Categories
The Industry

Cable Customers Plummet in 2019

The final numbers are in for 2019 and the largest cable providers collectively lost over 5.9 million customers for the year – a loss of almost 7% of customers. The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors, except for Cox which is estimated. The numbers reported are for the largest cable providers, and Leichtman estimates that these companies represent 95% of all cable customers in the country.

Following is a comparison of the end of 2018 and 2019:

4Q 2019 4Q 2018 Change % Change
Comcast 21,254,000 21,986,000 (732,000) -3.3%
Charter 16,144,000 16,606,000 (462,000) -2.9%
DirecTV 16,033,000 19,222,000 (3,189,000) -16.6%
Dish TV 9,394,000 9,905,000 (511,000) -5.2%
Verizon 4,229,000 4,451,000 (222,000) -5.0%
Cox 3,865,000 4,015,000 (150,000) -3.7%
AT&T U-verse 3,440,000 3,704,000 (264,000) -7.1%
Altice 3,179,200 3,286,100 (106,900) -3.3%
Mediacom 710,000 776,000 (66,000) -8.5%
Frontier 660,000 838,000 (178,000) -21.2%
Cable ONE 314,000 318,061 (4,061) -1.3%
Atlantic Broadband 308,638 347,638 (39,000) -11.2%
Total 79,530,838 85,454,799 (5,923,961) -6.9%
Total Cable 45,774,838 47,334,799 (1,559,961) -3.3%
Total Satellite 25,427,000 29,127,000 (3,700,000 -12.7%
Total Telco 8,639,000 8,993,000 (664,000) -7.4%

These losses were offset a bit as the combination of Hulu Live, Sling TV and AT&T TV collectively added just over 1 million customers. Leichtman doesn’t have subscriber numbers for YouTube TV and a few others that are not publicly reported.

Some observations of the numbers:

  • The overall loss of nearly 7% of customers represents a free fall of traditional cable TV. At the worst of the downside, landlines dropped about 5% of market share per year.
  • The big loser is AT&T, which lost nearly 4.1 million video customers between DirecTV and AT&T U-verse, and AT&T TV. The losses were so large at DirecTV that Charter moved up to become the second largest cable provider.
  • The big percentage loser is Frontier that lost 21% of its cable customers for the year.
  • The cable big companies fared the best, but this is partially due to the fact that Comcast and Charter each added 1.4 million broadband customers for the year – and added cable customers as part of that growth.
  • Cable ONE’s losses are small due to the 2019 acquisition of Fidelity.

As large as these losses are, the losses for 2020 are likely to be a lot larger. The primary reason household still give for cutting the cord is the high price of traditional cable TV. My guess is that the uncertainty of household incomes this year are going to drive many more homes to save money by migrating to lower-cost entertainment alternatives.

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The Industry Uncategorized

An End to Data Caps?

All of the major ISPs that were enforcing data caps have lifted those caps in response to the COVID-19 crisis. This includes AT&T, Comcast, Cox, Mediacom, and CenturyLink. All of these companies justified data caps as a network management tool that was in place to discourage overuse of the network. That argument no longer holds water if these ISPs eliminate the during a crisis that is overtaxing networks more than we are likely to ever see again.

These companies eliminated the caps as a result of political pressure and from a mass public outcry. The caps were eliminated to make broadband more affordable in a time when millions of people are becoming unemployed. By eliminating the caps during this crisis, these ISPs have publicly admitted that the caps were about making money and not for any issues related to network traffic.

The lame justification these ISPs gave for data caps was always weak when other large ISPs like Charter, Verizon, Altice, Frontier, and Windstream never implemented data caps. A few ISPs on that list like Frontier and Windstream have some of the weakest networks in the country yet never sought to implement data caps as a traffic control measure.

AT&T has been the king of data caps. They have data caps that kick in as low as 150 gigabytes of monthly broadband usage on DSL lines. AT&T’s fixed wireless product for rural markets has a data cap that kicks in at 250 GB. Interestingly, customers buying the 300 Mbps on fiber have a 1 terabyte data cap while customers buying gigabit broadband on fiber are allowed unlimited usage. This also proves that the data caps aren’t about traffic control – the caps are removed from the largest data users. The AT&T caps are to encourage somebody buying 300 Mbps to upgrade to the faster service. AT&T is also the king of overage charges. For DSL and fixed wireless, the overage charges are $10 for each 50 GB, with a maximum monthly overage of a whopping $200. The monthly dollar cap on 300 Mbps service is $100.

Mediacom had the next lowest data caps at 400 Mbps. Comcast and Cox have had data caps at 1 TB. It’s been reported by customers that the companies aggressively enforce the caps. CenturyLink has mostly not billed the data caps, but the fact that they eliminated the caps during this crisis likely means they were billing it to some customers.

To put these data caps in context, OpenVault says that at the end of 2019 that the average households used 344 gigabytes of data, up from 275 gigabytes a year earlier. More germane to data caps, OpenVault says that nearly 1% of homes now use 2 terabytes per of data month and 7.7% use over 1 terabyte per month. The percentage of homes using over 1 terabyte climbed from 4% a year earlier. AT&T has likely been cleaning up with data caps charges while Comcast was just starting to see some real revenue from the caps.

What remains to be seen is if these ISPs reintroduce data caps sometime later this year. They can no longer make a straight-faced claim that data caps are in place to dissuade overuse of the network. If data caps had that kind of impact on networks, then during the crisis the ISPs should have tightened the data cap threshold to protect the many new households that are working from home or doing schoolwork remotely. The data caps have always been about money, nothing else.

Unfortunately, we have no recourse other than a loud public outcry if these ISPs renew the data caps. The FCC has completely washed its hands of broadband regulation and killed its authority to do anything about data caps. Most tellingly, when FCC Chairman Ajit Pai released a plea to ISPs to “Keep Americans Connected”, that plea didn’t even mention data caps. Chairman Pai asked ISPs not to disconnect customers for not paying and asked ISPs to provide more public hotspots.

I bet that when this crisis is over that the big ISPs will quietly introduce data caps again. Even before this crisis, almost 9% of homes routinely used more than a terabyte of data, and the data caps are a huge moneymaker for the big ISPs that they are not willingly going to give up. During this crisis, a lot of routine functions are going go virtual and I expect a lot of them will stay virtual when the crisis is over. It wouldn’t be surprising a year from now to see 20% of homes routinely exceeding a terabyte of usage each month.

I think these ISPs will be making a huge mistake if they introduce data caps a few months, or even a year from now. Millions of people found themselves unable to work or school from home due to poor broadband. In the current environment a big public outcry against bad ISP behavior has a high chance of bringing Congressional action. Almost nobody, except the most partisan politicians would vote against a bill that bans data caps. The ISPs should be afraid of other restrictions that might come along with such a bill.

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Current News

T-Mobile Needs to Step Up

The T-Mobile Sprint merger became official on April 1. Since we are in the middle of the Covid-19 pandemic, the country needs T-Mobile to keep a few of the promises it made that were contingent upon the merger.

First, T-Mobile promised to offer wireless home broadband immediately after the merger for 50% of the people in the US, including many rural subscribers. T-Mobile envisions packaging excess cellular capacity as home broadband, at a reasonable price. The company does not envision putting fixed wireless antennas on homes like the products of AT&T and Verizon. The T-Mobile home product just requires a billing change where people pay less for cellular data usage inside their home. T-Mobile could effectuate this product almost immediately. This product could immediately help millions of homes that are struggling without affordable broadband right now.

The other T-Mobile promise addressed the digital divide and the company promised to serve 10 million homes that don’t have broadband today. This offer came with a promise to provide free devices to homes to receive the broadband. This is a digital divide product and could bring relief to poor households struggling with students trying to work from home. The product had a catch, in that annual usage was limited to 100 GB for free – but that’s enough usage to get students through the rest of this school year. As cellular plans in general go that’s not bad, meaning a monthly data allowance of over 8 GB per month in data allowance.

If T-Mobile is brave enough to launch these products immediately, they will reap mountains of marketing goodwill, which is exactly what the newly merged company needs. They will have created millions of fans who likely would become loyal to the company for helping them during this pandemic.

If T-Mobile doesn’t step up, ideally the FCC would turn the screws hard to make the company meet these promises now, rather than years from now. However, these plans involve broadband data and the feckless FCC has written themselves out of the broadband business. The FCC can huff and puff, but they no longer have the power to blow anybody’s house down.

Unfortunately, the history of the telecom industry is full of broken promises made as part of mergers. One of the biggest wireless mergers in the past was the 2005 merger of Sprint with Nextel. The companies had promised that the merger would allow them to bring Nextel’s popular ‘push to talk’ technology everywhere. The companies also promised they would blanket the country with cellular data, including rural America, using the 2.5 GHz spectrum. None of those promises ever came to pass – which was perhaps the first of many broken promises made for rural broadband. Like with most mergers, this merger also promised a lot of new jobs, but instead cut jobs.

There are plenty of other failed mergers. Consider the 2011 merger of Comcast with NBC Universal. Comcast promised it would offer affordably-priced standalone Internet everywhere – a product that was created but never marketed. Comcast promised to not discriminate against other programmers, but immediately disadvantaged Bloomberg by moving it to an obscure part of the channel lineup since it competed against the newly acquired MSNBC and CNBC. Comcast also promised to not discriminate against rival streaming services, but soon after the merger implemented its data caps, which applied to everybody’s video except Comcast’s.

One of the most blatant examples of carriers that tossed away pre-merger promises came after the 2006 merger of AT&T and BellSouth. Almost none of the promises made were kept. For example, AT&T promised to bring affordable broadband to all rural customers in the 22 states served by the two companies. Ask the folks in Mississippi and Alabama if this promise was fulfilled. AT&T has promised to build wireline networks in at least 30 cities outside its footprint and compete for voice and data – but this never happened. The companies promised to spend $16.5 billion to upgrade broadband in California and instead shut down expansion soon after the merger. The company claimed it would spend $1 billion wiring schools and libraries – another promise never met.

T-Mobile has an opportunity right not to become a legend in the industry by aggressively bringing affordable broadband to the students and workers who were sent home without broadband. This would distinguish them for the next decade as the carrier that met its promises and would likely propel them into the number one position in the industry. Let’s all hope they step up and do what they promised and do it quickly. Unfortunately, history has shown us that pre-merger promises are often forgotten before the ink is dry. But it would be so refreshing to see a company do what it promised, so we can hope.

Categories
The Industry

Broadband Stats for 2019

Leichtman Research Group recently released the broadband customer statistics for the end of 2019 for the largest cable and telephone companies. Leichtman compiles most of these numbers from the statistics provided to stockholders other than Cox, which is estimated.

The numbers are lower than broadband customers these same companies report to the FCC, and I think that most of the difference is due to the way many of these companies count broadband to apartment buildings. If they provide a gigabit pipe to serve an apartment building, they might count that as 1 customer, whereas for FCC reporting they are likely to count the number of apartment units served.

4Q 2019 2019 Change % Change
Comcast 28,629,000 1,407,000 5.2%
Charter 26,664,000 1,405,000 5.6%
AT&T 15,389,000 (312,000) -2.0%
Verizon 6,956,000 (5,000) -0.1%
Cox 5,170,000 110,000 2.2%
CenturyLink 4,678,000 (134,000) -2.8%
Altice 4,187,300 71,900 1.7%
Frontier 3,500,000 (235,000) -6.3%
Mediacom 1,328,000 64,000 5.1%
Windstream 1,049,300 28,300 2.8%
Consolidated 784,165 5,195 0.7%
WOW 781,500 21,900 2.9%
Cable ONE 773,000 39,000 5.3%
TDS 455,200 31,800 7.5%
Atlantic Broadband 451,463 25,857 6.1%
Cincinnati Bell 426,700 1,100 0.3%
101,222,628 2,525,052 2.6%

Leichtman says this group of companies represents 96% of all US broadband customers. For the year these large ISPs collectively saw growth that annualizes to 2.6%.

The customer additions for 2019 for these large ISPs are just slightly higher than customers additions for 2018. The cable companies performed a little better in 2019 while the losses continue to accelerate for the big telcos. The big telco losers for the year are Frontier, which lost 6.3% of its customer base, AT&T (lost 2.0 %) and CenturyLink (lost 2.8%). AT&T claims to have added 1.1 million customers to fiber for the year, so they are still losing a lot of customers on DSL. Frontier is a total disaster and there may be no recovery for the company if they keep losing broadband customers at a pace of over 6% annually.

‘                                        2018                 2019

Cable Companies        2,987,721        3,144,657

Telcos                           ( 472,124)        ( 619,605)

Total                             2,425,597        2,525,052

The two best-performing companies were again Comcast and Charter, which each added over 1.4 million customers for the year while the rest of the ISPs, including cable companies, collectively lost half a million customers.

One note on the above numbers – the TDS and Cable One numbers include adjustments due to small acquisitions).

Categories
The Industry

The Greed of the Programmers

If you use social media you may have noticed a flurry of activity at the end of December warning that small cable TV providers across the country could lose the Fox channels on January 1. That includes Fox News, Fox Business, FX, National Geographic, FS1, FS2, and the Big Ten Network. The dispute was with NCTC, a cooperative that negotiates rates for most of the smaller cable companies in the country.

Fox was asking for what has been described as a 20% rate hike on programming. Fox was seeking a big rate increase to recognize that they have the number one network on cable TV with 1.5 million daily viewers. NCTC finally struck a deal with Fox on December 31 and the channels didn’t go dark – but the cost of buying the Fox networks went up substantially. Back in September, the Fox channels went dark for ten days on Dish Networks when the satellite company refused to accept the same big rate increase.

This is not the first big rate increase from Fox. ALLO Communications, a sizable fiber overbuilder, says that Fox has raised rates 800% since 2004, To put that into perspective, the cost of living in the US has increased by 36% since 2004.

The Fox rate increase is the perfect metaphor for the woes of the cable industry. Fox is not unique, and during the 2000s most cable programmers raised rates much faster than inflation. Cable companies have had little choice but to pass the rate increases along to customers. The programming cost increases have led to a steady annual rate increase for consumers. The soaring price of cable has led to the cord cutting trend and customers are bailing from traditional cable TV by the millions and at an increasing pace.

As a whole, traditional cable TV has probably now entered what economists call a death spiral. Most programming contracts are for 3 – 5 years and the cable TV companies already know of the big programming cost increases coming for the next few years. As cable companies keep raising rates they will lose more customers. The programmers will likely try to compensate by raising their rates even higher, and within a short number of years, cable TV will cost more than what most homes are willing to pay.

A company like Fox can weather the storm of disappearing cable subscribers since they know that all of the online alternative networks like Sling TV, YouTube TV, and others will carry their major networks like Fox News, Fox Business, and the sports networks. The chances are that the primary Fox channels will be solid and steady earners for the company far into the future. However, the same can’t be said for many cable networks.

The online cable products have far smaller channel lineups than traditional cable. There are more than 100 traditional cable channels that are losing subscribers from cable companies and not replacing them with online programming. It’s only a matter of time until many of these networks go dark, as programming revenues won’t cover the cost of operating the network.

It’s easy for people to hate cable companies since that’s who people pay every month. Cable providers like Comcast and AT&T share in the blame since they are both the two largest cable providers and also owners of content. All cable companies share some blame for not yelling bloody murder to the American public for the last decade – and for not fighting back. The cable companies instead started sliding the programming rate increases into hidden fees. However, the fault ultimately lies with the greed of the programmers. These are mostly big publicly traded companies raise rates every year to please stockholders.

It’s no longer good enough for corporations to make money, they are expected to increase bottom line quarter after quarter, year after year. We’ve only been talking about cord cutting for a few years, but the industry has been declining for over a decade. In 2010 there were nearly 105 million subscribers of traditional cable TV, and that number dropped to just over 83 million by the third quarter of 2019. It’s easy to think of cord cutting as a recent phenomenon, but the industry has been quietly bleeding customers for years. Sadly, the programmers are still denying the reality that they exist in a dying industry and are likely to continue to raise rates like Fox just did.

The supply and demand side of any sane industry would have gotten together years ago and figured out a way for the industry to be sustainable. However, the combined greed of the programmers and the big cable companies has resulted in the runaway rate increases that will doom traditional cable. It’s hard to know where the tipping point will be, but we’ll be there when cable networks start going dark – it’s just a matter of time.

Categories
Current News

Ho, Ho, Holy Rate Increase!

It’s that time of year when customers get an unwanted Christmas present from cable companies in the form of a rate increase. The largest providers – Comcast, Charter, and AT&T have all announced rate increases. A few others like Cox and Mediacom generally announce price hikes in January. Altice typically raises rates in June.

The cycle of raising rates routinely has gone on for so many years that it feels routine. To give some credit to the cable companies, programmers continue to increase the cost of buying content every year. In fact, most programming contracts last 3 – 5 years and annual rate hikes are usually baked into the contracts.

What’s becoming mystifying is why the programmers and cable companies can’t sit down and find a way to control costs. The rate of cord cutting is climbing at a dizzying rate and with each rate increase, the industry is losing millions of customers.

Comcast

Comcast is raising rates on Basic cable, their smallest packages from $30 to $35, a 17% rate increase. The company is also raising the broadcast TV fee from $10 to $14.95 per month, a 50% increase.

Comcast is also raising the rate of Internet access by $3. I’ve been warning for a few years that annual broadband rate increases will become routine, even though there is no underlying cost of offering broadband that can be pointed to in the same manner. The big cable companies are raising broadband rates to increase earnings to satisfy Wall Street. A $3 rate increase may not seem like a lot, but for a company with over 28 million broadband customers, $3 translates to $1 billion to the bottom line.

Comcast also made changes to other fees. For example, the fee for a returned payment (bad check or credit card number) went from $10 to $30.

Charter

The Charter rate increases already went into effect in November. Charter raised the rates on the three most popular tiers of cable TV – Spectrum Select, TV Silver, and TV Gold by $7.50 per month. Charter also raised the rate for the broadcast fee by from $12.00 to $13.50. The company raised the rate on a settop box by 50 cents, from $7.50 to $8.00. A customer with one settop box saw an overall increase of $9.50 per month.

Charter raised the price of its basic Internet package (100 Mbps – 200 Mbps) from $65 to $70.

AT&T   

AT&T announced rate increases that take effect in January. AT&T raised cable rates for customers using U-verse by $3 to $7 per month. The U-family package increases by $3 while the largest U400 package increases by $7. The broadcast TV fee will increase up to $2, depending upon the market. AT&T also will increase the Federal Regulatory Recovery Fee by $0.07, and for the life of me, I have no idea what this is. I’m not aware of any FCC charges on cable TV and this is something AT&T pockets.

AT&T raised rates on DirecTV customers yet again, after having a rate increase in August. The new increases range from $1 per month for basic choice up to $8 per month for the Premier package. AT&T is also raising the regional sports fees by as much as $2, depending upon the market.

The largest rate increase at AT&T went unannounced as the company has decided to cut back and not renew promotional rates. As promotional plans have ended, AT&T is moving customers to full rates. In just the third quarter of this year, DirecTV lost almost 1.1 million customers as customers have balked at paying full rates.

Categories
The Industry

Broadband Still Growing – 3Q 2019

Leichtman Research Group recently released the broadband customer statistics for the third quarter of 2019 for the largest cable and telephone companies. Leichtman compiles most of these numbers from the statistics provided to stockholders other than Cox, which is estimated.

The numbers provided to investors are lower than broadband customers these same companies report to the FCC, and I think that most of the difference is due to the way many of these companies count broadband to apartment buildings. If they provide a gigabit pipe to serve an apartment building, they might that as 1 customer, whereas for FCC reporting they likely count the number of apartment units served.

Following are the broadband customer counts for the third quarter and a comparison to the second quarter of this year.

3Q 2019 Added % Change
Comcast 28,186,000 379,000 1.4%
Charter 26,325,000 380,000 1.5%
AT&T 15,575,000 (123,000) -0.8%
Verizon 6,961,000 (7,000) -0.1%
Cox 5,145,000 25,000 0.5%
CenturyLink 4,714,000 (36,000) -0.8%
Altice 4,180,300 14,900 0.4%
Frontier 3,555,000 (71,000) -2.0%
Mediacom 1,316,000 13,000 1.0%
Windstream 1,040,000 5,700 0.6%
Consolidated 784,151 1,143 0.1%
WOW 773,900 10,420 1.3%
Cable ONE 689,138 7,376 1.1%
Atlantic Broadband 446,137 2,441 0.6%
TDS 437,700 4,300 1.0%
Cincinnati Bell 425,100 (400) -0.1%
100,553,426 605,660 0.6%

Leichtman says this group of companies represents 96% of all US broadband customers. I’m not sure how they calculated that percentage. That implies that there are only about 4 million broadband customers for companies not on this list, and that feels a little low to me.

For the quarter, these companies collectively saw growth that annualizes to 2.4%. This is a significant uptick over the second quarter of 2019 that saw an annualized growth rate of 1.7%.

On an annualized basis the third quarter of 2019 added about the same number of customers that were added for the calendar year of 2018. However, the cable companies are performing better this year while the losses continue to accelerate for the big telcos. The big telco losers for the quarter are Frontier, which lost 2% of its customer base, and AT&T and CenturyLink which each lost 0.8% of their customer base. Following are the annualized changes in customers in 2018 and 2019:

‘                                          2018                2019

Cable Companies        2,987,721        3,317,904

Telcos                            ( 472,124)        ( 895,564)

Total                              2,425,597        2,422,640

Both Comcast and Charter had spectacular quarters and continue to account for most of the growth in broadband, as each company added around 380,000 customers for the quarter. It would be interesting to understand what is driving that growth. Some of that comes from providing broadband to new homes. Some comes from customers converting away from DSL. And some comes from expansion – I know of examples where both companies are building new network around the fringes of their service areas.

Categories
The Industry

Hidden Fees Adding Up

Consumer Reports recently published a special report titled “What’s the Fee?: How Cable Companies Use Hidden Fees to Raise Prices and Disguise the True Cost of Service”. Cable companies have advertised prices for many years that are significantly lower than the actual bills customers see – but the CR report shows that the size of the fees has grown significantly over the last few years.

The report lists several specific examples. For example, the broadcast fee and the regional sports fees at Comcast increased from $2.50 in 2015 to $18.25 currently. The broadcast fee supposedly covers the cost of buying local network channels – ABC, CBS, FOX, and NBC. The regional sports fee can cover the cost of channels carrying regional college and pro sports. In both cases, the cable companies never disclose the actual fees they pay that are covered by these fees.

The report shows that Charter increased its broadcast fee three times in the last year, starting at $8.85 in October 2019 to reach $13.50 per month in October 2019.

It’s not hard to understand why customers are confused by the many fees. The report points out that some cable bills have more than a dozen line items, which are a mix of rates for products, external taxes and fees, and these various ‘hidden’ fees – meaning they are usually not disclosed when advertising the products.

In addition to the Broadcast TV fee and the Regional sports fees the report lists the following other fees:

  • Settop box rental fee. This is to recover the cost of the settop box hardware. For many years this fee was around $5 monthly for most cable providers, but this is an area that has also seen big price increases in recent years and the highest rate I’ve seen was $12 per month. This is to recover a settop box, which for small ISPs costs a little over $100, and must cost less for the big cable companies.
  • Cable Modem / WiFi Router. This is the fee with perhaps the biggest range of pricing – some ISPs don’t charge for this while others are charging more than $10 per month.
  • HD Technology Fee. This fee used to be charged by almost every cable company back when they started offering HD channels (a decade ago many channels were offered in both an HD and an analog format). Now that the whole industry has largely gone to digital programming, CR reports the only company still charging this fee is Comcast.
  • Internet Service Fees. This is a relatively new fee that gets billed to anybody buying Internet Access. The report highlights the fees charged by RCN and Frontier.
  • Administrative and Other Fees. These are often fees under various names that don’t cover any specific costs. However, some fees are specific – I just read an article describing a $7 fee to business customers by AT&T in California to recover property taxes.

Consumer Reports collected a number of sample bills from customers and reports that the average monthly company-imposed fees for the bills they analyzed averaged to $22.96 for AT&T U-verse, $31.28 for Charter, $39.59 for Comcast, $40.16 for Cox, and $43.79 for Verizon FiOS. They estimate that these fees could total to at least $28 billion per year nationwide.

To be fair to the cable providers, these fees are not all profits. The companies pay out substantial retransmission fees for local content and pay a lot for sports programming. However, some of the fees like settop box and modem rentals are highly profitable, generating revenues far above the cost of the hardware. Some of the fees like administrative fees are 100% margin for the companies.

Consumer Reports advocates for legislation that would force cable companies and ISPs to fully disclose everything on bills, similar to what happened with the airline industry in 2011 with the Full Fare Advertising Rule. CR believes that the FCC has the authority to require such transparency without legislation.

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Technology The Industry

Do Cable Companies Have a Wireless Advantage?

The big wireless companies have been wrangling for years with the issues associated with placing small cells on poles. Even with new FCC rules in their favor, they are still getting a lot of resistance from communities. Maybe the future of urban/suburban wireless lies with the big cable companies. Cable companies have a few major cost advantages over the wireless companies including the ability to bypass the pole issue.

The first advantage is the ability to deploy mid-span cellular small cells. These are cylindrical devices that can be placed along the coaxial cable between poles. I could not find a picture of these devices and the picture accompanying this article is of a strand-mounted fiber splice box – but it’s s good analogy since the size and shape of the strand-mounted small cell device is approximately the same size and shape.

Strand-mounted small cells provide a cable company with a huge advantage. First, they don’t need to go through the hassle of getting access to poles and they avoid paying the annual fees to rent space on poles. They also avoid the issue of fiber backhaul since each unit can get broadband using a DOCSIS 3.1 modem connection. The cellular companies don’t talk about backhaul a lot when they discuss small cells, but since they don’t own fiber everywhere, they will be paying a lot of money to other parties to transport broadband to the many small cells they are deploying.

The cable companies also benefit because they could quickly deploy small cells anywhere they have coaxial cable on poles. In the future when wireless networks might need to be very dense the cable companies could deploy a small cell between every pair of poles. If the revenue benefits of providing small cells is great enough, this could even prompt the cable companies to expand the coaxial network to nearby neighborhoods that might not otherwise meet their density tests, which for most cable companies is to only build where there are at least 15 to 20 potential customers per linear mile of cable.

The cable companies have another advantage over the cellular carriers in that they have already deployed a vast WiFi network comprised of customer WiFi modems. Comcast claims to have 19 million WiFi hotspots. Charter has a much smaller 500,000 hotspots but could expand that count quickly if needed. Altice is reportedly investing in WiFi hotspots as well. The big advantage of WiFi hotspots is that the broadband capacity of the hotspots can be tapped to act as landline backhaul for cellular data and even voice calls.

The biggest cable companies are already benefitting from WiFi backhaul today. Comcast just reported to investors that they added 204,000 wireless customers in the third quarter of 2019 and now have almost 1.8 million wireless customers. Charter is newer to the wireless business and added 276,000 wireless customers in the third quarter and now has almost 800,000 wireless customers.

Both companies are buying wholesale cellular capacity from Verizon under an MVNO contract. Any cellular minute or cellular data they can backhaul with WiFi doesn’t have to be purchased from Verizon. If the companies build small cells, they would further free themselves from the MVNO arrangement – another cost savings.

A final advantage for the cable companies is that they are deploying small cell networks where they already have a workforce to maintain the network. Bother AT&T and Verizon have laid off huge numbers of workers over the last few years and no longer have the fleets of technicians in all of the markets where they need to deploy cellular networks. These companies are faced with adding technicians where their network is expanding from a few big-tower cell sites to vast networks of small cells.

The cable companies don’t have nearly as much spectrum as they wireless companies, but they might not need it. The cable companies will likely buy spectrum in the upcoming CBRS auction and the other mid-range spectrum auctions over the next few years. They can use the 80 MHz of free CBRS spectrum that’s available everywhere.

These advantages equate to a big cost advantage for the cable companies. They save on speed to market and avoid paying for pole-mounted small cells. Their networks can provide the needed backhaul for practically free. They can offload a lot of cellular data through the customer WiFi hotspots. And the cable companies already have a staff to maintain the small cell sites. At least in the places that have aerial coaxial networks, the cellular companies should have higher margins than the cellular companies and should be formidable competitors.

Categories
The Industry

Comcast Breaks Promise of Lifetime Prices

Barely a month goes by when I don’t read about a colossal failure of customer service by one of the big ISPs. The latest comes from Comcast, and the company seems to have broken a major promise made to customers.

When Google Fiber announced in 2016 that they were coming to Salt Lake City, Comcast decided to compete against Google Fiber by offering ‘lifetime’ prices for various bundles. For example, there was a triple play bundle at $120 per month plan that included broadband, cable TV and a telephone line. In anticipation of Google coming to the market, Comcast engaged in a door-to-door sales campaign that marketed the lifetime special and other discounts on Comcast products in an attempt to lock down customers before Google Fiber hit the market. Ironically, Google Fiber changed their mind and never made any significant investment in the market.

The lawsuit alleges that Comcast doorknockers promised customers the lifetime product and backed this up in writing that their price would be good for as long as the customer kept the plan. Customers were assured at each step of the process that they were buying a lifeline plan and that rates would never be increased. For example, Comcast customer service reps on the phone repeated the assurance that the prices would be good forever. The lawsuit asserts that as many as 20% of the 200,000 upgrades sold during the sales campaign in Utah were sold as lifetime plans.

As you might expect from the title of this blog, after a few years Comcast raised the prices on the lifetime plans. At that point, Comcast customer service denied any knowledge that these were lifetime rates and said they had never heard of such a plan. Comcast enforced the rate increases, some of which were substantial.

It’s hard to imagine that any company would sell a guaranteed lifetime price for a bundle that includes cable TV. The cost of buying wholesale programming has been increasing at 10% – 15% annually for many years. In a decade, any lifetime plan would be massively underwater. Additionally, Comcast is now in the mode of annually increasing broadband prices – but that’s not something that was probably discussed inside of the company in 2016.

It’s not hard to figure out how this could happen in a big corporation. I’m just speculating, but I expect the marketing campaign included an outside sales team. These sales teams get most of their compensation from completed sales and are famous in the industry for making outrageous claims to customers. I always caution my clients about hiring sales companies that bring entire sales teams in from out of state. While these companies will get sales, the worst of them often leave a trail of unhappy customers behind them. I would expect that this sales staff had some role in choosing the message of lifetime rates – something they know they can sell.

However, it had to be more than a rogue sales team that pushed the lifetime rates. Comcast customer service at the time was also telling the customers that the plans were lifetime rates. I’ve talked to several Comcast customer service reps over the years and they describe the customer care process at the company as chaotic. From what they’ve described it’s not hard to imagine the specific customer care group supporting the sales campaign also supported this effort because they also could make sales commissions. Many of the horror stories coming out Comcast customer care over the years have involved employees engaging in bad behavior to chase sales commissions.

But there also had to be local management buy-in of the plan. I’m sure we’ll never know, but it would be interesting to know if this was strictly a local management decision in Salt Lake City or if there was corporate buy-in. Comcast seems to have overreacted to Google Fiber elsewhere and it’s possible that this was a corporate plan.

This lawsuit highlights the difficulty in operating a huge ISP. Many big companies have seen sales commission plans gone awry. Inevitably, some employees find ways to maximize bonuses through bad behavior. We saw something similar from Wells Fargo bank last year and it’s hard for any giant corporation to strenuously push sales campaigns while also policing that employees don’t take advantage of the plans.

This story offers a few lessons for other ISPs. I am a huge believer in the efficacy of door-to-door sales plans done well. But there are unscrupulous outside firms that will sell anything for a high-enough commission. The best sales plan involves local people trained and managed by an ISP directly. The other lesson is that sales commission plans for non-salespeople must be carefully designed to not promote bad behavior.