Broadband Cable Association of Pennsylvania


May 7, 2014

A Federal Communications Commission proposal to trim some Internet and telephone subsidies to schools and libraries is raising red flags in cash-strapped school districts. The subsidies, known as E-rates, underwrote more than $1.1 billion in costs for telephone service, new websites, Internet connections and email access for 1,100 Pennsylvania schools and libraries between 1998 and 2012, according to the Pennsylvania Association of School Business Officers.

Although the FCC has not released its final plan, many suspect the agency intends to phase out subsidies for so-called legacy services such as telephone voice services and hosted email and add money for new technologies and services. U.S. Sen. Bob Casey, D-Scranton, fears changes could hurt many schools. "School districts across the state are struggling with already strained budgets. The FCC shouldn't increase the burden that these school districts have by eliminating an effective program that provides important services to our school districts," Casey wrote in a letter to FCC Chairman Tom Bender this week.

In the Pittsburgh Public Schools, which serve about 24,500 students, officials are shifting voice service where possible to broadband, and, in the process, reduced phone costs from $1.7 million in 2010 to about $1 million this year. Pittsburgh hopes to reduce that to $500,000 a year within three years, said Scott Gutowski, director of end-user services for the district. The savings would lessen the blow of shifting subsidies but still would leave the school district with a $400,000 gap to fill if voice subsidies are ultimately capped at 20 percent, Gutowski said. "If E-rate voice goes away, I'm not happy," Gutowksi said.

In the Greensburg-Salem School District, which has a total enrollment of about 2,800, E-rates underwrite about $30,000 a year for phone, email and website costs. The bulk of the subsidy - about $20,000 - went to help offset local and long distance phone costs of $32,058. "It is significant," district spokesman Chris Suppo said. Julie Tritt Schell, E-rate coordinator for the Pennsylvania Department of Education, said the changes could have an upside.

"Pennsylvania's schools and libraries will certainly be impacted by the elimination of voice E-rate funding, but we stand to benefit substantially by providing more schools and libraries with access to E-rate funding for internal connections such as Wi-Fi equipment and internal wiring," she said. In the Cornell School District, which serves about 650 students, business manager Patrick Berdine said the school receives about $15,000 a year in E-rate subsidies for phones and various Internet services. "It's nice to have a little help," he said. The New Kensington Arnold School District, with about 2,050 students, received E-rate subsidies of $127,318 last year to help offset about $170,000 in costs for phone service, Internet connections, fiber optic and its grading website, Superintendent John Pallone said. Pittsburgh Tribune-Review

Cable operator Suddenlink Communications said Tuesday it has reached an agreement with Netflix Inc. to make the streaming-video service available as an app on its TiVo set-top boxes, making it the largest U.S. company to strike such a deal. St. Louis-based Suddenlink, the seventh-largest U.S. cable provider with nearly 1.2 million TV customers, disclosed the deal on an earnings conference call to discuss its first-quarter results. Suddenlink doesn't disclose how much of its customer base uses TiVo devices. Jerry Kent, Suddenlink's chairman and chief executive, called the Netflix agreement "a great example of how the cable industry can work with Internet content providers on innovative solutions that benefit consumers."

Late last month, three small cable operators said they had reached similar deals: Massachusetts-based Atlantic Broadband, Grande Communications, based in Texas, and RCN, which offers service mostly in East Coast cities such as New York and Washington, D.C. And in Europe, Virgin Media Inc. said last year it planned to offer Netflix as a set-top box app to 1.7 million households. Netflix is pursuing these kinds of deals to make it easier for its subscribers to use the service on TV sets without changing inputs to access it through other devices such as gaming consoles, and Roku and Apple TV streaming media players.

Netflix has had talks with several large U.S. cable operators about similar arrangements, including Comcast Corp. The company said in its most recent quarterly letter to shareholders that it expected to reach deals with cable companies in the U.S. in the quarter ending in June. Many big pay-TV providers, especially those that are investing in their own video-on-demand services, see Netflix as a threat. The streaming service is a favorite of consumers seeking to "cut the cord" by dropping pay TV service. But some operators are betting that if consumers can find Netflix in their cable TV menu, their services will seem more modern and appealing. TiVo set-top boxes are being targeted for the Netflix rollouts, in part because they are more advanced than the outdated set-top boxes in many U.S. households. Wall Street Journal

Discovery Communications Inc. said first-quarter profit edged down 0.4% as the media company's higher expenses offset strong revenue growth, particularly in its international segment. The company, which owns the Discovery Channel and Animal Planet, earlier this year abandoned talks for a merger with Food Network owner Scripps Networks Interactive Inc., people familiar with the matter had said, ending the possibility that two big providers of nonfiction cable programming would combine. The discussions hadn't advanced beyond the early, exploratory stage, the people said. More recently, Discovery said its founder and chairman, John S. Hendricks, notified the company that he plans to retire following this month's annual shareholder meeting.

Discovery posted a profit of $230 million, down from $231 million a year earlier. However, per-share earnings rose to 66 cents from 63 cents due to fewer shares outstanding in the latest quarter. Excluding some amortization, earnings were 75 cents a share during the most recent period. Revenue increased 22% to $1.41 billion, but total expenses rose faster, at 32%. Analysts surveyed by Thomson Reuters expected earnings of 71 cents a share on $1.43 billion in revenue. The company's international networks revenue jumped 51% to $671 million. Advertising revenue more than doubled and distribution revenue rose 23%. Excluding newly acquired businesses and currency fluctuations, revenue rose 13%. Revenue from U.S. networks improved 3.2% to $708 million. Advertising revenue rose 4.8% mainly due to higher pricing. Wall Street Journal