Broadband Cable Association of Pennsylvania


October 23, 2013

Cable's toughest cowboy is saddling up again.

This year, John Malone's Colorado company, Liberty Media Corp., acquired nearly a third of the stock in Charter Communications, the nation's fourth-largest cable company. The move came 14 years after Malone sold Tele-Communications Inc., then the largest cable company in the nation, to focus on international investments.

Since the Charter deal, Malone - considered a key architect of the industry - has been vocal about how cable should confront what he believes are its biggest challenges: embracing technology, emphasizing the business of broadband Internet service and controlling programming costs. "It's almost like he feels - with some justification - that the industry needs him to come riding back on a white horse to make things right again," media analyst Craig Moffett of research firm MoffettNathanson said. Cable operators have been losing customers to satellite TV, telephone companies offering video packages and lower-cost Internet streaming services. Cable executives have also been grappling with a generational shift as younger consumers have chosen the Internet over the cable box to watch TV shows and movies.

Constant battles between programmers such as CBS Corp., Viacom Inc., Walt Disney Co., and 21st Century Fox and cable operators over fees to carry their channels have taken a toll as well. The industry increasingly resembles the current political landscape where "the moderates have been driven out of business," Malone said this month at a Liberty investor conference. Malone has said consolidation would improve cable's chances for long-term survival, bring programming costs down and help it keep pace with digital upstarts such as Netflix Inc. and Inc. "It's all about scale and power," Susan Crawford, a communications professor at Cardozo Law School, said of Malone's agenda. "Any distributor that controls more subscribers can force volume discounts. Malone wants to make sure he and his brethren don't have to pay more for programming."

It's not just idle talk. In June, Charter made overtures to merge with Time Warner Cable, the nation's second-largest cable operator. A prospective Time Warner Cable-Charter union also would have major implications in Los Angeles by combining the county's two largest cable operators, which provide service for well over 1 million homes. Though Time Warner Cable has shown no interest in merging, Wall Street responded with glee. Such a deal would create a new cable giant with more than 17 million subscribers, which would be second only to Comcast Corp., which boasts nearly 22 million.

At an October investment conference, Liberty Media Chief Executive Greg Maffei jokingly displayed a slide depicting Charter moving into Time Warner Cable's gleaming New York headquarters. The Rolling Stones' song, "Time Is on My Side" played in the background. Malone, Time Warner Cable and Charter declined requests for comment for this story. Consumer advocates fear that although consolidation may boost the profit margins of distributors, the savings won't be passed on to consumers. "I've never seen the benefits of a media merger redound to the public either through better programming or through lower prices," Gigi Sohn, president of the nonprofit media watchdog Public Knowledge, said in a recent interview. Small and rural cable operators, who already typically pay more for programming than big distributors because they lack the clout to wrangle discounts, could also be hurt. "When big companies become bigger, it does not benefit the smaller and medium-sized companies," said Matt Polka, president of the American Cable Assn., a lobbying group whose membership is made up of small cable operators.

Lowering content costs is a big part of Malone's agenda - but not the only thing. Always something of a futurist, the billionaire who began his career a half-century ago at Bell Telephone Labs believes that cable operators should band together to develop a Netflix-like service to hold on to their subscribers and better compete with Netflix and other emerging platforms. Such cooperation was common two decades ago when big cable companies teamed up to help create and support fledgling ventures that are now mainstay channels, including CNN, BET and Discovery. "His vision starts with a return to the collaboration that made the cable industry great," Moffett said. But first, the herd must be thinned. "Fewer rational players generally work together better than more," he told investors. Malone also thinks that as more consumers use broadband for their entertainment needs, providing broadband service will become an increasingly important source of revenue and eventually could exceed sales of video packages. He has advocated charging fees to companies that eat up a lot of broadband as well as establishing tiers for consumers based on their data usage each month.

A cable pioneer and now the nation's largest individual landowner, the 72-year-old Malone built Tele-Communications into the largest and most powerful cable operator in the U.S. He sold TCI to AT&T Inc. for $54 billion in 1999. He later became the largest shareholder of satellite broadcaster DirecTV but sold much of his stake three years ago. In addition to its 27% stake in Charter, Malone's Liberty owns the Atlanta Braves baseball team and has a controlling interest in SiriusXM satellite radio and MacNeil-Lehrer Productions, which produces the PBS NewsHour. Liberty also holds 27% of Live Nation and 17% of the nation's largest book retailer, Barnes & Noble. Malone explained his renewed interest at last week's investor conference. "Old cable guys never die," he said. "They just become investors and philosophers." Los Angeles Times

AT&T Inc. has moved to effectively raise the price on some of its dedicated data and voice lines for businesses, prompting complaints from groups representing cellphone carriers to ATM owners which say the market is uncompetitive. The telecom giant notified customers earlier this month that it would no longer offer extended contracts-and the discounts that come with them-to companies using these high-capacity connections, known as "special access lines."

Sprint Corp. and other telecommunications companies that buy the connections claimed the move was anticompetitive, and complained to the Federal Communications Commission. Once the FCC receives official notice of the change from AT&T, the agency will have 15 days to respond or the changes will automatically take effect. The agency can still suspend the changes after they have taken effect. Rising prices of high capacity connections could impact a broad array of businesses from financial institutions, manufacturers and retailers that use these lines to connect ATMs, gas pumps and warehouse inventories.

Last year, the FCC said it would begin collecting data on prices charged in the special access market, which it estimates to be between $12 billion to $18 billion annually, to assess whether there is adequate competition. AT&T and Verizon Communications Inc. control 80% of the special access market, Sprint and other rivals say. "The very fact that AT&T can unilaterally impose a substantial price increase on its customer base is a sign of its continuing market power," a group of telecommunication companies, including Sprint and EarthLink Inc., wrote in a letter to the FCC on Friday.

AT&T said that as of Nov. 9, it will stop offering contracts longer than 36 months for older types of connections, known as TDM, because it plans to phase out the technology by 2020. Last year, AT&T said it would invest $14 billion over three years to expand wireless networks and transition its network from TDM to more efficient Internet protocol-based technology. AT&T still needs FCC approval before it can stop offering TDM systems.

AT&T said this is an effort to wean customers off TDM-based services. AT&T offers deeper discounts for longer term plans, but because this service will be terminated in 2020, longer-contracts aren't available, said spokesman Michael Balmoris. "These steps are necessary to accomplish a smooth and non-disruptive modernization of our network and services," said Mr. Balmoris in an email. The company is still selling IP-based special access lines on five-year contracts. But those connections are more expensive than the older, TDM-based connections, which are subject to rate regulation by the FCC.

Colleen Boothby, a lawyer who represents about 20 companies including banks, insurers and auto makers, said the proposed changes could affect prices paid by consumers for a range of services. "The concern is this will raise prices across the market," Ms. Boothby said. Many businesses have the option to buy special access connections directly from AT&T or from smaller competitors, such as EarthLink or TW Telecom Inc., Ms. Boothby said. But because these rivals often resell AT&T special access lines, it affects those firms' ability to compete."It's weakening competitors who you're counting on to keep downward pressure across the whole market," Ms. Boothby said. who you're counting on to keep downward pressure across the whole market.

Sprint uses the special access lines to connect its cell towers to the broader network, known as "backhaul." All wireless carriers need backhaul to connect their network of cell towers, and Sprint says about 30% of its operating expenses at each cell site go to backhaul. Sprint estimates the changes will increase its backhaul prices in some areas by 24%. "It puts the rest of the wireless industry at a competitive disadvantage," said John Taylor, Sprint spokesman. Mr. Taylor said the company won't pass along the price increase to its customers.

Verizon Wireless and T-Mobile US, Inc. could also be affected in areas where they have to buy backhaul from AT&T. T-Mobile could feel less pain from the price increase because it has deliberately tried to purchase backhaul from a broad range of providers, according to a person familiar with the carrier's network. Verizon declined to comment. Verizon also sells special access connections, and in 2012 it faced opposition from the same companies when it proposed increasing rates by 6% for similar services. The company later withdrew the increase. Wall Street Journal

Pennsylvania's fiscal watchdog is calling it a waste of money to spend $1 million on 30-second TV ads promoting the state's voter ID law. Auditor General Eugene DePasquale's criticism echoes that of other state Democratic lawmakers, and says the ads are fostering confusion ahead of the November 5th election. A judge has blocked the requirement that voters show certain forms of ID before casting a ballot. But, state elections officials say they're still required to educate voters about the law and poll workers are still required to ask voters for ID, although voters aren't required to show one. Department of State spokesman Ron Ruman says agency officials also want to educate voters now about how to get a free state-issued photo ID if the law ultimately is upheld. Associated Press

Pennsylvania Lt. Gov. Jim Cawley has been released from Harrisburg Hospital this afternoon, after an overnight stay for testing and observation. Cawley's Communications Director Chad Saylor said doctors determined the lightheadedness that sent Cawley for initial treatment Monday was due to elevated blood pressure and an elevated heart rate. The physicians are not sure, Saylor said, whether the problems are a one-time occurrence or represent the onset of a longer-term condition, but they have prescribed medications and will continue to monitoring Cawley's progress on those meds.

As for today, Saylor said, Cawley was found fit to be released, and he was discharged about 3:15 p.m. "He feels good," Saylor said, "and we expect him to return to a full schedule either by the end of the week or the beginning of next week." Cawley posted this message to Pennsylvanians on his Facebook page, in which he praised the staff at Harrisburg Hospital for their care, and thanked everyone who had reached out to him with get well wishes this week.