Comcast-Time Warner deal may hinge on anemic low-cost Internet plan

Introduction

As Comcast Corp. tries to convince the federal government to permit it to buy Time Warner Cable Inc. for $45 billion, opponents of the deal will inevitably bring up people like Ed.

Every morning at 8:15, Ed climbs into his red, 1999 Mazda sedan and drives 15 miles down Main Street in Scranton, Pa. He passes mom-and-pop sandwich shops, a shuttered elementary school and a computerized shooting gallery for archery on his way to a friend’s 86-year-old house where coal miners once lived — and where there’s an Internet connection.

Ed, who comes here because he can’t afford the parking fees at a library six miles away, first reads his email and then turns his attention to job sites such as snapjobsearch, glassdoor, Monster and Craigslist. He’s been following this routine for nearly four years, looking for an opening in the hotel or restaurant business where he’s got some experience, but he has yet to land a job. Without the Internet connection, he’d have no hope.

“You can’t walk into a Wal-Mart without filling out an application online first,” said Ed, who doesn’t want to use his last name because he fears employers may avoid hiring him. “The Internet today is like electricity. If you don’t have it, you’re screwed.”

Ed wouldn’t have to rely on the goodwill of friends and make the daily 30-mile round trip if Comcast, the only fast, wired broadband provider in the Scranton area, offered its low-priced Internet service to people like him. But the $9.95-a-month program, called Internet Essentials, is available only to low-income families with school-age children.

Source: Center for Public Integrity analysis of American Community Survey and BroadbandMap.gov data

Not for everyone

Ed, 53-years-old and single, isn’t eligible, even though he’s living on $169 a month in food stamps and the generosity of family and friends.

Comcast offered Internet Essentials shortly before its last big acquisition, when it bought NBC Universal in 2011. To ease federal approvals of the transaction, the company promised that it would offer low-priced Internet connections and computers to low-income families. But the Federal Communications Commission, which approved the merger, didn’t set any participation requirements, or metrics to define success.

Now the cable and broadband giant, wants to buy Time Warner Cable, and again in an attempt to show regulators the deal is in the public interest, is offering to extend the program indefinitely and offer it to all Time Warner’s customers too. The deal, if approved, will give Comcast control of about 40 percent of U.S. Internet users.

The program makes for good public relations, but its real impact on the persistent problem of low-broadband adoption rates among the poor is negligible and is a weak substitute for a national strategy, advocates say.

Of the 7.2 million low-income families in Comcast’s service area, only 2.6 million are eligible for Internet Essentials, according to data compiled by the Center for Public Integrity. The program requires the participant’s household to include a child who is eligible for the federal school lunch program. Of that 2.6 million, only 300,000, or 12 percent, have signed up since Internet Essentials was launched in 2011.

The low participation rate suggests that relying on merger conditions to make private companies provide what has become an essential tool to participate in society may not be the best approach to bridge the digital divide.

“If Comcast offered me Internet for $10 a month, I could afford that. I’d have to,” Ed said. “Having Internet in your home is an absolute necessity.”

President Barack Obama agrees. In his 2011 State of the Union Address, Obama pledged to ensure high-speed wireless would be available to 98 percent of Americans. “It’s about connecting every part of America to the digital age,” he said.

But the government doesn’t own the broadband infrastructure, and the task of closing the digital divide has been outsourced to companies such as Comcast while the work of signing people up is left to underfunded and overwhelmed community groups such as PTAs, church groups and school systems in poor areas. And the program excludes a huge part of those on the wrong side of the digital divide — people like Ed.

Comcast will use the goodwill of Internet Essentials in tandem with its lobbying prowess to make the case that it should be allowed to buy Time Warner. The nation’s largest cable company spent $18.8 million lobbying Congress and federal agencies last year, the seventh-most of any corporation, according to the Center for Responsive Politics.

The company’s political action committee has raised $2.6 million so far this election cycle. It raised $3.8 million in the 2012 election cycle, the center reported.

David Cohen is Comcast’s executive vice president. He was the force behind the creation of Internet Essentials and is in charge of steering the Time Warner Cable deal through regulatory approvals and political opposition. He calls the 12 percent participation rate “very strong.”

Not all agree.

“As well intentioned and effective as Internet Essentials seems to be, I’d predict sometime in the future local, state and federal governments will realize that government intervention is needed,” said Blair Levin, who oversaw the FCC’s National Broadband Plan 2010, which laid out a road map for providing universal Internet access and reducing the digital divide.

Still divided

Closing the digital divide — the gap between those who have Internet access and those who don’t — has been a priority at the FCC for years. The Internet has become a necessity for individuals to fully participate and function in society, as banking, shopping, education, health care, government services, job searches and socializing have all moved online.

In 2010, the FCC released its National Broadband Plan in hopes of getting more Americans online. It cited a government report showing adoption rates were 35 percent for people earning between $15,000 and $25,000 per year versus 79 percent for those earning between $75,000 and $100,000 per year.

The young were more connected than the elderly (81 percent for 18 to 24 year olds compared with 46 percent for 55 year olds and older). And more whites had Internet service (66 percent) than African Americans (46 percent) and Hispanics (40 percent).

“Absent action, broadband adoption rates will continue to be uneven,” the plan warned.

And progress has been discouraging, according to another report.

In 2013, 52 percent of adults earning less than $30,000 a year had an in-home connection compared with 91 percent of those making $75,000 or more, according to the latest survey by the Pew Internet and American Life Project

The gap between haves and have-nots was only 4 percentage points less than it was in 2009, according to Pew, despite the federal government spending $7.2 billion in 2009 economic stimulus money to build out broadband infrastructure, to pay community groups to teach computer skills to low-income families, and to encourage companies to offer discounted Internet access and computers.

Since 2011, the FCC has spent $438 million in its Connect America Fund to better support broadband. The agency created the fund when it reformed its $8.3 billion Universal Service Fund, a program that provides telephone service in areas that are costly to reach. Included in the reforms was changing the $1.8 billion Lifeline program to cover paying for Internet connections.

Other efforts included directing $300 million to expanding advanced mobile wireless service in rural America and $50 million to improving broadband on tribal lands. The commission also has spent $2.2 billion on connecting schools and libraries with high-speed Internet service.

Asked if the FCC has specific metrics for reducing the digital divide and if its strategy is working, a spokesperson replied in an email, “The FCC is charged with ensuring broadband is being deployed to all Americans in a reasonable and timely fashion.”

States also have created their own programs. Connected Nation, a nonprofit group which includes 13 states, relies on the good intentions of Internet-service companies to convince them to offer lower prices to poorer Americans.

Internet Essentials serves as the iconic program for many of these efforts, but it’s not working, said Susan Crawford, a communications law professor at Benjamin N. Cardozo School of Law.

“So far, the take-up of the program has been surprisingly low, indicating they are not appreciably closing the gap,” she said.

The poor as bargaining chip

No other low-cost broadband program has received as much attention as Internet Essentials, which Comcast’s Cohen boasts is the largest effort to connect low-income families in the nation. Its high profile is the direct result of Cohen linking it to federal approval of two huge corporate purchases.

In 2010, Comcast said it would offer Internet Essentials for three years to help convince the FCC to approve the company’s $30 billion purchase of a controlling interest in NBCUniversal.

Cohen told the Washington Post in a 2012 article that he had conceived of Internet Essentials long before the Comcast-NBC Universal deal but that he “held back” launching the program until it came in handy.

The NBCUniversal purchase presented an opportune time because the program would be “the type of voluntary commitment that would be attractive to the chairman” of the FCC, which would be examining the deal for how it promoted the public interest, according to the article.

Internet policymakers, advocacy groups and even former FCC officials were surprised by Cohen’s remarks.

“Magicians don’t usually reveal their tricks,” one former FCC official said.

The FCC approved the deal in January 2011 and praised Internet Essentials as a socially responsible move by Comcast to close the digital divide.

“I want to take this opportunity to applaud Comcast for their work,” said Julius Genachowski, then FCC chairman, at an event where Comcast unveiled Internet Essentials in September 2011.

Internet Essentials is now back on the negotiating table. In March, less than a month after unveiling its deal for Time Warner Cable, Cohen again made the program part of the bargain, announcing to reporters in a conference call that Comcast would extend it “indefinitely” and offer it to eligible households in Time Warner Cable’s service areas.

Cohen said he has yet to determine how many Time Warner Cable customers would be eligible if the buyout is approved.

A total of 4.6 million households in the company’s service area earn less than the amount that would qualify them for the federal government’s free and reduced-price lunch program. But that number also includes childless couples, individuals living alone and seniors, who would not qualify for Internet Essentials, according to research by the Center for Public Integrity.

If the demographics in Time Warner’s service area are similar to those in Comcast’s current footprint, then about 1.7 million would-be customers would qualify for Internet Essentials after the merger, leaving 2.9 million low-income individuals and childless couples without a chance to sign up for the discounted service.

Using a low-priced Internet package to push through a merger or meet other corporate goals is not a good way to serve the public interest, said Seeta Peña Gangadharan, a senior research fellow at the New America Foundation’s Open Technology Institute.

“When we have corporate programs such as Internet Essentials, there is a fear that the values that drive the program are tied more to a profit motive and expanding markets, rather than public stewardship and social responsibility,” Gangadharan said. “This was not first developed for digital inclusion; the program was attached to the merger conditions.”

Despite his comments in the Post, Cohen insists Internet Essentials was not created for the purpose of getting mergers approved. He dismisses such views as “conspiracy theories” and said his 2012 comment to the newspaper was “taken completely out of context.”

The idea for Internet Essentials was developed years before during his work on a committee advising the FCC on its National Broadband Plan and wasn’t ready to be launched, Cohen said.

“The timing to pursue the program had nothing to do with it,” Cohen said, his voice rising. “That’s got to be the most absurd thing we have ever heard.”

The fine print

In addition to having a child eligible for the national school lunch program, applicants must not owe Comcast any unpaid bills, possess any unreturned equipment, or be current customers.

The current customer restriction is what keeps Audra Traynham out of the program. Traynham lives in West Philadelphia, where 42 percent of the residents are under the poverty level. Residents of the area have a clear view of Comcast’s 58-story headquarters in the city center. It’s where Traynham, 47, is raising her 5-year-old granddaughter, C’Niyah Lee, on a $17-an-hour job as a janitor.

Traynham sits on a couch in her narrow living room. A small desk near a TV is piled high with her granddaughter’s school work and other papers. Traynham said she spends $164 a month on a bundled contract with Comcast, which includes cable and $20 for Internet service.

Traynham said she struggles to pay the bill every month, but she needs it to provide C’Niyah with access to educational programs, entertainment and a connection to school to communicate with teachers, check assignments and follow C’Niyah’s progress. Traynham also pays most of her bills online and uses email and Facebook to keep in touch with family.

“Our Internet is very important to us,” Traynham said. “I really don’t know what I would do without having the Internet.”

Traynham learned about Internet Essentials when C’Niyah brought a letter home from Universal Daroff Charter School, where C’Niyah attends kindergarten. She said the program would cut her Internet bill in half, a savings that would make it easier to pay each month and cover other expenses and “do some things that we can’t really do now,” she said.

Traynham called Comcast to enroll, but she was told she would have to disconnect her service for two months before signing up.

“I said, ‘Miss, what am I going to do for two months without Internet?’” Traynham said. “She told me those are the policies, and I said, ‘Miss, I just cannot live without my Internet for two months.’ So I didn’t get it.”

Comcast officials said the company limits Internet Essentials to non-Comcast subscribers because the program is aimed at decreasing the digital divide, not lowering current customers’ bills.

Unpaid bills were the issue in Chattanooga, Tenn., said Dwight Hunter, president of the PTA in Hamilton County, which includes the city.

When Internet Essentials was launched in 2011, Hunter said the Hamilton County PTA “made a big push” to promote it in newsletters and social media. But despite more than 24 percent of Chattanooga residents living below the poverty line, the program “never really took off” and it eventually died, Hunter said.

“A big problem that tripped up a lot of people was they had a previous balance owed. That prevented a lot of people from doing the program. I’m not sure if anybody signed up,” he said.

Houston school districts had similar problems. In the city’s Alief school district, where 82 percent of the nearly 46,000 students qualify for the school lunch program — one of the highest rates in all of Houston — Internet Essentials is almost non-existent. When contacted for this article, Craig Eichhorn, communications specialist for the district, said he never heard of the program.

After checking into the status of Internet Essentials, Eichhorn said in an email, “The district is not actively working with the Internet Essentials program. There were some flyers passed out a few years back but nothing recently and no active promotions.”

Even in Chicago, which Comcast held up in March as one of 15 cities where Internet Essentials has been the most successful, the superintendent of District 201, which is south of the city and includes schools where 75 percent of the students come from economically disadvantaged families, said the program’s progress was disappointing.

“I am dismayed to find that only one out of every four qualified families in our area has taken advantage of this program,” Superintendent Michael Kuzniewski wrote in his blog.

The mistake

Using mergers to narrow the digital divide has been part of the FCC’s approach to increase broadband adoption. The agency required CenturyLink Inc. and Qwest Communications International Inc. in their 2011 merger approval to offer a program similar to Internet Essentials for five years.

But so far the agreements haven’t worked.

“Requiring Internet Essentials and programs like it as a condition for merger is silly,” said Levin, the architect of the National Broadband Plan and a fellow at the Aspen Institute’s Communications and Society Program.

Levin said “the mistake” he and the FCC made in developing a policy to connect more low-income individuals to the Internet was to focus on ensuring a broadband infrastructure was widely available, rather than on creating the conditions that would encourage the adoption of it by those who don’t have service.

Most of the government spending on broadband has been targeted at wiring schools and libraries with high-speed Internet service. Under a program Obama announced last year, the FCC will increase its spending on educational broadband by $1 billion, nearly doubling to $2.2 billion.

And the FCC program transitioning subsidized telephone service to the poor to Internet broadband is just moving too slowly, Levin said.

The efforts are worthwhile, but poorer Americans need Internet connections in their homes to fully take advantage of what’s online. Schools and libraries close, forcing students to hang out at a McDonalds to connect to WiFi so they can complete their homework. And if you’re not a student, a high-speed Internet connection in a school doesn’t help.

While schools and libraries help, not having a home connection “will mean a person will have difficulty participating in a productive way with the economy and civic society,” Levin said in an email.

Cities such as Chattanooga, Wilson, N.C., and Glenwood Springs, Colo., have built their own networks to bring high-speed Internet service to their residents. But the giant telecommunications companies, including Comcast and AT&T Inc., have since persuaded 20 states to pass laws restricting or outright banning municipalities from building public networks, even as they don’t provide programs for low-cost connections to all of a cities’ poor residents.

Levin suggested the FCC could allow broadband providers to bid on providing Internet service to low-income neighborhoods, with the business going to the lowest bidder. He also recommends the government pay a portion of qualifying users’ Internet bills if they prove they go online to search for jobs, view educational programs, apply for government services or other socially beneficial activities.

Expanding computer and Internet training programs by community groups would also help convince elderly people and others who don’t use the Internet of its value and shrink the divide, Levin said.

The Media Mobilizing Project, a community organizer and support group for low-income families in Philadelphia, works to publicize local and state policies that harm low-income residents.

“I’m not saying Comcast is a bad guy, but how do we transform Internet Essentials to let everyone, even if they owe money to Comcast, or have unreturned equipment, or aren’t part of the school lunch program and are 45 years old and out of a job, to get connected so they can change their lives?” asked Hannah Sassaman, policy director at the project and a frequent critic of Comcast. “One thing we’ve learned, broadband adoption is not accomplished through public relations ploys. It’s accomplished through working with people every day, in their day-to-day lives, to show they can get online for reasons they think are important.”

That also means including seniors, said Tom Kamber, executive director of the Older Adults Technology Services, a nonprofit group in New York City that offers digital training courses for seniors, whose broadband adoption rate languishes at 41 percent, “which is a catastrophe,” Kamber said.

“Once they get online to find out they can socialize and save money, they don’t want to give it up,” Kamber said. “It’s a health benefit by keeping them from becoming isolated.”

Kamber added, “I genuinely believe Comcast is going to take the next step to do something. Internet Essentials is extremely promising, but I would like to see more and I know they can do more.”

Kamber may be waiting for a while. For now, Cohen said, Comcast will keep Internet Essentials as is.

“There is always more that we can do,” Cohen acknowledged. “But we don’t want to lose the focus on the population who we started with.”

As it stands, the FCC is reviewing whether a Comcast takeover of Time Warner is in the public interest. If greater Internet adoption for a wider range of people, like Ed, becomes a condition, Internet Essentials may be in for a few changes.

Correction, May 29, 2014 at 12:00pm: A previous version of this article misstated the unit measurement in Comcast Corp.’s service area that have annual income equal to or less than what the federal government set for eligibility in the national free and reduced-price school lunch program. It should have been 7.2 million families as defined by the Census Bureau, not people.