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With the advent of high speed broadband and streamed online video, an analyst at Morgan Stanley is predicting that by 2015, more than half of all television revenue will come from subscription fees charged to access it.  Ben Swinburne says the entire television model is being turned on its head by broadband video, with cable, phone and satellite companies scrambling to protect the average $85 Americans spend every month for broadband Internet and television service.

Among Swinburne’s predictions:

• Cable and telephone broadband will increasingly be the delivery platform for television programming with at least 50% of all televisions connected directly to the Internet by 2015;
• Advertising revenue will continue to lose prominence, with networks and programmers seeking direct payments from consumers in the form of monthly subscriptions or pay-per-view to access even traditional over-the-air programming;
• Satellite television is at a distinct disadvantage not offering broadband Internet access, something satellite companies are trying to change;
• Cable companies will face the potential of “online cable” competitors delivering multichannel video packages over broadband connections;
• Content producers, networks, and the cable industry will continue to maintain a united front against a-la-carte television, which could dramatically reduce the revenue the entertainment industry earns from selling multi-hundred channel cable and satellite video packages.

Swinburne speaks with Carol Massar and Matt Miller on Bloomberg Television’s “Street Smart.”  (4 minutes)

A Cincinnati-area man found a DirecTV promotion from his local phone company promising a full package of television programming with a DVR box for just $30 a month.  A month later, that “bargain” literally emptied his checking account of more than $400.

Cincinnati Bell, like several other telephone companies, tries to compete for “triple play” customers accustomed to one bill for phone, Internet, and television service.  But where the company’s fiber network does not extend, customers can only get telco-TV by signing up for a DirecTV satellite television package.

Gary Gideon of Westwood learned the hard way that phone company promotions promising attractive prices are often tempered with paragraphs of fine print which make savings elusive.  In this case, the trouble began when Gideon thought he was receiving the standard DirecTV DVR that was included in the promotion.  Instead, the company supplied him with an HD DVR that carries a hefty additional charge, turning his $29.99 price he was originally promised into $49.85 instead — nearly $20 extra a month.

When Gideon complained about the surprise charges, he was offered a DVR downgrade, if he was willing to pony up an expensive deposit he was never asked to pay for the more deluxe model.  The installer responsible for Gideon’s setup promised he could walk away and cancel the package without any harm done.  But a month later, DirecTV deducted nearly $400 from his checking account to cover “early termination fees.”

Despite the assurances Gideon received, the satellite company’s customer service agents refused to budge on waiving the termination fee for just a few weeks of service, telling Gideon “nobody” has the power to waive such fees.

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Nobody except the media or an empowered customer service representative.  WKRC-TV in Cincinnati covered Gideon’s nightmare and found DirecTV only too willing to reverse the early termination fees they refused to refund earlier.  They said it was “good customer relations” to do so.  It’s also good public relations on the six o’clock news.

When dealing with satellite providers delivering service on behalf of a phone company, always carefully review the fine print for equipment and installation fees, contract terms and obligations, and disclosures for any additional charges.  If the equipment does not match what the offer provided, refuse it.  Remember that the truck plastered with DirecTV logos that appears in your driveway to handle the installation is probably an independent contractor — one that usually cannot make promises on behalf of the satellite company.  (2 minutes)

The 500 channel universe has arrived for around 23,000 households around the state capital as Verizon officially unveiled its FiOS television service last week.

The company added television to its broadband service offering after securing video franchise agreements in suburban Bethlehem, Colonie, Guilderland, and Scotia.  It also expects to win approval to provide television service to the nearby city of Schenectady and the town of Colonie shortly.

The arrival of Verizon’s triple-play package begins with a $100 monthly promotional package (go to Verizon’s FiOS website and the online price can be lower) including phone, Internet, and television service for a year, rivaling a similar $99 promotion on offer for new customers from incumbent Time Warner Cable. But Verizon delivers faster broadband service and more HD channels than its cable rival, and will deliver up to 535 channels to subscribers — 130 in High Definition.

“Consumers and small businesses in these communities at long last have a better choice for TV,” said Tracey Edwards, president and general manager for Verizon’s Upstate New York region. “We’ve had great success in many other parts of the state. Now it’s time to bring FiOS TV to this part of northeastern New York and provide customers in the region a choice that is truly different from the cable TV company.”

Verizon officials also claimed the introduction of FiOS TV would result in lower prices for local residents, a claim that does not necessarily hold up when examining the rates for each company.  Both deliver triple-play promotions and retention offers that come within a few dollars of each other.

Time Warner Cable says Verizon’s service does not come with the same local commitment to the region the cable operator has provided with its local news channel YNN, and features that allow customers to start programs over from the beginning or watch live streams of 32 channels on the company’s iPad application.

But the fact a new choice is now available has delighted some of our readers.

Jeff in Guilderland says a number of Albany residents were upset when Time Warner Cable unveiled its $99 promotion which turned out not to be available to existing customers.

“They only give the best prices to their least loyal customers who are ready to cancel their service or sign up as new customers,” Jeff says.  “We’ve had cable from these guys for over a decade and when we sought a temporary price break, they wanted to give us a $20 credit — thanks for nothing.”

Now Jeff says with Verizon around, Time Warner better offer more than that.

Verizon put expansion of its Verizon FiOS fiber-to-the-home service on hold more than a year ago, stopping new cities from winning new options made possible with fiber optics.  But Verizon is still continuing to meet its commitments to communities where the network has already broken ground.  Where communities have not given Verizon video franchise agreements, Verizon markets its broadband and phone options.  But delivering video completes the triple play package many consumers want.

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WNYT and WXXA-TV reports some Albany-area residents can now get FiOS TV, showing Verizon is still expanding its FiOS product line in areas where fiber has already been laid.  (3 minutes)

Frontier attempts to dig themselves out.

The Oregonian has been covering the plight of Frontier customers in the Pacific Northwest who signed up for Verizon’s fiber to the home service — FiOS — and are now facing down the new owners who want to raise the price by $30 a month.

Frontier has done itself no favors in the media with an ongoing series of reports of service problems, rate increases, and now the latest signs it wants out of the television delivery business altogether.

In a letter dated March 4th, Steven Crosby — senior vice president of government and regulatory affairs, told the city administrator in Dundee, Ore., Frontier FiOS TV has been a flop.

Since Frontier Communications Northwest, Inc., acquired Verizon’s operations on July 1, 2010, it has built on Verizon’s prior actions and continued to offer a robust and aggressively priced video product to attract Dundee subscribers.  Despite these efforts, however, customer growth has been disappointing and stagnant and Frontier has not achieved a commercially reasonable level of subscriber penetration.

Frontier also admits it has been under-pricing its video service to stay competitive and attract new customers, but those days are over.  The company earlier announced its intention to raise rates by $30 a month for its standard cable TV service, making it more costly than its nearest competitor, Comcast.

Frontier recognizes the impact its enormous rate increase will have on its subscriber base, soberly noting it is likely to “further depress subscriber penetration.”

With this in mind, Frontier is exercising its right under the franchise agreement it has in Dundee to provide notice it intends to terminate its video service at a future date, after providing subscribers with 90 days advance notification.

Similar letters went to city administrators in Newberg, McMinnville, and Wilsonville.  City officials had no reservations about interpreting the meaning of the letters and plans to implement a $500 installation fee for future FiOS TV installations.

“Looking at it, you expect there will be no new customers,” Dan Danicic, Newberg’s city manager told The Oregonian. “Getting this opt-out notice is not a huge surprise to me, but we are disappointed.”

Frontier's rate increases are driving many consumers back to Comcast for their television service.

Sources tell Stop the Cap! there was considerable debate inside Frontier’s offices last week on how to implement directives from executives to shut down FiOS installations as quickly as possible.  Initial efforts to quietly raise the installation price — without giving subscribers’ advance notice — were on track until Frontier’s legal department quashed the plan.  Concerns were also raised inside the customer support units responsible for taking orders and handling customer billing inquiries over how to deal with the inevitable subscriber backlash when the first bills arrived in the mail.

“Frontier hates dealing with FiOS and they can’t wait to be rid of it — they claim that the product is at least 10 years away from really returning any investment from its original deployment,” a well-placed source told Stop the Cap! late last week.

Frontier FiOS is an anomaly for the rural phone company, which delivers the vast majority of its broadband customers DSL service over copper wire phone lines, usually at speeds approaching 3Mbps.  Frontier FiOS “came along with the deal,” one Indiana Frontier official told local media there in response to rate hikes there.

Still, media reports that the company plans to ditch its TV customers created a small panic inside Frontier by the weekend.

“Getting customers switched over to satellite TV service in an orderly manner was the original plan, but reports the company was abandoning the service altogether risks we’ll lose our customers to Comcast, and many will take their phone lines to the cable company, too,” a second source informed Stop the Cap! this morning.  “We were told ‘orderly transition’ over and over again, so reassuring customers is today’s top priority.”

Dundee, Oregon

Evidence of this campaign was not difficult to find over the weekend, as The Oregonian amended its original story claiming Frontier does not have immediate plans to exit the video business.

Crosby told the newspaper: “Our actual implementation decisions will be business driven. At this time, there is no change in our FiOS video offerings or in our FiOS video service delivery to our customers. And this filing does not affect our FiOS high speed service.”

Stephanie Schifano, identifying herself as an employee of Frontier Communications, attempted to spin the letters sent to several Oregon communities as a simple matter of business and not a foreshadowed abandonment of television service.

“Frontier is exercising our right under the franchise agreements to terminate the franchises. The right to terminate soon expires, and if Frontier didn’t give notice now we may have been required to provide this service, with these franchises, for another 12 years. This notice offers Frontier the flexibility to continue to analyze the FiOS Video/TV business and continue to service our customers,” Schifano wrote.

But both of our sources well-familiar with Frontier FiOS say the company’s actions speak louder than its words.

“When you increase the installation fee to $500 and raise your prices nearly $30 higher than Comcast, you would be crazy not to interpret the message Frontier is trying to send — go get your satellite dish from us and get off FiOS,” our second source told us.

Telecompetitor read into some of the company’s comments about utilizing the acquired fiber network in a new way, perhaps for over-the-top Internet video content.

“That’s wishful thinking,” our second source says.  “Frontier’s only online video efforts surround its rebranded Hulu service, relabeled myfitv.”

Frontier's online video platform serves up mostly repurposed Hulu content.

“The company has no plans I am aware of for a grand video strategy — FiOS covers far too small a service area and there is no way Frontier will spend more money to increase that fiber footprint,” our source adds. “Frontier wants to meet its general obligations made as part of its deal with state regulators when it bought Verizon FiOS with the landline deal, and little else.”

Frontier will continue to offer FiOS to broadband customers for the time being, regardless of what it does with its video package.

“If it’s already there and not costing a lot of money to maintain for broadband, why not?” our source says.

One direct sales contractor for competitor Comcast suspects that train may have already left the station.

Calling Frontier’s customer service operation “a circus,” the salesman says Comcast is benefiting from Frontier’s ball-dropping.

“Many Frontier customers are unhappy with the customer service side while stating they do enjoy their phone, Internet, and video services provided by the FiOS network, but lose the business on the practically non-existing customer service side.”

The contractor says he hears stories from Frontier customers all day who are fed up with the frustration of extended hold times, inaccurate or missing bills, online account access problems, excessive call transfers to deal with service issues and high fees.

For regulators, the aggravation is much the same.

After being promised by CEO Maggie Wilderotter that Frontier would be an aggressive competitor in a barely competitive marketplace, Frontier has raised rates by 46 percent, irritated their customers with customer service problems and outages, and now has served notice it intends to flee the TV business at an undetermined point in the future.

No significant expansion for FiOS in 2011, say company officials.

A Verizon spokesman has confirmed Verizon will not be expanding its FiOS fiber to the home service into new areas in 2011, except in those communities where the company already signed franchise agreements.

It’s the second year of Verizon’s hold on fiber expansion, instituted because of objections by Wall Street, a difficult economy, and a less optimistic view by Verizon’s new management that fiber has the capacity to quickly return on investment.

For upstate New York, the end-effect of Verizon’s decision is an odd patchwork of partially-built FiOS-capable communities, mostly in suburbs amenable to Verizon’s franchise terms. Some suburbs have access to FiOS broadband and phone service, but not television.  Others have access to all three services, while many other areas have nothing but Verizon’s ordinary copper phone lines.

“If you are big on fiber, there are some outlying towns with real estate agents that list whether or not their properties have Verizon FiOS, and whether that includes television service,” says Lysander, N.Y. resident Jeff, who reads Stop the Cap! “Our town was just glad Verizon picked us for upgrades and we didn’t ask too much of the phone company, quickly agreeing to a TV franchise agreement.”

But residents in the city of Syracuse are less happy — they won’t get competitive video from Verizon and are stuck with a Time Warner Cable wired monopoly because the city “dragged its feet” on franchise negotiations.

“When it comes to bigger cities, they see Verizon’s knock on the door as an opportunity to cash in on freebies from the phone company, like upgrading their video studios for government access channels, paying substantial franchise fees, and agreeing to carry channels the city government wants on Verizon’s cable system,” Jeff says.  “When the first cable systems came to town, it was the same story; some communities dragged their feet for years trying to extract more.”

Of course, cities don’t have to wait for Verizon to take care of their growing broadband needs.  They can build their own fiber networks and deliver world class service themselves, or open the new networks up to private competitors to deliver bigger bang for your broadband buck.

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WSYR-TV in Syracuse reports it will be a long wait for many in central New York waiting for fiber to the home television service. (Warning: Loud Volume) (1 minute)