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Spectrum: Go Ahead and Cancel Cable TV, We’ll Make a Fortune Selling You $70 Broadband Instead

Phillip Dampier September 3, 2019 Charter Spectrum, Competition, Consumer News 16 Comments

Charter Communications has set the stage for a Wall Street-pleasing boost in average revenue per user (ARPU) with a major broadband rate hike planned for this fall.

The rate of U.S. broadband subscriber growth slowed significantly in the second quarter of 2019, as the marketplace for internet access remains saturated and current customers are largely staying with the provider they know.

A MoffettNathanson report to investors shared by Light Reading reported subscriber growth is down from 3% during the first three months of 2019 to 2.8% over the late spring and early summer. In total, cable and phone companies added 438,000 new broadband customers in the second quarter, a significant drop from the 570,000 they added at the same time last year.

The number of new household formations continues to decline in the United States, presumably because younger Americans saddled with student loan debt are having a tougher time buying property or justifying high rent payments. Providers also believe the ongoing shift away from copper telco DSL service to cable broadband has slowed to a trickle, with those still loyal to DSL not concerned about internet speed, are happy with lower cost service, or do not have any other option. Craig Moffett, chief analyst for MoffettNathanson believes much of the growth in cable broadband at this point is coming from customers switching from services like AT&T U-verse, which still offers top speeds of under 30 Mbps in some areas. Other phone companies still relying on fiber-to-the-neighborhood service are likely also seeing customer departures triggered by recent discontinuation of video service. In most areas, cable operators are still the largest beneficiaries of provider changes. Phone companies relying on DSL continue to report broadband subscriber losses. Last year during the second quarter, phone companies lost 127,000 subscribers (a 1.1% decline). This summer, they lost 172,000 subscribers (a 1.3% decline).

With slowing cable broadband growth, companies are still under pressure to report positive quarterly results to shareholders. Without a significant number of new customers, Moffett believes operators will raise broadband prices to deliver higher revenue, especially in light of ongoing video cord-cutting. Moffett points to Charter Communications’ Spectrum in particular. Spectrum has one of the cable industry’s lowest ARPU numbers, because it does not impose cable modem rental fees or usage caps. That may explain the company’s plans to hike general internet pricing 6% starting in October, soon collecting $69.99 for Standard 100 (or 200 Mbps) service and $75.99 a month for customers bundling Standard Internet with Wi-Fi.

“The broadband increases alone would suggest significant upside to Charter ARPU estimates,” Moffett said. He also noted Charter’s plan to dramatically increase video pricing also “underscores their recent pivot towards ‘letting’ video customers leave if they want, and repricing those who remain for profitability.”

That means customers outraged by Spectrum’s cable TV rate hikes will not get much sympathy from customer retention agents. Moffett believes customers will be invited to cancel cable television service, because Charter does not make as much profit on the service as it used to, and customers will probably still keep their Spectrum internet service, which is enormously profitable for the cable operator. Customers will also pay an even higher price for standalone internet service once they stop bundling television service, increasing Charter’s profits even more.

Ironically, the more Spectrum customers drop cable TV packages, the more profit Charter can report to shareholders. Those keeping cable television won’t hurt Charter’s bottom line either. Customers that readily agree to pay more with each cable TV rate hike are statistically the least likely to complain or cancel.

Deutsche Telekom Loses All-You-Can-Watch StreamOn Dispute in Germany Over Net Neutrality Violation

While net neutrality in the United States has been neutered by the Republican-controlled FCC, the concept of an online level playing field is alive and well in Germany, and T-Mobile’s parent company Deutsche Telekom (DT) just got called out for a foul ball.

The German telecom giant has lost its legal battle with Germany’s telecom regulator, the Federal Network Agency (Regulator Bundesnetzagentur) over StreamOn, its all-you-can-stream mobile video product that does not count against customer usage allowances. The company introduced the unlimited video streaming service in Germany in 2017, emulating a similar service available in the United States that offers zero rated mobile video content at a reduced video resolution. An appeals court in Münster this week ruled that the German regulator was correct to forbid DT from continuing to offer StreamOn to customers in its present form for two reasons:

  • StreamOn was only available to T-Mobile customers inside Germany or those who visited the country, violating Europe’s “roam like at home” rules that require carriers to not restrict or charge more for mobile services or features when traveling between member states of the European Union.
  • StreamOn violates German net neutrality rules by delivering only T-Mobile approved, speed-throttled, low resolution video content that won’t count against a customer’s usage cap.

“StreamOn must conform to the ‘roam like at home’ principle and customers must have video streaming available in an unthrottled bandwidth,” said Federal Network Agency president Jochen Homann. “The rule of equal treatment is a cornerstone of European net neutrality regulations. The principle of equal treatment has made the internet a driver of innovation, and the diversity of applications and services benefits all consumers.”

Hohmann

DT immediately contested the regulator’s decision and sued. The case has been drifting through German courts since December 2017, with the most recent ruling in favor of the regulator issued by an appeals court, which declared its ruling to be final.

DT has claimed it finds the regulator’s objections “very puzzling indeed,” claiming StreamOn has been wildly popular in the United States and Germany. Two years ago, it warned that if the courts upheld the regulator’s ruling, it would force the company to stop offering it.

“The Bonn-based regulatory authority is ordering us to also offer StreamOn in other EU countries. It bases this order on the EU Roaming Regulation,” DT said in a statement in 2017. “Fulfilling the order would mean the end of our free service, because we would not be able to offer it cost-effectively in other countries.”

Despite its threat to shutter StreamOn in Germany, the company claimed this week it would continue offering the service for the time being, without increasing prices.

“We are delighted that the court has confirmed our interpretation of the law,” a Federal Network Agency spokesman said after the decision was announced. “We will take quick action to ensure that Telekom adjusts its product accordingly.”

“We expect the [Federal Network Agency] to allow an appropriate amount of time to make the necessary adjustments,” a DT spokesman said. “We are convinced that StreamOn is a legal product and will explore all our legal options.”

The Average Comcast Customer Now Uses Over 200 GB of Data Per Month

The average Comcast broadband customer now consumes over 200 GB of online data per month, an increase of 34% over just one year ago, according to Dave Watson, president and CEO of Comcast Cable Communications.

The increased usage accelerated during the last quarter of 2018, Watson told investors on a quarterly conference call.

What remains unchanged is Comcast’s data cap, which remains fixed at 1 TB per month for many customers. To avoid overlimit penalty fees of $10 for each additional 50 GB block of data consumed (up to $200 per month), Comcast is still pitching its unlimited data option — insurance against Comcast’s own overlimit penalties, which costs a growing number of customers an extra $50 a month.

Watson knows data usage over Comcast’s network is about to grow exponentially, mostly thanks to streaming video.

“I think that we start with the central view that streaming is going to happen, video over the internet is more friend than foe. and we wish every bit was our bit,” Watson told investors this morning. “If people consume more bits and video clearly does that, and 4K video does even more than that, that is the sweet spot of where this company is going to grow.”

Translation: We intend to make a killing on usage growth. Comcast can market you a faster internet package at a higher price, or as your usage approaches the data cap, scare you into buying overlimit insurance.

Remember that Comcast drops usage caps for some customers willing to rent their latest network gateway (available only in some areas at this time).

Cable ONE Acquires Fidelity Communications in $525.9 Million Cash Deal

Cable ONE today announced it has acquired family owned cable operator Fidelity Communications, in a $525.9 million cash deal.

Fidelity serves 134,000 residential and business customers in smaller communities in Arkansas, Louisiana, Missouri, Oklahoma, and Texas. Cable ONE showed interest in Fidelity because many of its small cable systems are not too far away from existing Cable ONE systems that also target smaller communities.

Fidelity systems typically sell broadband at speeds of 50 Mbps ($64.99) and 100 Mbps ($89.99).

Fidelity does not usage cap its customers, Cable ONE does.

Cable ONE has also been criticized for charging the highest price residential broadband service in the country.

Fidelity currently serves customers in:

Arkansas
Alexander
Bauxite
Beebe
Benton
Bryant
Cherokee Village
Hardy
Haskell
Hensley
Highland
Little Rock
Mabelvale
Mammoth Springs
Maumelle
North Little Rock
Pulaski
Shannon Hills

Louisiana
Erwinville
Glynn
Jarreau
Lakeland
Morganza
New Roads
Oscar
Rougon
Ventress

Missouri
Adrian
Buffalo
El Dorado Springs
Gerald
Harrisonville
Lebanon
Nevada
New Haven
Owensville
Rolla
Salem
Sullivan
Thayer
West Plains

Oklahoma
Lawton

Texas
Atlanta
Carthage
Hallsville
Jefferson
Marshall
Queen City

By 2022, Online Video Will Make Up 82% of Internet Traffic; 60% of the World Will Be Online

By the year 2022, 60% of the world’s population will be connected to the internet and 82% of online traffic will come from streaming video.

Those are the conclusions found in Cisco’s newest Visual Networking Index (VNI), based on independent analyst forecasts and real-world network usage data tracked by the networking equipment manufacturer.

“By 2022, more IP traffic will cross global networks than in all prior ‘internet years’ combined up to the end of 2016,” Cisco predicts. “In other words, more traffic will be created in 2022 than in the 32 years since the internet started.”

Key predictions for 2022

Cisco’s VNI looks at the impact that users, devices and other trends will have on global IP networks over a five-year period. From 2017 to 2022, Cisco predicts:

  1. Global IP traffic will more than triple

    • Global IP traffic is expected to reach 396 exabytes per month by 2022, up from 122 exabytes per month in 2017. That’s 4.8 zettabytes of traffic per year by 2022.
    • By 2022, the busiest hour of internet traffic will be six times more active than the average. Busy hour internet traffic will grow by nearly five times (37 percent CAGR) from 2017 to 2022, reaching 7.2 petabytes1 per second by 2022. In comparison, average internet traffic will grow by nearly four times (30 percent CAGR) over the same period to reach 1 petabyte by 2022.

      1 A petabyte is equal to 1,000 terabytes or one million gigabytes.

  2. Global internet users will make up 60 percent of the world’s population

    • There will be 4.8 billion internet users by 2022. That’s up from 3.4 billion in 2017 or 45 percent of the world’s population.
  3. Global networked devices and connections will reach 28.5 billion
    • By 2022, there will be 28.5 billion fixed and mobile personal devices and connections, up from 18 billion in 2017—or 3.6 networked devices/connections per person, from 2.4 per person.
    • More than half of all devices and connections will be machine-to-machine by 2022, up from 34 percent in 2017. That’s 14.6 billion connections from smart speakers, fixtures, devices and everything else, up from 6.1 billion.
  4. Global broadband, Wi-Fi and mobile speeds will double or more
    • Average global fixed broadband speeds will nearly double from 39.0 Mbps to 75.4 Mbps.
    • Average global Wi-Fi connection speeds will more than double from 24.4 Mbps to 54.0 Mbps.
    • Average global mobile connection speeds will more than triple from 8.7 Mbps to 28.5 Mbps.
  5. Video, gaming and multimedia will make up more than 85 percent of all traffic
    • IP video traffic will quadruple by 2022. As a result, it will make up an even larger percentage of total IP traffic than before—up to 82 percent from 75 percent.
    • Gaming traffic is expected to grow nine-fold from 2017 to 2022. It will represent four percent of overall IP traffic in 2022.
    • Virtual and augmented reality traffic will skyrocket as more consumers and businesses use the technologies. By 2022, virtual and augmented reality traffic will reach 4.02 exabytes/month, up from 0.33 exabytes/month in 2017.

Regionally, Asian-Pacific internet users are expected to use far more internet data than North Americans — 173 exabytes a month by 2022 vs. 108 exabytes in North America. Usage caps, usage-based pricing, and overall slower internet speeds in the U.S. and Canada have slowed growth in new high-bandwidth internet applications. The prevalence of low-speed DSL in rural areas also restricts potential traffic growth. Large parts of the Asia-Pacific region use very high-speed fiber to the home technology.

The slowest growing regions — Latin America and the Middle East/Africa, which lag behind in internet penetration, often apply low usage caps or bandwidth restrictions and often do not have the ability to financially scale growth to meet demand. Even by 2022, Latin America will generate only 19 exabytes of traffic per month.

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