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The Tiresome Return of the “Gas & Electric” Analogy

It’s baaack.  Gary Kim, self-described member of MENSA, elected to link to our recent article about a customer in Austin having his Road Runner service cut so that he could drag out that we have heard before.  Mr. Kim, who has penned his views for a boatload of industry trade publications, as well as running a few of his own, has trotted out that old chestnut about not paying flat rate for gas, electric, and water.  Except he takes the analogy to the extreme “conservation” argument, as if the world of online video is leading us to a broadband global warming catastrophe.

Are you as smart as the industry guy?

Are you as smart as the industry guy?

Now I’m not a member of MENSA.  My experience with IQ tests was limited to those wooden pyramid puzzle things they used to put on your table at the Cracker Barrel.  But I’ll give this a shot anyway.

Lots of people get upset about bandwidth caps that strike me as extraordinarily generous. Does anybody think the planet or the economy would be better off, companies better able to improve service or people given incentives to “do the right thing” if electricity, gasoline, water, natural gas or heating oil were sold on an “all you can eat” basis.

Which bandwidth caps are extraordinarily generous?  The 5GB cap on your wireless phone plan (or the one Frontier considered but discarded in light of the competitive advantage it now seeks in one Time Warner test market), the 40GB power user tier Time Warner started out with, the 150GB limit AT&T is playing with, or the 250GB cap Comcast has today?  The caps are all over the lot, with each company swearing on a stack of press releases their cap is the one most justified and required if a company can survive the Irwin Allen-like Exaflood future.

Second question: What exactly is “the right thing?”  Bowing to the cable television industry’s business plan opposing a-la-carte video packages in order to enjoy the revenue that comes from all you can watch television?  Is it the wrong thing for people to make their own decisions about what they do with their Internet connection?  We’ve been down the road of why the Internet is not the same thing as oil, gas, or even water for that matter.  StoptheCap! reader Brion perhaps had the best debunking of this analogy:

I suggest a simple analog to demonstrate how bandwidth usage tiers is not in any way like your utilities.

Instead of thinking of bandwidth as being like water or gas, think of water or gas companies implementing what Time Warner proposes: cap your usage and give you a meter to monitor it. But that is only half the analogy.

First off, in the best case scenario you already provide your gas, electric, or water meter readings to your utility and they bill you based on consumption. But if you don’t then they either read the meter (attached to your house) directly or make an estimate based on past usage.

Secondly, utilities meter consumable resources: gas, water, electricity — all of which cost time, money and energy to generate. Bandwidth does not get “generated” or “produced” it simply exists at a specific level based on the network hardware Time Warner owns or leases. Bandwidth cannot be consumed in the sense gas can be consumed because when a user stops using bandwidth the amount they were using is once again available for someone else to use. So the real problem (if there is one) is one of simultaneous bandwidth usage.

One could liken this to a water main that’s 12″ in diameter and serving 20 houses on one street. The civil engineers that designed the water main system designed it to service 20 houses on that street. Now imagine the city building 20 or 30 extra houses on the same street without replacing the water main and then telling everyone they now have a “water cap” and if they go over that cap they must pay extra for their “heavy usage”.

Anyone in their right mind can see that the main is simply too small for the demand of 40 – 50 houses because it was built for 20 and it should be upgraded instead of trying to get everyone to reduce their usage or suffer poorer water pressure performance and extra charges.

Time Warner has oversold its bandwidth (the size of the pipe, not the amount of data) and it needs to upgrade its Internet connection, not downgrade the customer experience (while simultaneously charging them for the downgrade).

They’re trying to tell us that this potato is called an apple and for the vast majority of fruit-lovers they won’t notice a difference. Bandwidth is not the amount of data you send or receive, it’s the amount of data you can *possibly* send or receive *at one time*. They are completely different things!

Mr. Kim then suggests he doesn’t necessarily like his electricity or water rates, but he conserves because there is a penalty for unrestrained use.  Actually, there isn’t really a penalty at all.  Gas, electric, and water service are sold on a true metered basis.  There are no “bucket plans” for these services.  They are also utilities, and their rates are either regulated outright, or carefully monitored in the limited competition models some states have for these services.

Your water company bears the minimal cost of pumping a gallon of water from a body of water or aquifer.  It then resells that water at a per gallon rate marked up to cover all of the overhead and expenses it has, sets a little more aside just in case of a non-rainy day, and delivers it to you at a rational, non-gouging price.  If you don’t want to pay, you leave the faucet off.  On the Internet, the faucet drips… all the time.  The only way you are assured of not paying is to unplug your modem, never check your e-mail, and avoid websites with ads, because those are now now on your dime, especially when Time Warner marks up its wholesale cost by 1000% or more for that data.  It’s like getting a glass of water but handing half of it to the stranger walking by your house, who also wants you to pay him a dollar on top of that.

Time Warner is also, like many cable providers, hip deep in a conflict of interest on broadband consumption.  Cable has a vested interest in forcing you to “conserve” your connection, particularly by not using those services which directly compete with its business models.  Streaming video online offers the customer the possibility of foregoing a cable TV package altogether.  A Voice Over IP telephone provider on the Internet makes Time Warner’s Digital Phone product redundant.  A Netflix set-top box that streams movies and other video programming in competition with premium/pay per view channels represent just one more service that panics many in the upper floors at Time Warner Cable’s headquarters.

Consider the difference between wireless “unlimited” plans and other plans that simply offer more minutes or capacity than you actually use in a month. Is there really any practical difference–for most people–between “truly unlimited” and “more than I can use” plans?

unlimited-callingThank you for at least bringing up the telecommunications industry in this equation.  After all, telephone and wireless telecommunications services are a far better analogy than big oil and gas.  You yourself saw the writing on the wall for the long distance market in some of your essays several years back.  This was a business whose costs to deliver the service were plummeting, especially with the advent of Voice Over IP, and as those costs declined, so would prices, threatening the very business model for long distance in the United States.

Ironically, it was the very same cable companies that are whining about Exafloods and a crisis of costs who have contributed to the demise of “long distance.”  Time Warner, among others, are now pitching cheap unlimited calling plans to customers who will never pay for another long distance call.  In the wireless industry, price skirmishes have already broken out with carriers marketing true unlimited calling plans or calling circles which, for most people, mean no more airtime minute watching.

When I renew my Verizon Wireless contract this December, I will be handed a new phone and the option of a better plan with more minutes at or below the price I am paying now.  By that time, there is every likelihood Time Warner will be asking me to pay three times more ($150 a month) for precisely the same level of service I am receiving now for around $50 a month.  One of these companies is responding to the reality that bandwidth costs are declining, and are reducing rates and offering more.  The other is taking advantage of a very limited competitive market and wants to triple charges claiming they are on the edge of broadband bankruptcy — only they’re not when you read their financial reports.  Guess which is which.

I am also glad you are asking real people these questions, because companies like Time Warner certainly aren’t.  Any reader here can recite poll after poll.  The overwhelming majority of broadband customers, even those who are not defined “at the moment” as “abusers” of the network are content and satisfied paying one monthly fee for their service.  They don’t want your plan, the industry’s plan, buckets, limits, caps, overlimits, or whatever else the marketing people decide to call the equivalent of Internet rationing at top dollar pricing.

We are consumers.  We are customers.  We are not industry insiders and we don’t write for industry trade publications.  We don’t get a paycheck from this industry.  Indeed, this industry raises our bill year after year, delivers inconsistent messages about why we are now being asked to pay for “buckets of broadband,” yet still denies us the ability to choose the channels we want for our own video package, paying just for what we want.

We also are empowered and educated enough to use this incredible tool called the Internet to research the assertions some make and simply expect others to accept at face value.  We now read financial reports and statements.  We verify.  We also discover the language of the lobbyist, the marketers, the astroturfers, and the executive elements that are now attempting to sell consumers on their scheme to pay considerably more for the exact same thing, or less.  Then we compare that with the glowing results given to shareholders, and we see the chasm between the two messages.  We realize what we are being sold:  a soon-to-be-even-more-inflated bill of goods.

Frankly, you don’t have to be a genius to recognize that looking at a gas gauge, worrying about overlimit fees, and being stuck paying $100 more a month for broadband is not going to make anyone outside of this industry happy.

Caps are just buckets. As long as the buckets are capacious enough, the plans clear enough, the usage information available and the prices reasonable, buckets work. Bandwidth caps are just buckets.

The first time a consumer gets a bill from a company with a plan like Time Warner’s, they are going to kick the bucket.

Anyone who doesn’t recognize and admit the real potential of market abusive pricing and policies in a limited competitive marketplace isn’t being completely honest, especially when the players do not offer roughly equivalent levels of service.  If the future of broadband in this country is to be unregulated virtual duopolies, then perhaps consumers need to insist on common carrier status for those networks, allowing equal access to a variety of competing providers, with oversight to guarantee fair wholesale pricing and access.

Currently there are 2 comments on this Article:

  1. Jeffrey_Bays says:

    Great Article, but my ADD won’t allow me to finish reading it in one sitting. 🙂

    One thing that the gas and electric industry has is a resource buy in pricing schedule. Your local provider buys a unit of gas or electric from a producer, marks it up based on predicted service and delivery costs, then adds a small profit. Last time i checked, there was not a regulatory group that controlled the price per gig of internet content delivery. Even if they did, say the wholesale price is $.10 per gig, double that ($.20) for service and delivery, and 200% profit ($.20), and you still come out with $.50 per gig. How come they aren’t billing like a utility. Let me know my per gig price, my delivery charge, then meter me. If i use only one gig a month, I pay $1 for supply and delivery, and another $.50 for my usage. When I buy electricity or gas, I do not buy tiers. It’s not like I pay for X amount for X amount btu’s or gallons, then am charged an overage charge. But if I don’t use what I bought, I just overpaid for a tier that was too big for my estimated usage.

    TWC should be thrown before congress and demand that they explain themselves. If they say their services are like a utility, then THEY (only TWC) should be forced to opperate like a utility. Taxes and all. They would see their client base evaporate overnight in lieu of alternative broadband providers. Some how managed to RUIN a free market product and service that every other provider remains to keep profitable.

    If they say that their broadband delivery unit is not profitable, maybe they should save a tree or two and stop sending me their “Bundled” phone flyers every other day.

  2. TXMike74 says:

    I am just curious, is ANY cap reasonable? Take ComCast for example, isn’t there an abuse “Cap” at 250GBs? When most folks are using 8-12GB/month average, with “power users” in the 20-30 range, doesn’t flagging 250+ for review and possible suspension reasonable?

    It’s not like it’s some free mystery meat that just shows up at your door. “They” pay for it wholesale, and then build a pretty sophisticated (and shared) network to delivery it to us. It’s not like Gas or Electric pipelines that pretty much run without issue, save for the occasional storm. Computer networks are under constant attacks and need constant care-feeding-monitoring.

    On my cable node, if I am a medium user minding my own business, why should I suffer is some jerk is sucking up 10x the average user, all day, every day?

    ISPs messed up a long time ago when they moved to an “all you can eat” model without clearly defined “acceptable use” constraints.

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