Licensed to print money

In 2008, Stop the Cap! was launched because the telephone company that serves our hometown of Rochester, N.Y., decided on a whim that it was appropriate to introduce a usage allowance of 5GB per month for their DSL customers. Frontier Communications CEO-at-the-time Maggie Wilderotter defended the idea with the usual claim that the included allowance was more than enough for the majority of Frontier customers. DSL customers already have to endure a lot of issues with Internet service and data caps should certainly not be one of them.

Stop the Cap! drew media attention and focus on the issue of data capping, organized customers for a coordinated pushback, and sufficiently hassled Frontier enough to get them to make the right decision for their customers by quietly rescinding the “allowances.”

As it would turn out, Frontier’s correct decision to suspend usage caps would prove an asset to them less than one year later when Time Warner Cable made it known it would trial its own usage caps in Austin and San Antonio, Tex., Greensboro, N.C., and yes… Rochester, N.Y. starting in the summer of 2009.

Time Warner Cable was slightly more generous with its arbitrary allowance — 40GB of usage for $55 a month. Customers already paying a lot for Internet access would now also have an arbitrary usage allowance and overlimit penalty fees with no service improvements in sight. Frontier’s decision the year before to rescind data caps played to their advantage and the company quickly launched advertising in Rochester attacking Time Warner Cable for its data caps, inviting customers to switch to cap-free Internet with Frontier.

Data caps are here!

Time Warner Cable’s experiment lasted less than two weeks and was permanently shelved, never to return. Four years later, Comcast began its own usage cap trial that not only continues to this day, but has expanded to cover more than 1,000 zip codes. Capped service areas typically live with a 300GB usage allowance with an overlimit fee of $10 per 50GB.

Yesterday at the investor-oriented UBS Global Media and Communications Brokers Conference, Comcast chief financial officer Mike Cavanagh assured Wall Street and shareholders Comcast’s desire to boost revenue from monetizing broadband usage remained an “important contributor” to the company’ goal of “demonstrat[ing] value and derive value from that pricing.”

Cavanagh said the company is using the line ‘heavy users should pay more’ to justify its caps.

“It’s been an experiment that we are using that the key data point behind it is kind of intuitive – ‘10% of our client base uses 50% of capacity.'”

While not ready to announce Comcast’s cap plan would be introduced nationwide, Cavanagh assured investors the experiments will continue as Comcast makes sure that over time it is “compensated for the investments that today’s marketplace requires us to make.”

The difference that makes it possible for Comcast to carry its usage cap experiments forward while Time Warner Cable had to quickly end theirs comes down to one thing: organized customer pushback. Time Warner Cable got heat from relentless, organized opposition in the four cities where caps mattered the most to consumers. Comcast, for the most part, is getting about as much heat as it usually does from customers. It’s time to turn the heat up.

In fighting this battle for the last seven years, I can share with readers what works to force change and what doesn’t:

In 2009, Time Warner Cable faced protesters opposed to usage limits at this rally in front of the company’s headquarters in Rochester, N.Y.

Generally Useless

• Complaining about usage caps in the comment sections of websites;
• Signing online petitions;

Impotent But Potentially Useful in Large Numbers

• Calling the provider to complain about usage caps;
• Complaining about usage caps to a provider’s social media team (Facebook, Twitter, etc.);
• Writing complaints on a company’s open support forum;

Useful, But Unlikely to Bring Immediate Results

• Writing a letter or making a call complaining to elected officials about usage caps;
• Advocating for more competition, especially from public/municipal broadband;
• Filing formal complaints with the FCC and Better Business Bureau;
• Complaining to state telecom regulators and your state Attorney General (they have no direct authority but can attract political attention);
• Canceling or downgrading service, blaming usage caps for your decision.

Gasoline on a Lit Fire

• Organizing a protest in front of the local cable office, with local media given at least a day’s notice and invited to attend;
• Contacting local newsrooms and asking them to write or air stories about usage caps, offering yourself as an interview subject;
• Sending local press clippings or links to media coverage to your member of Congress and two senators. Suggest another media-friendly event and invite the elected official to attend and speak, which in turn generates even more media interest.

In 2009, Time Warner Cable planned to implement mandatory usage pricing starting in Rochester, N.Y., Greensboro, N.C., and San Antonio and Austin, Tex.

In the battle with Time Warner Cable, we did all the above, but especially the latter, which quickly spun the story out of control of company officials sent to distribute propaganda about usage cap “fairness” and “generous” allowances. We were so relentless, we managed to get under the skin of at least one company spokesperson caught on camera being testy in an on-air interview, which backfired on the company and angered customers even more.

In the case of Comcast, very few of these techniques have been used in the fight against their endless data cap experiment. Customers seem satisfied writing angry comments and signing online petitions. Some have filed complaints with the FCC which are useful measures of hot button issues on which the FCC may act in the last year of the Obama Administration. But there is no detectable organized opposition on the ground to Comcast’s data caps. That may explain why Comcast’s CEO has repeatedly told investors your reactions to Comcast’s caps have been “neutral to slightly positive.” Many Wall Street analysts obviously believe that, because some are advocating the time is right to raise broadband prices even higher. After all, if your reaction to data caps was muted, raising the price another $5 a month probably won’t cost you as a customer either.

It would be very different if these analysts saw regular news reports of small groups of angry customers protesting in front of Comcast offices in different areas of the country. That would likely trigger questions about whether broadband pricing has gotten out of hand. Coverage like that often attracts politicians, who cannot lose opposing a cable company. Once Congress gets interested, the fear regulation might be coming next is usually enough to get companies to pull back and reconsider.

If you are living with a Comcast data cap and want to see it gone, you can do something about it. Consider organizing your own local movement by tapping fellow angry customers and recruiting local activist groups to the cause. In Rochester, there was no shortage of angry college students and groups ready to protest. Google local progressive political groups, technology clubs, and technology-dependent organizations in your immediate area. Some are likely to be a good resource for building effective public protests, sign-making, and other TV-friendly protest techniques. Contact town governments, the mayor’s office of your city, technology-oriented newspaper columnists, radio talk show/computer support show hosts, etc., to build a mailing list for coordinated announcements about your efforts. Many local officials also oppose data caps.

If a local news reporter has covered tech or consumer issues in the past, many station websites now offer direct e-mail options to reach that reporter. If you give them a good TV-friendly story to cover, they will be back for more coverage as your local protest grows. We helped coordinate and share news about efforts against Time Warner in the cities that were subject to experiments, which also gave us advance notice of their talking points and an ability to offer a consistent response. Several stations carried multiple stories about the cap issue, supported by calls to TV newsrooms to thank them for their coverage and to encourage more.

We realize Comcast’s responsiveness to customers is so atrocious it approaches criminal, but Comcast does respond to Wall Street and shareholders who do not want the company under threat of fact-finding hearings, FCC regulatory action, or Congressional attention. They also don’t want any talk of municipal broadband alternatives. Sidewalk protests in front of the local cable office on the 6 o’clock news is a nightmare.

In the end, Time Warner Cable didn’t want the hassle and got the message — customers despise data caps and want nothing to do with them. Time Warner hasn’t tried compulsory usage caps again. If you want Comcast to get the same message, those living inside Comcast service areas (especially customers) need to lead the charge in their respective communities. We remain willing to help.

Next year’s upgrade to DOCSIS 3.1 will support cable broadband speeds up to one gigabit shortly after introduction.

Telephone companies relying on traditional ADSL service to power their broadband offering will likely face a renewed competitive assault in 2016 that will further reduce their already-challenged market share in areas where cable companies compete.

Cable operators are hungry for profitable broadband customers and the best place to find new prospects is at the phone company, where DSL is still a common technology to deliver Internet access. But while cable Internet speeds have risen, significant DSL speed hikes have proven more modest in the residential market.

In 2016, the cable industry intends to poach some of the remaining price-sensitive holdouts still clinging to DSL with revised broadband offers promising more speed for the dollar.

Cable broadband has already proven itself a runaway success when matched against telephone company DSL service. Over the last year, Strategy Analytics found Comcast and Time Warner Cable alone signed up a combined 71 percent of the three million new broadband customers in the U.S.

“Cable operators continue to increase market share in U.S. broadband,” said Jason Blackwell, a director at Strategy Analytics. “Over the past twelve months, Comcast has accounted for 42 percent of new subscribers among the operators that we track.  Fiber growth is still strong, but the telco operators haven’t been able to shake off the losses of DSL subscribers.  In 2016, we expect to see a real battle in broadband, as cable operators begin to roll out DOCSIS 3.1 for even higher speed offers, placing additional pressure on telcos.”

That battle will come in the form of upgraded economy broadband plans, many arriving shortly after providers upgrade to the DOCSIS 3.1 cable broadband platform. Currently those plans offer speeds ranging from 2-6Mbps. Starting next year, customers can expect economy plan prices to stay generally comparable to DSL, with promises of faster and more consistent speeds. A source tells Stop the Cap! at least two significant cable operators are considering 10Mbps to be an appropriate entry-level broadband speed for 2016, in keeping with FCC chairman Thomas Wheeler’s dislike of Internet speeds below 10Mbps.

Just a few years earlier, most providers wouldn’t think of offering discounted 10Mbps service, fearing it would cannibalize revenue as customers downgraded to get lower priced service. Increasing demands on bandwidth from online video and multiple in-home users have gradually raised consumer expectations, and their need for speed.

Unfortunately for many phone companies that have neglected significant investment in their aging wireline networks, the costs to keep up with cable will become unmanageable unless investors are willing to tolerate significant growth in capital expenses to pay for network upgrades. Frontier Communications still claims most of their customers are satisfied with 6Mbps DSL, neglecting to mention many of those customers live in areas where cable competition (or faster service from Frontier) is not available.

Where competition does exist, it’s especially bad news for phone companies that still rely on DSL. Earlier this year, Frontier’s former CEO Maggie Wilderotter admitted Frontier’s share of the residential broadband market had dropped to less than 25% in 26 of the 27 states where it provides service. In Connecticut, the one state where Frontier was doing better, its acquired AT&T U-verse system has enabled the phone company to deliver broadband speeds up to 100Mbps. But even those speeds do not satisfy state officials who are seeking proposals from providers to build a gigabit fiber network in a public-private partnership.

DSL speed upgrades have been spotty and more modest.

Frontier’s recent experiments with fiber to the home service in a small part of Durham, N.C., and the unintentional revelation of a gigabit broadband inquiry page on Frontier’s website suggests the company may be exploring at least a limited rollout of gigabit fiber service in the state. But company officials have also repeatedly stressed in quarterly results conference calls there were no significant plans to embark on a major spending program to deliver major upgrades across their service areas.

Some phone companies may have little choice except to offer upgrades where cable operators are continuing to rob them of customers. In the northeast, where Frontier has a substantial presence, cable operators including Charter, Comcast and Time Warner Cable are committing to additional speed upgrades. Time Warner Cable’s current standard speed of 15Mbps will rise to 50-60Mbps in 2016, up to ten times faster than Frontier’s most popular “up to” 6Mbps DSL plan.

Most of the broadband customer gains won by Comcast and Time Warner Cable come as a result of DSL disconnects. AT&T said goodbye to 106,000 customers during the third quarter. Verizon managed to pick up 2,000 new subscribers overall, almost all signing up for FiOS fiber to the home service. No cable operator lost broadband market share, reported analyst firm Evercore. Leichtman Research offered additional insight, finding AT&T and Verizon were successful adding 305,000 U-verse and FiOS broadband customers, while losing 432,000 DSL customers during the same quarter.

The message to phone companies couldn’t be clearer: upgrade your networks or else.

Any final approval of Charter Communication’s planned acquisition of Time Warner Cable and Bright House Networks will likely not come before next summer, as regulators in California decide to take a closer look at the blockbuster merger deal that would make Charter the second largest cable company in the country.

An administrative law judge is contemplating the merger’s impact on California, and a decision is unlikely to come before May 2016, with a final vote of the California Public Utilities Commission tentatively scheduled for June 16th. The judge agreed with consumer groups that the deal warrants evidentiary hearings — a sign the deal deserves additional scrutiny.

New York State’s Public Service Commission is also still reviewing the transaction, although it is expected to render a decision within the next few months. On the federal level, the FCC has also not held back, recently requesting answers to a number of questions regarding John Malone’s involvement in the future of “New Charter.” Malone remains Charter’s biggest single shareholder and could wield considerable control over New Charter’s operations. Considering Malone’s long history of antagonizing customers and engaging in what lawmakers called anti-competitive behavior during his realm at Tele-Communications, Inc. (TCI), regulators may not want to see history repeat itself.

What was originally anticipated by industry observers to be an ‘easy approval,’ is now looking more like Comcast’s failed bid for Time Warner Cable, as regulators seem to be in no hurry to give Charter’s deal a green light.

If regulators do ultimately approve the deal, it is likely to come with a number of conditions designed to at least temporarily protect consumers and competitors. Stop the Cap! argued in filings with state and federal regulators Charter’s proposal was uncompelling and consumers were unlikely to benefit from the deal. Time Warner Cable’s ongoing Maxx upgrade program delivers faster Internet speeds and better service than Charter’s more modest proposal offering upgrades up to 100Mbps. Time Warner Cable Maxx offers customers up to 300Mbps broadband for the price the company now charges for 50Mbps.

Malone

The cable magnate Sen. Albert Gore, Jr., (D-Tenn.) once called the Darth Vader of the cable industry is under enhanced scrutiny by federal regulators reviewing the Charter Communications-Time Warner Cable merger deal.

Dr. John Malone holds a 26 percent ownership in Charter, making him the largest shareholder by far, seconded by Warren Buffett, who holds less than an eight percent stake in the cable operator.

Many cable subscribers over 40 have done business before with a Malone-held cable firm, most likely Tele-Communications, Inc. (TCI), which operated from the 1970s until Malone sold it to AT&T in 1999 for close to $60 billion. In turn, AT&T sold the majority of its cable holdings to Comcast just a few years later.

Malone’s reputation for hiking rates and controlling the programming running on his cable systems is legendary. At one point, TCI held an ownership interest in most major cable networks carried on its cable systems. Cable networks that failed to secure carriage agreements with TCI were at a substantial disadvantage because TCI at its height was the nation’s largest cable provider.

Since Malone sold TCI, the multi-billionaire has built a significant cable empire in Europe and is today the largest private landowner in the United States. In the U.S., he is best known as the current owner of SiriusXM satellite radio. The two satellite companies merged with an agreement not to raise rates for a few years. As soon as that agreement expired, Malone’s combined Sirius/XM operation began a series of rate hikes and maintain a satellite radio monopoly in the U.S.

Malone’s other media interests include ownership stakes in Viacom Inc., Time Warner (Entertainment) Inc., concert-promoter Live Nation Entertainment Inc., and bookseller Barnes & Noble Inc. He also maintains significant ownership interests in Discovery Networks and Starz. Many of these companies negotiate directly with Charter and its competitors.

With ownership stakes in important programming, Malone could influence the sale of programming on more favorable terms to Charter with discounts unavailable to other cable companies and competitors including AT&T, Verizon, and satellite TV providers.

The FCC is particularly concerned whether Malone can exert influence over programmers that could result in anticompetitive activity, particularly in the emerging world of online video competition. In a lengthy 20-page questionnaire, the FCC wants specifics about Malone’s involvement in Charter, all the way down to requesting copies of board meeting minutes:

Describe in detail John Malone’s ownership, control (whether de jure, de facto or negative), or management of Charter, Time Warner Cable, DIRECTV, Liberty Media, Liberty Broadband, Liberty Interactive, Liberty Cablevision of Puerto Rico, Liberty Global, Liberty Ventures Group, Discovery Communications, Starz, New Charter and any other MVPDs and programmers not listed herein for which he owns an interest. For each entity in which John Malone manages, controls, or has an ownership interest, please describe: (1) the nature and extent of the ownership interest and all board representation, management rights, voting rights, veto rights, or veto power; and (ii) all effects that the proposed Transaction, if consummated, would have on the interests described in response to (i).

Broadband prices in the United States are far too low and it is long past time to “significantly” boost prices and introduce usage caps/consumption-based billing to put an end to the threat of online video competition once and for all.

Those are the views of Jonathan Chaplin, a research analyst for New Street Research LLP, and he made sure to share them with Robert Marcus, CEO of Time Warner Cable on a morning conference call with investors.

“Our analysis suggests that broadband as a product is underpriced,” Chaplin told Marcus, and it is hardly the first time he has beat the drum for higher Internet pricing.

In June, Chaplin wrote a note to investors that pulled no punches about what usage billing is really all about.

“Our work suggests that cable companies have room to take up broadband pricing significantly and we believe regulators should not oppose the re-pricing (it is good for competition & investment),” Chaplin wrote. “The companies will undoubtedly have to take pay-TV pricing down to help ‘fund’ the price increase for broadband, but this is a good thing for the business. Post re-pricing, [online video] competition would cease to be a threat and the companies would grow revenue and free cash flow at a far faster rate than they would otherwise.”

Chaplin pestered Marcus this morning about why Time Warner Cable has remained steadfast in keeping compulsory usage caps or usage-based pricing away from their broadband customers.

Marcus

“As part of the merger conditions, you made a concession to not moving towards usage-based pricing for a number of years,” Chaplin asked. “I’m wondering if that’s something that you felt the FCC required, or that came up during the course of the Comcast, Time Warner Cable discussions and why you needed to offer that up as a condition.”

Ironically, it was Marcus who schooled Chaplin on the realities of a marketplace where cap-free competitors like Google, Verizon, and AT&T U-verse (their stated cap is not enforced) exist and are more than capable of stealing Time Warner Cable customers if the cable company gets too greedy. Time Warner’s best chance of earning more broadband revenue is to sell faster service, Marcus noted.

“I can’t give you an outlook on where broadband pricing is going, except to say we’re going to continue to deliver more and more utility to customers,” Marcus said. “Generally speaking, where customers get more value out of your products, they’re willing to pay more. But what we actually charge is going to be a function of what the marketplace dictates. It’s a very competitive market out there and we’re going to have to continue to price our products in a way that allows us to acquire and retain them.”

Chaplin’s remarks tying usage pricing to curtailing online video competition are no surprise to consumer advocates, who believe usage-based billing is an obvious weapon cable and phone companies can use to protect their cable-TV revenue. Sling’s CEO considers usage pricing a serious threat to the viability of alternative video providers like Sling TV.