Esteves

Time Warner Cable is spending less to maintain and improve services for residential customers even as broadband usage grew 40-50 percent, redirecting spending on its business services division instead.

Irene Esteves, chief financial officer of Time Warner Cable, told attendees at Morgan Stanley’s Technology, Media & Telecom Conference that the growth in the company’s capital spending is associated with serving business, not residential customers.

Esteves reported that spending on residential services was actually down slightly in the last year. The business services division used its increased capital to wire 100,000 office buildings and provisioned 1,900 cell towers with backhaul service last year.

But despite decreasing costs, Time Warner Cable expects to continue increasing broadband prices, primarily because it can.

“What we have found is […] as customers use it more, value it more, we can then price it more,” said Esteves. “And we think that’s a terrific dynamic for the market for quite a bit of time.”

Powering usage growth more than anything else is online video.

“If we look at peak volume, which is really what drives our capacity planning, 66% of that increase comes from streaming video,” notes Esteves. “Again, the more they use it, the more they love it, the more important we become to them as a service provider. So we’re continuing to watch that usage pattern and cheering them on.”

For traditional television viewing, Time Warner’s march to digital will also carry on, but it will happen slowly.

Time Warner Cable has chosen a gradual transition to IP video for cable television service. Subscribers can expect about a dozen channels per year to be removed from analog service until the cable system offers a completely digital television package. In Maine and New York City, that digital transition is already complete.

“We’re taking a more measured approach over a 5-year time period,” said Esteves. “We’re taking [away] analog channels in the 10 to 12 per year kind of measure, which is less disruptive to our customers and less capital-intensive.”

That kind of transition, coupled with annual rate increases, could potentially alienate customers, but Time Warner has retrained its retention specialists to assuage customers headed for the door.

“With the increasing promotional activity in the marketplace, we have more and more of our customers on promotion and it’s imperative that when the [promotion expires], we’re being very thoughtful about who rolls off to what, when,” said Esteves. “We’re training specialists to talk to customers, listen to them, find out the reasons for potentially leaving and recapturing those.”

But the industry is also under pressure from Wall Street to cut promotional activity and stop discounting service excessively, because it gets customers used to a lower price.

“If you think about the promotional prices in the marketplace, that really drives people to price shop and that just increases the transactions and the turmoil in the industry, which increases everyone’s cost and reduces everyone’s profitability,” Esteves said. “So the real conundrum for the entire industry is how do we each build on our retention rather than build on the promotional side in order to keep our customers and become more profitable.”

Both Time Warner Cable and Verizon don’t think you want or need gigabit fiber broadband — the kind of service now available in Kansas City from Google Fiber.

Time Warner Cable’s chief financial officer Irene Esteves says the cable company is content delivering most of the country no more than 50/5Mbps broadband (for at least $10 more than Google charges for 1,000/1,000Mbps service).

“We’re in the business of delivering what consumers want, and to stay a little ahead of what we think they will want,” she told an audience of Wall Street investors at the Morgan Stanley Technology Conference. “We just don’t see the need of delivering [gigabit speeds] to consumers.”

Esteves says she is not opposed to supplying gigabit speeds to business customers.

“We’re already delivering 1-10Gbps service to our business customers, so we certainly have the capability of doing it,” she said.

Despite regular quarterly conference calls where Time Warner executives trumpet the growing interest in higher broadband speeds, Esteves downplayed the importance of Time Warner’s top-tier: 50/5Mbps, claiming only a very small fraction of Time Warner customers opt to receive speeds that high.

Fran Shammo, chief financial officer at Verizon agreed with Esteves during the conference, also arguing nobody needs gigabit speeds today.

“FiOS brings a very different perspective to the household with fiber to the home,” Shammo said. “We actually tested a 1Gbps circuit in New York three years ago, so our FiOS product can deliver that but we just don’t see the need yet from a household to have that much of a pipe into their home.”

Time Warner’s “low interest” 50Mbps premium tier is Verizon FiOS’ mainstream sweet spot. Verizon now heavily markets 50/25Mbps Quantum service as their best value option, charging $10 more per month to upgrade from basic 15/5Mbps service.

Data caps protect incumbent big studio and network content creators at the expense of independent producers and others challenging conventional entertainment business models.

That was the conclusion of several writers and producers at a communications policy forum hosted by Public Knowledge, a consumer group fighting for an open Internet.

A representative from the Writers Guild of America West noted that cord-cutting paid cable TV service has become real and measurable because consumers have a robust online viewing alternative for the first time. John Vezina, the Guild’s political director, noted how Americans watch television is transitioning towards on-demand viewing.

New types of short-form programming and commissioned series for online content providers like Netflix are also changing the video entertainment model.

Welch: It is about the money.

But a digital roadblock erected by some of the nation’s largest broadband providers is interfering with that viewing shift: the data cap.

Data caps place artificial limits on how much a customer can use their Internet connection without either being shut off or finding overlimit fees attached to their monthly bill. Critics contend usage caps and consumption billing discourage online viewing — one of the most bandwidth intensive applications on the Internet. With broadband providers like Time Warner Cable, AT&T, Verizon, and Comcast also in the business of selling television packages, cord-cutting can directly impact providers’ bottom lines.

Providers have traditionally claimed that usage limits are about preserving network resources and fairness to other customers. But Time Warner Cable admits they exist as a money-making scheme.

Rachel Welch, vice president of federal legislative affairs at Time Warner Cable, says the cable company is not worried about limiting data consumption. It considers monetizing that consumption more important.

“We want our customers to buy as much of the product as possible,” Welch told PC World. “The goal of companies is to make money.”

Time Warner now offers customers a choice of unlimited service or a $5 discount if customers keep their monthly usage under 5GB, but some worry that is only a prelude to introducing expanded usage limits on a larger number of customers in the future.

For many consumers already hard-pressed by high broadband bills, worrying about exceeding a data allowance and paying even more may keep viewers from watching too much content online.

For that reason, Vezina called data caps “anti-innovation.”

“It hurts consumers [and] it hurts creators who want to get as much out to the public in as many ways” as possible, he said.

Public Knowledge has become increasingly critical of data caps in the last two years. The organization has questioned how ISP’s decide what constitutes a ‘fair’ usage limit and criticized inaccurate usage meters that could potentially trigger penalties and overlimit fees.

Time Warner Cable subscribers in Wisconsin are facing the third rate increase since October 2012.

The cable operator has announced a $3/month rate hike for most television packages — a four percent increase for those with the popular digital variety package.

Time Warner blamed increasing programming costs in a notice attached to this month’s cable bills. The company defended the increase, stating the rate rise was half of what it could have been if the cable company tried to recoup all the programming costs incurred over the last year.

Customers facing higher cable bills and still paying regular prices should consider our advice on winning a lower rate from the company. With just 10 minutes, our readers are saving $20-50 a month on Time Warner Cable services with attractive customer retention deals.

In October, Time Warner announced it was introducing a cable modem rental fee of $3.95 a month. In November, the company raised rates on its converter boxes by $1.05 a month. The latest rate increase for cable television takes effect next month.

 Thanks to Stop the Cap! reader Nkundinshuti in Milwaukee for sending word.

Time Warner Cable’s Business Class division has introduced new high-speed broadband packages designed for at-home teleworkers and telecommuters. But unless you need the advanced security, prioritized repair, and assurances that your Business Class online traffic will take precedence over residential traffic on Time Warner’s broadband network, you may be better off with residential service.

Four Teleworkers Solutions broadband bundles are now available in New York, New England and the Carolinas:

There is a setup fee for $75-150, a $23 fee for a static IP (free with Basic Plus or Premium Plus service), and rates are guaranteed for 1-3 years depending on the final contract. Businesses with 20+ telecommuter accounts will receive a volume discount.

In contrast, the best available residential promotional price for broadband-only 50/5Mbps service in the northeast outside of New York City is $78.94 a month, which includes the modem rental fee, does not include a Wi-Fi router, and is good for 12 months before the prices increases.