. using the term “unlimited” in a misleading and inaccurate way to label a data plan that was in fact subject to prolonged speed reductions after a customer used a set amount of data; and
2. failing to disclose the data throughput speed caps it imposed on customers under the MBR policy.

In short:

“Unlimited means unlimited,” said FCC Enforcement Bureau chief Travis LeBlanc. “As today’s action demonstrates, the Commission is committed to holding accountable those broadband providers who fail to be fully transparent about data limits.”

This is the largest proposed fine in FCC history, according to a senior FCC official. The official told the Wall Street Journal AT&T made billions of dollars off the practice.

Wheeler

Thousands of AT&T customers have complained about the practice and feel misled about the company limiting an unlimited use plan.

“A provider cannot announce something in large type that it contradicts in fine print; such practices would be inherently misleading to consumers, and, therefore contrary to both the spirit and letter of the Open Internet Transparency Rule,” the FCC notice states.

The FCC’s two minority Republican commissioners strongly disagreed with the action against AT&T. Ajit Pai used his dissent to cut and paste large sections of AT&T’s website in defense of the company.

“Because the Commission simply ignores many of the disclosures AT&T made; because it refuses to grapple with the few disclosures it does acknowledge; because it essentially rewrites the transparency rule ex post by imposing specific requirements found nowhere in the 2010 Net Neutrality Order; because it disregards specific language in that order and related precedents that condone AT&T’s conduct; because the penalty assessed is drawn out of thin air; in short, because the justice dispensed here condemns a private actor not only in innocence but also in ignorance, I dissent,” Pai wrote.

Commissioner Michael O’Rielly dissented because he felt the FCC was overreacting to AT&T’s throttling program and assumed harm was done to every customer affected by it.

“I firmly believe that the Commission must take the necessary steps to enforce its regulations,” O’Rielly wrote. “But, it is equally important that the Commission’s enforcement procedures be fair and equitable. Licensees must have faith in the process and trust that the government is working in a sound and just manner, instead of vilifying them, or demanding that they incriminate themselves.”

“We will vigorously dispute the FCC’s assertions,” said Michael Balmoris, an AT&T spokesman. “The FCC has specifically identified this practice as a legitimate and reasonable way to manage network resources for the benefit of all customers. We have been fully transparent with our customers” and exceeded FCC disclosure requirements, Balmoris said.

AT&T only imposes its speed throttle on unlimited data plan customers who exceed 3GB of usage. Customers on usage-based billing plans do not face a speed throttle after exceeding 3GB of usage.

It’s an acute case of broadband envy.

Residents of Fort Collins, Colo., that have an excuse to take an hour’s drive south on U.S. Route 87 to visit Longmont and experience the Internet over the community’s public broadband service can’t believe their eyes. It’s so fast… and cheap. Back home it is a choice between Comcast and CenturyLink, and neither will win any popularity contests. While large parts of Colorado have gotten some upgrades out of Comcast, Fort Collins is one of the communities that typically gets the cable company’s attention last.

The city of Longmont took control of its digital destiny after years of anemic and expensive service from Comcast and CenturyLink. Longmont Power & Communications’ NextLight Internet service delivers gigabit fiber to the home service to the community of 90,000. The service was funded with a $40.3 million bond the city issued in 2014, to be paid back by NextLight customers, not taxpayers, over time. It remains a work in progress, but is expected to start construction to reach the last parts of Longmont by next spring.

NextLight delivers a mortal blow to competitors by charging a fair price for fast service. Instead of spending to upgrade their networks to compete, the incumbents demagogued the public project and Comcast spent $300,000 of its subscribers’ money in a campaign to kill the service before it even got started. Perhaps they had a right to be worried considering NextLight customers pay $49.95 a month for unlimited 1,000/1,000Mbps service. NextLight offers 20 times the download speed and 100 times the upload speed of Comcast’s Blast! package for nearly $30 less a month.

After NextLight was rated America’s fastest performing Internet service by Ookla in May, residents in Fort Collins began to wonder why they were still putting up with poor service from Comcast and lousy DSL from CenturyLink.

Fort Collins is about a one hour, fifteen minute drive north of Denver.

At the same time, city officials were doing their best to leverage some modest improvements from Comcast in return for a renewed franchise agreement. All they got was a vague commitment permitting the city to monitor Comcast’s notorious customer service and two HD channels set aside for Public, Educational, and Government use, along with a $20,000 grant to help the public access channel with online streaming.

The Coloradoan urged Fort Collins officials to think big and establish public fiber optic broadband in the city.

To manage this, they will have to overcome a 2005 state law backed by Comcast and Qwest (now CenturyLink) that bans municipal telecommunications services. A local vote or federal waiver can sidestep a law that was always designed to restrict competition and make life easier for the two telecom giants.

The newspaper opines that Fort Collins is in no way ready for the digital economy of the 21st century relying on Comcast and CenturyLink.

The cable company’s attention is focused on bigger cities in the state and CenturyLink remains hobbled by its copper legacy infrastructure. While some upgrades have been forthcoming, both Comcast and CenturyLink are also testing usage caps or usage-based billing — just another way to raise the price of the service. And speaking of service, neither Comcast or CenturyLink are answerable to the communities they serve – a community owned broadband alternative would be.

As the Coloradoan writes:

We’ve got to lay the groundwork now. Society took huge steps forward when automobiles replaced the horse and carriage. And no, installing municipal broadband isn’t adopting a new mode of transportation, but it is symbolic of laying an entirely new road.

Look at it another way. The city provides needed services such as water and electricity. Internet access is a needed service.

One thing Fort Collins doesn’t absolutely need Comcast or CenturyLink. But nobody is asking them to leave. They have a choice to use their massive buying power and resources to upgrade their networks to compete. But Fort Collins residents should not have to wait for that day to come when there is a better alternative in their grasp today: public broadband.

“Dealing with Mediacom is like stepping on a mound of fire ants,” says June Watts, a Mediacom customer in Alabama. “You are going to get stung no matter what you do.”

Watts is one of many unhappy Mediacom customers that once again bottom-rated the cable company into last place in Consumer Reports annual survey of telecommunications providers. In every case, Mediacom scored the worst or nearly the worst on bundled services, Internet, phone, television, service quality, and pricing.

“Missing channels, stuck channels, inconsistent Internet speeds, Internet and phone outages, boxes that won’t stay authorized, and wait times up to 45 minutes to get them on the phone are all part of my experience with them,” Watts tells Stop the Cap! “It never gets better because once they fix one thing something else breaks.”

Mediacom’s customer service forums offer some clues about what makes Mediacom such a problem for its customers. “Cyberpunk 1161” pays for 100/20Mbps service but is lucky to get 10% of that speed on a good day. He started corresponding about his speed issues with Mediacom’s social media team on Feb. 19. He is still having issues as of June 2, nearly four months later, and his conversation with Mediacom has now extended to 15 pages. “WhiteBengal50” has already managed three pages of complaints starting on May 18. Another customer spent one year and four months with his cable line left unburied on his lawn.

“They run a poorly maintained operation in mostly rural communities larger companies don’t want to deal with,” said Jerry Butler, a Mediacom customer in Iowa. “They are trying to keep up with larger operators but they have not invested nearly enough in reliability, which alienates customers with regular service outages and ongoing technical issues.”

Butler notes he can buy 100Mbps broadband service from Mediacom, but he won’t actually see 100Mbps speeds because the cable infrastructure between him and the cable office has deteriorated over the years.

“They need new overhead cable on their poles but they won’t spend the money to do it,” Butler said. “Cable operators should be budgeting to replace system components approaching their expected end of life instead of waiting for them to fail. They could also use more monitoring tools to find deteriorating infrastructure and replace it before it fails.”

Without dramatic changes in wireless pricing and more careful usage, owning a smartphone will cost an average of $119 a month per phone by the year 2019.

Ever since the largest players in the wireless industry decided to monetize wireless data usage by ending unlimited use data plans, the average monthly phone bills of smartphone users have been on the increase. In 2013, the average cell phone bill was $76 a month, according to Bureau of Labor statistics. That’s up 50% from the $51 a month customers paid in 2007, the first year the iconic Apple iPhone was offered for sale.

Although wireless companies claim their current 4G (largely LTE) networks are robust enough to sustain the growing demand for wireless data until more spectrum becomes available, the transition to next generation 5G technology will dramatically increase the efficiency of wireless data transmission, delivering up to 40 times the speed of existing 4G networks. But if providers are not willing to slash prices on 5G data plans, average usage and customers’ phone bills are likely to soar to new all-time highs, costing a family of four smartphone owners an average of $476 a month.

A study by Wafa Elmannai and Khaled Elleithy at the Department of Computer Science and Engineering at the University of Bridgeport found wireless carriers have given up on monetizing voice and texting services, including unlimited minutes and text messages as part of most basic service plans. The real money is made from wireless data plans which traditionally cost customers between $10.79-16.72 per gigabyte, depending on the carrier and whatever fees, surcharges and required add-ons are necessary to get the service.

Wireless carriers defend their pricing, claiming they have cut prices on certain data plans while granting some customers extra gigabytes of usage at no extra cost. Some evidence shows that carriers have indeed reduced the asking price of delivering a megabyte of data by 50 percent annually. But their costs to deliver that data have dropped even faster, particularly as networks shift traffic away from older 3G networks to 4G technology, which is vastly more efficient than its predecessor.

The end of unlimited data plans by AT&T and Verizon Wireless was key to shifting the industry towards monetizing data usage. The more a customer consumes, the more revenue a carrier earns. But as web pages and applications become more complex and bandwidth intensive, customers will naturally consume more and more data each month, forcing regular usage plan upgrades to avoid confronting overlimit fees. Unless providers pass along more of their savings on traffic costs to consumers, bills will rise.

At current usage estimates from Cisco, the average customer will consume at least 57% more wireless data by 2019 than they do today. To sustain that usage, wireless providers are bidding for additional spectrum rights and are working towards upgrading to next generation 5G technology. But some carriers, including AT&T and Verizon, are also investing in new applications for their networks that include in-car telematics, home security and automation, and online video. Using some of these technologies guarantees an even greater amount of data usage, particularly for online video. Unless customers are careful about their usage and avoid high-bandwidth applications, they are in for a much bigger bill in the future, much to the delight of wireless providers.

While most analysts expect wireless companies will choose to give customers a larger data allowance instead of resorting to fire sale pricing, Elmannai and Elleithy expect that will not be enough to keep cell phone bills stable.

“We will need to reduce the bit rate to (1/1000th) of today’s level in order to receive x1000 of data capacity [at the] same cost [we see today],” the authors conclude. That would mean a low end 1GB data plan on a 4G network would cost just $0.03. Larger allowance plans would cost less than one cent per gigabyte.

The authors of the study expect carriers to price 5G data plans more or less the same as 4G plans, but will probably boost usage allowances to deliver a perception of greater value. But as web applications continue to gravitate towards higher data usage, bills will continue to rise, assuring providers of growing returns even with modest to moderate levels of competition.

At the moment, despite some evidence of price competition, some carriers are still raising prices. Verizon increased the price of its 10GB plan by $20 to $100 a month and T-Mobile raised the price of its unlimited data plan by $10 a month last year.

As expected, Charter Communications formally announced its acquisition of Time Warner Cable and Bright House Networks in a deal worth, including debt, $78.7 billion.

The deal brings Dr. John Malone, a cable magnate during the 80s and 90s, back into the top echelon of cable providers. Malone orchestrated today’s deal as part of his plan to dramatically consolidate the American cable industry. Malone’s Liberty Broadband Corp. assisted in pushing the deal across the finish line with an extra $5 billion (supplied by three hedge funds) in Charter stock purchases.

The companies expect to win regulator approval and close the deal by the end of 2015.

“No one has ever had a better sense of the multichannel world than John [Malone],” Leo Hindery, a veteran cable-industry executive, told the Wall Street Journal. “Obviously he sees in Charter and Time Warner Cable a way to perpetuate a legacy that is unrivaled.”

But the man who may have made today’s deal ultimately possible was FCC chairman Tom Wheeler. Last week, he personally called cable executives at Charter and Time Warner Cable to reassure them the FCC was not against all cable mergers just because it rejected one involving Comcast and Time Warner Cable.

But Wheeler warned he would only approve deals that were in the public interest.

“In applying the public interest test, an absence of harm is not sufficient,” Mr. Wheeler said.

Consumer groups are wary.

“The cable platform is quickly becoming America’s local monopoly broadband infrastructure,” said Free Press Research Director S. Derek Turner. “Charter will have a tough time making a credible argument that consolidating local monopoly power on a nationwide basis will benefit consumers. Indeed, the issue of the cable industry’s power to harm online video competition, which is what ultimately sank Comcast’s consolidation plans, are very much at play in this deal.”

“Ultimately, this merger is yet another example of the poor incentives Wall Street’s quarterly-result mentality creates,” Turner added. “Charter would rather take on an enormous amount of debt to pay a premium for Time Warner Cable than build fiber infrastructure, improve service for its existing customers or bring competition into new communities.”

[flv]http://www.phillipdampier.com/video/Bloomberg Inside the Charter Plan to Buy Time Warner Cable 5-26-15.flv[/flv]

A panel of Wall Street analysts discusses the chances for Charter’s plan to buy Time Warner Cable and Bright House Networks. Some analysts continue to frame regulator approval over video programming costs, while others argue broadband is the key issue the FCC and Justice Department will consider when reviewing the merger. From Bloomberg TV. (5:36)

A heavily indebted Charter Communications will not own the combined entity free and clear. At the close of the deal, Time Warner Cable shareholders will own up to 44% of the new company, Liberty Broadband up to 20%, Advance/Newhouse (Bright House) up to 14%. Charter itself will own just 22%, but will be able to leverage voting control over the entity with the help of Malone’s Liberty, which will get almost 25% of the voting power. That will give Charter just enough of a combined edge to control the destiny of “New Charter.”

As with the aborted deal with Comcast, lucrative golden parachutes are expected for Time Warner’s top executives who will be departing if the deal wins approval. In their place will be Charter Communications CEO Thomas Rutledge and a board compromised of 13 directors (including Rutledge himself). Seven directors will be appointed by independent directors serving on Charter’s board, two designated by Advance/Newhouse and three from Liberty Broadband, again giving Rutledge and Malone effective control.

Current Time Warner Cable and Bright House Networks customers will see major changes if Charter follows through on its commitment to bring Charter’s way of doing business to both operators.

No More Analog Television

Charter told investors at today’s merger announcement it will accelerate the removal of all analog television signals on TWC and Bright House cable TV lineups to free capacity for faster Internet products, more HD channels, and “other advanced products.”

Time Warner Cable CEO Rob Marcus told investors earlier this month TWC was already well-positioned with excess spectrum from moving lesser-watched analog channels to digital service and using “Switched Digital Video,” a technology that conserves bandwidth by only sending certain cable channels into neighborhoods where customers are actively watching them. This allowed Time Warner Cable customers to avoid renting a cable box for lesser-watched, cable-connected televisions in the home.

Charter’s plan requires a cable box on every connected television, at an added cost. The standard lease rate for the digital decoder box is $6.99 per month, and those customers on the lowest basic tier will likely receive at least two devices for up to two years for free, or five years for customers on Medicaid. Customers who subscribe to higher tiers of service or premium channels may receive only one device for free for one year before the monthly lease rate applies. For a home with an average of three connected televisions, this will eventually cost an extra $21 a month. DVR boxes cost considerably more.

No More Modem Lease Fee, But Only Two Choices for Internet Service

The good news is Charter does not apply any modem lease fees and there is a good chance if you already purchased your own modem, Charter will continue to let you use it. The bad news is that if you were used to sticking with a lower-speed broadband tier to save money, those days are likely coming to an end. Charter’s “simplified” menu of broadband options cuts Time Warner’s six choices and Bright House’s five options to just two:

• 60/4Mbps for Spectrum Internet ($59.99)
• 100/5Mbps for Internet Ultra ($109.99)

This is likely to be a red flag for regulators concerned about broadband affordability. Although it is likely Charter may offer concessions by grandfathering existing Time Warner Cable and Bright House customers under their current plans, Charter has nothing comparable to Time Warner’s “Everyday Low Price Internet” for $14.99 a month or a 6Mbps Basic broadband alternative far less expensive than Charter’s entry-level Internet tier. Bright House customers are not likely to experience something similar. The entry-level 15Mbps broadband-only plan is $65 a month without a promotion, according to Bright House.

Charter is rumored to be testing speed boosts for those two tiers for deployment in areas where they face fiber competitors. The first phase would raise Spectrum speeds to 100/25Mbps and Ultra to 300/50Mbps with plans to further increase speeds when DOCSIS 3.1 arrives — likely to 300/50Mbps for Spectrum and 500/300 for Ultra, at least where Google Fiber, U-verse with GigaPower, and Verizon FiOS offers competition.

Recently, Charter has followed Time Warner Cable’s marketing script and is actively promoting the fact the company has no data caps on broadband service, but Charter had a history of loosely enforced “soft caps” for several years in the recent past, so we’re not convinced data caps are gone for good at Charter.

Pricing & Service

Charter enjoys a higher rate of revenue per customer than either Time Warner or Bright House, which is a sign customers are paying more. It is likely Charter’s reduced menu of choices is responsible for this. Although customers do get a better advertised level of service, they are paying a higher price for it, with no downgrade options. Ancillary equipment rental fees for television set-top boxes are also a likely culprit.

Charter also tells investors its merger with Time Warner and Bright House will bring “manageable promotional rate step-ups and rate discipline” to both companies. That means Charter will likely be less generous offering promotions to new and existing customers. Like Time Warner and Bright House, Charter will gradually raise rates on customers coming off a promotion until they eventually reset a customer’s rates to the regular price. But while Time Warner, in particular, was receptive to putting complaining customers back on aggressively priced promotions after an old promotion ended, Charter is not.

Charter customers tell us the company’s customer service department is notoriously inconsistent and promotional rates and offers can vary wildly. For some, Charter only got aggressive on price after they turned in their cable equipment and closed their accounts.

As far as service is concerned, CEO Thomas Rutledge has managed significant improvements while at Charter. What used to rival Mediacom in Consumer Reports’ annual ranking of the worst cable companies in America is now ranked number nine (Bright House took fourth place, Time Warner Cable: 12th).

But the presence of Malone in this deal, even peripherally, is a major concern. Malone-run cable companies are notorious for massive rate increases and poor customer service. Sen. Al Gore routinely called his leadership style of Tele-Communications, Inc. (TCI), since sold to Comcast, the Darth Vader of a cable Cosa Nostra and Sen. Daniel Inouye from Hawaii once remarked in a Senate oversight hearing that Malone’s executives were a “bunch of thugs.”

[flv]http://www.phillipdampier.com/video/Bloomberg Charter CEO Comfortable With Price Paid for Time Warner 5-26-15.flv[/flv]

Watch Charter Communications CEO Thomas Rutledge stumble his way through an answer to a simple question: What are the public benefits of your merger with Time Warner Cable that the deal with Comcast didn’t offer? Did you like his answer? (5:28)