An Ignoble Experiment

2. Regional sports channel rights muddle Comcast-TWC merger, drive up costs across industry

It's hardly on a scale with Comcast (NASDAQ: CMCSA) acquiring Time Warner Cable (NYSE: TWC) or AT&T (NYSE: T) talking about acquiring DirecTV (NASDAQ: DTV), but Telephone and Data Systems' (TDS) decision to acquire BendBroadband for $261 million will move the needle on TDS' cable strategy.

BendBroadband passes 79,000 homes and businesses and serves about 36,000 video, 41,000 high-speed data and 22,000 digital voice subscribers via fiber connectivity in Central Oregon. TDS is a bit larger, delivering wireless, cable and wireline broadband TV and voice and hosted managed services to about 5.9 million customers nationwide. Headquartered in Madison, Wis., TDS Telecom, the wholly owned subsidiary, provides 1.1 million connections to high-speed Internet, phone and TV customers.

"BendBroadband's strong market position and technology leadership will help us achieve significant forward momentum in our cable strategy," said TDS Telecom President-CEO David Wittwer in a press release.

The plan, he added, is to "leverage BendBroadband's considerable expertise across our growing cable business, driving residential and commercial growth by delivering competitive broadband, video and managed services over the high capacity network."

TDS President-CEO LeRoy Carlson noted that TDS is "building a high quality cable business (and) BendBroadband's culture of innovation and its attractive market demographics make it a strategic addition."

TDS will be a good resting place for a company that has developed over the past 30 years, added BendBroadband President-CEO Amy Tykeson.

"TDS is the right fit for our culture and values and for our future. There will be no interruption in service and BendBroadband will remain a strong partner to our Central Oregon communities," she said in the release.

Also included in the deal are BendBroadband Vault, a Tier 3 data center providing colocation and managed services, and Zolo Media, a cable advertising and broadband business. The deal, which includes transfer of about 280 BendBroadband employees, is expected to close in the third quarter of 2014 pending regulatory approvals and other conditions that won't be nearly as onerous as those now being faced by Comcast and Time Warner Cable.

In a side note, BendBroadband tried and was ultimately unsuccessful at operating an LTE-based wireless broadband and phone service to about 2,000 customers outside its cable footprint. In February, when it announced the service would shut down, Britt Wehrman, vice president of marketing at BendBroadband, blamed other cable MSOs that backed off from offering wireless service for the decision.

"We purchased wireless spectrum about five years ago in order to provide broadband service to areas of Central Oregon that had few, if any, options. At that time, other cable operators planned to enter the wireless business along with us. However, those plans never materialized. As a small provider of a unique wireless service, BendBroadband is not able [to] operate the network as anticipated," Wehrman wrote to employees in a note obtained by FierceWireless Tech.

For more:
- see this press release

Read more about: cable strategy, acquisition
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By Jim Barthold

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3. Viacom buys its way into British TV market, reports higher profits in fiscal Q2

A growing firestorm of consumer dissatisfaction with regional sports channels--highlighted, but by no means restricted to the ongoing brouhaha about Time Warner Cable's (NYSE: TWC) deal to pay $8 billion for the video rights of the Los Angeles Dodgers--should create concern about whether Comcast (NASDAQ: CMCSA) can acquire TWC for $45.2 billion, an op-ed in The Consumerist maintains.

In testimony before the Senate Judiciary Committee, Comcast and TWC execs brushed aside questions about whether the merger would affect regional sports channels because the two providers don't offer overlapping service.

"This isn't about overlap," The Consumerist's Chris Morran said in an opinion piece. "It's about using the combined assets of Comcast and TWC to force customers off the only real remaining competition in the pay TV market: satellite service from DirecTV and Dish."

Unlike Fox Sports, the article continued, Comcast "balks at offering satellite providers access to some of its most coveted sports offerings out of concern that it will lose its stranglehold on the local pay TV business."

While the cable industry was stirred this week when Los Angeles Mayor Eric Garcetti used a Cable Show keynote welcome as a bully pulpit to urge TWC deal with competing providers for the Dodgers, the matter of regional sports control goes back well before that.

In Philadelphia, Comcast used a "terrestrial loophole" to withhold Philadelphia sports teams' coverage from satellite operators. While Comcast has made CSN Philadelphia available to Verizon (NYSE: VZ) FiOS and RCN, it still is locked off DirecTV (NASDAQ: DTV) and Dish Network (NASDAQ: DISH)--presumably because it costs too much. Comcast exacerbated the situation this year when it cut a deal that put all but 10 of the Phillies' 162 games under its control.

In Houston, the article continued, CSN Houston is available to only about 40 percent of the TV market because "Comcast has yet to reach a deal with either DirecTV or Dish" or even AT&T (NYSE: T) U-verse.

In Los Angeles, the situation continues to devolve with Los Angeles Times sports columnist David Lazarus accusing sports team owners of "greed" for charging TWC $8 billion for broadcast rights to their games, "knowing full well that pay TV companies would have to pass along this sky high cost to all customers." Lazarus tossed in TWC as a "partner in crime" for paying that much money in the first place knowing it would have to charge the fans to make it up.

Additionally, the article cut beneath the surface of a typical pay service bill to expose all the hidden fees that consumers pay for sports programming.

"Sports channels account for roughly half of the average monthly pay TV bill," Lazarus wrote. "And if you're not a sports fan you're subsidizing those who are."

The conclusion: "Such runaway costs are a key factor in prompting a growing number of people to cut the cord and seek programming through online resources such as Netflix (NASDAQ: NFLX) and Amazon (NASDAQ: AMZN)."

For more:
- The Consumerist has this article
- the Los Angeles Times has this column

Read more about: Time Warner Cable, Dodgers
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By Jim Barthold

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4. Rich fiber diet drives Bell Aliant's video growth

Viacom, hardly the most popular programming content provider among small U.S. cable operators, is spending $757 million to buy a little love on the other side of the ocean.

The owner of MTV and Comedy Central, among other cable channels, said in a press release it would fork out more than three quarters of a billion dollars to acquire Channel 5 Broadcasting, "one of British television's biggest brands and the only commercial public service broadcaster to consistently grow viewership share in recent years."

Viacom has been in the news--and not in a positive way--in the U.S. recently after cutting a new programming deal with the National Cable Television Cooperative (NCTC), the buying group for small cable operators. The terms of the deal led some small operators--led by Cable One--to drop Viacom channels. Viacom in turn blocked Cable One subscribers from accessing its channels online.

Viacom enters the U.K. market without that baggage and with the opportunity to perhaps expand its British-built content back across the Atlantic to U.S. consumers.

"This deal will dramatically increase Viacom's investment in content produced in the U.K. which has a widely admired public service broadcasting culture and a globally influential production sector," Viacom President-CEO Philippe Dauman said in the press release. "We look forward to partnering with local producers to introduce more U.K.-created content to global audiences and will continue to explore opportunities in the U.K. both in the free-to-air and pay television markets."

Concurrent with the acquisition, Viacom also announced fiscal second quarter earnings revenues of $3.17 billion; a 1 percent year-over-year increase that the company said reflected "higher affiliate fees and advertising revenues."

"Our media networks remain in high demand, commanding a premium position with advertisers and achieving significant continued growth with both traditional and emerging distribution partners," Dauman said in an earnings press release.

The company did not break out earnings attributable to affiliate fees, but did note that a 3 percent increase in operating income to $872 million was attributable "primarily to higher media networks revenues."

For more:
- see this Viacom press release
- see this earnings release

Read more about: viacom, Channel 5
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By Jim Barthold

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5. TV Everywhere's biggest challenge: customer awareness

Bell Aliant added 13,400 net new TV subscribers to its FibreOP service in the first quarter thanks in no small part to the carrier's fiber-to-the-home network strategy.

FibreOP TV now has 171,400 total subscribers, the greatest majority of Bell Aliant's 189,800 IPTV customer base. The carrier also reported 200,000 FibreOP Internet subs (16,000 new in the quarter) as part of a total of 963,000 recorded Internet subscribers at the end of the quarter. The FTTH network passes 827,000 premises.

"Our fiber-to-the-home technology makes us the communications provider of choice in many of our markets and we believe provides our customers with the best technology available," Karen Sheriff, Bell Aliant's president and CEO said in an earnings press release. "We expect this, along with solid cost management, will ultimately lead us to growth in the future."

The Internet and TV subscriber additions drove data revenues up 8.6 percent year-over-year to $22 million. IPTV revenue was up 43.5 percent ($11 million) year-over-year.

The company, which reported total first quarter operating revenues of $676 million, down 1.2 percent or $8 million year-over-year, is pursuing an aggressive subscriber deployment strategy as "the path to returning us to revenue growth," Sheriff said.

"We have continued to invest aggressively in fiber-to-the-home and by the end of 2014 expect to pass one million premises with FTTH," CFO Glen LeBlanc predicted in the press release. "Our success in the FibreOP markets is strengthening our company for the future."

It's also helping to offset a losing trend being suffered by the entire wireline industry. In the first quarter, residential network access services (NAS) declined by 23,900--2,400 less than the same quarter in 2013 but business NAS declines hit 7,600 compared to 5,900 in 2013.

For more:
- see this earnings release

Read more about: Bell Aliant
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By Craig Kuhl

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