It's Still the Cable Company, Part 711

A video on demand service glitch provided me an opportunity to see whether my cable television provider Comcast has made any progress on its customer service.  The result: it's GOTTEN WORSE!

How can a company with $74 billion dollars in annual revenues not understand the need to invest in both plant and personnel? 

That's not a hard question.  Senior management realizes that it can squeeze out even more revenue by sponsoring researchers, hiring attorneys and employing lobbyists to reframe the issue of investment.  Rather than confront the matter of obsolete plant, postponed investment and plain awful customer service the company can claim that "regulatory uncertainty" and network neutrality, etc. has caused it to lower it capital and operating expenditures.

So when customers encounter outages and a 20 minute audition with a computer before reaching a live person, it's the company responding to regulatory blunders.

In reality--or at least the one I experience on a holiday weekend--I cannot access any of Comcast's much touted video on demand content.  The reason: Comcast does not invest in plant and personnel, because it perceives the opportunity to blame somebody else.  The reward: even higher margins.
 

Broadband Carrier Quandary: Exploit Bandwidth Scarcity, or Reduce It?

            Comcast enhanced the value position of its broadband subscriptions by increasing the monthly data allowance to 1 Terrabyte (1000 Gigabytes). See http://money.cnn.com/2016/04/28/technology/comcast-data-cap/.  As an independent, unsponsored researcher, I can say “Thank You Comcast” without adverse consequences and only a bit of irony.  This company does much to displease, but ab expanded data allowance offers a winning proposition.

            Consumers win, because Comcast has opted not to create artificial scarcity with an eye toward running up subscribers bills. While one subscriber’s glut maybe another’s scarcity, 1000 Gigabytes offers a generous allowance.  Most subscribers will not have to ration their usage including actively cutting off advertisements that increasingly seem to launch despite attempts to prevent “auto play.”

            Comcast wins, because longer and stickier subscriber viewing typically generates more revenues for the company.  Comcast operates in what economists describe as a double sided market.  The company generates revenues from downstream, broadband subscribers and it also receives payments from upstream carriers, such as Content Distribution Networks, as well as content creators and distributors, such as Netflix.

            Additionally, Comcast can accommodate ever increasing demand for bandwidth quickly, efficiently and inexpensively.  The company need only reallocate a 6 MegaHertz channel from video carriage to broadband carriage.  Aljazerra America’s sign off created a candidate channel for reassignment. See http://america.aljazeera.com/articles/2016/1/13/al-jazeera-america-to-close-down.html.  Cable television networks typically now have ample bandwidth affording latitude in assigning capacity for video, data and other services.  A technology known as cable bonding makes it possible to add broadband capacity in 6 MHz increments.

            As cable companies expand broadband data rates, wireless carriers persist in rationing access with monthly allocations typically in 1-10 Gigabyte range. Wireless carriers currently do confront scarcity, particularly if many subscribers in the same vicinity try to stream video at the same time.  As well, wireless carriers do not have the same quick, easy and cheap opportunities to expand broadband bandwidth, although they can install more towers (“cell-splitting”), encourage subscribers to incorporate their wired broadband subscription with cellphone service and acquire more spectrum.

            Currently, wireless carriers appear quite adept at finding the sweet spot that balances scarcity abatement strategies with scarcity-based pricing.  These carriers have paid billions for auctioned off spectrum, but they also want to use unlicensed, free Wi-Fi spectrum to accommodate growing demand, most probably without a data rate increase.  Additionally, they can rely on the spectrum scarcity rationale to justify many tiers of service with pricing rising significantly as data rates increase.  Few current subscribers have truly unlimited data plans, because the service agreement authorizes the carriers to reduce (throttle) delivery speeds to rates that do not support video streaming.

            Wireless carriers can exploit spectrum scarcity to support a much higher per Gigabyte cost of service.  Comcast just widened this differential.

Comcast Plays By Its Own Rules

Few companies can get away with charging consumers for service yet delivered.  Comcast does.

Few companies can impose late payment fees for service not yet rendered, but of course Comcast does.

To add insult to injury, a Comcast bill did not arrive and the company will not alert subscribers using email addresses other than the company's.

To add further insult, Comcast imposed a $9.50 late fee, but agreed to waive it in light of my payment history.  Of course the company's representative conveniently "forgot" to key in the credit which by the way can only apply to a future bill.

Brian Roberts whines about consumers who don't want to pay for content. 

Here's a newsflash: consumers don't like being cheated and taken for granted by a company intent on squeezing every last dime, lawfully or not.

Maybe someone at Comcast ought to read the FCC's Truth in Billing requirements.

One Mystery of the Universe Solved: Why Just About Every Comcast Subscriber Hates the Company

            Recently Comcast CEO Brian Roberts concluded that subscribers hate his company, because they don’t want to pay for content. http://bgr.com/2015/12/14/comcast-ceo-brian-roberts-interview/.  Simple, glib conclusion, but quite wrong. 

            Subscribers do not mind paying for content if they feel they receive fair value.  How many times have you heard someone complain about the cost of Netflix service?  People do pay for content and gladly so.  Just ask the millions of subscribers to Hulu, SiriusXM, etc.

            People don’t like getting ripped off.  People don’t like paying for something they don’t want, but can’t seem to avoid like the dozens of cable channels they never watch.

            People don’t like getting nickeled and dimed, or inconvenienced.  Comcast has done both to me in the last few weeks.  First a company technician refused to repair a set top box claiming my service tier did not qualify for access to one.  The technician seemed not to know that even lowly basic tier subscribers are entitled to a “free” set top box now needed even for viewing certain basic tier channels.

            After repeated calls and a second day waiting for a technician, the company issued a $20 credit, but of course there’s a catch.  I had to pay the full billed amount after which a credit would accrue in a subsequent bill.  So the company issues a credit only after receiving an overpayment.  Clever; too clever.

            To compound the confusion, Comcast or the U.S. Postal Service managed not to get a bill delivered.  Of course Comcast never informed me of an overdue payment, by email.  Instead they issued a $9.50 late payment fee and implied dark and negative consequences should they have to refer my debt to a collection agency.

            Mr. Roberts just about everyone hates your company, because of its obsession with squeezing every last dime it possibly can, regardless of the value proposition.  What else could explain the creation of a new line item called Broadcast TV Fee for local carriage, already paid for in the basic tier charge?  What else could explain the 65% increase in that fee summarily announced in the bill I never received?

It's Still the Cable Company--Part 179

            After months of regular and largely uninterrupted cable television service my home Video On Demand access suddenly evaporated.  Research on the regularly appearing error code showed that the problem occurred due to a weak upstream signal to the headend.

            As dealing with Comcast customer service rivals dental work, I tried several self-help options available on the web site, include several reset commands from the headend to my set top box.  No luck.

            Step two involved multiple calls to Comcast to make the case for a premises visit.  Understandably Comcast does not want to authorize a “truck roll” in light of the cost.  So customer service representatives—all of them in the U.S. India and possibly China—forced me to make the case repeatedly.  It got old fast, particularly having to undertake the same steps that did not work previously.

            Step three involved the first premises visit, a most unsatisfying event.  The technician arrived and noticed that I had cord shaved, downgrading my service to basic cable.  According to him, I am not entitled to on demand service, notwithstanding clear evidence to the contrary on the Comcast web page.  The technician left without replacing the set top box, or doing anything constructive. 

            This frustrated my wife and me.  Was this yet another Comcast upsell strategy, or could the technician honest believe I was not entitled to the on demand service?  How am I to order movies and add to me monthly bill?

            Step four involved yet more calls to customer service, various tweets on the 2 Comcast sites and an email nominally sent to the customer care VP of the company.  There seems to be fake, or unhelpful customer service and a real version should you make enough of a stink.

            Several days passed before Comcast agreed to send another technician with instructions to fix the problem.  The solution: removal of a defective and long unnecessary signal splitter installed by the company.

            There is not much good news to report.  Comcast still has deplorable customer service designed to prevent real people from providing a real solution.  The company still farms out customer service to individuals with limited English competency.  Nobody followed up, but a company representative did make good on her promise of a $20 bill credit based on the much touted guarantee for on time service remedies.

            Nothing much has changed and apparently the company still doesn’t really care.

           

Comcast Upselling Cable Modems

            Despite its commitment to improving its customer service, Comcast keeps writing and robocalling me  with an offer I can refuse.  In a rather alarmist tone, Comcast wants subscribers to infer that their modem soon will no longer work.

            At some future date Comcast may refuse to provide broadband service to modems using the Data Over Cable Service Interface Specification 2.0.  Right now Comcast wants to migrate “bring your own modem” subscribers to the rental camp now charged $10 a month.

            Comcast does not want you to know that the new rented modem will not provide any faster service unless you subscriber to a triple digit, high end service tier. 

            My Motorola DOCSIS 2.0 compliant modem works just fine and it cost me a princely $5 at a garage sale.  Comcast knows what modem subscribers use.  You have to call a customer service representative to activate service and he or she may try to dissuade you from using your own modem and surely will try to upsell you other services.  The company also knows that a DOCSIS 3.0 modem will not provide any faster bit transmission speed to me.

            In other words, Comcast is using a rather cheeky sales tactic.  It’s much like the current television advertisement suggesting that every adult get an expensive shingles inoculation, because the virus “is already inside you.”

            Caveat emptor.

5 Reasons Why Consumers Hate Comcast

     Comcast suffers from an unintended, but surely predictable consequence of its corporate strategies.  The company makes itself an easy target for scorn by taking every opportunity to maximize revenues.  Of course publicly traded companies have to maximize shareholder value.  But Comcast ignores the usual adjunct of trying to be a good citizen and not coming across as too clever and greedy.

     Set out below are 5 reasons while subscribers, in particular, personify and vilify the company.

1)         Deliberately skimping on customer service

 

     I simply cannot find one Comcast subscriber who lacks a story about shoddy treatment by the company.  It’s that simple: Comcast assumes that it does not have to invest in customer care.  For so many years, the company has been able to raise rates well in excess of statistical measures of price increases, even after normalizing for expanding numbers of channels.  Such assumed inelastic demand tilts the assumed negotiating leverage in favor of Comcast.

 

2)         Bait and Switch

     Like many companies, Comcast offers “promotional” short term inducements for new subscribers.  Unlike most companies, Comcast does not remind you when the “actual” rates kick in.  Subscribers who receive a 100% rate increase are not happy with the company, but Comcast knows that most won’t cut the cord. 

3)         Sneaky Ever Expanding Billing Line Items

     Comcast appears to have a strategy of raising subscribers’ out of pocket payments with new billing line items.  Perhaps Comcast wants subscribers to think the government is responsible for the new charges.  Perhaps the company thinks subscribers will ignore a higher out of pocket cost by discounting the new fees, or passively accepting them just as we do with car rental line items.

           

     Recently Comcast inserted a new charge ostensibly to help the company defray the cost of carrying local broadcast signals.  Why a new charge when the company already charges for basic tier service and has a lengthy history of having to pay for carriage rights?  Comcast wants to highlight how such retransmission consent payments have increased.  Of course the company wins on both sides of this outcome: its NBC stations receive the payments and Comcast can now secure a dedicated line item to help defray this expense.  Bear in mind that the company’s charge has no relationship to the number of local stations carried, or the rate of increase in retransmission costs.

 

     Additionally Comcast has executed a strategy that makes it difficult or impossible for subscribers to avoid having to rent devices such as cable cards, modems, converters and set top boxes.  The company earns over $1 billion annually in equipment rentals.  With such a large revenue stream, Comcast predictably takes ever effort to prevent subscribers from using their own devices.  The company does not cooperate with consumer electronics manufacturers and has made it near impossible for subscribers to use a non-Comcast set top box and Comcast supplied CableCard.  Extra points for requiring that a Comcast technician install the Card, only after a few or more calls to customer service.

 

     Subscribers can save $10 a month simply by installing their own cable modem.  Of course it will take some calls to Comcast to register the device and yet again poor customer service awaits.

 4)         Lackluster Compliance with Legislative and Regulatory Mandates

     The FCC has fined Comcast for failing to comply with requirements the company offered, or the FCC mandated when approving prior mergers and acquisitions.  Comcast deliberately failed to place the Bloomberg business news network on a channel near the company’s CNBC network, despite having agreed to do this.  Just slipped their mind.

     Similarly the company directed its customer service agents not to mention that subscribers have the option of buying broadband access only.  Extra points for charging more for broadband if a subscriber does not also pay for cable.

     The company also has a penchant for making lemonade out of regulatory lemons.  For example, Comcast wants everyone to know how much it has embraced network neutrality, going so far as to extend it to Time Warner properties.  Never mind that the company opposed the FCC at every step, litigated the issue and triggered the campaign for network neutrality by lying to the FCC about whether Comcast used tactics to block BitTorent traffic.

5)         Intracorporate Favoritism

     Comcast and its sponsored researchers want to convince Congress and the FCC how a vertically integrated company can operate more efficiently and presumably better serve consumers.  Sometimes this makes sense, but let us not forget that the largest reduction in shareholder value resulted when two companies sought such synergy through vertical integration.  The two companies: Time Warner and America Online.

 

     A cheeky example of Comcast family treatment lies in the place of the Golf Channel on the basic tier and the Tennis Channel on a more expensive and less viewed sports programming tier.  Was this decision the product of disciplined financial analysis, or did the company opt to showcase its owed networks while handicapping unaffiliated ones?

     The company adds insult to injury by sponsoring experts to “prove” that the company did, or could have done the necessary analysis that would show the comparatively greater popularity of golf over tennis.  An appellate court bought the analysis in large part, because the Tennis Channel could not readily prove how much more popular it would be had Comcast opted to place it on the basic tier.

Comcast Streaming of NBC Broadcast Content

            NBC soon will join the ranks of content providers offering a streaming option to cord cutters and mobile consumers.  See, e.g., http://www.engadget.com/2015/03/03/nbc-comedy-streaming-service/.  This future service warrants special attention, because two corporate affiliates within the Comcast family will participate in many parts of the United States: Comcast, as the last mile, “retail” ISP and Comcast, the parent of NBC-Universal.

            Operating as an ISP, Comcast has at least three pricing/interconnection options, each of which raise questions relating to network neutrality and what the company considers strategic, “best behavior” during the time the FCC evaluates its proposed acquisition of Time Warner.

            The Neutral/Non-Discrimination Option treats NBC traffic as nothing special, just plain video bits requiring streaming delivery to Comcast broadband subscribers.  Comcast shows its commitment to network neutrality by refraining from prioritizing the traffic, or claiming that the traffic does not traverse the conventional Internet.

            The Specialized Service Option puts NBC traffic in the same category as Comcast video on demand traffic that gets routed to Microsoft Xboxes.  The company will try to differentiate NBC traffic from conventional Internet-delivered traffic, so that Comcast has the option to engage in price and quality of service discrimination.  Comcast might exempt NBC traffic from debiting a subscriber’s monthly data allocation. The company also might use routing techniques to ensure congestion-free carriage—what I call “better than best efforts” routing and Most Favored Nation treatment.

            The Surcharge Option requires NBC to pay a surcharge to a corporate affiliate consistent with Comcast’s successful demand for more money from Netflix and probably the same type demand the company will make to HBO and other high volume sources of video traffic.

            Many Comcast senior managers have distinguished themselves as the best in the business, but the company often pushes the revenue generating envelop when other factors might have supported a less aggressive posture.  For example, the company has substantially increased its cable modem rental rate (20+%) at a time when it should not call attention to its awful customer service, including possibly deliberate hassles for subscribers trying to activate their own modems.

            If Comcast decides on a prudent, less provocative posture it will refrain from executing the Surcharge or Specialized Service Option.  Critics will quickly note that having brother NBC pay brother Comcast ISP keeps all revenues “in the family.”  The Surcharge Option would maintain consistency with the strategy successfully executed with Netflix and soon to be applied to punish HBO for trying to eliminate the cable television intermediary.  The Specialized Service Option would show what a large loop hole the FCC unintentionally has created, particularly because Comcast would only have to make cosmetic changes to qualify video delivery of NBC traffic, or Comcast premium content to an Xbox, for a network neutrality exemption.

          Both options would show how unrestrained ISP pricing flexibility can harm consumers and competitors.

            Comcast probably will avoid any appearance of treating NBC traffic more or less favorably.  This option would create an exception to the strategy of demanding surcharges from high volume video distributors like Netflix, but Comcast might simply differentiate NBCs’ comparatively low volume vis a vis Netflix.

            In any event, the horizontally and vertically integrated Comcast corporate structure will trigger interesting tensions between affiliates.

Did Netflix Want Service Quality to Degrade?

            Through mostly unofficial channels, Comcast has alleged that Netflix wanted transmission bitrates to decline ostensibly to accrue greater impact at the FCC.  A major official at Comcast told me that Netflix wanted to show a deterioration in ISP delivery speeds so that it could derail FCC approval of the Comcast-Time Warner Cable acquisition.  This official alleged that Cogent had a similar strategy.

            Would Netflix risk upsetting many of its subscribers to achieve questionable additional persuasion points with the FCC?

            In light of the trigger-quick discomfort broadband subscribers feels when real or artificial congestion occurs, I find the Comcast claim hard to believe.  Few companies, outside commercial aviation, would risk ticking off their customers to achieve a political point.  So perhaps the answer lies in determining whether Netflix has so much in common with the airlines, that it too can degrade service to nudge/push customers into paying more for same service.

 

            The airlines can degrade standard economy service and unbundle components of what used to be considered part of an airfare in light of limited competition.  Travelers cannot readily avoid add-on fees by shifting carriers.  Can Netflix subscribers vote with their currency and shift allegiance if the company’s video streams become a slide show?

            The answer: it depends. Increasingly one can find much—but not all—of the content available from Netflix.   Disintermediation of cable television operators has become an option for some content, but note that the cable ISP constitutes the only double digit megabit per second option for most consumers.  Comcast and other retail ISPs have raised broadband subscription rates and these ventures probably with become more aggressive should content disintermediation become more prevalent.

            Netflix does not strike me as a company willing to risk subscriber churn based on poor video quality.  The company paid quite high tuition to learn that it could not raise rates overnight by unbundling online content delivery from postal delivery.  Would Netflix risk ticking off its customers based on a view that now they are so hooked on the company’s content that they would tolerate poor delivery quality?

AT&T and Comcast Violate the First Rule of Regulation During a Pending Acquisition

              One would think AT&T and Comcast would be on their best behavior while the FCC considers the merits of multi-billion dollar acquisitions of DirecTV and Time Warner Cable.
Why come across to the court of public opinion as greedy, small-minded and mean-spirited?  Why provide opponents with evidence of just how uncompetitive the marketplace is?

            What was AT&T CEO Randall Stephenson thinking when he threatened to reduce capital expenditure on next generation networks on grounds that the FCC might impose greater regulation?  See AT&T to “pause” 100-city fiber buildout because of net neutrality rules; available at: http://arstechnica.com/business/2014/11/att-to-pause-100-city-fiber-buildout-because-of-net-neutrality-rules/.  He probably was attempting to blame “regulatory uncertainty” as grounds for reducing investment in plant.  To my mind, he comes across as showing the absence of competitive necessity to build out the AT&T network as quickly as possible.  The company can try to leverage investment as a reward to the FCC and the public for retaining possibly inadequate and ineffectual regulation.  Such a generous and noble consolation prize.

            Comcast goes one step further in violating the rule requiring a low profile.  The company has doubled its broadcast signal carriage fee in many markets.  This comes across as both sneaky and not cost-based. It’s sneaky, because the company recently created and now doubled a new line item that consumers might infer as required by government, or as some kind of legitimate cost-pass through, somehow not covered by the overall cost of doing business.  It’s not cost-based, because retransmission consent costs have not doubled in the last year and the company charges the same amount regardless of the number of local signals it carries.  In simple terms Comcast has raised rates at time when it probably should not do so, unless it has such a low opinion of our ability to decode the impact of a 100% increase in its “Broadcast TV Fee.”

            The fact that AT&T can threaten to ration or cut capital expenditure and Comcast can raise rates may mean that both companies see no need in playing nice during the pendency of it 90+ billion dollar acquisitions.  Fine, but don’t tell us how hard you have to work to stay competitive and how your mergers are essential for your continuing ability to serve.

2.5 Blunders in an Otherwise Flawless Comcast Charm Offensive

       Comcast has executed a near perfect strategy to convince the Justice Department, FCC and public that the merger with Time Warner has great benefits.  The game plan shows mostly great finesse, coming for a company much reviled by subscribers and the general public alike.  Hat’s off to Comcast’s extension of its program to sell cheap computers and offer $10 a month broadband subscriptions to people qualifying for subsidized school lunches.

       However, the company has not achieved perfection.  Set out below are 2.5 mistakes that the company could have easily avoided.

 

1)          A Temporary Improvement in Customer Service and Tactics

            For years Comcast has deliberately scrimped on customer service both in terms of truck rolls and interaction with subscribers via telephone or online.  The company appears to have trained staff to eschew accommodations that result in less money.  Comcast seems to think that it wins when subscribers settle for less than they thought they should have received by way of a refund.  The company has generated ample ill will by what comes across as greed.

            In light of Comcast’s incredibly poor ranking, even a minor improvement would come across as both significant and well intentioned.  Apparently the company has done nothing even when it should display its best behavior.  Recording of worst case treatment have particularly significant impact right now and what has Comcast done?  All I’ve seen are press releases much like the scripts I get from United Airlines when they screw up and have no intention explaining why, or resolving to do better.  See United Airline Form Letter Response to Complaint

 

            Comcast cannot afford to make saccharine and disingenuous “apologies” when their customer service reps execute a strategy designed to deny responsibility and refuse to make necessary financial accommodations.

2)         Not Carrying Narrow Niche Networks Even in a Costly and Obscure Tier

 
            Comcast comes across as imperial and arrogant in its response to the RFD Network’s complaints about non-carriage.  The company should have given RFD what I call The Tennis Channel Treatment: carrying the channel on a more expensive tier with fewer subscribers than the cheaper and more highly viewed tier where Comcast places its Golf Channel.

              Clearly Comcast has bandwidth available to carry RFD and ample funds to pay the few cents per subscriber the network would qualify to receive.  Instead a company official, who should know better, accused RFD of driving “a wedge between Comcast and rural viewers as a means to promote your own business interests is unfair and grossly inaccurate.” See http://www.nytimes.com/2014/08/24/business/media/rural-tv-chief-takes-2-by-4-to-cable-merger.html?_r=0.

 

            RFD surely is a niche market play, but much like many of the niche channels Comcast carries.  RFD probably has more clout than many niche networks in view of its targeted rural audience.  Comcast’s decision to cut carriage in New Mexico and Colorado provides a snapshot of how the company can make or break a network.  Consumers have every reason to fear Comcast’s power as gatekeeper.

.5         Comcast’s "Vigorous" Support for Network Neutrality

 

            I give Comcast a half demerit for its new found support for network neutrality.  Wasn’t this the company that successfully sued the FCC on its creation of network neutrality rules?  Well that was then and now embracing neutrality—for a fixed time period no doubt—comes across as noble.  I think it comes across as an expedient strategy to win support for its merger, but this blog surely can’t match full page ads in major newspapers.

Rebooting with a Shout Out to Comcast

            Having taking time away from Telefrieden I have seen how blogs often have much to offer than the short web links available from Twitter and Facebook entries.  On the other hand blog take much more time and effort to get right, and I have lost confidence that they matter much.  There’s just so much noise everywhere and so little truth.

            But truth telling—or at least my sense of it—enervates.  It’s quite difficult trying to set the record straight.  I have found myself too much the winge, so as I reboot I’ll try to offer snapshots of the future rather than a reiteration of the often miserable present.

            Toward that end I’ve got to praise Comcast for finding a way to convert (minor pun)  terminal adapter leasing from a necessary evil into a profit center.  Comcast recently received FCC authority to encrypt the basic tier thereby reducing the number of truck rolls and piracy.  The FCC required Comcast to make available digital to analog converters, but did not specify the commercial terms for their lease. Comcast offered two free of charge for a few months and then slipped in a $1.99 rental fee.

            I’m not sure how much the little Pace converters cost, but I’ll hazard to guess that Comcast will make money on a $1.99 lease.  So very smart and capitalist of Comcast.  But in doing so the company has all but encouraged me to rediscover off air, broadcast television free of the cable, at least for the supplemental television sets widely distributed in many homes.  

            The possibility exists that Comcast has contributed to consumers’ doubts about the value position of cable, particularly when companies like Comcast have no interest in cable ready, true two-way sets, operating without company-leased and controlled boxes.  If I cannot justify a set top box, or converter lease for the third and fourth televisions in the house, I may reassess the lease and subscription for the first two sets.  At least I know how to retrofit for the old standby of off air television reception.  Hats off to Comcast for the nudge.

 

Comcast Anti-consumer Strategies

      In preparing updates to comprehensive treatise on cable television and broadband (see http://www.lawcatalog.com/product_detail.cfm?productID=15670) I have the opportunity to dig deep into current business and regulatory activity.  Recently I saw that the FCC has sanctioned Comcast for favoring two affiliated sports networks (The Golf Channel and Versus) and disfavoring an unaffiliated sport network (The Tennis Channel).  The Comcast affiliates appear on a cheaper and lower programming tier than the unaffiliated network.  The FCC did not buy that Comcast and its subscribers just happen to like golf more than tennis.

       So along comes another Comcast action that may not fully pass the smell test.  Comcast wants the FCC to allow cable television operators to encrypt all service tiers including the cheapest basic service tier containing only a few channels.  Ostensibly to make bandwidth available for new services, Comcast wants to eliminate all analog channels that just about all subscribers can receive without a set top box. Comcast also benefits by not having to send a technician to activate, terminate and change service.  But it also gets to force every subscriber to install a Comcast device that might just prevent subscribers from doing lawful things the company does not want done, e.g., using non-Comcast equipment to record, distribute and receive content.

      I suspect there is more than meets the eye on Comcast’s digital strategy. On the matter of bandwidth conservation Comcast only offers a small number of channels in the basic tier, so the newly available bandwidth is insignificant.  In most systems Comcast has ample bandwidth available and already offers HDTV options. 

      So the issue focuses on the new mini-set top box subscribers have to install.  First, channel switching will take longer.  Remarkably analog channel switching occurs instantly while digital changes take a few milliseconds.  Second, most subscribers will leave the box on 24/7 surely offsetting the carbon and cost savings Comcast accrues by not having to send as many technicians across town.  Third, Comcast now has a company-owned device standing between its network and subscribers’ televisions.  Maybe this device simply better protects Comcast from program theft.  But knowing Comcast I suspect they have created more upside benefits that will result in less opportunities for subscribers to use the content for which they have paid.

No Free Lunch in Internet Peering or Transit

              Like many of you, I am keenly following the Comcast-Level 3 dispute and am trying to make sense of it all.   The dispute confirms several universal principles about Internet traffic routing that have passed the test of time:

1)         Consumers pay Internet Service Providers (“ISPs”) a monthly subscription with the expectation that the fee covers access to available content, i.e., the conduit.  As the World Wide Web evolves and content options diversify to include full motion video, consumers simply expect their ISPs to make sure the download distribution pipes are sufficiently robust to handle high bandwidth requirements and commensurately large monthly download volume.  Cable modem service agreements may have a cap on downloading per month, but consumers generally assume “All You Can Eat” access rights, plus the expectation that video streaming will work, i.e., no blurring, frozen frames, or blue screens.

2)         Because upstream requests for content are narrowband and because the typical consumer downloads much more content than he or she uploads, ISPs serving end users, such as Comcast, typically will have a large traffic imbalance with more downstream traffic to deliver than upstream traffic that the end user serving ISP might want other ISPs, such as Level 3, to handle.

3)         Until such time as Comcast’s “Television Anywhere” takes off and generates lots more traffic that Comcast will need other ISPs to handle—whether on a peering or transit basis—Level 3 vastly contributes to Comcast’s download “surplus” delivery burden to end users.  Of course Level 3 replaces another content distribution network so the total volume of Comcast’s downloading burden does not change in the short term. However, in the context of peering and transit between Comcast and Level 3, the traffic volume relationship changes with a greater imbalance resulting from the new Netflix traffic Level 3 now delivers to Comcast.

4)         The Comcast- Level 3 dispute distills to a disagreement over whether and how much either should pay in light of changed traffic patterns.  Because the parties already have traffic agreements, modification of terms might require additional payments from Level 3 to Comcast, absent Comcast’s need for Level 3’s upstream transmission services.  Of course Comcast does need the services of Tier 1 ISPs like Level 3, but until Comcast starts distributing lots more of its cable television video product over the Web, Netflix downloading to Comcast subscribers will predominate.

5)         Cooperative ISPs typically align inbound and outbound peering traffic with an eye toward creating a balance, but either or both ISPs might also want to expand transiting services as these paid arrangements are based on the unlikelihood of balanced traffic loads.   Digital Society Policy Director George Ou reports that Comcast and Level 3 have both peering and transit agreements; see http://www.digitalsociety.org/2010/12/video-level-3-versus-comcast-peering-dispute/.  George lays blame on Level 3 for expecting Comcast to absorb the newly increased volume of traffic delivered to it by Level 3 without additional payment by Level 3, or the offer of additional free upstream capacity.

            Reasonable people can disagree as to the mutual exclusivity or substitutability of peering versus transit.  George considers the two types of traffic arrangements mutually exclusive and has chided me for thinking that the parties could recalibrate both to mitigate the traffic imbalance if they wanted to.  See http://www.digitalsociety.org/2010/12/many-analysts-wrong-on-comcast-versus-level-3/. 

            The Comcast- Level 3 dispute confirms that there is no such thing as a free lunch.  It also highlights disagreement over who has to pay when consumers’ download requirements increase with full motion video access.  George considers it a nonstarter for Comcast to raise end users cable modem rates, despite a vast increase in the value proposition created by IPTV.   Some economists consider it a given that Comcast has the “right” to demand compensation from both sides of its market position, upstream from Level 3—and possibly the real instigators of greater bandwidth requirements Netflix and Google—and also downstream from end users, i.e., cable modem subscribers, co-conspirators with Netflix and Google.

            Bottom line: one or more players in the Internet “network of networks” will have to pay for greater capacity.  Early on in the Internet’s development, avoiding payment strategies were depicted as “hot potato routing.”  Carriers unwilling to upgrade facilities to accommodate greater demand sought to hand off traffic as soon as possible.  Level 3 has no such option of passing the packets off to several different carriers for the last mile to end users.  Comcast knows this and true to form the company exploits its position to the fullest extent possible.

Comcast Violates an Unwritten Law

When a venture has petitioned the FCC to approve an acquisition, or to provide greater regulatory relief an unwritten law requires the petitioner to lay low. Comcast has violated this law by imposing, for the second time this year in Pennsylvania, a significant rate hike well in excess of the rate of inflation at the very same time it wants the FCC to approve the company’s acquition of NBC. Not smart.


Comcast surely must know that the optics of buying NBC do not look great no matter how much Comcast says such a transaction will promote competition. Raising both cable and Internet access rates reinforces the notion that the company has market power and faces limited competitive constraints. Of course this is the very company that does not want to pay anything for retransmission consent to carry broadcast television stations even as it charges subscribers $14.50 for the privilege. This company has fought a decade long battle to stymie alternatives to lucrative set top box rentals and now wants the FCC to abandon any efforts to promote CableCards and other alternatives.

It seems as though Comcast cannot lay low even during a time it wants a big gift from the FCC. The least the company could do is throw a gold-plated crumb to subscribers.

Summary of Court Decision Reversing the FCC Sanctions of Comcast

The FCC’s attempt to sanction Comcast for interfering with subscribers’ peer-to-peer traffic absent legitimate network management requirements failed to pass muster with the D.C. Circuit Court of Appeals. [1] This decision severely sidetracks the Commission’s attempt to establish binding network neutrality policies, rules and regulations absent an explicit legislative mandate.
Noting that the Commission invoked no express statutory authority, the court considered whether “barring Comcast from interfering with its customers’ use of peer-to-peer networking applications is ‘reasonably ancillary to the . . . effective performance of its statutorily mandated responsibilities.’” [2] Notwithstanding the Supreme Court’s broad deference to the FCC’s assertion of ancillary jurisdiction in the Brand X case, [3] where the Court affirmed the FCC’s determination that cable modem provided Internet access constitutes a lightly regulated information service, the D.C. Circuit required evidence that the FCC’s regulatory action had a direct link to its statutorily mandated responsibilities. [4] The court vacated the FCC’s sanctioning order of Comcast based on the view that the FCC could only refer to congressional statements of policy which do not provide a precedent for creating such responsibilities and to various section of the Communications Act that the court deemed inapplicable for substantive and procedural reasons.

The D.C. Circuit vacated the Commission’s reprimand of Comcast based on the court’s refusal to accept the Commission’s claim of ancillary jurisdiction. The court referred to the three major cable television cases [5] where the Supreme Court had affirmed the FCC’s ancillary jurisdictional claim “at a time when, as with the Internet today, the Communications Act gave the Commission no express authority to regulate such systems.” [6] As it had done in the case rejecting the FCC’s attempt to require television set manufacturers to build units capable of processing digital right management, “broadcast flags,” the court distilled the precedent for ancillary jurisdiction established by these cases into a two part test whether: “(1) the Commission’s general jurisdictional grant under Title I [of the Communications Act] covers the regulated subject and (2) the regulations are reasonably ancillary to the Commission’s effective performance of its statutorily mandated responsibilities.” [7] The court determined that the FCC had not satisfied the second part of the test. [8]

The court flatly rejected the FCC’s attempt to infer congressional intent for the Commission to extend its regulatory wingspan to include Internet access. In a series of references to provisions of the Communications Act, [9] the Commission expansively read congressional policy as sufficient ground for undertaking regulatory policy:

Instead, the Commission maintains that congressional
policy by itself creates “statutorily mandated responsibilities”
sufficient to support the exercise of section 4(i) ancillary
authority. Not only is this argument flatly inconsistent with
Southwestern Cable, Midwest Video I, Midwest Video II, and
NARUC II, but if accepted it would virtually free the
Commission from its congressional tether. [10]

The court concluded that the FCC could invoke ancillary jurisdiction to apply any number of regulatory requirements to cable modem provided Internet access without explicit congressional authority to do so. [11]

NOTES

[1] Comcast Corp. v. F.C.C., __F.3d __, slip op. (D.C. Cir. April 6, 2010)(No. 08-1291); available at: http://pacer.cadc.uscourts.gov/common/opinions/201004/08-1291-1238302.pdf.

[2] Id. at 3 citing Am.Library Ass’n v. F.C.C., 406 F.3d 689, 692 (D.C. Cir. 2005).

[3] The court does not interpret the Brand X case as precedent for the imposition of plenary authority over any matter involving cable television company provided Internet access. “By leaping from Brand X’s observation that the Commission’s ancillary authority may allow it to impose some kinds of obligations on cable Internet providers to a claim of plenary authority over
such providers, the Commission runs afoul of Southwestern Cable and Midwest Video I.” Id. at 14. “The Commission’s exercise of ancillary authority over Comcast’s network management practices must, to repeat, ‘be independently justified.’” Id. at 16, citing National Ass’n of Regulatory Utility Commissioners v. FCC, 533 F.2d 601, 613 (D.C. Cir. 1976)(rejecting the FCC’s preemption of state and local regulation of two-way, intrastate, non-video cable transmissions).

[4] “The Commission therefore rests its assertion of authority over Comcast’s
network management practices on the broad language of section 4(i) of the Act: “The Commission may perform any and all acts, make such rules and regulations, and issue such
orders, not inconsistent with this chapter, as may be necessary in the execution of its functions,” Id. at 6, citing 47 U.S.C. § 154(i) and In re Formal Compl. of Free Press & Public Knowledge Against Comcast Corp. for Secretly Degrading Peer-to-Peer Applications, 23 F.C.C.R.
13,028, 13,036, (2008).

[5] United States v. Southwestern Cable Co., 392 U.S. 157 (1968), United States v. Midwest Video Corp., 406 U.S. 649 (1972) (Midwest Video I), and FCC v. Midwest Video Corp., 440 U.S. 689 (1979) (Midwest Video II).

[6] Id. at 6.

[7] Id. at 7.

[8] The court noted that Comcast had conceded “ that the Commission’s action here satisfies the first requirement because the company’s Internet service qualifies as “interstate and foreign communication by wire” within the meaning of Title I of the Communications Act.” Id. at 7-8 citing 47 U.S.C. § 152(a). The court also rejected the Commission’s claim that because Comcast had used the existence of FCC jurisdiction in another case the company should be judicially stopped from challenging the Commission’s jurisdiction now. The court interpreted Comcast’s position in the other case as simply acknowledging the FCC’s jurisdiction over wire and radio services, which includes what Comcast offers. “Because Comcast never clearly argued in the
California litigation that the Commission’s assertion of authority over the company’s network management practices would be ‘reasonably ancillary to the Commission’s effective
performance of its statutorily mandated responsibilities’ (American Library’s second requirement), 406 F.3d at 692,that question remains for us to answer.” Id. at 12.

[9] The Commission cited to Secs. 1, 230(b), 706, 257, 201 and 623 of the Communications Act.

[10] Id. at 23.

[11] “Were we to accept that theory of ancillary authority, we see no reason why the Commission would have to stop . . [at imposing regulation of Internet Service Providers’ rates] for we can think of few examples of regulations that apply to Title II common carrier services, Title III broadcast services, or Title VI cable services that the Commission, relying on the
broad policies articulated in section 230(b) and section 1,would be unable to impose upon Internet service providers.” Id. at 23-24.