Glenn Britt

Time Warner Cable has notified the Securities and Exchange Commission that the cable company has extended the contract of current CEO Glenn Britt through at least the end of 2013, an extension of one year.

As part of the contract deal, the cable company added provisions for “long-term incentive compensation,” a combination of salary, bonuses, and other financial incentives designed to keep a CEO from looking for greener pastures elsewhere.  Britt’s package is anticipated to be worth at least $17 million over the period 2012-2013, which includes a base salary of at least $1.25 million, and much of the rest coming from bonuses.

Britt is likely being rewarded for the company’s strong financial results and stock price, which has been high recently.  But the cable company continues to lose cable-TV video customers, and is finding increasing resistance to rate increases from cash-strapped consumers being priced out of the company’s packages.

The Federal Communications Commission today released MEASURING BROADBAND AMERICA, the first nationwide performance study of residential wireline broadband service in the United States.  The study examined service offerings from 13 of the largest wireline broadband providers using automated, direct measurements of broadband performance delivered to the homes of thousands of volunteers during March 2011.

Among the key findings:

Providers are being more honest about their advertised speeds: Actual speeds are moving closer to the speeds promised by those providers.  Back in 2009, the FCC found a greater disparity between advertised and delivered speeds.  But the Commission also found that certain providers are more likely to deliver than others, and certain broadband technologies are simply more reliable and consistent.

Fiber-to-the-Home service was the runaway winner, consistently delivering even better speeds than advertised (114%).  Cable broadband delivered 93% of advertised speeds, while DSL only managed to deliver 82 percent of what providers promise.  Fiber broadband speeds are consistent, with just a 0.4 percent decline in speeds during peak usage periods.

Cable companies are still overselling their networks.  The FCC found during peak usage periods (7-11pm), 7.3 percent of cable-based services suffered from speed decreases — generally a sign a provider has piled too many customers onto an overburdened network.  One clear clue of overselling: the FCC found upload speeds largely unaffected.

DSL has capacity and speed issues.  DSL also experienced speed drops, with 5.5 percent of customers witnessing significant speed deterioration, which could come from an overshared D-SLAM, where multiple DSL customers connect with equipment that relays their traffic back to the central office, or from insufficient connectivity to the Internet backbone.

Some providers are much better than others.  The FCC found some remarkable variability in the performance of different ISPs.  Let’s break several down:

• Verizon’s FiOS was the clear winner among the major providers tested, winning top performance marks across the board.  Few providers came close;
• Comcast had the most consistently reliable speeds among cable broadband providers.  Cox beat them at times, but only during hours when few customers were using their network;
• AT&T U-verse was competitive with most cable broadband packages, but is already being outclassed by cable companies offering DOCSIS 3-based premium speed tiers;
• Cablevision has a seriously oversold broadband network.  Their results were disastrous, scoring the worst of all providers for consistent service during peak usage periods.  Their performance was simply unacceptable, incapable of delivering barely more than half of promised speeds during the 10pm-12am window.
• It was strictly middle-of-the-road performance for Time Warner Cable, Insight, and CenturyLink.  They aren’t bad, but they could be better.
• Mediacom continued its tradition of being a mediocre cable provider, delivering consistently below-average results for their customers during peak usage periods.  They are not performing necessary upgrades to keep up with user demand.
• Most major DSL providers — AT&T, Frontier, and Qwest — promise little and deliver as much.  Their ho-hum advertised speeds combined with unimpressive scores for time of day performance variability should make all of these the consumers’ last choice for broadband service if other options are available.

Some conclusions the FCC wants consumers to ponder:

1. For basic web-browsing and Voice-Over-IP, any provider should be adequate.  Shop on price. Consumers should not overspend for faster tiers of service they will simply not benefit from all that much.  Web pages loaded at similar speeds regardless of the speed tier chosen.
2. Video streaming benefits from consistent speeds and network reliability.  Fiber and cable broadband usually deliver faster speeds that can ensure reliable high quality video streaming.  DSL may or may not be able to keep up with our HD video future.
3. Temporary speed-boost technology provided by some cable operators is a useful gimmick.  It can help render web pages and complete small file downloads faster.  It can’t beat fiber’s consistently faster speeds, but can deliver a noticeable improvement over DSL.

More than 78,000 consumers volunteered to participate in the study and a total of approximately 9,000 consumers were selected as potential participants and were supplied with specially configured routers. The data in the report is based on a statistically selected subset of those consumers—approximately 6,800 individuals—and the measurements taken in their homes during March 2011. The participants in the volunteer consumer panel were recruited with the goal of covering ISPs within the U.S. across all broadband technologies, although only results from three major technologies—DSL, cable, and fiber-to-the-home—are reflected in the report.

KMBC's helicopter got a visual overview of the devastating Lenexa fire than left one man dead.

Bahtier Hashimov and his fiancée lost nearly everything in a massive apartment fire that took one man’s life and left 60 people homeless.  As the former residents of Oak Park Village tried to piece their lives back together, Hashimov discovered one company standing in the way.

Time Warner Cable made a bad situation worse for the couple, demanding immediate payment of $438 for a cable box and modem destroyed in the fire, still under investigation by Lenexa, Kansas fire investigators.

“I was really in shock,” Hashimov told KSHB-TV in Kansas City.  “It was really disappointing.”

Cable companies like Time Warner Cable, Charter Cable, and Bright House Networks have brought bad publicity on themselves over the past year demanding hundreds of dollars from victims of tornadoes, floods, fires, and other natural disasters.  Most cable companies claim they are entitled to the full value of lost cable equipment, typically recouped from insurance claims filed by homeowners or renters after disaster strikes.  But renters frequently don’t buy renter’s insurance, falsely believing property owners’ own insurance will cover their losses.

Some insurance policies also do not cover the full value of cable equipment, depreciating its value based on age and the fact most cable equipment provided to customers is not new.  But some cable companies demand full repayment anyway, even if it exceeds compensation provided by insurance settlements.

When tragedies lead to unseemly collection efforts by providers, local news coverage usually embarrasses them enough to moderate their policies, often waiving charges.

In Hashimov’s case, a local Time Warner Cable representative quickly claimed the charges “must have been a mistake,” claiming Time Warner Cable does not hold customers accountable for natural disasters.  Company policy is to deal with insurance companies to secure compensation, and when that fails “they work something out.”  A company spokesperson told the Kansas City station they never want the customer to feel the impact of something that was not their fault.

Cable companies could save themselves considerable bad publicity and embarrassment if they immediately waive equipment charges for customers who are victims of these types of tragedies.

Instead, Time Warner Cable had Hashimov jumping through hoops, first telling him to get a letter from the fire department to bring to a local Time Warner Cable office to get the unreturned equipment fees waived.  When he arrived, a representative told him the letter was no good and he owed the money.

Although the company is now negotiating with Hashimov, the matter has still not been resolved.

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/KSHB Kansas City Fire victims get stuck with a cable bill after the cable box 7-28-11.mp4[/flv]

KSHB-TV in Kansas City talked with Bahtier Hashimov and his fiancée Victoria — victims of a devastating apartment complex fire and a $438 bill from the cable company for a lost cable box and modem.  (2 minutes)

Despite the loss of more than 128,000 video subscribers, Time Warner Cable more than made up the difference with rate increases on equipment, programming, and broadband to score a 23 percent increase in earnings in the second quarter of 2011.  For the period of April-June, Time Warner earned a profit of $420 million, nearly $80 million more than the same quarter last year.

Cable Television

Time Warner CEO Glenn Britt continued to blame the loss of video subscribers on the housing crisis and economy, suggesting the cable operator’s prices have gotten too high for some customers to handle, and they’ve disconnected cable television service as a result.  Britt also continues to downplay the impact of online video allowing for consumer cord-cutting, suggesting instead that increased competition from phone companies and satellite providers are creating a problem online video isn’t.

As a result, Time Warner is refocusing its efforts on marketing packages to three segments it particularly wants to attract — the very well-to-do, the Latino community, and the income-challenged.

Time Warner officials noted that many of their customers have continued to pare back their packages to cushion against the company’s rate increases.  For the last few years, consumers have cut premium movie channels and extra tier add-ons.  Now customers are targeting Time Warner’s DVR service as a route to a lower cable bill.  Many are returning their DVR boxes to save money, or are not keeping the service as a promotion expires.  Time Warner often bundles DVR service into new customer promotions for no additional charge.

For these income-challenged consumers, Time Warner is promising to develop new packages of services at reduced prices.  That likely means the expansion of the company’s “budget tier” — a package of selected basic cable networks, excluding expensive sports programming, currently testing in two markets for around $50 a month.

But the company is also reporting success with its wealthier customers, many who are adopting Time Warner’s super premium Signature Home service, from which the company collects an average of $220 per month per customer.  Time Warner is also ramping up promotion of its cable services to Spanish-speaking audiences in the Latino community — customers it may have under-served in the past.

The company also reported declines in video-on-demand revenue, principally adult pornography pay-per-view content consumers are now watching on the Internet for free.

Broadband

Among the brightest stars for Time Warner Cable continues to be broadband service, which is increasingly important… and profitable for the nation’s second largest cable operator.  With “pricing strength,” Time Warner has successfully adopted a series of rate increases for Road Runner service, increasing revenues along the way.  The company also reports success with its DOCSIS 3 rollouts, now reaching 60 percent of its cable subscribers.  CEO Britt says the cable company expects to complete DOCSIS 3 upgrades nationwide by the end of 2012.  A noticeable percentage of customers are upgrading to premium-priced, faster speed tiers as a result.

Despite the investment in DOCSIS 3, Time Warner Cable continues to slash the amount of capital it is investing in its network.  So far this year, capital expenditures are down 7.4 percent to $1.36 billion.  Chief Operating Officer Rob Marcus predicts Time Warner will spend no more than $3 billion on its systems in 2011, despite plans to continue broadband upgrades and convert their cable systems to all-digital operations.  So far this year, Time Warner has earned over $2.2 billion from its broadband division alone, up 9 percent from last year.  The company attributes most of that growth to rate increases and customers upgrading their service.

Other facts:

• Time Warner’s wireless mobile broadband has failed to spark much interest from consumers, perhaps because they realize it comes from Clearwire, a company Time Warner CEO Glenn Britt seemed unimpressed with in today’s conference call.  He made a point of telling investors the cable company is under no obligation to invest anything else in the venture;
• Time Warner Cable is taking a new interest in Wi-Fi, deploying networks in New York and Los Angeles, in the hope the company can boost interest in a “quad-play” of cable, phone, Internet, and wireless broadband/Wi-Fi that consumers have taken a pass on thus far;
• The company’s new super data center in Charlotte, N.C., will provide a national “head-end” for IPTV video, currently supplied from a facility in Denver.  This will principally benefit iPad users using the company’s app to stream online video.  The company hopes to eliminate regional and local distribution efforts as a cost-savings measure, consolidating national distribution through Colorado and North Carolina;
• The company’s next version of TWCable TV — the aforementioned iPad app, is due out in a few weeks and will include text searching for individual shows.  Whether it corrects the ludicrous inability for the app to consistently stream video is another question;
• Competition for new customers has been responsible for a number of disconnects.  One satellite provider is pitching Time Warner customers on a $30 a month video package that includes the NFL Sunday Ticket for free.  Verizon FiOS has increased its marketing of Time Warner customers, offering its own triple-play package for $99 a month.  AT&T U-verse has their own triple play packages as low as $89 a month, with a substantial mail-in rebate offer good for over $100.  But Britt warns the lack of change in the “average revenue per subscriber”-numbers from competitors probably means consumers are paying substantially more thanks to fine print-surcharges and fees;
• Time Warner is still trying to sign agreements for its TV Everywhere project, particularly for HBO Go, but the terms are evidently still not acceptable to the cable company.

Our earlier coverage, seen below, covers Britt’s remarkable comments about usage-based pricing.  He was certainly off the usual industry playbook today, even going as far as telling investors what we knew all along: bandwidth costs bear almost no relationship to the prices charged for broadband service.  That’s one we’ll tuck away and remember.

Time Warner Cable CEO Glenn Britt highlights the results from the second quarter, covering cable-TV, broadband, and other products. July 28, 2011. (6 minutes)
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Another remarkable admission from Time Warner CEO Glenn Britt came at the end of today’s investor conference call.  In response to claims by some cable companies of incremental bandwidth costs running 40-50 cents per gigabyte (a number we strongly dispute at Stop the Cap! for being at least ten times too high), Britt made the debate over bandwidth costs moot by saying they really don’t have anything to do with how Time Warner Cable prices its broadband service.

“I think that the conversation about usage based pricing should not be tied to a conversation about costs,” Britt said.  “This is not a rate of return regulated monopoly industry like AT&T was before 1984.  We have a lot of different products, a lot of different offerings and we’re aiming at different segments and different combinations and the pricing will relate to that.  This is not a strict cost-base thing so those facts are interesting but not terribly relevant to pricing.”

That clears that up quite nicely.  We’ll be sure to remember that should the cable company revisit its customers with another Internet Overcharging scheme blamed on bandwidth hogs.

Time Warner Cable CEO Glenn Britt is asked what Time Warner Cable is paying for bandwidth costs. Britt said the question is largely irrelevant, because those costs have almost nothing to do with how the company prices its broadband service. July 28, 2011. (1 minute)
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