“Let LUS join cable cooperative”

The Advertiser opines that the National Cable Television Cooperative (and by implication Cox cable) should let LUS join the coop. They’re right. Some of the highlights from the editorial:

LUS is seeking membership in the cooperative, a body created by the federal government to leverage the purchasing power of small cable TV companies.

…the lawsuit was just another punch thrown in the fight between LUS and its private competitors. The court was right to reject the lawsuit and to allow LUS’ attempt to join the cooperative to proceed.

…Denying LUS membership in the cooperative is fundamentally unfair.

…Originally, the membership applications of LUS and city utilities in Wilson, N.C., and Chattanooga, Tenn., were ignored. Wilson and Chattanooga eventually were granted membership, but not LUS.The private competitors of the other two systems are not members of the cooperative. Cox is. There’s nothing subtle about that.

Indeed, there is nothing subtle about what is going on here. Cox is playing bully-boy with its more than 6 million subscribers (vs. Lafayette’s 52,000 Total households) to keep Lafayette out of a buying coop that is chartered precisely to allow small guys like LUS to compete with the likes of Cox. —Leading to the conclusion that is also the title of the editorial:

Let LUS join cable cooperative.

Market Share – The Independent Weekly

20101124-cover-0101The Independent has published its second and final installment in the series on “LUS Fiber — where it stands and where it’s headed.” This one focuses on the immediate road ahead. The issues are ones that would be of interest to an partisan of Lafayette: marketing, market share, financing, the competitive landscape LUS Fiber has created, and innovation.

This series marks the beginning of the inevitable “friendly critique” of LUS Fiber. Supporters—not detractors—are beginning to voice disagreement with LUS over specific points while continuing to be broadly supportive. That’s the beginning of a more healthy relationship between LUS Fiber and its public. The inclination of supporters, and that includes a large majority of the citizenry, has been to close ranks with LUS against the (accurately) perceived hostility of the incumbent providers to our venture. That supportive criticisms are now being made of the still unlaunched advertising claims, and the sort of innovation that LUS has is seen to have encouraged is probably a good thing and indicates that people are seeing LUS Fiber as an accepted, “normal,” part of the landscape. Now I’m sure LUS is not feeling nearly so secure just yet and would prefer a longer stretch of reticence from the public but it should take some comfort in the implied confidence such quarrelsome talk represents.

Apparently some in the marketing community want a bang-up, high tech projection of LUS Fiber’s advanced network and object to what they see as the stodgy utility orientation of the ads they’ve seen. Just to stoke the fires of community discussion: I disagree with both sides either/or… I’d like to see ads that first, emphasize the home-town, local benefits that owning our own fiber accrues and that includes the utility orientation that LUS projects, then, second, I’d like to see the evokation of civic pride in what we’ve got and that in turn includes bragging on the unique aspects of our network. I can see why we can’t have, and benefit, from both. The point though is until recently all I heard was how badly people wanted to see some, any marketing strategy enacted. That the situation has matured to the point that we can now disagree over the style of a marketing strategy is a happy development.

Similarly others in the space between tech and business want to see LUS pursuing Google and the likes as it opens the public network to innovation. Shoot, so would I and have long advocated that the city pursue a Google “internet in a box” located on network. But I am located in the space between tech and community and would see the real potential for innovation occurring around decisions to give us all 100 megs of intranet bandwidth (check!) and opening the set top box to internet access…the really innovative things, in my judgment, will involve pulling in greater levels of participation at higher levels of usage. But again, until recently folks were just looking for “innovation” — arguing about what sort of innovation we should emphasize is a good sort of disagreement…and one that LUS should be proud (if not always comfortable!) to have inspired.

There’s more in the article worth looking at and discussing but none of the financial stuff beside upping the take rate number to 30% strikes me as news.

The real news is that we are beginning to talk about our network openly enough to disagree. And that’s a good thing. A very good thing. Just not a comfortable one.

“Hardly Cooperative”—Dissent within the NCTC

In response to my last post loyal reader Jeff has pointed to a very interesting story in Multichannel News that focuses on dissension in the ranks of the NCTC following recent changes in membership that give large national cable companies influence over what had been an alliance of small, local companies. There’s plenty of meat on the story but what really caught my attention was the suggestion that the larger companies subscriber numbers don’t necessarily add as much weight to contract negotiations as one might think and the even more interesting revelation that the coop already has a number of large overbuilders, including Verizon, as members.

Big cable and little systems:
One of the complaints that the older, smaller members of the coop have is that the larger members don’t really add their numbers to the common pool in a way that makes everyone’s prices cheaper:

By its own account, the NCTC said that typically, about half of the co-op’s subscribers — between 10 million and 12 million — participate in most of its programming agreements.

The rest, mostly the larger MSO members such as Cox, Charter Communications and Cablevision Systems, cut their own separate arrangements with programmers, save for a handful of deals through the co-op. That, according to smaller operators and programmers alike, diminishes the value of the scale those larger members bring. (Cox, Charter and Cablevision represent about 14 million subscribers, or more than half of the 27 million claimed by the NCTC).

No doubt the smaller companies do benefit to a degree. But the big guys still usually get better deals. So why do the big guys bother? Apparently so that they can have a fallback if they get in too big a tousle with a stubborn content provider:

The latest example of that was Cablevision Systems, which joined the co-op in 2009 essentially to take advantage of its agreement with Tennis Channel. Cablevision had been in a heated battle with Tennis for months over its placement on a sports tier, which the programmer had resisted. The MSO was able to circumvent that resistance by joining the NCTC, which already had a deal in place that allowed members to put the channel on a tier.

That Tennis Channel agreement is set to expire next year and according to people familiar with the situation, the network is likely to seek to remove that tier provision from their NCTC agreement.

So Cablevision, which seldom actually adds its numbers to the deal-making in a way that benefits the rest of the NCTC, does uses the NCTC’s contract when it can’t get a benefit any other way. The logical response of the content providers is to no longer give the smaller NCTC participants a better deal than they’d give the better-heeled big cable companies. Not an ideal outcome for the little guys.

The NCTC has no policy against competing members joining the coop
Since the NCTC has pretty much refused to say publicly why it won’t allow LUS to join by far the most reasonable idea has been the one the city of Lafayette has consistently put forward: Cox has used its new influence as the largest single member of the organization and its seat on the board to keep LUS out. I’ve assumed the NCTC were unwilling to say that because that motive is so blatantly anti-competitive.

But it turns out that they may not want to say that they won’t accept new members who compete with established members because they know that such a claim would be transparently false. There is apparently no policy, official or otherwise, that bars competing members of the industry from belonging to the NCTC. It is, in fact, common practice:

The NCTC counts the three largest overbuilders as members — RCN, WideOpenWest and Knology — and WOW even has representation on its board (WOW vice president of programming Peter Smith is NCTC vice chairman). The largest telco competitor, Verizon Communications, also is a member (through its ownership of the former overbuilder, GTE Ventures). Missing from the ranks is AT&T, which has a competing video service, U-Verse. The reason: AT&T has stressed on several occasions that because U-Verse is an IPTV service (its programming is delivered via broadband and at the demand of the consumer, not in a continuous stream), it should not be considered a cable-TV service by regulators.

An “Overbuilder” is what LUS is—someone who comes in and builds a new system over an area in which there is already one. If anyone were going to be excluded simply because they are competition to established members of the coop it would be these larger overbuilders whose business model is to seek to expand by building new systems in established territories when the industry standard is to expand not by competition but by acquisition. With both long-standing overbuilders and Verizon’s new fiber to the home system both accorded a place at NCTC table it is all but impossible to figure out a (consistent, rational) reason for LUS to be excluded.

Just exactly what is left but Cox’s simple spite and a blind determination damage the one community that has defied them?

Consider that the next time you notice Cox claiming to be “your friend in the digital age.”

LUS wins first round with NCTC re FCC (But what about the FTC?) —Updated

LUS has successfully argued that the National Cable Television Cooperative (NCTC) was wrong to attempt to use the Federal Courts in Kansas to prevent LUS Fiber/LCG from complaining to the FCC (or the FTC or, well, anybody they want to) about the NCTC blocking their bid for membership. The case has been thrown out of court with the Federal Court in Kansas stating that it had no jurisdiction and, further, that the planitiff the NCTC was really trying to use the courts as an inappropriate battleground or as way to try and establish a decision before a case is actually brought—neither of which is legitimate:

The timing indicates that plaintiff is attempting to use this declaratory judgment action for purposes of procedural fencing or to provide an arena for a race to res judicata.

Folks who’ve followed the long fiber fight in Lafayette (currently in its seventh year) will recognize this as the latest iteration of the incumbents using the court system to delay LUS Fiber from moving forward. The consistent result for any case pursued to final appeal has been for the final decision to find in LUS’ favor. This is simply the latest instance in which the real result, and likely the only really intended result was to cause delay and expense for the people of the city.

The immediate backstory for this instance is that LUS and two other municipal fiber to the home providers had been denied entry to the NCTC which provides their coalition of small cable firms with prices for content that are competitive with those the large multi-system cable companies are able to get. LUS had to wait during a two year moratorium on new members was put in place during 06 and 07; the moratorium was extended multiple times. LUS Fiber then immediately applied for membership when the NCTC lifted the moratorium on new members. But the NCTC quickly inducted two very unusual new members completely at odds with their previous membership: large cable corporatons Charter and, yes, Cox Communications. LUS and other muni providers were put on indefinite hold—their applications simply not responded to—far in excess of the organizations own deadlines for acting on applications. LUS and the other muni providers finally signaled their intent to ask the FCC for relief on the grounds that this exclusion from the cheaper prices available through the “small provider” coop amounted to anti-competitive behavior. The NCTC quickly offered to admit the other two cities on the condition that they drop their complaint. Neither city faced competition from either Cox or Charter who now had members on the board of directors. They agreed. LUS, who does compete with the largest (brand new) member of the NCTC was not offered membership and the basis for refusal to act on LUS’ application has yet to be explained. Except, of course, by the Lafayette utility which unambiguously points to Cox. No denial or confirmation has been offered by the NCTC.

(If that recounting was too condensed or abridged please take a look at the account on “Stop the Cap” What makes their take even more interesting is the fact that the author has a prior, at one time supportive, relationship with the NCTC. His judgment is damning.)

The Case at Hand:
The NCTC asked the court for a “declaratory judgment” that would have precluded LUS/LCG from seeking any of the remedies that its FCC filing said were possible. Those ranged from asking the FCC for redress, to asking the FTC to withdraw its letter stating that the NCTC was not in restraint of trade, to requesting congressional review, to seeking redress under Louisiana law. The court walked through each claim by the NCTC and essentially found that the plaintiffs, the NCTC, asked the court to assert an authority it did not have—and to effectively reach a decision in advance of having a case actually presented.

Consequences, FCC:
So the complaint to the FCC will not be blocked. When Lafayette will hear back on that is anybody’s guess but the filings with the Kansas court claimed that they thought that the chance of having to go beyond the FCC to receive satisfaction were small. That sounds like confidence to me. That confidence is reinforced when I realize what a potential “nuclear option” the NCTC is risking if LUS and Lafayette were to go to their second option…

With LUS’ complaint cleared to go forward what the NCTC has to decide is what they’d risk by allowing their pro-Cox position to be struck down by the FCC. Mainly it would seem to be that they’d lose their much of their current ability to arbitrarily deny an applicant membership. Their defense would have to put up some sort of reason to deny—something which they haven’t deigned to do to date. Each potential defense, and were Lafayette’s response successful, endangers an excuse which they might want to use at a future date. (For example: it would be risky to try and claim that LUS is using a different, IP-based technology from the rest of their clientle both because that isn’t entirely true—IP is already embedded in much cable tech and they’ve admitted other muni providers using identical tech—but more worryingly because the loss of this excuse would endanger their ongoing policy of refusing to admit small, local telephone companies that are beginning to offer video.) Letting the FCC reach a conclusion on this matter is an open-ended risk for the NCTC; they can’t know how far the new FCC under Genachowski will go. Openly stating that they are excluding competitors of current members would be even more risky, especially if they are successful—where the Federal Communications Commission might let such blatantly anticompetitive activity slide if it thought it served some higher purpose related to its telecom-related mandate it is unlikely that the FTC would be happy to hear that the NCTC had explicitly changed its raison d’être to one that is intends to exclude competitors in order to gain an advantage for its members. The central purpose of the Federal Trade Commission is to prevent collusion in restraint of trade..more on this below.

I won’t be surprised if we soon hear that the NCTC has decided to let LUS join provided they drop their FCC complaint.

…Especially if they consider that even a refusal to act in Lafayette’s favor on the part of the FCC might have truly dire results if the city has to go to its second option.

Potential Consequences, FTC:
The second avenue of redress mentioned by the city’s lawyers was asking the Federal Trade Commission to withdraw its “business letter.” That pretty much mystified me until I dug up the latest version of the FTC’s letter. As it turns out what the letter does is to certify that the FTC does not think that the NCTC operating practices constitute an illegal restraint of trade that would lead them to start enforcement proceedings. But reading the letter makes it clear that its all pretty tentative and as I read it I started to wonder if the new size and constitution of the NCTC after it has bulked up and changed its nature by bringing in some of the nations largest cable companies (it now constitutes the largest group of customers in the nation) would change the FTC’s view. And then I hit the final substantive paragraph, reproduced in full with my emphasis:

For these reasons, the Department has no current intention to challenge the NCTC’s proposed procedures for jointly negotiating national cable programming contracts for its active members. This letter expresses the Department’s current enforcement intentions, and is predicated on the accuracy of the information and assertions that you have presented to us. If the conditions you have presented are substantially changed—if, for example, a major MSO or a DBS provider were to join NCTC or there were other significant changes to NCTC’s active membership—the conclusions we have drawn would no longer necessarily apply. In accordance with its normal practice, the Department reserves the right to bring an enforcement action in the future if the actual activities of NCTC or its members prove to be anticompetitive in any purpose or effect in any market.

That has GOT to send a chill through the hearts of the bureaucrats that head up the NCTC. And may well explain the panicky legal response to LUS’ simple notification of intent to take their complaint to the FCC that the court has here so easily dismissed. Perhaps the FTC, not the FCC, is the entity they really fear. The FCC would merely make them play fair. The FTC could destroy them. That they’ve exposed their organization to such a danger should frighten the NCTC membership. And should thoroughly frighten its membership. If LUS/Lafayette were to pursue this it seems very likely that the FTC would have to seriously reconsider its reassurances. After all the NCTC has admitted not one but two major MSOs (mulitple system operators)—Cox and Charter. And it is acting rather transparently in the interests of one of them. That seems like a huge risk for the NCTC take. Playing a game of brinksmanship with LUS could easily lead to the dissolution of the coop. Something which wouldn’t bother Cox or Charter; they’ve always had the heft to go it alone. In fact they’d find it a lot easier to compete with any of the little guys who now take advantage of the better prices the coop offers. It’s win-win for Cox and Charter—either they gain a price advantage over little LUS that competes with Cox or they gain a price advantage over all the little guys when the coop fails to meet FTC standards. It’s hard to avoid concluding that the little guys that the coop was once run to benefit have been snookered.

At the end of the day the real question remains unchanged; the lawsuit did not serve any real purpose but delay and to drain the resources of the defendant:

With respect to plaintiff’s malicious prosecution claims, a declaratory judgment would not clarify the legal relationship between the parties with respect to the question at issue: whether plaintiff broke the law when it denied defendant’s membership application.

Does LUS/LCG and Lafayette have grounds for claiming that this was frivolous lawsuit? I have no idea. But it certainly has proved, in fact, if not in intent, meaningless.

(Court order link via the inestimable Baller-Herbst List…)

The Lafayette legal team has released a press release that outlines their take on the victory in Kansas.

The Advertiser, the Advocate, and the Independent have all weighed in with responses to the LCG press release.

The Independent Covers LUS Fiber

The Independent published a cover story on the state of LUS Fiber, the first of two in a series. The article, entitled “Waiting to Connect” tallies the issues and missteps of the first two year or so of its service. As you’d expect the story focuses on the dramatic moments—and those are the ones where things did not got smoothly. Those things that worked out exactly as planned…like an ambitous roll-out schedule that for launch and final buildout that many loudly doubted could be done went of with only minor hitches. That’s not “news.”

The Independent does a the community the service of searching out the details on many of the glitches those of us in the community saw occurring but did not understand the background that might explain them. So if you were curious about the set top box debacle–you get a partial explanation here. There’s also mention of why that last small bit of the network isn’t yet complete…contractor troubles. Cox’s game-playing with the NCTC (which reflects very much to the discredit of both Cox and that cooperative) is treated in greater detail. A reason for the larger-than-expected basic tier is laid out plainly and its relation to costs and the NCTC mess clearly shown. It’s good to get these kinds of explanations.

But it shouldn’t need to wait on the local news weekly for supporters to find out these details. LUS needs to be much more open with its constituents-customers. That they are local and trusted is by far their greatest advantage. By avoiding talking about their problems LUS makes the problems “theirs” instead of “ours.” A very large mistake. Look at the support that immediately flared up when the unjust exclusion of LUS from the national cable coop was made public–or even the minor flap when Cox played snit with the “I’m proud of LUS Fiber” signs. Both of those, to be plain brutal, were marketing opportunities. LUS needs to seek the support of its citizens…and can only do that if it is much more open than its competitors.

“LUS Fiber to hold ‘Community Fest’ Nov. 20”

Both the Advertiser and the Independent have short stories up telling essentially the same no-doubt-press-release generated story. It is also featured on LUS Fiber’s front page.

From the Advertiser:

The event will run from 11 a.m. to 3 p.m. at Parc International and will feature a free concert by Curley Taylor and Zydeco Trouble.

KJCB apparently will co-sponoser and give away a big screen TV. Local churches and noprofits will sell lunches, keeping the proceeds….

What’s most interesting is that this event is LUS Fiber’s first community outreach event (unless you count the opening of the LUS Fiber store—and I don’t). Choosing to celebrate a local ethnic community is a reasonable opening move for Lafayette-owned utility.

So far we’ve seen all but no marketing of LUS Fiber…yard signs being the most exciting effort to date.) The Indpendent ties this event to the impending completion of the network. Here’s to hoping we see a more vigorous marketing outreach soon. I’m hoping for one that emphasizes local ownership, local control, and keeping local money in local hands.

Big Cable Is Bleeding

An interesting story today in GigaOm ruminates on the third quarter loses in video subscriptions for the top US cable corporations. While there is both an upside and and a downside to these reports the downside is pretty dramatically evident:

There’s now even more evidence that subscribers are cutting the cord and opting out of paying for cable: By adding up subscriber losses from four of the top five cable companies, we found that more than half a million users have ditched their cable companies….(No. 3 cable provider Cox Communications is privately held and therefore doesn’t have to announce its subscriber losses for all the world to see.)

As the story goes on to point out cable loses are not a new story; the available market is popularly understood to be pretty saturated but what is new is that satellite TV and IPTV (mainly Verizon in the east and ATT’s UVerse) is no longer making up for cable’s shrinking base.

Fewer people are subscribing to paid channels. Period. Full Stop.

That’s a real change.

The Downside:
Much of the speculation on the net is that people are not watching less video but are instead getting their video over the internet. (The terms to google are “internet” and “cable cutters.”) Less acknowledged is that the recent transition to Over The Air (OTA) HD digital broadcast may also have had an impact. A digital signal is by its nature clean (or not available); the “bad” snow and breakup that plagued analog signals at the edges of the broadcast area and the generally poorer-than-cable picture and sound is no longer true and people are discovering that their old antennas are bringing in a really nice picture. A combination of OTA local and network television with free internet downloads are very tempting. Add in a ready supply of “must have” TV and movies from the likes of Netflix and iTunes and you have a solution that makes for a more than adequate—and much cheaper—alternative for many.

All that has implications for Lafayette—even beyond the few people who hold stock in one of the big players. These days we all have an interest in seeing LUS Fiber succeed and prosper. And LUS has structured its business plan around seizing a substantial portion of the video market. I’ve no reason to think that there is any real trouble there in the short run. LUS knew well that the city’s video market was already saturated and that it would have to take customers away from Cox to succeed on this leg of the triple play of video, phone, and internet services. The utility’s business plan called for a three year ramp up to getting the 23% penetration that they’ve said we’d need to make break-even. We’re at the beginning of that three-year cycle that kicks off when the system is complete and Huval has claimed that we’re above that number in areas where the network has been in place for more than a few months. My guess is that the recent video-only price increase was intended to make sure that the video side continued to contribute its projected share to the plan to make break-even in the face of recent video price increases (example).

Because LUS has modeled its business plan after the video-focused one that has succeed so handsomely for the major players we need to be concerned when the larger industry has trouble spots like this one.

The Upside:
But an interesting counterpoint to gloom and doom is that while subscribers are declining the amount of money each subscriber that is kept contributes is continuing to rise:

Comcast reported on its earnings call that average revenue per user (ARPU) increased by 10 percent year-over-year, ending the third quarter at about $130 per month. Charter’s ARPU also rose about 9 percent, to $126. And while Cablevision’s reported average revenue per sub didn’t grow as fast as the others, it’s now a whopping $149.

What’s happening, of course, is that prices are rising and people are, by and large, paying. That resulted in higher revenue and higher profits for the big cable companies. LUS has reported that people are buying more services (all of the triple play for instance) and higher tiers (especially on the internet side) than their original metrics predicted. That’s good news, of course, all other things being equal it should mean that they could make break-even with a smaller number than originally predicted. (Though all other things are seldom equal…the upswing in video costs no doubt hits hard.)

The contrast between the incumbent cable market losing customers at the same time that profits and prices increase is evidence of some pretty serious market failure and confirms the idea that what we are dealing with is a quasi-monopoly situation. People pay until the can’t pay any longer simply because the lack of real competition at any price, much less a lower price, means there isn’t much in the way of practical choices.

Lafayette’s LUS Fiber is an IPTV system…in this it is like AT&T and Verizon. The upside here is that this is the segment of the market that appears to be growing fairly strongly according to Q3 filings reports. In fact, that’s the main point the GigaOm story misses: the adds the two new IPTV video providers have account for 440,000 of the half million loses the old cable side of the market suffered. That accords well with LUS’ experience as well. They are growing their market; in our fairly simple context it is pretty clear that LUS’ gains come at Cox’s expense as far as the video market is concerned. What LUS provides that AT&T and Verizon do not is substantially cheaper, long-term, ungimmicky prices; LUS offers no discounts on bundles (hence part of their surprise at the larger-than-expected uptake of multiple services) and it offers no discounts that are “limited” in term. The traditional providers all offer special introductory offers, 6 month specials, and aggressive offers to “lost” customers.

The final upside, however, is the one that interests me as a supporter of LUS fiber the most: the moment is rapidly approaching when the quality of the internet connection is all that really matters to savvy consumers. When that day comes LUS will have a clear advantage. People can legitimately dispute over which video system is best. (I’ve my judgment and I argue it is well-founded but, hey, I’m pretty clearly biased toward the local provider.) But there is little to no room to dispute over the internet connection. It’s simply faster, cheaper, and has vastly lower latency. If you like Netflix you’ll love LUS Fiber. And in the not too distant future that’s just about all that will matter.

GigaOm has a new weekly series on cord-cutting that is, appropriately, offered via free streaming internet video. 🙂