Boxee, the manufacturer of an Internet-enabled tuner that works like a set top box, has launched an attack against a cable industry plan to encrypt basic cable channels, calling it costly to consumers and the environment:

Amidst flat and declining cable TV subscription numbers, Cable companies are lobbying the FCC to force every cable subscriber to rent cable boxes or cable cards even if they don’t want or need them now.

Currently cable companies must deliver broadcast channels in a way that enables tuners like Boxee Live TV (and the ones in your TV) to display those channels without any extra hardware.

Now the cable companies are asking the FCC to change the rules and turn access off. Their main excuse being that it will reduce the need for the cable guy to drive to your house to disconnect your cable and thus be better for the environment. Considering this ruling would also mean millions more set top boxes and cable cards are manufactured, distributed, and attached to electric outlets (see below for consumption), their argument doesn’t hold water. It’s akin to a cable executive taking a private jet to an FCC meeting, but insisting on having recycled toilet paper on-board to help save the environment.

Boxee

Boxee and other consumer groups oppose the industry’s encryption plan because they say it would deliver no tangible benefits to consumers — just higher cable bills for new equipment that rents for $5-15 a month for each box.  It will also render third-party devices like Boxee, Slingbox, and TiVo almost useless for watching cable television.

Boxee claims cable companies like Time Warner Cable could earn hundreds of millions in new revenue leasing an estimated 10-21 million additional set top boxes to their customers nationwide — more than double the existing number.  Boxee also believes the cable industry is effectively trying stop QAM reception — watching digital cable channels over a television equipped with a basic tuner without a set top box.

Consumers faced with a choice between a cable company-owned set top box or an independent third-party tuner like Boxee may find few reasons to consider the latter when it also requires the former to work properly. The additional equipment also represents an increase in energy consumption.  Set top box electricity consumption can rival major home appliances, Boxee says.

While simultaneously complaining about the spiraling costs of sports programming such as MSG Networks, the nation’s two largest cable operators are planning to cut checks worth $80 million to help bail the NY Mets baseball team out of some of its long term debt.

The New York Times reports both Comcast and Time Warner Cable are preparing to funnel funds into the team through regional sports network SNY.

Time Warner Cable and Comcast are nearing a plan to finance SNY’s purchase of four shares in the Mets, worth $80 million, said one person e with knowledge of the plan who was not authorized to speak publicly.

[…] That means they will have much-needed cash to pay off their substantial debts. But it would be a slightly quirky way of doing it. The deal would mean 16 percent of the Mets would be owned by SNY. The Mets’ parent company, Sterling Equities, owns 70 percent of the network.

[…] Lee Berke, the president of a media consulting company, said that Time Warner Cable and Comcast “don’t want to see the team stumble as it has been, because it directly impacts what they’re putting on TV. This is shaping up as a multiyear downswing for the Mets, and this is a way to keep them above water.”

[…] As for Time Warner Cable and Comcast, it was not immediately clear why they would not invest directly in the Mets. But the two companies clearly want to put money into Wilpon’s financially beleaguered hands (the club has lost some $120 million in the last two years), even if it has to be routed through SNY, to ensure that the team meets its $200 million goal.

[…] Together, Time Warner Cable and Comcast own about 30 percent of SNY. The network started carrying Mets games in 2006.

That investment comes at the same time cable operators are increasingly vocal about sports programming costs.

“ESPN, through … sheer muscle, has been able to say to us, ‘You will carry this service on the lowest level subscription you offer, and you will make all of them pay for it,’” Matt Polka, CEO of the American Cable Association, a trade group told Newsweek. “My next-door neighbor is 74, a widow. She says to me, ‘Why do I have to get all that sports programming?’ She has no idea that in the course of a year, for just ESPN and ESPN2, she is sending a check to Disney for about $70. She would be apoplectic if she knew … Ultimately, there’s going to be a revolt over the cost. Or policymakers will get involved, because the costs of these things are so out of line with cost of living that someone’s going to put up a stop sign.”

Cable analysts continue to be astonished by an inflation rate in sports programming rates that rivals health care costs.

“Every time [there is] a huge increase we can’t believe it, and then there’s another huge increase,” says Laura Martin, an analyst with investment bank Needham & Co. “The rapidly rising cost of sports, especially the new NFL contracts, increases the likelihood that sports will be forced by the government to be on a different tier within three years, by our estimates.”

Cable industry investment in sporting teams is now becoming a familiar headline.  In early January, the Los Angeles Times reported Time Warner Cable was considering buying the Los Angeles Dodgers at a price that could exceed $2 billion.  It would compliment two new regional sports cable channels Time Warner plans to launch in southern California featuring the Los Angeles Lakers.

10-digit dialing is a nuisance in Canada too, where British Columbia and Alberta customers were told to dial the area code for every call.

Verizon FiOS’ “digital phone” product is a far cry from Verizon’s traditional landline service.  Some central New York customers now getting hooked up to the fiber-to-the-home service report they are frustrated because they have to dial an area code for every phone call, even those to friends and neighbors right next door.

Verizon told WSYR-TV that unlike traditional landline service based in your neighborhood, Verizon FiOS phone service is, in fact, a nationwide Voice Over IP (VOIP) service, and uses servers across the country to process phone calls.  Although many traditional VOIP services have since learned ways around the area code limitation, Verizon has not made a similar effort to allow customers to pre-designate an area code.  That would permit Verizon’s servers to assume any seven digit number dialed was within a particular area code and complete the call accordingly.

Instead, Verizon advises customers to learn how to use the included “speed dial” feature to make dialing more convenient.

Verizon’s competitors, including companies like Comcast and Time Warner Cable are quick to point out seven digit dialing is available from them, except where multiple overlaid area codes in the same geographic area exist.  So far, parts of western and central New York have endured area code splits, but for now each service area maintains just a single area code.

[flv width=”400″ height=”290″]http://www.phillipdampier.com/video/WSYR Syracuse Dialing area code for Verizon FiOS 1-25-12.mp4[/flv]

WSYR in Syracuse answers viewers’ suggested stories.  Today, it’s about why Verizon FiOS customers are forced to dial 10 numbers for every phone call.  (1 minute)

While a downturn economy continues to afflict middle and lower income America, it doesn’t seem to be doing much harm to Time Warner Cable’s profits.

America’s second largest cable operator saw profits jump more than $150 million higher to $564 million last quarter, compared to $392 million at the same time the year before.  Time Warner’s revenue grew by 4% to $5 billion in the fourth quarter alone.  In fact, the company is performing so well, executives announced they would return $3.3 billion in earnings to shareholders through share buybacks and dividend payouts, in addition to the forthcoming $4 billion share repurchase program.  Wall Street liked what they saw, boosting shares 7% after the company posted its quarterly and annual results on its website.

Time Warner’s biggest success story remains its broadband service, which consistently delivers the company new subscribers and has helped offset the loss of video subscribers, numbered at an additional 129,000 who “cut the cord” in the fourth quarter of 2011.

Time Warner Cable earned $1.148 billion in revenue from broadband in the last quarter, an increase of 8.6% over last year.  For 2011, the cable operator earned $4.476 billion selling residential Internet access, also representing an 8.6% growth rate over earnings across 2010.

The company attributed this to “growth in high-speed data subscribers and increases in average revenues per subscriber (due to both price increases and a greater percentage of subscribers purchasing higher-priced tiers of service).”

The increased costs incurred by Time Warner Cable to upgrade and expand their network and cable systems were well offset by the aforementioned price increases and subscriber upgrades.  The company increased capital expenditures to $942 million in the last quarter.  Results over the full year show just a 0.2% overall increase in capital investment, now at $2.937 billion.  System upgrades, Time Warner’s plans to move their systems to all-digital cable television, the ongoing rollout of DOCSIS 3.0, new home security and automation services, and investment in online video and data centers are included in these costs. But a more significant reason for the increase comes from the company’s ongoing expansion into business services, which requires wiring more office buildings for cable.

Britt

Time Warner Cable CEO Glenn Britt led off the conference call with investors with an explanation for the increased expenses.

“We plan to continue our aggressive growth in business services by expanding product offerings, growing our sales force, improving productivity and increasing our serviceable footprint. This means continued investment, both in people and in capital,” Britt said. “Projects include expansion of our content delivery network, which powers our IP video capability, our 2 international headends, completion of DOCSIS 3.0 deployment, and conversion to all-digital in more cities. We expect to be able to accomplish this while maintaining the capital spending of the last 2 years — that is, between $2.9 billion and $3 billion, which represents a continued decline in capital intensity.”

Nothing in Time Warner Cable’s financial disclosures provides any evidence to justify significant changes in their pricing model for broadband, which currently delivers flat rate, unlimited service to customers at different speed rates and price points.  In fact, the company’s investments in DOCSIS 3.0 upgrades, which can support faster broadband speeds and a more even customer experience, have already paid off with subscriber upgrades.

Robert D. Marcus, president and chief operating officer, noted subscribers are increasingly considering faster (and more profitable) broadband tiers.

“Once again, high-speed data net adds over-indexed to our higher-speed tiers,” Marcus noted. “Roughly 3/4 of residential broadband net adds were Turbo or higher. And DOCSIS 3.0 net adds accelerated for the eighth consecutive quarter to an all-time high of 54,000.”

Time Warner’s biggest challenges continue to be the current state of the economy, which has made subscribers much more sensitive to pricing and rate increases, and cord cutting traditional cable television service.

“One group is extremely price-conscious, perhaps due in part to the ongoing economic malaise,” Britt said. “The other group is willing and able to pay for more features and service. We’re going to focus more attention on products and services that best meet each group’s needs rather than pursuing traditional one-size-fits-all solutions.”

That is clearly evident in the company’s bundled service options, including increasingly aggressive discounted pricing for new customers and for those threatening to leave and Time Warner’s super-premium Signature Home service, which delivers super-profits.  Average revenue from Signature Home customers averages $230 a month.  Traditional “triple play” customers who buy phone, Internet, and cable service only bring the cable company an average of $150 a month.

The company’s plans for 2012 do not include a specific statement about implementing an Internet Overcharging scheme like usage billing or usage caps.  But it is unlikely such an announcement would be made explicitly at an earnings announcement.  In the last quarter, Stop the Cap! reported comments from chief financial officer Irene Esteves that the company was still very interested in the concept of selling broadband with usage pricing as a “wonderful hedge” against cord-cutting.

Esteves told a UBS conference she believes usage-based pricing for Time Warner Cable broadband will become a reality sooner or later.  Charging “heavy users” more would already be familiar to consumers used to paying higher prices for heavy use of other services, and she claimed light users would have the option of paying less.

But despite favorable reception to the idea of usage pricing by Wall Street, Esteves acknowledged the company’s past experiments in usage pricing didn’t go as planned, and she suggested the company will introduce usage pricing “the right way rather than quickly.”

Other developments and highlights

• 

  Time Warner faces Verizon's $500 rebate offers in NY City

  Time Warner Beats Up DSL: Time Warner Cable’s most lucrative source for new broadband customers comes at the expense of phone companies still relying on DSL to deliver broadband service.  As DSL speeds have failed to stay competitive with cable broadband, the cable operator has successfully lured price-sensitive DSL customers with attractive ongoing price promotions delivering a year of standard 10/1Mbps cable Internet access for $29.99 a month, often less expensive than the total price of DSL service that frequently delivers slower speeds.

• Stalled Verizon FiOS deployment has limited the amount of competition Time Warner faces from fiber optics to just 12% of the company’s service area.  Where competition does exist, especially in New York State, Time Warner has had to stay aggressive to retain customers with deeply-discounted retention deals to keep up with Verizon’s high value rebate gift cards and new customer offers.  AT&T now provides U-verse competition in about 25% of Time Warner’s service area, but like satellite, AT&T U-verse pricing is less heavily discounted.
• Retention pricing and new customer deals deliver lower prices than ever.  In November, Time Warner started selling a triple play offer for $89.99 a month that includes DVR service and now also includes deep discounts or free 90 day trials of premium movie channels. That is $10 less than the same time last year.
• Premium movie channels continue to take a major hit as subscribers try to reduce their bills, especially after Time Warner began increasing rates on those networks.  HBO now sells for as much as $15 a month in many areas.  Time Warner Cable hopes to ‘revitalize’ premium movie channels with online video services like HBO and Max Go and promotional discounts.
• Long-standing customers of Time Warner’s “triple play” package received a “thank-you gift” — free voice-mail in 2011, something that will continue in 2012.
• Customers signing up for Time Warner’s premium-priced Wideband (50/5Mbps) service ($99/month) are being offered free phone service to sweeten the deal.

What to Expect in 2012

• Time Warner is moving forward to create its own Regional Sports Network for southern California;
• Los Angeles will continue to see large-scale expansion of Time Warner’s growing Wi-Fi network, available for free to premium broadband customers, with thousands of new access points on the way;
• The cable company will introduce Wi-Fi service in other, yet-to-be-announced cities in 2012, with up to 10,000 access points planned.
• Time Warner will be making its “digital phone” product more attractive with lower prices and more features, especially in product bundles, as consumers increasingly discard landlines;
• Expect to see the end of analog cable television in a growing number of Time Warner Cable areas, requiring customers to use new equipment (initially provided free) to continue watching on older televisions and those without existing set top boxes.
• Time Warner will continue to expand its “TV Everywhere” project to include live streaming TV on smartphones, video game consoles, computers, and more.  On-demand programming will be available as well sometime this year across all platforms.
• A nationwide channel re-alignment will move subscribers to consistent channel numbers across the country, in part based on grouping them together into “genres.”  Many areas already have digital cable channels arranged this way, but now they will be consistent from coast-to-coast.
• Time Warner will complete DOCSIS 3 deployment in all areas this year.
• The company is moving to introduce 2-hour service call windows almost everywhere, and 1-hour windows and weekend appointments in some markets.  Several cities now allow customers to select specific times for service appointments.
• Self-install kits will become increasingly available for different products, allowing customers to install equipment themselves;
• Time Warner’s IntelligentHome home security, monitoring, and automation product will expand beyond its launch markets (Syracuse and Rochester, N.Y., Charlotte, N.C. and Los Angeles/Southern Calif.).  The product currently has customers in the thousands, considered relatively small.  But Time Warner has learned subscribers are using the service in surprising ways, which will let them adapt their marketing.  Among the most popular features: remotely watching your pets at home.

Most Memorable Quote: “I think, more than anything else, our pricing strategy is dictated by what the marketplace will bear as opposed to what our underlying cost structure is.” — Robert Marcus, president and chief operating officer, Time Warner Cable

A Hartville, Ohio grandmother is upset after learning she has been paying Time Warner Cable for a box she claims she returned six years earlier.  Now, the 85-year old former subscriber is appealing to the cable company for a refund totaling more than $600, which represents nearly six years of rental fees.  Her son called Time Warner, who at first admitted they had made a mistake, but only offered to credit Florence Nichols $100, not the $600 she spent on a box she claims she never used.

“I just could not believe it was a bargaining thing now,” said Florence’s son Randy. “Whatever happened to the part about where [Time Warner says] we made a mistake [and] we’ll make it right?”

Several weeks later, the cable company reneged on its earlier offer and refused to give Florence any credit at all.  WEWS-TV in Cleveland called Time Warner, who produced an invoice they say shows the cable company installed two boxes in her home, and she was not entitled to any refund.  Nichols claims she never used two boxes and was only billed for one.  The cable company records claim they picked up her “second box” in 2011.

Nichols is done talking with Time Warner, and is now taking her case to the Ohio State Attorney General and the Better Business Bureau.

Nichols wonders how many other customers are paying for phantom cable equipment and for services they don’t actually receive.  Cable customers are advised to scrutinize their bills carefully, paying careful attention to equipment rental charges and service fees.  Time Warner generally includes the first set top box in the price of certain cable television packages.  Extra boxes cost more.  DVR equipment can carry an equipment charge and a separate service charge, which can really add up.

The longer you wait to protest a potential billing error, the more difficult it will be to obtain a full refund, even if the problem was the company’s fault.

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/WEWS Cleveland Hartville woman disputes cable billing 1-20-12.mp4[/flv]

WEWS-TV in Cleveland covers the story of an 85-year old grandmother in Hartville, Ohio who is fighting Time Warner Cable for six years of fees charged for a cable box she claims she returned.  (2 minutes)