The Time Warner cable-box lawsuit: How one PO'd customer could win even if he loses

To hear the attorney for Matthew Meeds tell it, Meeds v. Time Warner Cable is going to be the Carterfone case of the new millennium.

I had to look it up, too: In 1968 the Federal Communications Commission ruled that AT&T could not keep competitors (like Carterfone) from selling telephone equipment to AT&T customers.

Breaking the iron grip of Ma Bell was the beginning of the end of its monopoly, and John F. Edgar, the Kansas City lawyer who's filed suit against Time Warner in Missouri, Kansas and California, sees this as a similar moment.

Meeds, his client, is tired of renting of a cable box for 10 bucks a month -- but Time Warner gives him no other choice. His would-be class action lawsuit seeks to change that. (A judge has to decide whether to classify it as class-action; that will take a few months. Here's the Kansas filing and here's the California one.)

"Folks just simply aren't allowed to purchase those boxes," says Edgar. "Time Warner Cable will not allow it. ... It is just an absolute atrocity, the amount of money they're making off these cheap boxes. I can't wait to find out how little they pay for them."

Even if Edgar loses, even if a court ultimately refuses to grant the case class-action status, it could be a victory if Time Warner is forced to reveal the financials of cable set-top devices, the manufacture of which is controlled by two large companies, Motorola and Scientific Atlanta (now a subsidiary of Cisco).

Edgar thinks the boxes can't cost Time Warner more than $30 or $40, which means even if they must be serviced often (because they're cheaply made), the cable company still prints money.

Mad as hell

What's interesting to me about this story -- other than the fact that Meeds lives three miles from my house -- is that I doubt it would happen if he were a customer of a smaller cable company like SureWest (formerly Everest) or Sunflower. (Unfortunately, we may never know. When I called Meeds at his house he said, "I have no interest in talking about this," and referred me to his lawyer. Really? No interest at all?)

I receive email every week from customers of Time Warner Cable and Comcast in my area. The complaints they bring up are legitimate, and in many cases longstanding. Yes, I understand that technology challenges and the explosion in the number of cable channels has put these big operators to the test. But schools get evaluated every year and are expected to show something called "adequate yearly progress." Speaking as a longtime customer, Time Warner Cable has failed to make adequate yearly progress. Their Navigator system is a joke, their HD-DVRs often barf a few minutes into recording high definition shows, and now it is leaving its small but empowered group of CableCARD customers behind as it adds a raft of channels we can't get. (Yes, I'm one of them; more abotu CableCARDs later.)

And then there is customer service. I think that failure is the one that puts people over the edge into Howard Beale, mad-as-hell paroxysms. Here are some samples from actual readers.

Customer J.T.:

"Three times we've missed big Olympics swimming relays because we've rewound (on DVR) the events and then tried to watch them. Three times we've had the DVR re-boot (the Mystro software) and have been unable to watch or recover the broadcasts. When I called to talk to Time Warner about the problem, the customer service number was busy (!?). I e-mailed them five days ago and haven't heard a word. What are consumers supposed to do if they can't reach the company? I am e-mailing you out of complete frustration."

Bill emailed me after being on hold for an hour:

"Does anyone in KC care about the impression the city makes to returning residents? I'm thrilled with the improvements to the Metro system in the last twelve years and Brush Creek looks so clean that I might launch my kayak there next month. But TWC service dost seem to stink too much."

Dennis:

"I just stumbled across your blog entry regarding Time Warner Cable's switch to SDV on certain channels from early July. Sadly, I'm just now learning about the issue after trying to setup CableCARD service in my Tivo HD. I swear, the cable companies are going to try to cut out competition at every turn!"

And those are just from August. And it ain't just Time Warner.

The CableCARD mess

Then there is Jeff Cohen of Flushing, Queens, New York City. Jeff is a pioneer. A bold experimenter. And in the culture of Big Cable, that means he is a dupe. I'll let him tell the story:

"I recently concluded a nightmare experience with Time Warner Cable of NYC. I wanted to avoid the digital switchover next February as well as own my own equipment instead of paying Time Warner NYC $11 per month for another cable box that would not even be used on a daily basis.

"I purchased an Explorer 3250 cable box from eBay. This is the equipment I currently rent from Time Warner, so I bought what I already have. I brought it in so they could enter the serial number into their system to activate. At the service center, they told me I could only own a cable modem. So they were unaware of the change in the law. ...

"Upon further online reseach, I needed an Explorer 4250 HDC (High Def CableCARD) box...which are scarce online and are not sold directly to consumers from Scientific Atlanta. But I found an Explorer 8300 HDC - and when I called Time Warner, they said it could be activated! ... Unfortunately, the unit was "binded" to Comcast, and the serviceman (I waited 3 hours for his arrival) took his CableCARD and split. I subsequently resold the unit on ebay, losing $15.

"The serviceman said NOT to get a TV with CableCARD technology because it was being phased out. ... Now I'm in limbo. I haven't looked into purchasing anything because I never get a consistent answer from Time Warner about what will or won't be serviced. I have no idea if I should take a serviceman's word over that of their Web site. It's a big clusterf#!k and unfortunately it's us, the cable consumers, who continue to get f@#ked."

Jeff actually went out and did something few people (including, I'm guessing, the plaintiff in this lawsuit) bothered to do -- actually own a cable box. And got his hand slapped.

So what about those CableCARDs? Well, contrary to what Jeff's service guy said, they are not being phased out. In fact, the F.C.C. required cable manufacturers to start providing as an alternative to the big black box. But as I have noted before, the CableCARD is currently crippleware. It only allows for one-way communication. When I bought my TiVo Series 3 HD recorder, it was with that understanding. I knew I would not be able to get video-on-demand. But I don't use VOD that much, so that was OK.

In recent weeks, however, I and every other CableCARD customer in America have learned the hard way about Switched Digital Video. With SDV, the cable company no longer has to deliver every single channel to you at alltimes. It reserves a certain chunk of bandwidth for lesser-watched channels. Those sit back at the plant until you decide you want to watch one of those channels -- then SDV goes and gets it for you.

This is video on demand by another name, and so, needless to say, it is one more thing a CableCARD can't do. As a result, no Sundance Channel for me -- it's one of those "lesser-watched channels" Time Warner has designated for assignment to SDV -- until this "tuning adapter" workaround that TiVo is promising on its Guided Setup is not just something you can Google but something you can buy. OK, or rent.

(There's also a burgeoning technology called tru2way that is on the fast track to the marketplace. As the title suggests, it will give customers 2-way capability. But it won't mean the end of set-tops. Here's a good backgrounder on tru2way's role in the whole CableCARD-SDV-digital cable mess.)

Does he have a case?

Back to our muted main man, Matthew Meeds. You wouldn't have read this far if you weren't curious to know whether I thought he had a case.

I spoke with two people, both friends, who I thought could give me a balanced look at the issue. Paul Rodriguez works in the communications department of the National Cable & Telecommunications Association, an industry trade group. He also contributes deeply-linked and well reasoned articles to the NCTA's CableTechTalk blog. And he was a Friend of Higgins, a fraternal order I also belong to.

"Those are not $30 or $40 boxes," said Rodriguez. "Just recently, I heard a ballpark figure of $400 for a HD-DVR box. Clearly if someone has a digital box without the DVR, that's probably cheaper, but not $30 or $40."

So that's the first problem he sees with the lawsuit -- discovery will reveal a higher sticker price than counsel had bargained on. Second, there are alternatives.

"If you don't want a set-top box, you can get a unidirectional device and drop the box." Unidirectional devices, like a Digital Cable Ready television or a TiVo, use a CableCARD for authorization of scrambled services. But that wouldn't make the plaintiff happy. "He complained, 'Well, it's not as good.' Well, that's right. We've been clear for five years that this is not the same." For example, because such devices are not two-way, customers can't order video-on-demand.

Rodriguez added, "If you switched to DirecTV or Dish, you have to have a new box. If you switch to Verizon FiOS or AT&T's U-verse, you have to have a new box. It baffles me to no end why there are four companies competing with cable and nobody has ever complained that you have to have a set-top box for them."

Two words, Paul: Customer. Service.

Rodriguez, though, I think does poke two pretty good-sized holes in the Meeds case. Premium cable is called premium for a reason, and if Time Warner wants to make you jump through hoops to get it, within broad limits it can do that.

He also explained to me, pretty persuasively, that the issue of switched digital video didn't come up at the time of the original Plug & Play negotiations that led to CableCARD technology and it was also acknowledged at that time that new technologies would eventually arise. That doesn't explain the failure to work with customers on existing CableCARD problems.

"A future without set-top boxes would be paradise," Rodriguez said. "You don't have to repair them. Every time you roll out new services, you could just flip a switch to deliver them. ...It's just getting from where we are today to our digital future.

"Different companies are dealing with it differently. Those fees for set-top boxes are all regulated. The idea that companies are making money of them? Not a chance."

Another view

For now, we'll give the last word to Nicholas Johnson, an old friend and one of the rarest of creatures in American politics: a gadfly who had power. Nick served on the F.C.C. after being appointed by President Johnson. He was young, he was unknown, and Congress waved him in, having little idea how much grief it would take from its corporate constituents for it.

He served from 1966 to 1973, and has been reflecting on his time on the F.C.C., as well as media policy (which he teaches at Iowa Law School), ever since. Here's his new book, which I recommend to anyone interested in the history of media policy as well as insights on every major issue facing the Commission today.

Perhaps the most famous thing Johnson did while on the F.C.C. was kill the ABC-ITT merger. He did that just by asking pesky questions in public hearings. As a vote, he had no power to stop the merger (which was actually approved by the Commission with his dissent). But he could undermine it in that simplest of ways: by questioning the legitimacy of it.

I called up Nick to ask him if he had much memory of the Carterfone case, the one that gave companies the right to compete with AT&T on telephone equipment.

Turns out, HE WROTE IT.

"I was only permitted to write two majority opinions while I was there" on the F.C.C., Johnson said. The other one? It led to the creation of MCI. Well, then.

"I worked as a clerk at Iowa-Illinois Gas & Electric in Iowa City as a kid," said Johnson. "They didn't have a monopoly on equipment. As long as you could plug it into the wall you were OK. And I always though that's the way things should be.

"But AT&T took the position that anything that connected to the network that they didn't own was, in their jingoistic term, a foreign attachment, up to and including the plastic cover on the telephone book, which they took the position that this could bring the entire network down.

"Well, I thought this was all bullshit. I thought if you could plug something in the wall and it didn't blow out anything" -- and recall that the F.C.C. currently certifies wireless devices as safe -- "then you should be allowed to use it."

Somehow, he got enough commissioners at the time to agree with him, and thus began the end of the monopoly power of telephone service. And what about cable TV companies?

"The customer ought to have the option to either rent the box by the month forever, or buy it outright. For instance, I have a little device that connects you to the Internet by wi-fi. You pay once -- that's it. I always say people should be allowed to rent. And the companies should hire wheelbarrows to take the money to the bank every month."

Just as Nick Johnson was able to stop what was at the time a major media merger just by opening his mouth, you wonder if Matthew Meeds has tapped into something, and could score a victory in the court of public opinion even if his case goes nowhere in a court of law. It would be nice if Meeds would open his mouth, but even if he doesn't, it seems there are a lot of frustrated customers like him who will be more than happy to take his place.