Cable TV leads march in access to broadband

Editor’s Note: This is the final report in a multipart series about the availability of broadband Internet service in Maine.

In recent years, cable TV companies have taken the lead when it comes to broadband services, which they see as an increasingly lucrative component of their businesses.

At the end of 2005, there were 50.2 million broadband lines in service nationwide, an increase of 12.3 million lines, or 33 percent, over the previous year, according to a report released Wednesday by the Federal Communications Commission. Of these 50 million-plus broadband lines, about 42.9 million served primarily residential end users, the majority of them, 57.5 percent, with cable modem service, and 40.5 percent with asymmetric DSL, or ADSL, connections.

In the first quarter of 2006, more than 3 million new broadband users were signed up, according to statistics compiled by Bruce Leichtman, president of New Hampshire-based Leichtman Research Group. Leichtman adds that last year, Maine ranked 34th in the nation in terms of household broadband penetration at 26.3 percent, below the national average of 31.2 percent.

Time Warner Cable, which had 5.168 million broadband subscribers nationwide at the end of the first quarter of 2006, will add about 1.2 million broadband subscribers from Adelphia, along with a few more new customers resulting from trades with Comcast, according to Leichtman. The acquisition of Adelphia customers in Maine and elsewhere by Time Warner Cable and Comcast was approved earlier this month by the FCC. Time Warner Cable has placed advertisements in the Bangor Daily News, for example, that notify existing Adelphia customers in Maine that starting Aug. 1, this transition will be completed.

When it comes to the highest-speed broadband services in the country, Cablevision Systems in the New York City area ranks first among cable companies with its 30 megabit per second downloading capability. It is Verizon, however, that occupies first place overall with its 50 mbs service available to select customers in New York, New Jersey and Connecticut for $90 to $140 a month. Verizon also stands out in terms of the number of homes it serves which are connected directly to fiber-optic lines, according to a report in The Wall Street Journal on Tuesday. This 50 mbs Verizon service is not available in Maine. Time Warner Cable’s highest-speed service operates at between 8 and 15 mbs, while its standard service offers download speeds of 5 to 7 mbs, according to this same report.

All subscribers in Maine served by Time Warner Cable can access broadband service with cable modems.

“We plan to review areas in Adelphia’s system that are necessary to offer advanced services. To this end, we want to ensure that we continue to provide the best product with superior, local customer service and at competitive prices,” said Melinda Poore, vice president of government and public affairs at TW Cable, which also delivers business communications solutions to 4,000 small and large companies in Maine.

“Perhaps the biggest challenge is educating consumers on the improved experience that comes with a faster Internet connection,” said Poore. “We work hard to expand our presence in local communities through initiatives like ‘Cable in the Classroom,’ participating in local events-festivals and by showcasing products and services at local payment centers.”

Time Warner and three other cable companies – Comcast, Cox Communications and Advance-Newhouse Communications – created a joint venture last fall with Sprint Nextel to offer their customers wireless phone service. This joint venture may be a participant along with dozens of other companies in the FCC wireless spectrum auction to be held in August. The auction winners, in turn, might use the wireless spectrum they acquire to launch new services including mobile TV. This same auction may see a combined bid from DirecTV and Echostar, the two dominant satellite TV companies in the U.S., which may be joining forces in order to deploy their own wireless broadband infrastructure on a massive scale over the coming months. This could have an enormous impact in northern Maine in particular where it is estimated that 30 percent of all TV households subscribe to satellite services.

“Presently, Time Warner Cable is exploring and testing a few options across the country for municipal wireless solutions. While these tests are in their early phases, we hope to develop products that will not only serve individual customers but also benefit entire municipalities,” said Poore, who adds that TW Cable plans to expand its call center in Maine, adding more than 130 new jobs, after the sale of Adelphia is completed. Adelphia’s calls in Maine now are sent to Florida.

“Time Warner Cable is dedicated to offering the most advanced products and services to its customers,” said Poore. “We do believe that the services we provide can offer opportunities for increased economic development.”

According to Michael Edgecomb, Adelphia’s government relations manager for central Maine who was contacted before the FCC’s approval of the transaction involving Time Warner Cable, Adelphia now provides broadband access to more than 98 percent of its homes in Maine by cable modem. Adelphia also offers a business package and Web site hosting.

“It has been proven over and over in the marketplace that expansion of new technology and services have been more aggressive, and successful in the absence of excessive regulations. As a rule, cable prefers a ‘light regulatory touch’ because it was under that model that the industry invested billions of dollars nationwide to launch advanced services such as high-speed Internet, video on demand and high definition television,” said Edgecomb. “Competition improves customer service and options as well, and Adelphia already faces intense competition on the video side from satellite and on the Internet side from the phone companies with their DSL product.”

With FCC approval in hand, Time Warner Cable’s acquisition of Adelphia cable assets leaves Time Warner with a market share of about 85 percent which the Maine attorney general describes as equivalent to a monopoly by any current antitrust standard – and overwhelming market dominance.

In March, the attorney general filed a request with the FCC, asking it to impose a condition on its pending approval of the license transfers sought by Adelphia and Time Warner Cable. This request, which the FCC did not grant, would have required substantial divestitures in Maine, sufficient to reduce the size of Time Warner Cable’s assets in Maine to Adelphia’s pre-acquisition market share of 54 percent at a minimum. The attorney general also filed a copy of this FCC letter with the U.S. Bankruptcy Court in New York, which has the final word on the sale of Adelphia’s assets. However, in view of the FCC’c current composition and the bankruptcy court’s preoccupation with accomplishing a sale, the request for conditions was always a long shot, according to Francis Ackerman, Maine’s assistant attorney general.

“None of the commissioners addressed the impact of the Time Warner-Adelphia acquisition on the relevant Maine market,” Ackerman said. “In fact, it confers monopoly power on Time Warner. We have full confidence that Time Warner will be a good corporate citizen and keep its promises to Maine with regard to high-speed Internet access and other matters, but unregulated monopoly runs counter to public policy. If the bankruptcy court follows the FCC’s lead and approves the sale without the condition we requested, we will have to assess our options carefully in light of this decision,”

While all of this restructuring of the cable TV and broadband market in Maine is under way, Leichtman does not see broadband affecting TV viewing at this time.

“While more people are sampling broadband video more often [particularly younger individuals age 18-34] the time spent on broadband is not coming at the expense of TV – TV viewing time is still the same as it ever was, and broadband use is causing more multitasking rather than trade-offs,” said Leichtman.

As the TV networks such as ABC and CBS are beginning to allow broadband-enabled consumers to download primetime TV shows either for free or for a fee, this new program-specific downloading capability could be potentially disruptive. Right now, however, there is no sign that it is adding momentum to any consumer-driven shift away from existing TV programming packages, for example, to more dynamic, customized menus or what is known as “a la carte programming” packages where each customer pays only for selected programming.

“The programmers are far more reluctant to have a la carte than the cable companies – and it should be noted that a la carte while sounding good on the surface would create an economic model that would not benefit consumers as programmers would have to raise their fees to ridiculous levels to make the model work,” said Leichtman. “That said, the networks are dabbling now with various technologies including broadband video, VOD, iPods, et cetera, to see what may work best in the short and long run. The programmers make about half of their money from the cable and DBS operators, so this is not a revenue stream that they are looking to stop.”

For Steve Ward in the Maine Office of Public Advocate, the appearance of these new services lends support to his sense that the clock is ticking.

“I definitely share the view that [broadband] is a critical resource for Maine’s future, with respect to the education needs of students, the economic development hopes of businesspeople, and the long-term prospect of Maine keeping pace with the information economy nationally and worldwide,” said Ward. “I see broadband access as a race between states and regions that Maine cannot afford to ignore. The penalty to the economy of the state and the general welfare of its citizens from a lack of ubiquitous access to high-speed Internet service is potentially large today and can only increase in size over time.”