Crime Does Pay: Can You Cut Cable Theft Rates in Half?

By Mavis Scanlon Tracking cable thieves is tedious work, and Mark Fisher, the security manager at Cox’s Hampton Roads, Va., system, is well suited to the task. He has the serious demeanor and deliberate speech patterns that are telltale signs of his law enforcement background. The seven years he spent as a cop in New Orleans prepped him for one of the less glamorous parts of the job of catching and prosecuting cable scofflaws: the paperwork. A fair amount of investigatory work is involved for those in Fisher’s position. The job also entails forging strong ties with local, state and, sometimes, federal law enforcement, so it helps if you know the arena. "We will work a particular case and turn it over to law enforcement," Fisher says. "It’s on a silver platter.it’s done. We even do the case files and the documents in the same fashion." Catherine Mitchell, who in November was named executive director of loss prevention at Cox.a new position at the corporate level.says cable has to rethink its approach to theft. "Loss prevention to us is an opportunity," she says, referring to Cox’s efforts to convert nonpaying customers. "I’ve been able to go [out to different systems] and find the expertise and share best practices." In Las Vegas, for example, auditors check the plant for problems as they conduct their audits, so the relationship between auditing and field operations is very close. "Theft is reduced," Mitchell says, partly due to good operational diligence.there are fewer opportunities for thieves. As security manager for the 420,000-subscriber Hampton Roads system, Cox’s fifth-largest, Fisher captains a team of 10 field auditors who go door-to-door and physically check every single cable connection, and two investigators who use more high-tech methods to find those who are hooked up to receive premium channels without paying for them. As far as the audits go, "you literally have to have someone at the site, literally looking at the cable plant," Fisher says. "Anything else, even though there may be higher-tech ways of doing it, you still would need to have someone out there to disconnect the service, or to make any necessary repairs to the cable plant." Fisher, who has been in Virginia for the past three years, is trying to duplicate in Hampton Roads what he did during his five-year stint as security manager for Cox New Orleans.cut cable theft rates in half. That effort is as much about stopping the average Joe who’s purchased a cable descrambler from the Web and the purposeful thief who’s spliced into the cable company’s line as it is about catching the more cunning rogues who manufacture and distribute black boxes. Cox Checks In February, Cox instituted Cox Checks, a national initiative to standardize theft-busting procedures across the company. As part of its PR push, Cox invited reporters to observe the efforts at the system level. I made plans to join Mitchell in Hampton Roads; we would both ride along with a field auditor. I arrived at the system’s headquarters in Chesapeake, Va., on a frigid, windy day in late February. Due to snowy conditions in Atlanta, Mitchell’s flight was canceled, so it fell to Fisher to shepherd me around. A short drive took us to neighboring Norfolk. After passing through one neighborhood of neat brick homes and another of slightly more dilapidated homes, we joined auditor Sam Turner as he was finishing up his shift. He had spent the past few days auditing nonsubscriber addresses in this neighborhood of yellow, gray and beige vinyl-sided, two-story apartment buildings. High above the ground on the side of each building was a Cox lockbox, filled with what looked like a mass of squid-ink spaghetti, but what is actually a well-ordered system; each Cox system uses color-coded tags and a marking procedure for installations and disconnects, Fisher says. "When auditors come out, we retag the line again," he tells me. "We also have a tagging mechanism where we can actually demonstrate when we were out here and what we found when we were out here." It had been a lackluster day for Turner, as far as catching thieves goes. Of the 70 to 75 boxes he inspected that day (a figure higher than Cox’s companywide average of about 50 per day), Turner found only two "UAs".a cabler’s term for unauthorized access.and a third line that the customer had called to have disconnected but was still functioning. Although audits vary depending on the assets, resources and size of a system, it’s "a constant effort," Fisher says. There is no specific timetable for the current phase of auditing nonsubscribing addresses in Hampton Roads, which passes about 655,000 homes, but Fisher says it likely will continue into the foreseeable future. "As long as we find our efforts are productive and generate returns for the system, we will continue," he adds. During the week of Feb. 23, the 10 auditors in the Hampton Roads systems completed audits of about 2,600 nonsubscribing addresses, according to Thom Prevette, VP, government affairs and public relations, for the system. Of those, about 12% to 14%, or about 340 homes, had connections that "were at odds with our billing records," Prevette says, and were disconnected. About 40 of those, or 12%, were successfully converted to paying customers. A Cash Cow? By focusing on conversions rather than prosecutions, loss prevention "is really a way of delivering RGUs," Mitchell says, using industry parlance for new customer connections. It’s a notion the industry has been paying more attention to over the past few years. Like the majority of operators, Cox adheres to the "three strikes" rule.it does not hesitate to prosecute if it finds someone reconnecting after three requests to become a paying customer.but as Claus Kroeger, Cox SVP operations, notes, "the legal route is the least desirable." As he and Mitchell point out, auditing at the system level to ferret out nonpaying subs is the only way to keep cable signal theft from remaining at double-digit levels. Any effort to eradicate theft has to start with "properly and appropriately qualifying subscribers," says Stan Durey, an industry consultant and former head of product security at Motorola. Throughout its short history, the cable industry has been pressured by Wall Street to show growth by adding new customers. The challenge the industry has faced is to strike a balance between quickly growing its subscriber base and determining the validity of those newly added subscribers. "To some extent that hasn’t really changed," Durey says. Due diligence on customers.and new hires.is a big step. After that, "the only thing that works is continual, repetitive, verifiable audit," he says. "One-shot passes through a community every five years is not a solution. It has to be a systematic approach that allows the operator to continually put a presence in the community that says we’re going to demonstrate that it’s a concern." In its systems that have taken the approach that Durey recommends (Durey has worked with several Cox systems), Cox has seen measurable results. After continuous audits over the past seven to eight years, San Diego’s theft rates have fallen to 6% to 8% of nonsubscribing addresses that are audited. That compares to Cox’s historical average over a 20-year period of anywhere from 5% to 15%, depending on the system, and an industry average, according to the NCTA, of roughly 11.5%. Of the nonpaying "customers" in San Diego, Cox is successful in converting about 34%. That compares with an industry average in the 27% to 28% range. Cox has had success cutting its theft rate in New Orleans, where Fisher, the former New Orleans cop, headed security efforts. Theft rates were cut to about 5% from 11%, Fisher says, and have remained at the lower levels since he left that system. Cutting a theft rate of 10% in half "is the kind of upside" that is doable, Kroeger says. "We’ve seen some systems maintain those levels and lower." At a cost to Cox of about $2 per address, audits are not cheap, although operators say it’s simply a part of the business. A "manageable" level at Cox, or one at which the cost to perform audits does not outweigh the benefits gained through customer conversion, hovers near the 2% to 3% range, Kroeger explains. That "is probably the break-even point," he says. "Part of what we’re doing here is to see how low we can go." One of the problems with trying to get to a zero theft level, as Jaye Gamble, SVP of Comcast’s Washington Metro-Virginia region, explains, is that as new services are deployed it doesn’t take long to figure out ways to steal them. An amnesty period of between two to four weeks will typically precede or coincide with an audit. These programs have to be coordinated with local law enforcement; some operators, such as Time Warner Cable, don’t rely on amnesty as much as other operators. But amnesty can work. In June 2003, Comcast held a 30-day amnesty program in its Washington Metro-Va. region. The program netted between 7,500 and 10,000 calls, Gamble says. He declined to provide the conversion rate, but said the program was very successful. "When we took over the systems [five years ago] and started to implement Comcast procedures to identify and prevent cable theft, we immediately saw it start to diminish," he says, although he declined to provide numbers. Audit procedures, from training of technicians, to tighter and more efficient processes leading to more succes-sful prosecutions, have gotten better, he says. Theft in the Internet Age By the early 1990s, it was becoming clear to operators and set-top box manufacturers that piracy was an issue. Motorola predecessor, General Instruments, created an office of security to respond to compromised security in set-tops. Although some operators, notably Time Warner Cable and Cablevision, pursued cable thieves aggressively, in those early years, the focus was on prosecuting distributors of cable set-top descramblers. A decade later the problem is still significant, for both cable operators and satellite distributors (see accompanying sidebar). Some operators, such as Cox, say this era’s technologically advanced cable plant is more sensitive to any sort of illegal activity. The bevy of new services being offered means those additional services have to be checked, and that means more intensive training for field auditors. For the theft peddlers, the rise of the Internet means a great potential customer base for their products such as black boxes and digital filters. Brian Allen, director of corporate security at Time Warner Cable, says one change he has seen in recent years has been an increase in cable poaching by identity thieves.or as he says, theft by fraud as opposed to theft by descrambler. "The Internet is the bad guys’ best friend," says Nilda Gumbs, director of the NCTA’s Office of Cable Signal Theft. "It makes them much more anonymous." With more at stake, operators have toughened their views on cable theft. A few years ago, it would be up to individual systems to pursue thieves or not; the biggest MSOs now have someone at the corporate level overseeing efforts to stop theft. Lobbying at the state level has paid off in at least eight states; Pennsylvania, Maryland, Delaware, Virginia, Illinois, Michigan, Florida and Arkansas have more stringent statutes, fines and new codes that address broadband security. Content providers have begun to force operators to pay more attention to the secure distribution clauses in affiliation agreements.clauses that were once considered simply boilerplate additions to contracts. One result of the industry’s efforts has been smaller theft rings. "Previously there were fewer, but larger, rings out there," Gumbs says. The industry is also making an effort to change consumer attitudes toward theft. Allen at Time Warner Cable says one of the most heinous aspects of the fight is the complete disregard that some people have for the theft of cable service.the overall sentiment is that it’s more like getting a lucky break than actually stealing from a cable company. "Cable is a product, not a right," he says. "There is a lack of understanding on all levels of the concept of intellectual property," notes Donovan Gordan, SVP, sales and affiliate marketing, at Showtime Networks and chairman of the Broadband and Internet Security Task Force, an entertainment industry consortium. If the cable industry has its way, those attitudes will change this year. Although the NCTA’s Office of Cable Signal Theft has worked since 1986 as a clearinghouse for theft information and lobbying efforts and has supplied operators with materials to help fight theft, for the first time it is sponsoring a cable theft awareness week, to be held in June. (Over the past year or so the NCTA has distributed about 500 theft "kits" to operators.) Court TV, which won a first-place CTAM Mark Award for an anti-signal theft commercial it produced last year, will produce a few spots this year as part of the NCTA’s weeklong effort. Last year, 250 cable systems requested Court TV’s anti-theft spot within the first two months it came out, according to Ellen Schned, SVP, national accounts and affiliate marketing, at CourtTV. Can Theft Be Eradicated? Early this fall, the NCTA will release the results of its fifth industry survey, which was ongoing at press time, on the economic impact of cable signal theft. The oft-quoted estimate of $6.6 billion in annual losses from cable dates to its last survey, in 1999-2000. That was up 29% from the $5.1 billion 1995 estimate. So why can’t the industry terminate thievery? In part it’s due to the sheer audacity of the crooks. As Durey, the consultant, points out, for the thieves, there is motive, means and opportunity. The motive clearly remains money, he says, and the Internet gives them the means and opportunity. Even after decades of hunting down organized rings of distributors, cable operators and law enforcement officers can still be surprised by their boldness. Just one example is the case of the Briskman family, in which husband, wife, son, daughter and assorted relatives ran an assembly-line set-top box factory in the basement of their Pikesville, Md., home and sold black boxes on eBay. While the factory wasn’t unusual, the high level of family involvement was. That case led to 55 arrests. Only a handful of those went to trial; most worked out plea bargains with the state of Maryland. Some alleged thieves, such as Maryland’s Anthony "TV Tony" Herold, a former subcontractor who hooked people up illegally and collected their money, and Carlo Mireles, who in February pleaded guilty in Las Vegas to several counts of conspiracy, mail fraud and assisting in the unlawful interception of cable communications (an associate, Darryl Poll, pleaded not guilty), kept returning to the game even after previous arrests and, in some cases, jail time. Audits, stronger statutes, amnesty programs and stepped-up prosecutions can reduce theft, but they can’t stop it entirely. Even at Cox, which can tout lower theft levels on a system-by-system basis, cable theft rates over the past two decades have remained fairly consistent. No matter the method, operators have to be as ceaseless in their pursuit of thieves as the thieves are in devising new ways to steal. Like the Corinthian King Sisyphus, who was cursed for eternity to roll a boulder up a hill just to see it roll back down, every time one cable thief is taken out of circulation, another takes his place. If greed is ever eradicated, maybe cable theft will be, too.