Comcast and the Court of Public Opinion

Here’s a multiple choice question that might provide insight on the current capitalism versus socialism debate:

 Comcast excels at:

 

A)         Maximizing value for shareholders;

 

B)         Charging what the market will bear;

 

C)         Exploiting the perception of competition and regulatory forbearance; or

 

D)         Treating subscribers with contempt.

 

Yet another distasteful interaction with Comcast’s cable television/broadband subsidiary confirms an all of the above answer for me.  Here’s how.

 A)         Xfinity currently charges $70.93 for delivering 10 over-the-air broadcast television signals and a few cable television channels few consumers eagerly seek.  The company includes as “taxes and fees” an estimate of the per subscriber copyright payment to broadcasters for carriage of their programming.         

Basic Cable subscribers have to pay Xfinity $851.16 annually for the privilege of receiving broadcast signals that are free for the taking if—and this can be a big if in rural locales like mine—one can erect a receiving antenna.  In urban and suburban locations, a simple “rabbit ear” antenna would work.  In State College, I needed to install an outdoor antenna 15 feet above ground to receive all broadcast network channels.  

Okay.  Hat’s off to Comcast for extracting a remarkable profit margin by retransmitting broadcast signals to consumers unable or unwilling to engage in self-help. Of course, the Digital Natives of the nation have little interest in broadcast programming except for live sporting events. Comcast cannot expect the broadcast signal retransmission gravy train to continue as more subscribers churn out of a cable subscription, leaving Digital Immigrants and rural resident behind.  

             B)      Comcast has anticipated cable television churn, but that does not mean the company will lose all lucrative revenue streams.   The company provides broadband access to the Internet and content substitutes for linear, live television.  

Given the dearth of broadband options in my locale, discussed below, Xfinity changes a minimum monthly rate of $45.90 for 300 megabits per second service, rising to more than $82 after a 5 year lock-in. Faster bitrates exceed $100 monthly.  

Comcast charges well above rates available from the 3 facilities-based wireless carriers.  It is possible that a wireless subscriber could install a home-based “hot spot” that would use Wi-Fi or Bluetooth to connect a computer to the broadband service provided by AT&T, T-Mobile, or Verizon.  Of course, not everyone has the technical competency to try this option, and the wireless carriers now impose a surcharge on those that do.  

Simply put, broadband rates in the U.S. have some of the highest Average Revenue Per User margins in the world.  On the other hand, I acknowledge that the carriers offer a quite high, but not unlimited data allowance, so bandwidth intensive users get a bargain.  

Telecommunications is a lucrative and profitable undertaking: no ifs, ands, or buts.             

             C) Notwithstanding all the verbiage about how competitive the telecommunications market has become, there are plenty of countervailing, inconvenient facts. Pertinent to our conversation here is the reality that Xfinity still constitutes the only real broadband provider in places like rural, central Pennsylvania where I live.  Wireless options, via satellite or terrestrial towers either do not exist, or offer spotty and high-cost options.  No carriers offer a fiber optic service option.  

In the vernacular of economics, Comcast can exploit inelastic demand.  That’s how it gets away with charging $71 a month for retransmitting content otherwise free to anyone able to install Over the Air Reception antennas and $46-82 a month for rather slow 300 Mbps service.  

             D)      This option gets personal for me and the motivation for writing this lengthy piece. Xfinity has willfully violated the spirit and intent of Truth in Billing, Broadband Labeling, and consumer protection laws, regulations, and policies, with three business practices that misrepresent the actual broadband bit rates the company delivers to me.

One page of my online account summary shows service at 20 Mbps, while another page shows me receiving Internet Essentials 100 Mbps service, for which I do not qualify.  My actual delivered bit rate does not exceed 3 Mbps. Additionally, the company had reneged on its offer of free Peacock Premium service as a reward for 24 years of continuous subscribership.

 What ticked me off big time is Xfinity blames me for its inability to make good on its Peacock offer.  A representative of Xfinity’s “Executive Customer Relations” notified me that the company has “software problems” that prevent it from offering the reward to me because I have an “unsupported” broadband service, not too slow, just not included in the offer.

 The company simply does not want to make the necessary software modification. 

 Adding to the insult, the company has engaged in a classic “bait and switch” tactic by conditioning successful access to Peacock of if I agree to incur a 70% increase in my broadband subscription. 

Nowhere in the company’s terms and conditions did Xfinity state that the reward was conditioned on a specific level of service, or rate. In fact, the upselling referred to an existing, term limited broadband service at no discount. The representative also misstated that he was offering the cheapest and slowest bit rate currently available: 300 megabits per second, with a 5 year lock-in, at $50 monthly.  The Xfinity web site offers a 30 Mbps rate at $30 a month.

The representative also informed me incorrectly that my Docsis 3.0 cable modem/router would soon be disqualified from accessing any Xfinity broadband service.  Additionally, he notified me that my existing Commission certified Netgear device cannot process the bit rates of the Xfinity replacement service he offered.

The discussion with another Xfinity representative got nasty, condescending, and contemptuous.  The rep basically framed the inability of the company to make good on its off as the result of my ongoing subscription of a slow and inexpensive broadband service rate no longer offered.

It’s my fault that Xfinity cannot honor its Peacock offer. To take the bait I have to make a minimum $20 a month switch for a service tier that will surely increase after the 5 year lock-in.

The rep discounted the two bitrate misrepresentations as my fault as well.  Because I have an obsolete service, the company does not have to properly identify the service I receive!  In Comcast’s convenient reading of FCC regulations, the company has no obligation to meet Truth in Billing requirements and specification of actual commercial terms and conditions, because the company no longer offers the service . . . except to a few grandfathered subscribers.

How convenient and surely not in the spirit of the public interest motivations behind the FCC’s requirements that even largely deregulated telecommunications service providers have to deal honestly and transparently with all their customers in every instance where it provides service.  The applicable FCC orders do not exempt any company from transparency and full disclosure whenever a service is grandfathered but not available to new subscribers.

I feel demoralized and dissed . . . exactly the way the rep wanted me to feel. The Comcast Customer is always wrong.

 

  

FCC Chairman Pai’s Alternative Personalities, Facts, Economics and Law—Part One

            FCC Chairman Pai has launched a charm offensive showcasing his commitment to transparency and regulatory restraint.  However, behind the scenes, he ignores due process, the rule of law, FCC tradition, bipartisanship and fair play to shut down previous FCC initiatives of which he disapproves. 

            For example, this bi-polar personality makes it possible for the Chairman to claim how much he cares about curbing extraordinarily gouging long distance telephone rates borne by the “captive” 2.2 million inmates in the U.S. even as he instructs his General Counsel to abandon any participation in an ongoing judicial review of prior FCC decision which resulted in rules.  See New Chairman Orders FCC To Abandon Court Defense Of Rule Limiting Prison Phone Rates; https://consumerist.com/2017/02/02/new-chairman-orders-fcc-to-abandon-court-defense-of-rule-limiting-prison-phone-rates/. By ordering his counsel’s no show,—akin to the Democratic Senators’ boycotts of Trump Cabinet nominee confirmation hearings—Chairman Pai facilitates maintenance of the status quo.

            Ironically, the Chairman has acknowledged the inmate calling marketplace fails to support his heartfelt belief that markets usually are infallible and efficient:

I believe that the government should usually stay its hand in economic matters and allow the price of goods and services to respond to consumer choice and competition. But sometimes the market fails, and government intervention carefully tailored to address that market failure is appropriate. Dissenting Statement of Commissioner Ajit Pai as Delivered at the August 9, 2013 Open Agenda Meeting, Re: Rates for Interstate Inmate Calling Services, WC Docket No. 12-375; available at: https://apps.fcc.gov/edocs_public/attachmatch/DOC-322749A4.pdf.

            On the other hand, Chairman Pai willingly works to prevent the consequences of market failure and the need for remedies, if the FCC errs in any way that he believes might establish a precedent for jurisdiction and overreach where market self-regulation suffices.  Better to eliminate in its entirety a ruling containing Pai-identified flaws than subject it to a court test, and refinements under his administration.

            The Pai-identified flaws are based on alternative facts, economics, accounting and law.

The Chairman has determined that the FCC’s prescribed per minute caps would prevent inmate calling companies from recouping costs.  He has interpreted Sec. 276 of the Communications Act as foreclosing any FCC jurisdiction over intrastate calling by inmates.  Additionally, the Chairman reads Sec. 276 as authorizing the FCC to remedy the unlikely instances of below cost rates, but prohibiting the Commission from remedying the far more likely scenario of rate gouging.

            To reach these conclusions, Chairman Pai accepts an alternative reality.  For example, he appears to believe that interested parties report the actual costs of doing business to the last dollar.  The Chairman takes as a fact the calculation made by the National Sheriffs’ Association that annual administration costs for jail-based calling amounted to $244,253,292 around 2012-13, but the FCC’s price cap/safe harbor rate would yield only $136,704,062 in revenue. See Dissenting Statement of Commissioner Ajit Pai, Re: Rates for Interstate Inmate Calling Services, WC Docket No. 12-375; available at: https://apps.fcc.gov/edocs_public/attachmatch/DOC-340632A5.pdf.  He can conclude that the FCC would impose “confiscatory” rates on long suffering inmate calling companies should they have to reduce rates.

             Let’s take a look at the U.S. inmate calling industry and its financial viability.  Two privately owned companies, Global Tel*Link and Securus Technologies control 70% of the market.  These companies pay massive commissions—some would say kickbacks—to jails and prisons. That surely contributed significantly to the Sheriffs’ $244.2 million calculation.  Let’s call them franchise fees.  No stakeholder, no one at the FCC, no one period has provided credible evidence that these inmate carrier costs plus franchise fees are compensatory vis a vis the cost of providing telephone service. Inmate calling companies operate as telecommunications service providers, subject to Title II common carrier regulation.  Their rates have to be cost-compensatory, plus a reasonable profit.  Fees of any sort have to relate to the cost of providing service and not doughnuts, boondoggle trips to conferences and kickbacks.

             Chairman Pai has railed against voodoo economics and the absence of economics.  Yet when it comes to inmate calling, he accepts the accounting of a stakeholder having every incentive to pad the cost calculation.

             The Sheriffs’ calculation and Chairman Pai’s endorsement of it do not pass the smell test.  Outside the penal environment, long distance telephone calls cost retail subscribers about 2-5 cents for interstate calls and about 10-15 cents for intrastate calls.  For example, see http://www.phonedog.com/long-distance.  Outside jail, telecommunications costs are so cheap that it makes financial sense to use cheap overseas labor to provide operator assistance.  Operator assistance is also computerized.

            I don’t believe the Sheriffs have made a credible calculation, nor do I believe their threat to yank out phones if the FCC’s 13 cent rate cap were implemented.  If a jail’s phones accrue $2 million in phone commissions annually, which would management choose: $0, or $1.5 million?  Similarly, I have seen no evidence that jailors are spending millions policing, monitoring, and safeguarding the payphones.

            I readily accept that jails house a lot of “bad dudes,” foreign and domestic.  They have to pay a debt to society, but it does not have to include $15 for a 10 minute telephone call.        

            In this time of alternative realities, apparently the Chairman can be all things to all people.  It simply depends on your selective perception.

AT&T Wireless Risks Having to Pay $100 Million in Tuition on Contract Law

          The FCC has issued a Notice of Apparent Liability to AT&T Wireless with a $100 million “forfeiture” for throttling service to subscribers still having “unlimited” service plans.  See http://www.wsj.com/articles/fcc-to-fine-at-t-100-million-for-capping-unlimited-data-plans-1434557988; https://www.fcc.gov/document/att-mobility-faces-100m-fine-misleading-consumers-0.

           The FCC applies the transparency requirements contained in its 2010 and 2015 Open Internet Orders that passed muster with appellate court review. 

            Ironically, AT&T could have avoided the fine if it strategically blended service contracts with FCC filed tariffs.  Historically, tariff filing requirements have been vilified as harmful to competition, innovation and carrier flexibility.  The FCC has mandated detariffing of many services including wireline and wireless long distance services on the assumption that carriers will self-regulate in a competitive market.

           Apparently even in competitive markets, carriers can risk a bait and switch gambit.

           If only AT&T had a tariff filing option.  It could have inserted language deep in the boilerplate of a tariff to accord it near total flexibility to throttle whenever it wanted.

           The campaign of AT&T and other incumbent carriers to eliminate tariffing has an impact AT&T apparently has failed to evaluate fully. By seeking to replace tariffs with contracts, AT&T now has to comply with issues such as fair notice, proper definition of words like unlimited and congestion, consumer protection and unfair trade practices.  A very old legal precedent, known as the Filed Rate Doctrine, allows common carriers to insert language in tariffs that subvert, conflict with and change the terms and conditions of a negotiated contract.  In effect AT&T could have baited and switched if it could still file a tariff. 

            The tariff would have trumped anything offered orally, or by written agreement. Even today, under certain circumstances, incumbent carriers still like what tariffs offer.  For example, Verizon still has a web page that seems to like tariffing.  The company states that: “Tariffs have historically served as the basis for creating binding rights and obligations between carriers and their customers for telecom services.” See http://www.verizonenterprise.com/us/publications/service_guide/detariffing_f_a_q/.

           But of course who wants a fair balance of rights and obligations between carriers and consumers?  With binding arbitration clauses and major limits of the certification of class action law suits, carriers increasingly can behave poorly, dare I say cheat customers, without penalty.  Occasionally the FCC and FTC step in, and the offending carrier pays a minor fine.

           Possibly a $100 million dollar fine will motivate AT&T to appeal the FCC’s order.  If so AT&T, as the author of a “take it or leave it” contract of adhesion, will bear the burden of proving that unlimited does not mean what people commonly assume the word to mean.

Something on the Op-Ed Page of the WSJ With Which I Agree

At long last an op-ed piece in the Wall Street Journal makes a statement I endorse: “In the Internet age, transparency is the foundation of trust.” You bet L. Gordon Crovitz (“Climate Change and Open Science,” WSJ 2/22/2010 at A17).

I wonder if Mr. Crovitz would expect the same sort of transparency in the network management disclosure requirements of Internet Service Providers. You see it’s easy for someone to claim that the specifics of network management constitute a trade secret, a “special sauce” for which disclosure would bring financial calamity, or at the very least rob a company of some kind of comparative advantage. Yet transparency is the very thing lacking in ISPs’ decisions whether and how to engage in price and quality of service discrimination.

I readily support many types of QOS and price discrimination provided it is offered on a transparent basis and made available to anyone on the same terms and conditions. I am okay with “better than best efforts” routing sought and paid for by end users and even by content, applications and software providers so long as this option does not guarantee congestion and unusable basic service, or provide the basis to favor ISPs’ corporate affiliates and preferred third parties.

Who would dispute that Comcast was not transparent in its claim that legitimate and lawful network management responsibilities necessitated disrupting peer-to-peer traffic, even in the absence of congestion? So if Comcast was not transparent, how am I and any other Comcast subscriber to trust that the company won’t engage in the wrong kinds of discrimination, i.e., discrimination to provide an boost for corporate affiliates, to favor certain third parties, to discipline subscribers having the temerity to take the company at its word that unmetered service is unmetered?

So Mr. Crovitz climate change advocates surely need to be transparent in their research and statistical compilations and so does the FCC, ISPs and your fellow network neutrality opponents.