The city of Los Angeles' lawsuit against Time Warner Cable has prompted a neighboring community to look at suing the cable provider.
Now the city of Costa Mesa, Calif., is also considering suing Time Warner, claiming that its residents have gotten poor service, too. Complaints had gotten so out of hand, that earlier this year the city council called a public hearing to question a Time Warner representative about the issue.
Even though service has improved over the past few months, the city's attorney said that residents have experienced similar issues as those outlined in the Los Angeles complaint, according to the Daily Pilot, the local newspaper's Web site.
Late last week, the city attorney for Los Angeles filed a suit against Time Warner alleging the company broke multiple laws by providing poor service to its citizens. The city is seeking to collect tens of millions of dollars in fines.
The suit is linked to problems Time Warner experienced after it took over cable systems from bankrupt cable operator Adelphia. Time Warner also picked up some systems through a swap with Comcast, its co-buyer in the Adelphia transaction.
Time Warner increased its subscribers in the Los Angeles region from 350,000 to 1.9 million literally overnight. The company was overwhelmed as it migrated e-mail accounts, resolved billing issues, and transitioned other video and broadband systems to its own systems. The result was allegedly poor service and a doubling in complaints.
Specifically, the suit alleges the company failed to live up to its part of the franchise cable agreement, which requires the company to answer subscribers' calls within 30 seconds and begin repairs of service interruptions within 24 hours of notification in 90 percent of its service calls. The suit claims that less than 60 percent of calls for service were answered on time and that broadband and TV "was so intermittent and inferior in quality that it was not much better than no service at all."
Time Warner says that it's working to improve customer service in the region, but it disagrees with the suit's allegations.
"We're proud of the service we provide to the L.A. area," a spokesman wrote in an e-mail. "We've made great strides in customer service, evidenced by the fact that call volumes are now lower than pre-acquisition levels, despite being apporximately five times larger."
Improving customer service is a big deal for cable operators, especially as they face increased competition from phone companies. Time Warner is one of many companies with several initiatives in the works to improve its service. But will it be too late? Many customers are already ditching Time Warner in the L.A. area and switching to satellite providers. AT&T also provides its U-verse TV and broadband service in parts of the area, which could give some residents another choice.
Some customers of Time Warner Cable in Beaumont, Texas, may soon end up paying more for their Internet access than other customers.
In a test of metered Internet access that's set to begin Thursday, subscribers who go over their limit for uploading and downloading material will be charged $1 per gigabyte, according to an Associated Press story, citing a Time Warner Cable executive.
The trial run for the metered Web use was expected. The company had said in January that it would test the new pricing model in Beaumont as a way to limit the use of peer-to-peer applications on its network. Cable companies and P2P services have long clashed over bandwidth demands, especially for the transfer of large video files.
The tiered pricing will work this way, for the Internet portion of subscription packages that also include phone or video use: At the low end, users will pay $29.95 per month for service at a speed of 768 kilobits per second, with a 5GB monthly cap. At the high end, users will pay $54.90 per month for service at 15 megabits per second, with a 40GB cap.
"We think it's the fairest way to finance the needed investment in the infrastructure," Kevin Leddy, Time Warner Cable's executive vice president of advanced technology, said in Monday's AP story. He said that just 5 percent of the company's subscribers take up half of the capacity on local cable lines.
Time Warner Cable has 90,000 customers in the trial area, but the test pricing structure will affect only new subscribers. The gigabyte surcharges go into effect after the first two months of service.
Reaction to the start of the test was swift--and often harsh.
"Is Time Warner Cable crazy?" writes Stacey Higginbotham at GigaOm, who says she is a customer of the company. "(H)ere's where I question Time Warner Cable's sanity: By offering tiered service at 15 Mbps it's promising me faster speeds that I will have limited opportunity to use, potentially driving me into the arms of another provider. Additionally, the cable guys are in a fight to the death with the telephone companies, who are unlikely to resort to such plans because they don't have the same limitations when delivering last-mile services."
Breaking up is hard to do. But in the case of Time Warner, it's simply the right thing to do.
News of the company splitting comes as no surprise. The cable piece of the business has been operating as a separate company for a while now. And investors have been clamoring for the company to make it official. Time Warner corporate announced plans for the split a month ago.
But now the full details of the split have been revealed. And the blogosphere is full of commentary on what a great deal it is for Time Warner corporate, namely the $9.25 billion dividend paid to its shareholders. But what about Time Warner Cable? How will the deal affect that part of the business?
In short, it might be the best thing that's ever happened to Time Warner Cable. Even though it's taking on additional debt to fund the one-time dividend payout to shareholders, which is on top of the $13.5 billion of debt it owed as of the end of the first quarter, it's still a smart move, said Sanford C. Bernstein & Co. analyst Craig Moffett.
"They are taking on the additional debt because they can," he said. "Their cash flow prospects are sufficiently strong to warrant an aggressive capital structure that was underleveraged as part of the bigger company."
As for the long term, Moffett believes being an independently run and traded public company gives it more flexibility and control. It also allows the company to ditch the weight of businesses like AOL that were an overall drag on its financials. In fact, Moffett believes Time Warner Cable has a better valuation without Time Warner Corporate than with it.
"The notion of any synergies between Time Warner corporate and Time Warner Cable were debunked a long time ago," he said. "But cable has always been the strongest part of the portfolio, and Time Warner Cable will likely benefit from the additional freedom."
Time Warner Cable is going to need that freedom to invest and maneuver through a new era in cable. The battle with the phone companies has only just begun. Cable companies, such as Time Warner, have proven they can compete in the broadband arena. They're giving the phone companies a run for their money on voice services. And now Time Warner Cable and other cable operators, such as Comcast, are gearing up to compete in the wireless market, too.
But getting into wireless won't be easy. It's going to take money. And it's going to take savvy executives who can strike meaningful and workable partnerships and execute on those plans. A major part of Time Warner's or any cable operator's success in wireless will be determined by whether these companies can figure out how to integrate services and products they already own into a wireless infrastructure.
Time Warner has already begun laying the groundwork. Most recently, it said it would invest $500 million to help Sprint Nextel and Clearwire build a nationwide 4G wireless network using WiMax. The company also owns a significant amount of wireless spectrum as part of the consortium SpectrumCo., which bid on and won licenses that blanket nearly 99 percent of the country in the 2006 Federal Communications Commission's Advanced Wireless Spectrum auction.
So far, Time Warner and the other cable operators haven't had a good track record in the execution piece. In fact, the 2005 joint venture with Sprint Nextel, called Pivot, has largely been a failure. Two and a half years after it was announced, Time Warner and Comcast have ducked out of the deal.
That said, I think cable and, in particular, Time Warner Cable have a shot at the wireless market. After all, who could have imagined 15 years ago that people would get home phone service from the same companies that also sell them MTV and HBO?
Time Warner has agreed to separate from its cable division, the company said Wednesday.
As part of the separation, Time Warner Cable has declared a one-time dividend of about $10.9 billion to stockholders, $9.25 billion of which will go to Time Warner.
"Separating the two companies...will help their management teams focus on realizing the full potential of the respective businesses and will provide investors with greater choice in how they own this portfolio of assets," Time Warner CEO Jeff Bewkes said in a release. "We're bullish on Time Warner Cable's prospects, but its strategic goals and capital needs are increasingly different from those of our other businesses."
The companies had announced plans for the split last month.
(Credit:
Steve Tobak)
Here's the first installment of Train Wreck's first recurring post: Dysfunctional Executive Watch. It'll show up whenever there's enough material. Enjoy the lunacy, and let us know if you've got something to report.
You've got fraud
On Monday, the Securities and Exchange Commission filed civil charges against eight former executives of AOL Time Warner for fraudulently inflating online advertising revenue by more than $1 billion. Four of the executives agreed to pay millions in fines and return ill-gotten gains. Charges against the other four, including former CFO John Michael Kelly, are still pending.
The company had previously agreed to fork over $500 million to settle civil and criminal charges brought by the SEC and the Justice Department. ... Read more
It's mobile or bust for cable operators that seem to be trying anything and everything to get into the wireless market.
One of the biggest shifts over the next decade in the cable market is likely to be a move toward wireless services. As cable operators face stiff competition from phone companies, cable operators large and small are looking for ways to take their services mobile.
Brian Roberts, CEO of Comcast, the largest cable operator in the U.S., talked up his company's investment in a new joint venture to blanket the country with 4G, or fourth-generation, wireless at the industry's trade show in New Orleans this week.
Earlier this month, Comcast and Time Warner joined forces with Sprint Nextel and Clearwire to form a company that will build the next-generation wireless network using a technology called WiMax. Comcast is fronting $1.05 billion as part of the deal, and Time Warner Cable is putting in $500 million to help make the new network a reality.
Roberts said during his keynote speech Sunday that he sees the network as a way to open up new applications and devices for the company.
But Comcast and Time Warner aren't the only cable operators getting into the wireless game. Cablevision recently announced it will expand its Wi-Fi hot-spot service to create an outdoor Wi-Fi network throughout its existing cable footprint. The idea is to extend its Optimum broadband service to customers on the go.
So why are cable companies, which have no history of successfully doing anything in wireless, so hot to get into the market? The answer is simple. They have to if they want to compete with AT&T and Verizon Communications.
The phone companies have introduced TV service and faster, fiber-based broadband services into cable's territories. Services like Verizon's Fios are gaining market share. And even though the phone companies haven't integrated wireless into their offering yet, it's coming.
But with the cell phone market already 84 percent penetrated--according to the CTIA--the cable industry recognizes it needs to offer a new kind of wireless service. As wireless networks get faster, consumers are taking many of their broadband applications, like e-mail, Web surfing, and social networking, on the go.
"The delineation between wireline and wireless services is starting to blur," said Mike Roudi, group vice president of wireless services for Time Warner Cable. "And we think about mobility as a long-term opportunity that occurs when new networks are built that can deliver true broadband speeds wirelessly."
Roudi said this is why Time Warner has joined Google and Intel as investors in the new Clearwire.
Comcast's head of wireless, Tom Nagel, echoed Roudi's comments.
"Customers are already showing us that mobility and wireless are important," Nagel said. "And with wireless we can let them enjoy our products inside and outside the home with ubiquitous connectivity to a high-speed network."
Cablevision is taking a slightly different route. The company is using Wi-Fi to extend its existing broadband network to more customers, a smart choice considering the number of Wi-Fi devices already in the market. Not only do most laptops come with Wi-Fi embedded in them, many cell phones are also getting Wi-Fi. In fact, in the next three years some 1.2 billion Wi-Fi-enabled gadgets will be in the market, according to IDC.
"As more and more devices become Wi-Fi enabled, whether they be laptops, iPhones, BlackBerrys, or other portable devices, we believe we can create a compelling broadband wireless network throughout our footprint for our Optimum Online high-speed data service customers," Tom Rutledge, Cablevision's COO, said during the company's conference call with investors this month.
Cablevision will build the new network in the same footprint as its existing cable infrastructure. And the network, which will take two years to deploy, will deliver 1.5 megabits per second. The service will be an extension of it broadband service and will be offered free of charge.
Cablevision already has Wi-Fi hot spots up and running in 15 highly trafficked areas, such as tourist destinations. For example, Cablevision's Wi-Fi is available on all three Bridgeport & Port Jefferson Ferry boats that connect Long Island, N.Y., to Bridgeport, Conn., a popular summertime route for many Optimum Online customers.
Risky business for cable
While it makes sense for cable operators to get into the wireless market, there's no guarantee that any of the plans that have been announced will actually work. In 2005, Comcast and Time Warner, along with Cox Communications and Advance/Newhouse Communications, formed a joint venture with Sprint Nextel called Pivot that was supposed to develop wireless services that the cable operators could bundle and resell to their customers. Two and a half years later, Comcast and Time Warner have pulled out of the partnership and Pivot is essentially dead.
Executives at the cable companies say the new Clearwire deal is different from the Pivot relationship.
"When we did Pivot it was a co-marketing arrangement with Sprint," Time Warner's Roudi said. "From a retail perspective, Time Warner was selling a Sprint-branded service and device. But with Clearwire, we will control the customer relationship including the service and phones. We will handle pricing, marketing, customer care, and billing."
Comcast and Time Warner believe that they each learned a great deal from the Pivot experience. And the companies believe they won't make the same mistakes in the new Clearwire partnership.
But many of the same challenges that the companies faced before haven't gone away. For instance, Comcast and Time Warner still need to figure out how to integrate their existing services and platforms into a wireless network. And while they may be marketing and selling the service themselves, technological integrations are still difficult when working with a partner that controls the network.
Even AT&T and Verizon Wireless, which essentially own their wireless networks, are still trying to figure out how to integrate their services.
Cable's "plan C"
But if the Sprint Nextel/Clearwire investment doesn't pan out, Comcast and Time Warner still have another shot at the wireless market with 20 megahertz of spectrum they acquired from the Federal Communications Commission's Advanced Wireless Spectrum auction held in 2006. Through a consortium called SpectrumCo., Comcast, Time Warner, and other cable operators spent $2.37 billion on a large swath of wireless spectrum that covers about 99 percent of the country.
Comcast's hiring last month of Dave Williams, the former CTO of Telefonica O2 Europe and former vice president of strategic planning at Cingular Wireless, prompted speculation that the company may be considering building its own wireless network or even buying a wireless company. But so far the company remains mum on its plans for the spectrum.
"Wireless spectrum is a valuable commodity," said Comcast's Nagel. "It's like holding the rights to oil or water. It will always have value. And it gives us flexibility for the future. We don't have any specific plans now, but over time we'll understand how to best use or monetize the spectrum."
But as cable companies, like Comcast, look to invest in new wireless networks, they might be overlooking a big opportunity. In cities, such as Philadelphia and New Orleans, citywide Wi-Fi networks built by EarthLink are being shut down as the Internet service provider abandons the network service market.
Comcast, which serves Philadelphia, and Cox Communications, which serves New Orleans, could easily buy these assets for a fraction of what EarthLink paid to install them. (EarthLink spent $20 million to build Philadelphia's network, which is 80 percent complete.)
For example, Comcast could test new wireless services using the existing network. It could see how customers use wireless broadband services outside their home, and then apply the lessons learned to services it plans to develop for the Clearwire WiMax network.
But so far, Comcast has not shown any interest in the network. The reason is likely political. Comcast was among the most vocal opponents to the Philadelphia Wi-Fi network. So justifying the purchase of these assets might be too difficult to spin.
But as other citywide Wi-Fi networks falter, cable operators in different parts of the country might consider picking up the assets. According to The Wall Street Journal, MetroFi, a Wi-Fi service provider, is also struggling. It has networks in Portland, Ore.; Aurora, Ill.; San Jose, Calif.; and other Silicon Valley towns.
"These citywide Wi-Fi networks could let cable companies put their toe in the water," said Craig Settles, an independent consultant specializing in municipal Wi-Fi. "Wi-Fi networks in many cities have failed because of the business models, not because of the technology. Cable companies already have the customer base and the services that could be rolled out onto these networks. So it makes sense."
Securities and Exchange Commission regulators on Monday filed civil fraud charges against eight former AOL Time Warner executives over allegations they overstated the Internet company's advertising revenue in excess of $1 billion.
The lawsuits, filed in U.S. District Court for the Southern District of New York, allege John Michael Kelly, former CFO of AOL Time Warner; Steven E. Rindner, a former Business Affairs unit senior executive; Joseph A. Ripp, former CFO of the AOL division; and Mark Wovsaniker, former Accounting and Policy head, created a fraudulent scheme where AOL Time Warner funded its own advertising revenue by giving purchasers funding to buy their own online advertising. That, in turn, allegedly created fraudulent transactions at the media titan between the mid-2000 and mid-2002 period, according to the SEC statement.
The SEC also filed a lawsuit against David M. Colburn, former head of AOL Time Warner's Business Affairs unit; Eric L. Keller and Jay B. Rappaport, former senior managers in the same unit as Colburn; and James F. MacGuidwin, former controller, over allegations the group artificially inflated the company's reported online advertising revenue. These four executives, however, reached a settlement with the SEC.
Under the settlement, all four will pay disgorgement and pre-judgment interest, as well as civil penalties. The total fines and penalties these four executives will pay will reach nearly $8.1 million.
The lawsuits come more than three years after Time Warner agreed to pay a $300 million civil penalty, stemming out of a similar SEC investigation. That agreement called for the company to restate $500 million in advertising revenue for the two-year period ending mid-2002.
Microsoft may no longer be breathing down its neck, but Yahoo is still working on major deals with Google and Time Warner's AOL that could significantly alter the Internet pioneer.
The nearer-term possibility is a partnership to use Google for delivering some ads next to Yahoo search results. That option apparently is still on track to be announced this week, perhaps Wednesday or Thursday, according to a source familiar with the situation.
The Google deal could increase Yahoo's revenue, because Google gets more revenue per click for its ads, but it also could reinforce Google's search-ad leadership and make it even harder for Yahoo to catch up with its own Panama system. And though Yahoo thinks it can address antitrust concerns by employing a system that's open to other ad suppliers as well, regulatory scrutiny is a significant factor.
A deal to acquire AOL also is under active consideration, although talks haven't progressed as far as with the Google arrangement, the source said. Under that deal, Yahoo would get AOL, sans its declining Internet access subscription business, and cash from Time Warner, and Time Warner would get a 20 percent stake in Yahoo.
Yahoo would use the cash to buy back its own stock, a move that could increase its value. Since most observers expect Yahoo's price to drop Monday because Microsoft walked away, Yahoo likely will face pressure to boost its share price.
Another possibility Yahoo explored was a partnership with Fox Interactive, but that didn't progress as far as the Time Warner deal, the source said.
Yahoo declined to comment on the possibilities.
Time Warner is splitting off its cable services division, the company said Wednesday.
Time Warner currently owns around 84 percent of Time Warner Cable. The media giant, which has been struggling of late, has been rumored to be discussing an AOL partnership with Yahoo.
"A complete structural separation of Time Warner Cable, under the right circumstances, is in the best interest of both companies' shareholders," CEO Jeff Bewkes said in a release.
The company also reported first-quarter earnings on Wednesday. Gains in its Turner cable networks and phone and broadband division were offset by slow ad sales at AOL and a decline in the Filmed Entertainment division.
Total sales for the period, which ended March 31, grew 2 percent from a year ago to $11.4 billion. Net profit fell 36 percent to $771 million, or 21 cents per share. That's down from $1.2 billion, or 31 cents per share, in the year-ago quarter, which included a boost from the sale of AOL's Internet access business in Germany.
As of March 31, the AOL service had 8.7 million U.S. access subscribers, down 647,000 from the prior quarter and down 3.3 million from the year-ago quarter. AOL's revenue fell 23 percent, or $330 million, to $1.1 billion for the three-month period just ended.
AOL announced on Friday that it posted double-digit growth in March, posting new traffic records for the former high-flying Internet darling.
Page views on AOL's programming sites jumped 35 percent in March, compared to a year ago, while unique visitors rose 11 percent, to 56.5 million users, in the same comparison period, according to ComScore Media Metrix.
"Our strong growth is a direct result of rebuilding each and every one of our vertical Web sites over the past 12 months, with the goal of providing consumers highly relevant and rich experiences that focus on key passion points," Bill Wilson, AOL Vertical Programming executive vice president, said in a statement.
Some of AOL's core sites that received a makeover included
During the past year, AOL has launched a number of new sites, ranging from
And in March, AOL acquired social-networking site Bebo for $850 million. Bebo, which has a strong following in the U.K., Ireland, and New Zealand, said that acquisition was made as part of AOL's efforts to grab more eyes internationally. Over the past year, AOL has launched 17 international sites.
All these efforts are designed to also drive revenue for AOL, which has struggled over the years to reposition itself, after its saw its core dial-up subscription business fall dramatically as broadband competitors came on strong. In 2006,
Last September, AOL launched its Platform-A, an advertising network designed to sell ad inventory on its own Web sites, as well as third-party sites. But in earlier this month, AOL's ad unit began to cut 100 positions from its operations.
