FCC Approves USF Reform, Cable Reacts

The FCC unanimously voted to reform the high-cost USF program Thursday into a version of its planned Connect America Fund (CAF). The proposal adopted was similar to what Commission Chair Julius Genachowski had detailed in the previous weeks with a couple new twists.

Key parts of the CAF include plans to phase down per-minute access charges designed to cover the costs of bringing service to hard-to-reach areas, requirements for VoIP providers to pay access charges on certain traffic and  rules to curb artificial traffic pumping and phantom traffic. More detailed elements include a hard cap of $4.5B over the next six years (up to $2 billion for rate-of-return areas, $1.8 billion for price-cap areas, and $500 million for mobility funding), only one carrier to receive funding for a single region and a definition of broadband to be 4 Mbps downstream and 1 Mbps up.  

Many of the reforms benefit incumbent telcos and new wireless carriers that can obtain funding through an eligibility program which pays based on the incumbent's costs. The cable industry, which lobbied heavily for a chance to compete with these carriers, will have an opportunity to secure funding as competitive bidders but only after the incumbents have first shot at which areas to serve.  Cable representatives are generally pleased with the plan minus that first-refusal clause.

While admittedly still sifting through the details, Stifel Nicolaus analyst Chris King says he suspects the reform proposal will be: A) a positive for Verizon and AT&T; B) helpful to independent wireless carriers such as Sprint, T-Mobile, Leap and PCS; C) a mixed-bad for Comcast, Time Warner Cable (etc.) and other VoIP providers like Vonage, Google and Skype; and D) a "modest opportunity" for  satellite providers like DISH; and E) difficult for CLECs. "Expect court challenges from unhappy stakeholders," he says, "including state regulators objecting to federal preemption of intrastate access charges…" •

3rd Quarter Round-Up

It's been a busy week for quarterly reports from the multiplatform industry. Here's a quick look at several:

• Time Warner Cable reported $4.9B in Q3 revs, a 3.7% y/y increase with residential services making up the bulk ($4.3B). Net income attributable to shareholders was $356M ($1.09 per share), compared to $360M in Q310. TWC posted a net loss of 128K video and 8K voice customers but gained 89K internet subs (a -47K total sub loss). --- SureWest reported a 3% y/y revenue growth to $63M driven by a 9% increase in broadband revenue. The company's ARPU increased 4% to $118 in triple-play markets but operating expenses increased 7% driving net income down to $643K compared to $1.4M in Q310. --- Virgin Media increased its Q3 revs by 2.2% to €1.15B ($1.63B) thanks to broadband additions and its partnership with TiVo. Virgin's TiVo hybrid STB added 127K subs during the period (1/3 new adds), and the company increased its ARPU by 3.2% to reach a record $77.09.

• ARRIS reported Q3 revs of $274.4M, almost identical to its Q310 performance of $274.3M, with adjusted net income of $.21 per diluted share.  --- It's a six-month report for Nintendo, but results are alarming as the company reported revs of $2.84B, a 40.6% decline with a net loss of $926M (both y/y). Two culprits: a $690.5M loss on foreign currency exchange between the dollar and euro and a ~33% drop-off in Wii sales.

• Motorola Mobility reported Q3 net revenues of $3.3B, an 11% y/y increase with non-GAAP net earnings of $.12 per share. Mobile device revenues rose 20% from Q310 to hit $2.4B but were tempered by a non-GAAP operating loss of $15 and a GAAP operating loss of $41M. The company shipped 11.6M mobile devices during the quarter, 4.8M of which were smartphones. •

Etc.: Ericsson Sony Splits - More DIRECTV v. Fox - JD Powers' Best ISPs

M&A: Ericsson and Sony have announced plans to go their separate ways. Ericsson said it will sell its 50% stake in the sides' joint mobile phone venture to Sony for $1.46B. Read GigaOm's take on who wins, who loses and what the deal actually means.

Disputes: Seems DIRECTV isn't happy about Fox taking out full-page ads in local newspapers blaming the satellite company for the two sides' current carriage dispute. DIRECTV went on the offensive and posted a message on its website saying: "DIRECTV has always been able to fight on our customers' behalf and settle its business behind the scenes - where it belongs. But unfortunately that's not the case with News Corp. and Fox. Fox has had very public and nasty rate disputes with Cablevision, DISH and Time Warner Cable - and that's only in the past year. No TV provider is immune to their bullying tactics." With less than a week left in the companies' current agreement, DIRECTV said it wishes subscribers "weren't put in the middle" and that the company is "hopeful Fox will become more reasonable with their demands…" --- Time Warner Cable is refusing to air a commercial spot from Mohu in which the HDTV antenna maker says viewers "don't need expensive cable service to watch HD programs." The ad, which was planned to run in Columbus, OH and Kansas City, also says "most top-rated shows are broadcast free, over the air in full high definition." Mohu President Mark Buff says the company "should have the right" to air the spot. Check it out for yourself.

Strategy: Twitter hashtags are showing up all over the television landscape as the company develops its plans to work with content producers. NYT has the story on how Twitter and TV are helping each other grow their respective audiences. --- Fox Networks announced new deals with Verizon and Mediacom for its authentication strategy for VOD access. The deals enable paying subs from the video providers to access Fox on Demand content the day after it airs. --- EchoStar hinted that it will release a network-based DVR to customers by the end of the year. Reports from the TelcoTV show say the company is working on an nDVR that looks a lot like Cablevision's.

Reports: J.D. Power says Cox, Verizon and WOW each ranked the highest in customer satisfaction for internet service in their respective regions. The quick results by region… East: 1) Verizon, 2) Cox and 3) AT&T. South: 1) Verizon, 2) Bright House and 3) Cox. North Central: 1) WOW, 2) Insight and 3) AT&T. West: 1) Cox, 2) Verizon and 3) Comcast. --- Researchers at Sandvine say Netflix is gobbling up more bandwidth than any other source of online video in the U.S. Released this week, the study says Netflix accounted for nearly 33% of peak downstream traffic in Sept. - up 10% during the spring when it already used the most - dwarfing other sources like YouTube (11.3%) and iTunes (3.1%).

Mobile: ESPN and Nokia unveiled a partnership for sports fans who happen to like the Nokia Windows phone called the ESPN Hub. Set to launch early next year, the ESPN Hub app will come pre-loaded on several Nokia models to provide live scores, stats, news, vids and more.

Tech: MobiTV intro'd its multiplatform TV Everywhere solution for PCs, tablets and mobile devices offering service providers seamless integration with existing TV infrastructure and back-end systems. --- LightSquared said it is partnering with PCTEL to help with its GPS interference issues by developing an antenna to allow existing users to retrofit their GPS devices so they're compatible with the company's LTE network.

SkyREPORT: The U.S./China Economic and Security Review Commission said hackers have accessed and disrupted U.S. satellites through a Norwegian ground station connected to the internet. Details at Huff Post. --- RRsat launched services on its second DVB-S2 MCPC platform on MEASAT-3a reaching more than 50M pay-TV HHs in the Middle East; North, South and South East Asia; Australia and parts of Africa. --- Intelsat said Turner Broadcasting extended its long-term capacity agreements on two satellites: Intelsat 9 and Intelsat 11 as part of a multi-year deal. Terms were undisclosed.

Space Junk: The Air Force Academy plus a consortium of Colorado colleges, a Chilean university and a Chilean observatory have been awarded a grant of $800K to track space junk. The Center for Space Situational Awareness Research (CSSAR) will develop the Falcon Telescope Network and cadets will track and study man-made objects that revolve around Earth. According to the NASA Orbital Debris Program Office, as of 2009 there were approximately 500,000 particles between 1 and 10 cm and the number of of particles smaller than 1 cm probably exceeds ten of millions. The Colorado Springs Business Journal 1st reported the story.

Up, Down & Over There: Al Jazeera will launch a sports news channel - Al Jazeera Sports News - on Tuesday, Nov. 1, its first Arabic sports news channel via Nilesat. --- Sales of Freeview HD have reached 3.1M, says the UK terrestrial platform. Freeview numbers show the service is now in more than 18M HHs (10.2M on the main TV, 1.75M on Freeview HD) and a total of 3.1M HDTVs + boxes have been sold leading some manufacturers to pull out of the UK terrestrial STB market. --- Canal+ said it is negotiating with ITI and TVN Groups to create strategic partnerships in Poland. The move could hint that Time Warner (and others) are out of the running to buy a majority stake in TVN. BroadbandTV News has details. --- Rogers said it activated its exclusive Samsung Galaxy S II, the first LTE smartphone in Canada. --- China doesn't like TV that's "overly entertaining" (e.g. programs dealing with marital problems, matchmaking, talent shows, games shows and reality TV). No joke. Read the AP's story on how the Communist Party plans on throttling the culturally-dangerous fare.

Ha!: 16-year old Austin Wierschke parlayed his texting skillz into a $50K grand prize at the 5th annual LG U.S. National Texting Championship.

--- Catch today's media market news in The Evening BRIDGE. •