Time Warner Cable and Cablevision customers: Is Charter Cable in your future?

The best way the cable industry can grow revenue in the lucrative broadband business is to bring back the same type of collusion and control cable companies maintained over video programming 20 years ago.

Dr. John Malone did not want to sound nefarious in his recent interview with CNBC’s David Faber, but the new part-owner of Charter Communications has built a reputation as cable’s Darth Vader over the last 30 years. His detractors consider his way of doing business akin to a nationwide cable mafia, complete with exclusive, non-competitive territories that assure operators can charge sky-is-the-limit prices.

Malone is now back in the cable business in a big way, and analysts expect he will quickly amass influence in an industry he once led as CEO of the nation’s then-largest cable operator — Tele-Communications, Inc. (TCI).

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Why is John Malone back in the cable business and why buy a piece of Charter Cable? Malone tells CNBC’s David Faber Charter is a company with enormous growth potential through mergers and acquisitions. CNBC says Malone could be targeting Time Warner Cable and Cablevision for acquisition by Charter as early as next year. “There is consolidation yet to be done,” Malone hints.  (7 minutes)

Malone notes the cable industry is on the cusp of transformative consolidation through collaborative agreements, mergers, and outright acquisitions both here and abroad. CNBC speculated that could begin with efforts to further reduce the number of cable operators in the United States, perhaps beginning with a deal by Charter Communications to acquire both Time Warner Cable and Cablevision, which could combine under Malone’s stewardship and Charter’s executive leadership to “compete” with Comcast.

Dr. John Malone

CNBC reporters note Malone has high praise for Thomas Rutledge, CEO of Charter Communications. Rutledge’s earlier experience working for both Time Warner Cable and Cablevision could be an asset in combining all three companies into one. Analysts speculate such a deal could be pitched as early as 2014 when Time Warner Cable will undergo a management makeover with the departure of CEO Glenn Britt. CNBC also noted Cablevision’s imminent sale has been rumored for years, and current leader and family patriarch Chuck Dolan is 87 years old. With cheap credit and Malone’s business savvy, both companies could find themselves part of a Malone-engineered takeover that would vastly expand Charter Communications into the second largest cable operator in the country.

Malone sees the days of traditional cable television coming to an end as consumers turn to “over the top” online video for an increasing share of their viewing time. As cable television rates continue to increase, customers are cutting the cord. Malone believes today’s bloated cable packages are ripe for an upheaval from a-la-carte pricing or theme-based programming bouquets that break expensive sports programming or movie channels out of the traditional basic cable lineup. Malone even suspects a challenge to the industry’s current price models could surprisingly come from the programmers themselves.

Sports networks will be among the first to notice their affiliate revenue collected from cable and satellite companies (and passed on to customers in the form of higher rates) will stagnate as customers drop cable television. Declining viewer ratings also mean lower ad revenues. Malone believes at some point sports teams and/or programming networks will decide that the biggest barrier to winning new viewers is the $70-80 asking price for basic cable. If sports programmers find they can reach new audiences selling their programming online, direct-to-consumer, for $5-10 a month, the basic cable all-for-one-price model will quickly collapse.

“As the cable guys and the satellite guys start to lose customers to the over-the-top guys, some of those economics will be reflected back on the sports guys,” Malone said. “They’ll start losing advertising revenue. They’ll lose affiliate revenue. And they have to face reality that maybe you need to segregate your market like everybody else.”

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John Malone predicts the demise of the traditional bundle of cable television programming within five years. The future is streamed video online, declares Malone, so it is important the cable industry move to manage that competitive threat by acquiring streaming competitors or launching their own services to assure video programming revenue can be protected.  (5 minutes)

Malone sees the future sustainability of the cable industry dependent on the high revenue broadband business.

“I think it is at a point in history when the most addictive thing in the communications world is high-speed connectivity,” Malone told CNBC. “Everywhere in the world that we operate, we’ve just seen the public want more and more data rate. Whether it’s wireless or wired. There’s a big appetite for it. Cable technology right now is the most cost-effective way to deliver that growth in speed.”

Malone believes there is also plenty of room for revenue growth and cost-cutting, which he said can best be accomplished by getting other cable operators together to “cooperate” and “coordinate” broad scale broadband projects that counter competitive threats from third parties.

Malone helped pioneer the cable industry business practice of “don’t compete in my backyard and I won’t compete in yours,” an informal agreement among operators to stay within their own specific territories, safe and secure from competition. In the 1980s and 1990s, Malone’s TCI was one among many cable operators buying and swapping cable systems to build large, regional system “clusters” where only a single cable company provides service, winning economy of scale and a formidable presence that discouraged other wired competitors from entering the business. In most cities, only the deep pockets of AT&T (U-verse) and Verizon (FiOS) have managed to shake things up.

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Bring back the cable mafia? CNBC’s David Faber gets John Malone to admit vertical and horizontal integration — controlling the content and the pipeline — are important factors to protect cable revenue and expand American dominance in cable internationally. Malone is also a big supporter of industry consolidation and believes mergers and acquisitions are necessary to shrink the number of cable operators in the United States. (5 minutes)

The cable mafia?

Malone wants broadband to be carefully managed under the industry’s own control and direction.

Faber asked if Malone wanted to bring back the days of the “cable mafia.”

“Yes, I think we do want to bring back the days of @Home, the days of Ted Turner, the days when we all got together, because together we provided national scale,” Malone said. “Now I think we have the opportunity to create global scale,” he said. “The goal is not to be bigger. The goal is to be more cost-effective.”

Since introducing its version of TV Everywhere more than a year ago, one of the most frustrating aspects of Time Warner Cable’s video streaming service has been it only works within your own home over the cable company’s own broadband service. As of tomorrow morning, that will change. If you own an Apple iOS tablet or smartphone, the cable company’s new version of its TWC TV app (free) will bring streamed and on-demand programming from a handful of cable networks regardless of where you happen to be.

There are several limitations however:

1. Having access to a Wi-Fi network while on the go will be a big help. Streaming access over 3G/4G service will initially be limited to Verizon Wireless customers, perhaps a fringe benefit of the agreement between Verizon and Time Warner Cable to collaborate in cross-marketing services;
2. Only nine cable networks and one Time Warner Cable-owned news channel will be available for live streaming when the service launches. None of them are particularly compelling. Programmers are fearful that streaming access outside of the home may open up cable programming to non-paying customers with access to a shared password;
3. Fox News Channel and Fox Business were reportedly going to be available as of tomorrow, but Time Warner Cable’s official blog post omits the two networks;
4. Android and desktop users will have to wait until summer to get the upgrade, an annoying prospect considering Android users now outnumber Apple iOS users, who have to wait.

The online programming guide is also being revamped to help users find TV channels and online on-demand content more quickly.

The initial out-of-home On Demand library offers over 1,100 hours of programming from the following providers:

BBC America
BET
CBeebies
CMT
Comedy Central
Cooking Channel
DIY
FEARnet
Food Network
Hallmark
HGTV
Logo
MTV
MTV2
Nick Jr.
Nickelodeon
Palladia
Spike
TeenNick
Travel Channel
Tr3S
TV Guide Network
TV Land
UniMas
Univision
VH1
VH1 Classic

Live TV streaming will be available from the following national networks:

Aspire
BBC America
beIN Sports (English/Spanish)
FearNet
GMC
Pac-12
TVGuide Network

Additionally, all Time Warner Cable local news channels will eventually be available out of home, though all local news, traffic and weather channels may not be available immediately. The following news channels will be available at launch:

NY1
NY1 Noticias
News 14 Carolina
YNN (New York and Texas)

The Federal Communications Commission has opened the door for Time Warner Cable to raise basic cable rates in several parts of Ohio and California after ruling the company faces effective competition from Dish Networks and DirecTV.

Under FCC rules cable rates for the broadcast basic tier, which includes local television stations and a handful of basic cable networks, remain regulated by the government until a cable operator can prove at least 50 percent of their service area is covered by a competing provider and 15 percent of its would-be customers are signed up with a competitor.

Cable companies have requested rate deregulation in countless communities as satellite and television service from phone companies penetrates their markets. Once rates are deregulated, cable operators can raise them to whatever price they believe the marketplace will bear.

In several affected communities, Time Warner Cable’s service is so uncompelling, almost half of the households have signed up for satellite service instead.

The communities affected in Ohio:

• City of Bellefontaine
• Howard Township
• Village of Huntsville
• Village of Lakeview
• McArthur Township
• North Bloomfield Township
• Village of Russells Point
• Stokes Township
• Washington Township
• Village of Zanesville

In California:

• Bradford

AT&T suddenly announced it was ready to build its own gigabit fiber network in Austin.

AT&T and Time Warner Cable report they are ready to make more investments in their operations in Austin, Tex. to compete with Google Fiber when it arrives in the middle of next year.

Time Warner Cable says it already operates a multi-gigabit fiber optic network — one residential customers cannot easily access or afford. Residential broadband speeds at the cable operator top out at 50/5Mbps in Austin, at a cost higher than what Google plans to charge for 1,000/1,000Mbps service. AT&T’s U-verse network maxes out at 24/3Mbps, assuming customers have good copper wiring between AT&T’s fiber in the neighborhood and their home.

“The cable and phone company providers have purposely confused their networks’ maximum speed capacity with real end-user speeds for years, and when that fails to convince they simply claim customers don’t need or want those speeds anyway,” says Stop the Cap! reader and Austin resident Sam Knoll.

Knoll is enthusiastic about giving Time Warner Cable the boot, partly to pay them back for their aborted consumption billing trial attempted in Austin in 2009.

“I am not completely convinced Time Warner Cable understands just how much damage they did to their reputation when they pulled that stunt, and I’m certain they will attempt it again if they have a chance,” Knoll said. “The best thing customers can do is switch to a provider that believes usage caps and consumption billing are the fraudulent ripoff we know them to be. Google already knows this.”

Some Time Warner Cable customers in Austin never forgot the company tried to meter Internet usage in a failed experiment back in 2009. (Image: The Austinst)

Competition from deep-pocketed Google could eventually transform the broadband business model for American providers, assuming Google builds its fiber network in enough cities to challenge the conventional wisdom that prices have plenty of room to grow with faster Internet access. The more customers that sign up for Google’s already-super-fast broadband, the more providers will have to compete with better and faster service.

But AT&T is not convinced. The company announced yesterday it was prepared to build a gigabit fiber network not just in Austin, but also in surrounding Williamson County, with plenty of caveats.

“[We will only build the network if] the demand is there and if we get the same terms and conditions as Google received,” said AT&T spokeswoman Tracy King.

AT&T told the Austin American-Statesman the company wanted a faster regulatory approval process and permission to only build its faster fiber network in neighborhoods where there is proven demand for the service. Current franchise agreements often compel providers to offer service throughout the community and prohibits “cherry-picking” customers in high-income or low construction cost areas.

An AT&T official told KEYE-TV he had no idea how much AT&T would charge for gigabit broadband. Google charges $70 a month in Kansas City.

Austin has promised cooperation with Google, although it is not extending tax breaks or grants to the search engine giant. Google will get easy access to Austin Energy’s municipally owned infrastructure including utility poles and rights-of-way.

Google is speculated to be building showcase fiber networks to embarrass incumbent cable and phone providers who typically sell standard broadband service with speeds of 6-15Mbps in most larger communities. Rural areas are lucky to have 3Mbps service, and often much less.

But if Google intended to force major upgrades by cable and phone companies across the country, it might be disappointed with the response so far from AT&T and Time Warner Cable. Both companies indicate they will invest in and upgrade their networks to compete, but only in the service areas where Google-style competition exists. For the rest of the country, phone and cable companies are prepared to continue with the current “broadband scarcity” business model that delivers upgrades only occasionally, often accompanied by usage limits, consumption billing, and/or higher prices.

“Google has proved that there is a business model for selling abundant bandwidth as opposed to a business model for allocating scarce bandwidth,” said Blair Levin, a former chief of staff of the Federal Communications Commission.

“They are saying this is not an experiment. It is a business,” Levin told the newspaper. “In Kansas City, Google did the country an enormous favor. They said, give us regulatory flexibility to design the business and give us access to city property so we can build a network to lower the cost.”

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KEYE in Austin talks with AT&T about their plans for a gigabit broadband network to compete with Google Fiber. The AT&T spokesman seemed more interested in pitching the company’s deregulation agenda and was short on specifics.  (3 minutes)

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KXAN in Austin talked with Google competitors Time Warner Cable and AT&T about how they will respond to the Google Fiber challenge.   (3 minutes)

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KVUE in Austin called Google’s entry into the city the opening salvo of ‘Fiber Wars,’ as AT&T promises its own gigabit network. Austin residents intend to take advantage of the competition to force providers to give them better deals to keep their business.  (3 minutes)

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KXAN explains the possibilities of gigabit fiber, but also asks a former Google insider why the search engine is getting into the broadband business.  (5 minutes)

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KTBC was skeptical of AT&T’s sudden interest in gigabit broadband. “Gee, what a coincidence,” commented the anchor of Austin’s Fox affiliate.  (2 minutes)

Austin’s television news has gone all out for Google Fiber, which is being unveiled today at a press event. Stop the Cap! will have coverage of the announcement, but in the meantime, here is a roundup of local coverage about Google Fiber in Austin:

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Austin’s local Fox affiliate KTBC reports city officials stayed tight-lipped about Google Fiber, but Google may have previewed its intentions by adding The Longhorn Network to its television lineup several months ago. Local technology experts say the upgrade is worth the wait and will be a boon to Austin’s economy. (2 minutes)

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Now that Austin will get Google Fiber, how long will residents have to wait to sign up? Mid-2014 is the estimate. KXAN explored how Google was unveiled in Kansas City. The station also took a look at other cities with gigabit fiber networks, many of them publicly owned alternatives to big phone and cable companies. KXAN compares the cost for 1,000Mbps service in different cities around the country. (3 minutes)

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KEYE notes Gov. Rick Perry is showing up for this morning’s unveiling of Google Fiber. In between some minor technical glitches in the report, some viewers say they are ready to sign up for $70 gigabit Internet now, just to stick it to Clearwire ($50 a month) and Time Warner Cable.  (2 minutes)

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KVUE says Google Fiber could boost Austin’s economy by luring even more high-tech companies. It could also stop Time Warner Cable and AT&T from trying more Internet Overcharging schemes on area customers.  (2 minutes)