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 Cable is testing a new pricing structure where heavy broadband users will be charged based on how much data they transfer, a company spokesman said Wednesday.
A trial for the new pricing scheme is expected to begin in Beaumont, Texas, later this year. Time Warner is testing the new pricing model to see if it can curb usage of peer-to-peer applications on its network, said Alex Dudley, a spokesman for the company.
Peer-to-peer protocols allow users to access content that is distributed throughout the network on other computers running the same application. It's commonly used to transfer music and video files, as well as other large data files.
Service providers, such as AT&T, Comcast, and Time Warner, have been complaining recently that peer-to-peer traffic eats up valuable bandwidth. AT&T argues that much of this traffic is used to distribute illegal content, and the company is testing filtering technology to block it.
Comcast has taken a different approach. It has used traffic shaping to slow down some kinds of peer-to-peer traffic. These moves have prompted outcries from consumer groups, and the Federal Communications Commission is currently investigating whether Comcast has violated any of its policies or principles.
Meanwhile, Time Warner thinks that metering bandwidth usage will help solve the problem.
"The idea is to create a more consistent, enhanced experience for our customers," Dudley said. "We can't allow a small percentage of customers to use an inordinate amount of the network to the detriment of the majority of customers."
My first impression of this new model is that Time Warner is treading on some dangerous territory. What is ironic to me is that the company will probably scare off the very high-end customers it wants to attract.
Think about this. Today Time Warner offers a fixed priced for data service. The fastest speed service available is for 10 Mbps downloads and 512 kbps uploads for $44.95 a month. Someone who is willing to spend $45 a month for 10 Mbps of bandwidth is probably the same person who uses peer-to-peer applications. Your basic run-of-the-mill users are probably subscribing to the cheaper 1.5 Mbps/256 kbps service for $29.95
I can almost guarantee you that the $44.95 customers are also savvy enough to know that they are going to lose in the metered-Web model. And they will likely just switch to a competitor, such as Verizon Communications, which offers 15 Mbps downloads and 2 Mbps uploads on its Fios fiber service for $53 a month. Of course, the problem for most consumers is that Fios isn't available everywhere.
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