According to the Associated Press, on Wednesday the Egyptian Navy detained three scuba divers in a dinghy near Alexandria, who were “cutting the undersea cable” of local telco Telecom Egypt. This was confirmed on the Navy’s Facebook page. Egyptian news agency MENA identified the affected cable as SMW4: the same one whose cutting caused an internet slowdown in parts of Africa, the Middle East and Asia.

MENA quoted officials saying services would be “back 100 percent on Thursday morning” via the use of “alternative feeds”. Telecom Egypt will apparently bear the cost of the repairs, both of this disruption and a separate cable cut last Friday.

Incidentally, the SMW4 cable (more properly known as South East Asia–Middle East–Western Europe 4 or SEA-ME-WE 4) was also involved in a very serious outage five years ago, which cut the capacity of the main Europe-Middle East connection by 75 percent. This one appears to have been less drastic.

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In the last month, cable companies have switched from justifying their caps as a means to handle congestion — or bandwidth hogs — and are now saying it’s about recovering the billions invested in their network. In January the NCTA president (and former FCC Chairman Michael Powell) said when asked about caps as a means of controlling congestion: “That’s wrong. Our principal purpose is how to fairly monetize a high fixed cost.”

After the FCC has decided to take a half-hearted interest in caps and users and industry participants questioned the accuracy of how such caps are measured and the implemented, the cable industry is changing its justification for their policies. The problem is that its latest justification is just as false as its previous one.

The fixed costs to deliver broadband are refuted by the high profit margins broadband delivers to cable firms, the fact that upgrades to higher speeds costs relatively little and that most of the infrastructure cable providers built is already paid for.

The Open Technology Institute, a policy group that, yes, takes money from Google, has released a report attempting to quell this line of argument form the cable industry. Data points cited in the report include the ever popular fact that cablecos get 95-97 percent profit margins on their broadband services, that the billions invested in their networks in the early 2000s were to compete with new pay TV products from the telcos and the satellite broadcasters, and that adding broadband to existing cable infrastructure costs very little.

To back up that last claim check back to Cablevision’s comments to Wall Street that upgrading to DOCSIS 3.0 which provided faster upload and download speeds, were $70 per home (Cablevision doesn’t have a cap.) Other analysts pegged that number at about $100.

From the report:

Yes, cable companies and others have invested billions in building networks, but they have received more than healthy returns on those investments for several decades. According to analyst estimates listed on the NCTA website, cable companies invested over $185 billion in capital expenditures between 1996 and 2011. But these networks generated close to $1 trillion in revenue in the same time period. Moreover, both Comcast and Time Warner Cable are now spending less on capital expenses relative to revenue than in past years.

I’m not actually against the 95 percent profit margins or even caps if the market for broadband were competitive. Unfortunately, when more than thee-quarters of American homes have the choice between only two providers it’s clear that competition for the basic broadband service is limited. And when you look at how competitive the services are based on speeds there are big differences. For example, AT&T U-Verse tops out at 24 Mbps on the download side while cable tops out at 50 Mbps or even 100 Mbps.

But as someone who has documented legitimate questions about caps; their size, their spread, their rationale and their effect on innovation, I’m hoping that more and more consumers, lawmakers and regulators wake up to the fact that these caps aren’t necessary and that they pose a tax on innovation.

The NCTA has issued a statement in response to the report. I’ve included it below:

“It is regrettable that New America’s latest salvo merely repeats misleading statistics and shop-worn arguments. Their entire analysis is based on a flawed understanding of the broadband business, and the historic and ongoing investments necessary to build and operate world class networks. As the FCC and numerous economists, scholars and commenters have pointed out, tiered pricing models promote fairness by more equitably apportioning burdens between high volume and low volume users. New America’s old advocacy has gotten stale.”

This story was updated at 3 pm with a statement form the NCTA.

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In a statement, Comcast CEO Brian Roberts said that the decision was driven by “our sense of optimism for the future prospects of NBCUniversal and our desire to capture future value that we hope to create for our shareholders.” Roberts also said that he believes Comcast is in a “strong and unique position” to build value in the combined company.

The Comcast deal will not have to be approved by federal regulators, who fined the cable company $800,000 last year for failing to meet some of the conditions it placed on the original purchase. Comcast said it expects the deal to close by the end of March.

As part of the acquisition, NBCUniversal will also buy the buildings that it uses at 30 Rockefeller Plaza in New York and CNBC’s headquarters in New Jersey for about $1.4 billion. According to the New York Times, a “clash of cultures” was partly responsible for speeding up Comcast’s decision to buy the remaining part of the company.

Comcast also announced its fourth-quarter financial results ahead of schedule, and said its earnings climbed by 19 percent from the same period a year ago, while revenue rose by 6 percent to $16 billion and operating income grew 13 percent to $3 billion. The company said it will increase its dividend by 20 percent and will repurchase $2 billion worth of stock this year.

This story was corrected Tuesday evening to clarify that the deal is not subject to federal approval, as originally stated.

Image courtesy of Shutterstock / Cedric Weber

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The stats come by way of research group TDG which presented the findings in this chart:

While a five percent decline is hardly earth-shaking, TDG describes the end of cable TV’s growth as a tipping point with ”long-term tectonic implications.”

This makes sense. The price of cable bundles is climbing ever higher, at the same time as a bevy of new distribution options is increasing consumer frustration at having to purchase channels they don’t want. Meanwhile, a rising generation of “cord-nevers” thinks buying a cable package to watch one show makes as much sense as buying a CD to hear a single song.

But don’t count out the TV industrial complex just yet. The industry still has the best content goodies, including sports and HBO fare, and will continue forcing consumers to buy bundles to access them. It will also keep dangling cable passwords as a requirement for people to watch content on mobile devices.

Meanwhile, the brave new world of cord-cutting is still not ready for primetime. As my colleague Stacey Higginbotham explained, the online video world still has too many parts and too little accountability – meaning consumers will be stuck with unreliable service for some time to come. The first cable decline is a tipping point, not a revolution.

(Image by lev dolgachov via Shutterstock)

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WeFi has developed software for the handset and network that detects, measures and tracks the signal strength and capacity of millions of deployed hotspots mobile cell sites around the world. The company’s WeANDSF (the acronym is for Access Network Discovery and Selection Function, a mobile industry standard designed to merge Wi-Fi into cellular networks) platform then crunches all of that data selecting the optimal network connection for any given device at any given location and time.

WeFi sells the technology primarily to mobile operators, which use it to offload traffic from their 3G mobile networks to cheaper Wi-Fi connections, but VP of marketing David Fishman said that cable operators have gotten more interested in providing wireless data services. They may not run mobile networks, but cable providers want to encourage their customers to access their broadband connections and video programming outside of the home, making those services that much stickier, Fishman said. Given that the cable companies’ early attempts to launch their own mobile broadband networks failed, Wi-Fi presents itself as a cheap and plentiful alternative.

Time Warner has already launched extensive outdoor Wi-Fi networks in some of its key cable markets, and it has partnered with Comcast, Cablevision, Cox Communications and Bright House Networks to create a 50,000-hotspot joint roaming network. WeFi used its WeANDSF technology to help Time Warner plan its portion network, but it also mined the unlicensed airwaves to find open and reliable hotspots Time Warner can tap for free.

Fishman wouldn’t reveal how many open hotspots it’s adding to Time Warner’s footprint, saying only there were a potential 10 million hotspots in the U.S. that could eventually be included. He stressed that these aren’t residential access point left without password protection, but free hotspots intended to be accessed by the public offered by governments and businesses like Starbucks. WeFi competitor Devicescape already tracks 7.8 million of these hotspots in the U.S., and is adding more to its databases each day.

Time Warner customers don’t have to do anything to access these hotspots. In fact, some of them probably already are. WeFi’s client is already embedded in some of Time Warner’s Wi-F Finder apps, which allows smartphones and tablets to find and automatically connect to the virtual network, Fishman said, and TWC plans to implement it in all of its apps in the future.

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By LRG’s estimate there are about 80.7 million broadband subscribers in the US. For the first nine months of 2012, US saw an addition of 2.1 million net new broadband subscribers, down from 2.3 million during the first nine months of 2011.

Here are some notable stats:

• Cable companies continue to dominate the business and added about 575,000 subscribers. Comcast added 287,000 broadband subscribers in the quarter – nearly 50% of the total for the top providers
• Telephone companies added about 5,000 subscribers.
• AT&T and Verizon added 749,000 fiber subscribers (via U-verse and FiOS) in the quarter, while having a net loss of 799,000 DSL subscribers.

The market saturation and slowing growth means that companies like AT&T have to upgrade their broadband offerings to stay competitive and steal market share. At present, cable companies are offering a beefier broadband package compared to the phone companies and the results show. Most importantly, Verizon and AT&T’s customers are telling them: they don’t want slower classic DSL connections and instead want faster and better broadband connections.

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Cable broadband suffered from too much popularity — too many people shared an infrastructure and as a result the speeds delivered to the home were actually a fraction of what was advertised. And when I moved to San Francisco, I decided to stick with DSL and used Pacific Bell’s (now AT&T) connections. However, somewhere in the mid-2000s, things start to change.

DSL speeds, though nearly 15 times faster than my first connection, started to fall behind the cable broadband speeds. DSL performance became spotty. And I switched to Comcast. Today, I live in the future — I have a 200 Mbps fiber connection, thanks to my local independent ISP, WebPass. It costs a lot less money than what the cable company wants from me. And it is a heck of a lot faster than what AT&T has to offer.

Like me, a whole bunch of people have switched from the creaking DSL offerings to faster connections. I have been writing about the slow migration away from the classic DSL offering for a long time. People have switched in big numbers to cable companies, particularly those who offer better quality, higher speeds such as Comcast and Cablevision.

DSL owners have switched to faster offerings from their own phone companies — Verizon’s FiOS for example — as the demand for consumer bandwidth has exploded thanks to growing popularity of web services such as Netflix, social networks like Facebook. The growing number of in-home devices has started to increase our need for bandwidth.

AT&T and Verizon, two of the largest DSL providers in the world didn’t really keep up with the times, and the speeds like their European peers did. The reasons were complex — our geography was a disadvantage compared to very compact cities in Europe, for starters. But most importantly, the Baby Bells wanted sops from the elected officials.

Whatever the reasons, we didn’t really see speed bumps on DSL like we saw from the likes of Free in France. AT&T built U-Verse, a hybrid fiber-copper network and Verizon built FiOS, but mostly for their richer constituents — the people who could afford to pay couple of hundred a month for a triple-play service. That focus on higher-end customers meant that the classic DSL was left to die on the vine.

The market too was speaking loudly — the people were switching away from AT&T and that did indeed threaten AT&T’s whole existence. As DSL sales swooned, AT&T customers went to Comcast and Cox and Time Warner. AT&T couldn’t sell switchers a phone service, a declining business to begin with. It couldn’t sell them a television connection. The lure of a wireless connection packaged neatly with everything wasn’t a reality anymore.

Today, AT&T essentially put the nail in the coffin for DSL technology when it announced that it was going all-in on IP-based networks and IP-technologies. As Stacey Higginbotham reported earlier this morning, Dallas-based AT&T is spending nearly $14 billion to completely switch from last century’s technologies and put old copper-based network out for pasture. Here is what the company said in a press release:

• U-verse. AT&T plans to expand U-verse (TV, Internet, Voice over IP) by more than one-third or about 8.5 million additional customer locations, for a total potential U-verse market of 33 million customer locations¹. The expansion is expected to be essentially complete by year-end 2015.
• U-verse IPDSLAM: The company plans to offer U-verse IP-DSLAM service (high-speed IP Internet access and VoIP) to 24 million customer locations in its wireline service area by year-end 2013.
• Speed Upgrades: The Project VIP plan includes an upgrade for U-verse to speeds of up to 75Mbps and for U-verse IP-DSLAM to speeds of up to 45Mbps, with a path to deliver even higher speeds in the future.

These investments are a realization of a harsh reality AT&T and to some extent Verizon is living in — everything is going IP. Voice is an app. Video is an app. And even the thermostat is an app. The puny Internet speeds they continued to offer via the old DSL has no part of this bandwidth-hungry future. And even with these upgrades, AT&T is still lagging behind its fiber-based competitors. The need for bandwidth isn’t going away – and for Ma Bell, that is the reality. It needs to figure out how to live with it.

For me, it is a bittersweet moment — for I can only remember being blown away by the 256 Kbps speeds and dreaming of a future when I could have 100 times the speed.

Related Stories

AT&T Goes All IP: We are parsing the news in a series of posts, for we believe this is an end of an era. Here are our two stories on the topic so far:

• Here’s AT&T’s $14 billion plan to kill its copper network and leave rural America behind.
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For the last year Verizon has been trying to buy the unused Advanced Wireless Services (AWS) licenses of Comcast, Time Warner Cable, Bright House and Cox Communications, giving it a treasure trove of new airwaves for its future LTE expansion. But those companies aren’t just swapping cash for spectrum. They also revealed so-called joint-marketing agreements, essentially deals to resell each other’s wireline and wireless services.

The Justice Department is imposing a five-year limit on those joint-marketing agreements, after which they’re presumably subject to additional antitrust review. The other condition isn’t much of a condition at all: Verizon has agreed to not to resell cable’s residential services in areas where it offers its FiOS fiber-to-the-home network, which Verizon was never planning to do in the first place. While it’s getting killed by cable in territories where it only has pokey DSL, Verizon can compete head-to-head with cable in its FiOS markets.

Surprisingly, spectrum concessions seemed to be the deciding factor for the DOJ. Antitrust lawyers said that Verizon’s agreement to sell T-Mobile a portion of its AWS haul was a key factor. Here’s the statement from Acting Assistant Attorney General Joseph Wayland, who heads up the DOJ’s Antitrust Division:

“By limiting the scope and duration of the commercial agreements among Verizon and the cable companies while at the same time allowing Verizon and T-Mobile to proceed with their spectrum acquisitions, the department has provided the right remedy for competition and consumers. … The Antitrust Division’s enforcement action ensures that robust competition between Verizon and the cable companies continues now and in the future as technological change alters the telecommunications landscape.”

Update: Now the ball goes to the FCC, and it looks ready to approve the deal as well. Thursday morning FCC chairman Julius Genachowski said he would begin circulating a draft order recommending the transaction be approved. We could see a final decision in the coming weeks.

FCC Chairman Julius Genachowski

The commission — which has regulatory authority over the spectrum part of the deal, but not the joint-marketing agreements – is demanding concessions on data roaming, which Verizon has agreed to meet in an FCC filing. Verizon said it would sell access to its LTE network at “reasonable rates” to roaming partners. That should put rural carriers worried about being shut out of Big Red’s 4G network partially at ease, though I’m sure they would have much rather Verizon spelled out specific rates.

The FCC also won a concession that really wasn’t much of a concession. Verizon has agreed to begin deploying LTE on those AWS frequencies within three years and to reach 70 percent coverage in seven years. Considering that those airwaves have already sat idle for six years and that Verizon has claimed it desperately needs more spectrum to meet mobile broadband demand, Big Red doesn’t seem to be in that big of hurry.

Here’s an excerpt form Genachowski’s statement:

“Specifically, Verizon Wireless has undertaken an unprecedented divestiture of spectrum to one of its competitors, T-Mobile, and has committed to accelerate the build-out of its new spectrum and enhance its roaming obligations. In addition, the companies’ commercial agreements will be modified to, among other things, preserve Verizon’s incentives to build out FiOS, increase wireless competition, and ensure that the proposed IP venture is pro-consumer and that its products cannot be used in anti-competitive ways.

“Approval of the substantially modified transaction will promote the public interest and benefit consumers in several ways. By advancing U.S. leadership in 4G LTE deployment, the transaction marks another step in our effort to promote the U.S. innovation economy and make state-of-the-art broadband available to more people in more places. The transaction will preserve incentives for deployment and spur innovation while guarding against anti-competitive conduct. And vitally, it will put approximately 20 megahertz of prime spectrum—spectrum that has gone unused for too long—quickly to work across the country, benefiting consumers and the
marketplace.”

Image courtesy of Flickr user turtlemom4bacon.

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Apple is talking to some of the biggest U.S. cable providers, but no deals are in place, according to the report. The WSJ’s sources do not entirely rule out a television set in the future, but it sounds like, for now, Apple executives are just trying to convince the cable guys to offer their content via the set-top box:

Whether the device under discussion is an iteration of [current Apple TV] hardware or a more sophisticated box is unclear.

Two people briefed on the matter said the technology involved could ultimately be embedded in a television. Apple has worked on prototypes for televisions in the past, according to people briefed on the projects.

Right now, Apple TV is $99 and offers streaming content from iTunes, as well as Netflix, Hulu Plus, and a variety of pro sports through apps from MLB, NHL and NBA, most of which require subscription plans. Apple sells both one-off TV and movie shows and rentals, and also offers iTunes subscriptions to some TV series. But no subscriber would confuse what Apple offers with a true alternative to a cable box.

Getting cable companies to come around is going to be tough: as it does with the music industry and wireless carriers, Apple is the one that would own the relationship between their content (or service) and the end customer. In a March report that Apple was in talks to get cable companies, some of those cable sources complained anonymously to the New York Post that Apple’s offer wasn’t a great deal for them, one saying, Apple wanted “everything for nothing,” “to create the [service's] interface” and “work with cable guys to manage bandwidth across the TV and broadband pipeline.”

Apple has a ways to go to catch up with Microsoft in the living room. Microsoft’s Xbox Live service is in many more millions of homes and the company has been able to strike deals with both content providers directly like HBO and ESPN and also has cable partnerships currently in place, offering content from AT&T U-Verse, Comcastand Verizon.

Apple’s set-top, which was originally labeled a “hobby,” got off to a slow start after launching in 2007, but after a price cut and redesign in 2010, has been picking up steam. Last month Apple announced that sales of the box have more than doubled in the last year: in 2011, it sold 2.8 million units. Between January and July this year, it’s already sold 4 million.

This post was corrected at 8:27 p.m. Previously it said none of Apple TV’s content was live, however MLB, NHL and NBA do offer live streaming sports.

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Based on comments from the two, DirecTV was paying about $500 million a year on Viacom when the seven-year-old contract ended at midnight July 12; DirecTV said it is spending $10 billion on programming and Viacom said it was delivering 20 percent of the viewed programming but only getting 5 percent of the money.

Nomura analyst Michael Nathanson estimated in a client note that Viacom is shifting from $2.25 per subscriber to more than $2.80. My understanding is there is a so-called “step-up” increase in the first year with points along the way when the fee would escalate. A source familiar with the situation said the first-year percentage increase is double the offer before Viacom said it would pull the channels and DirecTV dropped them.

Was the blackout worth it? It was for Viacom, which took a PR hit but is getting a significant double-digit increase in fees and is locked in with one of its largest carriers for a long-term deal that I’m told is comparable in length to the one that just ended.

All the channels in the previous agreement are to be restored immediately, ending the 10-day blackout that affected roughly 20 million DirecTV subscribers. Many of the channels are on basic packages and included with every subscription.

The deal comes less than a day after Viacom rejected DirecTV’s claims to customers than a deal was imminent. But that was also the day that DirecTV’s offer changed to one that was more attractive to Viacom.

Here’s the press release from Viacom:

Viacom today announced that the company has reached a long-term agreement to renew carriage with DIRECTV.

All 26 Viacom networks, including Nickelodeon, Comedy Central, MTV, BET, CMT, Logo, Spike, TV Land, MTV2, VH1, VH1 Classic, Palladia, Nick Jr., Nicktoons, TeenNick, Tr3s and Centric, will return to DIRECTV’s channel lineup immediately. As part of the overall carriage agreement, DIRECTV has an option to add the EPIX service to its entertainment offerings.

Viacom is extremely pleased to bring its programming back to DIRECTV subscribers, and thanks everyone affected by the disruption for their patience and understanding during this challenging period.

And this is how DirecTV told its subscribers:

RT this: Viacom channels are back on DIRECTV in L-T deal. Thanks to our customers. #DIRECTVHasMyBack

— DIRECTV (@DIRECTV) July 20, 2012

But DirecTV went a little further in its press release, with Derek Chang, EVP of Content Strategy and Development, describing the blackout as “bullying”:

“It’s unfortunate that Viacom took the channels away from customers to try to gain leverage, but in the end, it’s clear our customers recognized that tactic for what it was.”

And trying a call to arms for all TV providers to resist blackouts as a bargaining tool:

“The attention surrounding this unnecessary and ill-advised blackout by Viacom has accomplished one key thing: it serves notice to all media companies that bullying TV providers and their customers with blackouts won’t get them a better deal. It’s high time programmers ended these anti-consumer blackouts once and for all and prove our industry is about enabling people to connect to their favorite programs rather than denying them access.”

DirecTV’s statement also played up the vocal support it had from some competitirs, including the American Cable Association, Cox Communications, Time Warner Cable, and Mediacom.

Bringing a retort from Viacom:

Despite the unnecessary drama, we’re very pleased with our agreement and we’re extremely thankful to have reconnected with our DIRECTV viewers.

Make no mistake, blackouts are a high-pressure tactic. So is threatening to drop channels or actually dropping them if a deal doesn’t match the pay TV provider’s goals.
We said it on day and it’s worth repeating: the subscribers are the ones hurt the most. Unfortunately, all too often negotiations that should be manageable without drama on either side wind up escalating in ways that hurt everyone.

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