Rogers Cable: Setting the Bar Lower Than Ever

Just a day after Netflix announced they are coming to Canada, Rogers Cable has responded by announcing it is lowering the usage allowances of its customers.  Stop the Cap! reader Munly writes to inform us Rogers Lite service plan, intended for occasional users, has dropped its 25GB usage allowance to 15GB per month, making it suitable for even less usage.

New customers on Rogers’ popular Extreme plan will find their usage limit cut from 95GB to just 80GB per month.  But if you accept the cut in your allowance, Rogers will increase the speed on that tier from 10Mbps to 15Mbps, allowing customers to blow through that usage limit that much quicker.

Existing customers may be grandfathered in, at least temporarily, but Rogers is notorious for eventually terminating grandfathered plans and moving customers to higher-priced alternatives.

All this from a company that claims it offers its customers “abundant usage.”

Rogers buries in the fine print the fact customers can stay with their current higher allowance if they forego the speed increase.

AND AN EVER INCREASING BILL

With the new lowered usage allowances, Rogers offers tips for customers to reduce their usage, including our favorites:

Use medium quality photos when sending them through e-mail. Your family’s cherished memories don’t deserve high resolution, even if you want to send them to a digital photo lab for printing.  Maybe you could get the kids together and have them draw copies of those vacation pictures with crayons.  At least they won’t be online using up your Rogers Internet ration.

Be aware of how others in your home use your Internet connection.  If you are not spying on your family’s online usage, it’s your own fault if we send you an enormous bill.  In the time it took you to read these tips, your kids could have downloaded over 20 e-mails, looked at more than three web pages, or watched almost a minute of online video.  Don’t make us bill you for that.

Turn off Peer-to-peer programs when you’re not downloading. Better yet, since we know you are using them to steal the content we’d like to sell or rent you, stop using them altogether… or else.

Try the tools. No, we’re not talking about us, silly.  If you are doing more than reading your e-mail or browsing web pages, look out because we’re coming for your wallet.  You can try and outwit our overcharging ways by using our usage notifications service, which will flash messages to you that we’re about to cash in on your over-usage.  Hey, don’t say we didn’t warn you!  Remember, if you use Rogers Internet to download files, stream video or music or play online games, we own you.

Does this mean I should use the Internet less to avoid paying more? Is Sarah Palin American?  You betcha.  We want to get the most out of our customers who use their Internet service too much, which is why we expose them to up to $5.00 per gigabyte if they exceed our ever-dwindling usage allowances.  Our goal is for you to feel free to use the Internet as you always have, just so long as you recognize it’s not free and that you’ll need to pay us for every web page your read, more if you dare to watch cable programming online you should be watching on our cable TV service.  The only surprise you’ll have about your bill is that we haven’t found a way to charge you even more… yet.

What About Netflix? Seriously? You weren’t really thinking of using that service on Rogers were you?  A word to the wise — we can cut your allowance down even further.  Go outside.  Read a book.  Rent a movie from Rogers Plus or enjoy some great Rogers Cable TV.

Rogers Cable’s Internet Packages

A Before And After Comparison

Rogers Old Pricing and Usage Allowances

Rogers All-New Pricing and Usage Allowances, Effective July 21, 2010

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Netflix is coming to Canada.  Sort of.

Canadians will be able to sign up for Netflix’s on-demand video streaming service beginning this fall, but will Canadians be interested in using the unlimited service on their usage-limited broadband accounts?

Netflix is not planning on bringing its rental-by-mail service to Canada, instead relying exclusively on streaming its library on-demand over the Internet. Netflix currently licenses streaming rights for over 17,000 titles in its 100,000 plus library.  How many of those titles with be licensed for Canadian subscribers is not yet known, nor is an exact price for the service.  Netflix will launch for English-speaking Canadians at the outset, with French to come later.  This is the first time Netflix is making its service available outside of the United States.

But many Canadians are questioning the value of Netflix in their heavily-usage-limited country.  Most Canadian ISPs have either chosen or been forced to limit subscribers’ broadband usage.  Even ISPs that want to offer unlimited service find flat rate wholesale pricing nearly impossible to get because of Bell’s stranglehold on the market.  Cable providers like Rogers have implemented their own usage limits to boost revenue and keep costs down.

For Canadians living under an average usage cap of 40-60 gigabytes per month, adding streaming video will only eat their allowance that much faster.

“Netflix and the Canadian press covering this story have ignored the reality of bit-capped Canada,” writes Stop the Cap! reader Jeffrey from Calgary.  “I would be paying $75 a month for a broadband account and be limited in how I could use the service.  The CRTC (Canada’s equivalent of the Federal Communications Commission) has been in the providers’ pockets for years and this is why high bandwidth services bypass Canada or risk failure if offered here.”

Rogers, one of Canada's biggest cable companies, also happens to own one of the largest chains of video rental stores: Rogers Plus

Jeffrey believes Canada’s largest broadband providers, including Bell, Rogers, Shaw, Telus, and Vidéotron will never allow Netflix.ca to gain the kind of foothold it has in the United States.

“These companies all own or control Canada’s cable, IPTV, and satellite TV services, all of which are threatened by an American company like Netflix,” Jeffrey notes. “They’ve already got universal usage limits on their accounts, but these guys will also run to the CRTC and Canadian government to throw up roadblocks over everything from copyright and licensing issues to Canadian content rules and the initially ignored Québécois.”

Jeffrey believes more than anything else, Internet Overcharging schemes will serve their role in keeping would-be competitors under control.

“In Canada, we already had the debate about who gets to use our pipes for free,” he says. “Thanks to the CRTC, only the providers get to use them for free.  Everyone else pays a usage tax to them which fattens their bottom lines while stunting the growth of Canadian broadband.”

In Quebec, it’s much the same story.  Asperger notes Zip.ca, a Canadian rent-by-mail service, can get him 20 new DVD releases a month for around $25.  If he signed up for Netflix, anything beyond five DVD’s a month would put him over his limit forcing him to “pay and pay, and then pay some more.”  With Canadian ISP’s increasing their penalty rates for exceeding usage allowances, the overlimit fee could easily exceed the cost of just sticking with Zip.ca’s by-mail service.

Or, for many Quebecers, the next best alternative is Bibliothèque et Archives nationales du Québec, which offers an enormous collection of DVD’s that can be checked out for free.

Canadian press accounts of Netflix’s imminent entry into Canada have largely ignored the limits Canadian Internet providers impose on their subscribers, something readily noted by readers who comment on those stories.  Canadian consumers are well aware of their usage limits, and they avoid services that could expose them to even higher broadband bills.

Those who use their Internet service heavily, unaware of overlimit fees up to $5 per gigabyte, will be educated by bill shock when their next bill arrives in the mail.  After that, no more Netflix.ca for them.

Still, Netflix.ca will probably deliver a challenge to the already-stressed Canadian video rental market where Blockbuster and Rogers Plus duke it out for a dwindling number of renters.  Price cuts have not stopped the erosion of interest in DVD rentals, and Blockbuster is mired in more than $900 million in debt, trying to avoid bankruptcy.

The Canadian Radio-television Telecommunications Commission's support of industry-promoted Internet Overcharging schemes may limit Netflix's success in Canada.

If Netflix’s streaming library, mostly of titles two or more years old, is deemed sufficient by many Canadians, it could also cause a wave of cancellations of premium movie channels and other cable services.

The Ottawa Citizen reports some analysts believe Netflix.ca will cause an earthquake in the Canadian entertainment marketplace.

Carmi Levy, an independent technology analyst based in London, Ont., believes Canadians can expect a major entertainment industry shakeup this fall.

Levy says Netflix will sound the death knell for movie-rental services such as Blockbuster and Rogers Video and will force a pricing war among traditional cable and satellite TV providers who will be forced to scramble to keep customers.

“Netflix is not some Johnny-Come-Lately to the market. Even though they are new to Canada, they have been so successful in the U.S. that only a Canadian living underneath a rock wouldn’t be aware of their brand,” Levy said. “It’s the most seismic change to the content distribution system landscape that we have seen. It forces the incumbents to change their business model.”

Levy said the arrival of Netflix will allow casual TV watchers to cut their satellite and cable TV bills in favour of Netflix’s all-you-can-eat monthly offering. He said the $9 U.S. a month charged by the company was carefully thought out and he expects to see a similar price on the service later this year.

Click here to view the embedded video.

CBC News discussed the introduction of Netflix Canada and how it will work with Netflix vice president Steve Swasey.  (5 minutes)

Click here to view the embedded video.

CTV News and its Business News Network ran four reports on the impact usage caps might have on the service, what kinds of titles will be available, and what it means for Canada’s entertainment businesses.  (12 minutes)

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Hulu has announced a new premium service that will deliver entire seasons of network TV shows at 720p high definition resolution for $9.99 per month (plus applicable taxes).

The concept of Hulu Plus has been around for months now, as Hulu’s owners (Disney, NBC Universal, News Corp and Providence Equity Partners) contemplate the increasing cost of delivering video to millions of Americans during an advertising industry crisis.  Advertising revenue no longer covers the costs, so Hulu hopes paying subscribers will.

The free version of Hulu isn’t going anywhere — in fact the service has just signed agreements with CBS and Viacom to bring shows that formerly were seen on Joost over to Hulu.  Time Warner (the entertainment company, not the cable operator) is also bringing some of its shows to Hulu.

But free viewers will continue to find access to the latest shows limited, typically to the last four to five episodes.  If you want to catch up on an entire season, you’ll need to pony up ten bucks.

The prospect of watching nearly every network show from ABC, CBS, Fox, and NBC over your home computer, television or other devices including the iPhone, iPod Touch, iPad, PlayStation 3, Xbox 360, and Blu-Ray players from Samsung, Sony, and Vizio would give you more than 3,000 viewing options to choose from.  But before getting too excited, there are some downsides to Hulu Plus:

1. You’re still going to watch commercials. Just like basic cable, you are going to pay to watch commercials on Hulu Plus.  That will be a deal-breaker for many who believe if you pay a monthly fee for it, you shouldn’t have to watch advertising.  Netflix offers online viewing as part of its $9.99 monthly service and there is no advertising.
2. You still have to wait to watch shows. There is no live streaming of network shows.  You’ll have to wait until the next day like everyone else on Hulu to catch the latest episode.
3. Don’t you dare watch on your smartphone. With Internet Overcharging schemes in place at AT&T and presumably on the way at Verizon, nothing eats your allowance faster than online video.  Paying $10 a month for Hulu Plus will be dirt cheap compared to the overlimit fees you’ll pay if you exceed your usage allowance.

The cable industry still thinks it could have a better product in the end.  TV Everywhere’s variations from Comcast and other cable operators are provided free of charge to existing cable subscribers (although the advertising load may end up being greater).  Many cable network shows are better received than some of the swill served up by the networks, and cable could be free to provide season passes right from the outset.

An introduction to Hulu Plus. (2 minutes)

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TV Everywhere isn’t just for the United States.  Canadian cable operators are also threatened by cable cord-cutters, although their pervasive Internet Overcharging schemes have kept TV addicts from watching too much video online.

Both Shaw Cable (serving western Canada) and Vidéotron (best known in Quebec) have this week introduced their own online video portals providing “authenticated” cable subscribers with access to on-demand movies and television programming as an extension of their cable package.  But neither company is willing to exempt its customers from Internet Overcharging schemes which apply data caps and overlimit fees to broadband accounts.

Of the two services, Shaw Cable’s is bare bones, offering a relative handful of TV shows and a movie library.  No live video is provided, and many titles carry per-viewing fees, even for cable subscribers.  Non-subscribers face even higher fees to view programming.  Vidéotron takes a different approach, offering a video portal called Illico Web that offers on-demand and live streaming feeds of a wide range of cable networks, mostly in French for its Quebec subscriber base.

Shaw positioned its video-on-demand service as an extension of its cable service.  It hopes its announced acquisition of Canwest Global, which runs the Global television network in Canada and 18 cable networks will vastly expand its offerings in the future.

Vidéotron warns its subscribers watching its service eats into monthly broadband usage allowances.

“Technology continues to evolve with the ability to watch content on multi-platforms,” said Peter Bissonnette, President, Shaw Communications. “That’s why Shaw is investing in bringing exceptional content delivered in various ways. Our new broadband VOD Player provides our customers the convenience of watching their favorite movies and television shows when and where they want to.”

Pierre Karl Péladeau, the president and chief executive officer of Vidéotron’s parent Quebecor was more abrupt when he said on Wednesday that its TV Everywhere service would offer “an alternative to piracy.”

But in Canada, there is a catch.  Neither cable provider offers subscribers unlimited broadband service.  Both employ Internet Overcharging schemes ranging from usage caps to consumption billing schemes with overlimit penalties.  Vidéotron reminds its subscribers to “keep an eye on your Internet usage.”  That’s because they don’t exempt their online viewing service from their usage limits.  Vidéotron’s video portal does eat its way through subscriber allowances.  The company provides these estimates to help guess by how much:

Click here to view the embedded video.

Illico Web produced this video introduction to its TV Everywhere service. (French with English subtitles — 3 minutes)

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Despite claims that broadband is not eroding Time Warner Cable’s cable television business, the nation’s second largest cable operator has begun a “TV Everywhere” trial to expand broadband viewing options for “authenticated cable subscribers” and plans IPTV tests by the end of this year.

A “small number” of subscribers are now participating in the TV Everywhere trial in the New York City area, accessing premium channel content online, if they also subscribe to the channel.

James Manchester, regional president of network operations and engineering in the company’s New York City system told Broadcasting & Cable that the tests will verify whether the authentication process functions properly.

Manchester expressed urgency that unless Time Warner Cable moves to manage video content online, the company will continue to lose subscribers.

He told B&C cable’s erosion of video subscribers, at a time when digital voice and broadband subscriptions continue to grow, makes it essential to move to more of an IPTV environment.

“It’s no secret that we’re losing video subscribers as an industry,” he said. “We can’t afford to wait.”

Time Warner Cable sees challenges from several potential competitive threats:

• Online video: Services like Hulu and Netflix, and time-shifting services that allow viewers access to on-demand programming online represent a real threat to the traditional cable-TV model.  Customers can cut the cable cord and watch everything online for free or for around $10 a month.
• IPTV: Niche and ethnic programming delivered over IPTV networks allows third parties to create mini broadband-based cable systems using hardware that mimics a cable box, delivering potentially dozens of channels to subscribers without giving a cut to the cable company.

Click here to view the embedded video.

SkyAngel used to deliver its lineup of Christian television channels over satellite, but switched to an IPTV platform in 2007.  This video explains how the service works.  (3 minutes)

TV Everywhere allows Time Warner Cable to control who has access to cable programming, restricting it only to those who haven’t cut cable’s cord.

Time Warner Cable’s solution for IPTV competition is to bring those services under TWC’s own menu of offerings.

One example in KyLin TV, a multi-channel Chinese language IPTV service.  Today, customers pay KyLin TV for service they watch over Road Runner’s network.  But Time Warner Cable could potentially get a piece of the action if it moved KyLin TV into its own IPTV package.

Manchester says TWC would like to be able to make such IPTV programming services an extension of the TWC offering.

Despite some earlier assertions made by company officials that DOCSIS 3 upgrades were designed to improve broadband service for Time Warner Cable customers, it turns out DOCSIS 3 is the foundation for the cable company’s future IPTV and “big pipe” platform.  Manchester says DOCSIS 3 will enable the company to service the wired home of the future.  It will deliver content to an edge device (such as an advanced router) with a hard drive and caching capacity that will link to home computers, MP3 players, or any other device on which consumers want to view content.

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AirRunner Wireless serves a small portion of central Wisconsin from its headquarters in Marathon.

A wireless Internet provider serving central Wisconsin has banned online video streaming from its wireless Internet service, telling its customers WISPs are not designed for it.  To drive home the point, the service is jumping on the bandwagon of AT&T’s mobile network 2 GB usage limit with some stringent limits of its own.

Bill Flood, owner of AirRunner Networks LLC dispatched e-mail to every one of its central Wisconsin customers informing them some are violating the company’s use policies by streaming online video on its service, which it cannot accommodate.  Flood blamed companies like Netflix for forcing him to carry the costs of transporting movies and TV shows to his customers:

Hello! Over the past month we have been seeing an increasing issue on the network during peak times. From our investigation we have determined these problems stem from customers who are streaming Netflix or other ‘instant movie or movie on demand’ type services.

These types of products should not be used on the network for these reasons:

First, a wireless network uses access points, those by design do not handle continuous connections without affecting the other customers of that access point. Because the movie stays connected for a longer period of time, eventually other customers simply get less access and as a result see a severe network degradation.

Our Acceptable Use Policy over the years has grown as a result of new technology.

Not all new technology works well on every type of Internet platform. Although some customers have told me they have been using this type of service in the past, the increased usage spurred on by recent Netflix advertising, a CD for Wii devices and now by one of the satellite TV companies has brought this issue to the forefront.

These companies see the Internet as a means to save their resources and push the load onto the Internet.

Welcome to the Internet circa 2010.  The days of a voice declaring “You’ve got mail” from your AOL account are long gone.  Customers are demanding access to a much richer multimedia experience available online today.  That demand is beginning to regularly collide with the limitations some networks have to deliver the service.

To make sure his customers understand the implications of streaming video, Flood is also introducing one of the most punitive Internet Overcharging schemes we’ve yet to encounter, starting with a monthly usage limit of 5 GB accompanied by some vicious overlimit fees:

All non-business customers will be allotted 5 GB of total aggregate usage.

If the customer exceeds 5GB of total aggregate usage on any given monthly billing cycle, they will be assessed an additional $30.00 to cover their bandwidth use.

If any customer exceeds 10GB of total aggregate usage on any given monthly billing cycle, they will be assessed an additional $60.00 to cover their bandwidth use.

If any customer exceeds 15GB of total aggregate usage on any given monthly billing cycle, they will be assessed an additional $90.00 to cover their bandwidth use.

Although these additional charges seem excessive, we are not alone on making such changes as the rest of the ISP’s [Internet service providers as well as cellular providers] are also implementing similar programs on their networks to deal with network congestion issues caused by ‘on demand’ type products. The good news is, the typical Internet customer never exceeds 5GB of aggregate usage. Only a small percentage of our customers are involved in this ‘on demand streaming activity’. Here is what can be done by the typical customer while not exceeding the 5GB threshold: Our basic residential Internet packages will offer 5GB of usage — that’s the equivalent of 500,000 basic text e-mails, 2,500 photos, 40,000 web pages, over 300 hours of Online game time, 1,250 downloaded songs, or a mixture of the above! 1,000 megabyte (MB) = 1 gigabyte (GB) We will send out a notice to everyone again when we are ready to implement these changes.

Flood’s e-mail doesn’t tell the whole story to his customers, however.

First, his imposed overlimit fees are ludicrously high.  A customer using 16 GB for the month would face an overlimit penalty of $90.  Considering AirRunner’s pricing, that’s a potentially enormous bill:

AirRunner offers six rate plans for residential and small business:

• $15.00 256K/256K, tiered access. New accounts only

The below programs require a contract.

• $19.00 1.0 Mbps/768K, tiered access. New accounts only
• $45.00 2Mbps/1Mbps, tiered access
• $55.00 2Mbps/2Mbps, tiered access Bi-direction connection; useful for working from home.
• $65.00 3Mbps/1Mbps, tiered access
• $75.00 5Mbps/1Mbps, tiered access

Second, “the rest of the ISPs” are not in fact imposing similar programs.  AT&T just abandoned theirs for DSL customers in two cities.  Attempts to ration broadband access typically meets resistance from consumers, if not an outright revolt.  As soon as customers get a bill with a $90 overlimit penalty on it, they will revolt as well.

It is true that wireless providers do face bandwidth challenges, but that’s not always disclosed to customers until after they sign up for service.  In 2010, would you sign a two year contract for a broadband service that banned online video?  Of course, if Flood offers the only service in town, for all practical purposes he can dictate the terms of the service provided.  But many customers have long memories and when another provider does arrive, they’ll take their business elsewhere.

Therein lies a potential problem for Flood.  A considerable part of central Wisconsin has been served by Verizon North, one of the divisions Verizon has sold to Frontier Communications.  Verizon dramatically cut investment in Wisconsin broadband expansion as soon as it became apparent they were leaving.  Frontier Communications is betting its long-term survival on bringing at least 1-3 Mbps DSL service to areas just like central Wisconsin.  It’s a safe assumption at least some parts of Flood’s service area will be challenged by Frontier DSL within the next year.

At that point, perhaps Flood will adopt a less hostile attitude towards his own customers.  Some of those who departed didn’t appreciate Flood’s tone or actions and shared some of his hostile communications on the subject.  Taking an adversarial stance even with former, paying customers never works well.  Among the thoughts Flood has shared:

• If you don’t like his caps, move to the city;
• One customer was told his service was canceled because he just doesn’t get it — besides, Flood wrote, he can do whatever he wants;
• Customers who are caught streaming are gone;
• If you complain too much, watch out.

Third, Flood follows the discredited playbook of trying to convince customers a 5 GB usage limit for the Internet in 2010 is reasonable with generous-sounding e-mail and web page browsing allowances.  Flood himself exposes the real issue — customers want to watch YouTube, Netflix, and Hulu and his network can’t handle it.  Of course, his marketing materials never bother to mention any of this.  Only after customers sign up, many under a two-year contract, does the truth come out (underlined emphasis ours):

In the case of ‘streaming video/movies or on demand type products or services’ recent weeks shows exactly what happens when these types of products are used. Everyone who uses ‘on demand or streaming products or services’ also knows there is an alternative which does not have an affect on any other user. We suggest the alternative as the best solution. We would appreciate everyone’s cooperation in resolving this current issue. If you are streaming movies you are making everyone mad!! Someday you may want to use the Internet and your neighbor will be streaming, then you won’t work. Wireless Internet was not designed to watch TV or movies.

If you are a ‘on demand user’ you may want to look at other options in lieu of streaming movies over the Internet. A basic resolution movie is typically 700Mb of data. So 1000Mb is equal to 1GB. So roughly 3-6 on demand or streamed movies will draw and additional charge to your account. All paying customers have the right to access their Internet connection, however any customer cannot deny any other customer access as the result of their usage. When this occurs policy is made to correct such actions. We make every effort to provide the best service we can, sometimes new Internet based programs and products do not work well on this type of network, that is not the fault of AirRunner Networks LLC and we cannot guarantee that any type of program or product will work properly or as advertised.

At least Flood was finally honest about the implications of watching online video from a provider with a low monthly usage allowance.  Just watching 3-6 online movies blows right through it, even fewer if it’s an HD title.

Unfortunately for Flood and other WISPs with similar network constraints, the evolution of the Internet and its online resources will increasingly place pressure on many networks that were built for a 1990s-era Internet.  As advanced video game streaming technology, online movies and television, online file backup, and other high bandwidth innovations not yet envisioned become increasingly popular, companies like AirRunner will be forced to upgrade their network or add new applications to the ban list, eventually facing obsolescence if a better provider arrives in town.

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Spangler

While the mainstream media and some of AT&T’s apologists tell consumers AT&T’s 2 GB monthly usage limit will impact only a handful of “abusers,” the cable trade press is telling its readers the industry insider’s secret — consumers will blow right through those caps.

Todd Spangler, who is an Internet Overcharging advocate and columnist for Multichannel News, a cable industry trade magazine, writes the implications of AT&T’s usage cap couldn’t be clearer to him.

The new iPhone 4, introduced yesterday to the predictable media crush, provides 10 hours of battery life for playing video, among other features.

But now that AT&T has eliminated its all-you-can-eat plan for smartphones, you will blow through the maximum 3G usage for the entry-level 200 MB plan if you watched just 4 minutes of streaming video per day. That would include commercials.

Even AT&T’s more generous DataPro 2-GB plan would allow just 35 minutes per day of streaming video (assuming you used your iPhone for nothing else), according to the carrier’s online data calculator.

Like a stopped watch, at least he’s right twice a day.

Spangler celebrates the opportunity AT&T’s overcharging scheme provides the cable industry to “grease the skids” for data caps and overpriced consumption billing on cable modem service.

In Spangler’s “Cable companies pay my salary”-world-view, it wasn’t that Time Warner Cable did the wrong thing when it tried to triple broadband pricing — to $150 a month — for the exact same level of service customers previously enjoyed.  It was all about its execution.

Spangler characterizes Time Warner Cable CEO Glenn Britt as a victim, burned over the company’s failed overcharging experiment in 2009.  When one plays with matches, is it any surprise there are consequences?

Consumers will respond to more overcharging schemes the same way they did a year before — with overwhelming condemnation and opposition.  It’s hard to convince consumers to pay a higher price for limits on usage while telling shareholders you’ve invested less to expand your network, charged more to access it, all while the costs to provide the service have dropped dramatically.  Consumers call that out for what it is: greed.

Make no mistake, consumers hate usage caps and overpriced consumption billing and Time Warner Cable has no justification to introduce either.

Click here to view the embedded video.

Normally business-friendly CNBC covers the introduction of the 2 GB usage cap on AT&T smartphone data usage.  Then the CNBC anchor got skeptical about AT&T’s claims this was good news for consumers, admitting she hates overcharging schemes that deliver a surprise on the bill at the end of the month.  Lance Ulanoff, editor of PC Magazine expressed some doubts himself.  (8 minutes)

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“If (Comcast) can’t rape and pillage, it’s probably not a great investment.” — Dr. John Malone, former CEO Tele-Communications, Inc. (TCI Cable)

Susan Crawford

The age of content producers blissfully producing websites and ignoring broadband policy is over.

That message comes courtesy of President Barack Obama’s former Special Assistant for Science, Technology, and Innovation Policy, Susan Crawford, who rang warning bells over corporate control of the Internet last week at the Personal Democracy Forum in New York City.

Crawford, now a law professor at the University of Michigan, delivered a presentation arguing that increased corporate dominance over broadband has stalled the Gilded Age of the communications revolution.

Even as broadband becomes an increasingly important component of an American economy in recovery, marketplace concentration and laissez-faire broadband policies have combined to allow a handful of companies to control broadband access, with the potential of limiting access to web services and stalling entrepreneurial online innovation.

Crawford builds her case for a threatened broadband future:

• As of 2010, 75-85 percent of the population will have only one choice of provider capable of delivering 50-100Mbps speeds — their local cable company;
• Major cable systems have clustered their operations and do not compete with each other;
• Verizon has suspended expansion of FiOS, its fiber to the home service, indefinitely;
• Comcast, the nation’s largest cable operator with 24 million customers, 16.3 million of which take their broadband service, seeks a merger with NBC-Universal, providing a built-in incentive to limit broadband distribution of video content to non-subscribers who cut cable’s cord.

Click here to view the embedded video.

Watch Susan Crawford’s presentation warning the tech community about the implications of America’s broadband duopoly given free rein.  (17 minutes)

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unlimited

Main Entry: un·lim·it·ed
Pronunciation: \-ˈli-mə-təd\
Function: adjective

1 : lacking any controls : unrestricted <unlimited access>
2 : boundless, infinite <unlimited possibilities>
3 : not bounded by exceptions : undefined <the unlimited and unconditional surrender of the enemy — Sir Winston Churchill>

An Alaskan Internet service provider is baffling its broadband customers with a blizzard of BS regarding just how unlimited its “unlimited” service plans really are.

A Stop the Cap! reader in The Last Frontier drops us a note to alert us of yet another provider trying to pull a fast one on its customers.

GCI markets cable-TV, telephone and broadband service in larger communities across many parts of the state.  Its broadband service, dubbed “Xtreme,” offer DSL-like speeds at a significant price premium over what users in the lower 48 pay for Internet access.

Since 2007, our reader writes, GCI offered customers a deal.  In return for letting the company provide all of your telecommunications needs — cable, phone, and Internet, GCI would provide you with unlimited broadband service.  The triple-play package was sold for at least $80 a month, and many customers agreed to the bundled route to avoid GCI’s restrictive, data-capped plans sold to its broadband-only customers.

GCI is now reneging on its end of the deal thanks to a creative redefinition of the word “unlimited.”  For the convenience of those who may be English-challenged, Stop the Cap! has provided the Merriam-Webster definition of the word “unlimited” above, which hasn’t changed much since its first use in the 15th century.

Broadband providers like GCI think they are clever enough to change all that.

Much to the chagrin of GCI’s bundled customers, the company unfairly slapped a “Fair Access Policy” on all of its unlimited customers on April 1st.  Customers started receiving usage warnings this spring, which came as quite a surprise for an “unlimited” service plan.  But the company insists it hasn’t limited its “unlimited” plans at all:

GCI offers some cable modem Internet service plans with “unlimited downloads”, meaning GCI does not bill customers additional fees for usage in a given month.

Actually, that isn’t the meaning of “unlimited” at all, no matter how much the company wishes it was.  Again, see the definition above.

In fact, even using GCI’s own definition, nonsensical as it is, it isn’t reality-based either.

Customers who exceed the arbitrary limits GCI determines as “fair,” could be subjected to higher pricing.  GCI’s website currently lists the overlimit fee starting at an impenetrable $0.005 per megabyte, which sounds pretty low until you realize it’s $5.00 per gigabyte, which is significantly higher than what most other naughty cappers charge.  On slower speed plans, GCI’s overlimit fee is a whopping $0.03 per megabyte — $30 per gigabyte.

What happens when you overuse your GCI unlimited Internet?  GCI will contact you to discuss your account and then ask you to agree to either reduce usage or pay additional fees for usage in a given month.

GCI loves to make its limits look mighty big by representing them in megabytes instead of the more commonly used gigabyte measurement.  They also include the usual comparisons: over 10,000 web pages, 250,000 e-mails, 1,000 pictures, etc.  On the lower speed plans, GCI avoids defining the far-smaller allowances for higher bandwidth services like near-DVD HD video streaming some Alaskan families may want to use during those cold and dark Alaskan winter evenings.

Here are the limits GCI assigns to its “unlimited” service plans:

That’s usage ranging from 40-100 gigabytes.  What this illustrates yet again is that Internet Overcharging schemes are ridiculously arbitrary.  A provider in rural Alaska defines “fair” use of its slowest speed “unlimited” broadband tier (3 Mbps/512 Kbps for $45 a month) at 40 gigabytes.  Meanwhile, Frontier Communications considers it fair to define its DSL service usage allowance at just 5 gigabytes per month.  Comcast says 250 gigabytes a month is fair.  AT&T’s wireless smartphone data plan now carries a 2 gigabyte limit AT&T claims is about right.

As is also commonly the case among Internet Overchargers, any unused allowances do not “roll over” to the next month.

GCI considers anyone exceeding these limits engaged in continuous high-volume data transfers, extensive use of streaming video and peer-to-peer file sharing programs, or using an unsecured wireless signal everyone in the neighborhood has hopped on to use.  But just backing up your family computer through an online backup service over a month could easily put you over these limits.  If a “mutually agreed on” solution cannot be reached to either limit your use or increase your price, GCI will show you the door.

Essentially, GCI hobbles its broadband service plans by imposing limits on services that could challenge some of its other products.  For standalone broadband customers, GCI builds in plenty of protection against customers potentially using its Internet service to bypass its cable and phone offerings, despite some recent speed and usage allowance increases.  How much online viewing will you feel safe doing on some of these Internet service plans:

Monthly service fees

Our reader in Alaska thinks the usage limits are unjustified considering GCI’s capacity, and its prices:

GCI has well over 600 Gigabits of capacity across two undersea fiber optic cables.

Since 2007, the only way to get an unlimited download option for the company’s various speed tiers was through its bundled packages.  With the new limit on “unlimited” downloads, GCI fraudulently misrepresents its service to Alaskans.

GCI is the poster child for the cable industry’s push for metered billing. I think you’re well aware that cable companies view metered billing as an anti-competitive solution to fend off emerging competition from online content providers like Hulu and Netflix Online. Time Warner backed down when confronted with the possibility of regulation for the entire industry. They will however try again if companies like GCI continue to have success over a long term. This is why it’s imperative that groups like Stop the Cap! fight beyond your region and get regulation passed to bar forced bundling and data transfer limits entirely. Content providers (video services) should be separate entities from network providers (ISPs). It’s the only way to keep rates low and businesses competitive. Thank you for keeping up the good fight.

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Customers of Vistabeam in Nebraska and Wyoming who subscribe to the company’s rural Wireless Internet Service are about to discover their online activities are about to be capped… for real this time.

Matthew Larsen, who runs the Wireless Cowboys blog, includes some illustrative examples of Internet Overcharging schemes in action and what they’re all about.  He writes about his experiences at Vistabeam, which serves rural Nebraska and Wyoming with wireless broadband service.  The company started operations with an admittedly-unenforced 3GB usage limit, backed up with a stinging $25/GB penalty overlimit fee to underscore the point.  Today that cap is described by Larsen as “a joke” — too low to be taken seriously.  [Note to Frontier: Are you reading this?]

But the company was determined to monitor and measure its customers’ online activities and developed an in-house tool that is providing daily insights into customer usage, and gives Vistabeam the ability to begin penalizing customers who exceed the limits established by the provider.

Wireless providers, known as WISPs, often provide the only Internet access in rural areas that are too sparsely populated to deliver DSL service and where cable television is a financial impracticality.  For Nebraska and Wyoming residents bypassed by cable and underserved by DSL (if at all), it’s often a choice between dial-up, satellite fraudband service barely capable of 1Mbps service with a punitive “fair access policy,” or an independent WISP.  A number of customers have chosen the latter.

Vistabeam offers service plans for its 2000 customers ranging from 384kbps for $29.95 a month to 4Mbps service for $99.95 a month, with a discount for paying in six month increments.  That’s not cheap by any means.  But rural Americans routinely face higher broadband bills because of the inability of providers to achieve economy of scale.  Fewer customers have to share the expenses to construct, operate and maintain the service.

But those bills could soon grow even higher if customers exceed the new harder-line Vistabeam will take on usage cap offenses.

Larsen’s measurements identified what their customers were doing with their broadband connections and identified Vistabeam’s biggest users:

Out of 2000+ customers, 80 used more than 10 gigs for the month.

One customer – a 1 meg subscriber at the far eastern edge of our network, behind seven wireless hops and on an 802.11b AP – downloaded 140gig.

Another one, on the far western side of our network, downloaded 110gig.   We called them and found out that they were watching a ton of online video.

We discovered a county government connection that was around 100gig – mostly because someone in the sheriff’s department was pounding for BitTorrent files from 1am to 7am in the morning, and sometimes crashing their firewall machine because of the traffic.

One wonders what the sheriff’s department was grabbing off BitTorrent, but the question itself opens the door as to whether or not your provider (and by extension, you and I) should know what they are doing with their broadband connection in the first place.

Larsen says the other subscribers on his list were watching lots of online video, had a virus, or had “mistakenly” left their file sharing programs running.

Larsen’s solution is usage caps and overlimit penalties for his subscribers.

A home equipped with a WISP antenna on the roof

Package                                                               Monthly Download Cap

384k                                                                       10 gigabytes

640k                                                                       10 gigabytes

1 meg                                                                    20 gigabytes

2 meg                                                                    40 gigabytes

3 meg                                                                    50 gigabytes

4 meg                                                                    60 gigabytes

8 meg                                                                    80 gigabytes

Additional capacity over cap                        $1 per gigabyte over the cap

Although Larsen claims the cap and the overlimit fee isn’t “a profit center,” it would be disingenuous to suggest it isn’t about the money (underline emphasis ours):

I feel that these caps are more than generous, and should have a minimal effect on the majority of our customers.   With our backbone consumption per customer increasing, implementing caps of some kind became a necessity.    I am not looking at the caps as a new “profit center” – they are a deterrent as much as anything.    It will provide an incentive for customers to upgrade to a faster plan with a higher cap, or take their download habits to a competitor and chew up someone else’s bandwidth.

Customers upgrading to a faster plan have to pay a correspondingly higher price for that service and taking their “download habits to a competitor” reduces the cost for the provider no longer encumbered with serving the higher-usage-than-average customer now heading for the door.  Among his 2,000 customers, the end effect will be what Larsen himself hopes is a deterrent for customers using increasingly common higher bandwidth applications like online video, file backup, and uploading and downloading files.  Larsen himself admits that one of his customers was a little bit upset to be told he was using too much.

Rural providers do face higher costs to provide service than their urban counterparts.  But before they enjoy any benefits from Universal Service Fund reform or other government-provided stimulus, customer-unfriendly Internet Overcharging schemes should not be part of the deal.

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Phillip "Will Wait for it to Hit Netflix" Dampier

Hollywood studios have a proposition to make.

How would you like to gain access to the latest Hollywood releases on your cable, satellite, or broadband connection even while those movies are still playing in area theaters?

The Motion Picture Association of America says it’s willing to let you watch first-run Hollywood blockbusters from home, but in return, they want the right to control what you can do with your television set.

Time’s up for you to make up your mind.  The Federal Communications Commission has decided you were going to say “yes” to this proposition anyway, so they went ahead and approved it on your behalf.

Specifically, the MPAA appealed to the Federal Communications Commission to get approval for its proposed Selectable Output Control technology.  You probably never heard of that, but the concept actually has been around for a few years now.  When movie studios float trial balloons about enabling the technology, public interest and consumer groups start hollering and it typically gets shelved for awhile.  Not this time.

While the public policy debate continued, chances are the manufacturer of your television set or monitor manufactured after 2004 has probably already included some support for SOC — just waiting to hand over control of your television to Hollywood studios, cable, satellite, or IPTV companies.  On May 7th, while we were debating Net Neutrality, the FCC released its order approving the Hollywood Remote Control Confiscation Act (my name sounds far better than the FCC’s — Petition for Waiver of the Commission’s Prohibition on the Use of Selectable Output Control.)

Here’s how it works:

Let’s say your cable company wants to offer you Iron Man II through pay-per-view starting today.  It’s a movie currently playing in many theaters nationwide.  The MPAA believes there is compelling demand among the elderly, the home-bound, and the too-lazy-to-haul-themselves-to-the-Movieplex to make it available in the comfort of your own home on early pay per view.  However, Hollywood and your local cable company don’t want you making copies of the movie to hand out to all your friends.  With SOC technology, that becomes less of a problem because the cable company can selectively disable the outputs on the back of your television that don’t use copy control technology.  That means old fashioned analog outputs can be disabled for up to 90 days during SOC-enabled programming, making sure you cannot record any of the content without the approval of the studio or your cable company.

Is it worth losing control of your television to watch Iron Man 2 before it arrives on DVD?

Certain digital outputs will still function, as long as they support robust anti-recording/copying technology.  No more time-shifting SOC-protected content on digital video recorders to watch later, no more analog VCR taping of shows the industry doesn’t believe you have a right to record anyway.

For decades, Americans have fought for fair use rights that permit home recording and copying for personal use.  The entertainment industry has never fully accepted that, and have eroded away the ability for consumers to make legitimate personal use of content they have already purchased with digital rights management schemes, copy protection, region coding, and other limiting technologies.

SOC technology effectively forfeits all of your rights.  The only consumer protection the FCC provides is a requirement that your cable, satellite, or broadband provider warn you when they are employing SOC anti-recording technology.  At least you’ll know when your home recording rights are being trampled.

If your television set doesn’t have support for SOC built-in, the FCC just made your television set obsolete.  Write and thank them.  While initial deployment of SOC is only expected to be used for “early pay per view,” don’t believe for a moment such powerful controlling technology available to entertainment companies won’t be used in the future for other types of content they don’t want you recording.  Premium movie channels like HBO or Cinemax would be obvious examples.  TV networks that would like to sell you their network shows on DVD or through online services might find it worth their while to disable your ability to record your favorite shows.  If you don’t have an SOC-capable set, it’s likely you won’t be able to access protected programming at all.

With the ongoing convergence of broadband, television, and other forms of home entertainment distribution, SOC is a foot in the door to permit third parties to make decisions about how you can view or use content you’ve already paid to receive.  That’s a bad precedent.  The FCC approval of this gift to the entertainment industry is a travesty that needs to be reversed.

Click here to view the embedded video.

KCTV-TV in Kansas City ignored the consumer’s loss of control over their own television set to focus instead on the implications for theater owners, who may become natural allies with consumers in opposition of SOC.  (1 minute)

Click here to view the embedded video.

Public Knowledge developed this web-ready video that takes a less formal look at SOC and its impact on your consumer rights.  (3 minutes)

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Another day, another re-purposed video portal.  Last September, AT&T launched AT&T Entertainment, little more than a site filled with embedded TV shows from Hulu you could already watch… on Hulu.  Today, AT&T launched the same concept under the rebranded “AT&T U-verse Online.”

“The benefits of multi-screen convergence are coming to life for AT&T U-verse customers,” said Dan York, president of content, AT&T. “With AT&T U-verse, you can enjoy your favorite content on U-verse TV, U-verse Online, and soon, your mobile device with U-verse Mobile. We have an unmatched ability to deliver on the multi-screen vision, and working with leading programmers, we’re providing entertainment to consumers in new and integrated ways not yet offered by our competitors.”

“U-verse Online features tens of thousands of hours of entertainment, and since its initial launch in September 2009, has continued to add content from additional networks and studios,” says a statement from the company.

But in reality, U-verse Online remains almost entirely a Hulu affair, with the majority of its video content coming from the popular video site.  Only the name of the site is changed to give customers the perception of value from something anyone could build themselves.

Watch how easy it is for Stop the Cap! to launch its own amazing video portal, Stop the Capped Video Online!:

The Abbott & Costello Show, one of the featured titles on AT&T’s U-verse Online (and also on Stop the Capped Video Online!)

Stop the Cap! reader Michael, who sent along the tip, wonders if this is AT&T’s version of TV Everywhere.  If it is, AT&T’s shows are already available everywhere without the phone company’s help.  Just like AT&T Entertainment, AT&T U-verse Online is little more than a tool to give customers perceived value for money, even if the only cost to AT&T came from hiring some web designers to clip and paste embedded video codes from Hulu’s website.

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One in eight Americans are poised to drop or curtail their cable, satellite, or telco-TV packages in the coming year because the bill has gotten too expensive, according to a new study.

With an average cable bill now $71 a month and rising an average five percent a year, middle class consumers are being priced out of pay television according to the Yankee Group.  The Boston research firm conducted the study of cable, satellite and telephone-company IPTV services and surveyed 6,000 consumers from across the country.

“At the most basic level, the decision to cut off pay TV services is an economic one,” says Vince Vittore, principal analyst and co-author of the report. “As programmers continue to demand ever higher fees, which inevitably get passed on to consumers, we believe more consumers will be forced to consider coax-cutting.”

Coming on the heels of a steady erosion away from traditional telephone landline service which has threatened the fortunes of major phone companies, the implications of millions of consumers coax-cutting are not lost on cable operators or phone companies getting into the IPTV business.

Back to the Future: Older Americans Going Back to Rabbit Ears When Confronted With Today’s Cable Prices

Retro TV is a network that piggybacks on digital television sub-channels in many cities across the country. The network airs classic television shows popular with older audiences.

Those dropping service often take diverging paths for their future entertainment in a cable-free household.  Among older consumers, especially those on fixed incomes, it is back to the future with over the air television and a pair of rabbit ears or rooftop antenna designed to receive digital television broadcasts.

Among these consumers, the most common reason for canceling service is cost.  Many signed up for cable in the 1970s and 1980s for better picture quality, and with the right rooftop antenna, last year’s conversion to digital television solved that problem for over the air viewers.  Post-cable, many are pleasantly surprised to discover new channels piggybacking on traditional stations, several offering classic TV shows from decades past that are familiar and welcome in older Americans’ homes.  Even better — no confusing equipment to deal with.

Jesus Chea, 59, of Queens, told the NY Post he ditched his Time Warner subscription “because I’m on a fixed income and I believe it’s not worth the money.”

To get around the $136 monthly bill, the retiree, who lives with his wife and two grown sons, had antennas installed on both of his TVs — at a cost of $298 — taking advantage of last summer’s national conversion from analog to digital broadcasts.

“Antenna is great,” he says, “because they don’t charge you for rent on digital boxes and they don’t charge you for the remote control. When you add up all those extra fees and so many extra [cable] charges, even if it’s three or four extra dollars, they all add up.”

For many others, the arrival of Redbox video rental kiosks in area grocers has replaced the HBO subscription, and has proven to be a worthwhile supplement to the coax-cutter who drops cable service altogether.

The savings from cord cutting can be dramatic.  Some have saved upwards of $60 a month — $720 a year just by dropping the cable-TV part of their package.  Those kinds of savings have become important when wages are frozen or in decline, jobs are hard to find, and everything else is still going up in cost.

The cable industry has never imagined a country where consumers have quit cable (or satellite) and gone “cold turkey,” especially when upwards of 90 percent of Americans pay for some type of entertainment — pay television, movie rentals, or broadband video.

But as the Yankee Group discovered, Americans are simply tapped out.

Your Father’s Cable TV: Why Would Anyone Under 30 Subscribe?

For younger Americans, the addiction to cable or pay television was something that afflicted their parents.  They never had a problem dropping service from a cable company with whom they never did business.  The teens and twenty-somethings have spent most of their video dollar on broadband and DVD’s for much of their viewing, not cable.

Younger cable subscribers are most at risk for coax cutting, rationalizing they can watch most of their favorite shows online through services like Netflix, Hulu, or websites run by the major American networks.  Others download content (legally or otherwise), rent or buy DVD’s, or subscribe to services like Netflix which combine video streaming with DVD rentals-by-mail.

Many of these viewers also own devices that can bring web-based viewing right to their 50-inch television sets, using set top boxes or video game consoles with web connections.

“Admittedly, this is a small phenomenon now, but a number or recent transactions and new items point to a shift in consumer thinking,” said Vittore.

With the increasing ubiquity of Internet-capable devices, the challenge to traditional coax-based cable TV has never been greater.

“Just like with telephone land lines, it’s going to become hard to sell pay TV to anyone under 30,” Vittore said.

Provider Revenge: You Won’t Get Away That Easy!

With billions of dollars at stake, providers and content producers are intent on not allowing a repeat of what happened to the newspaper industry to afflict their business plans.  Giving it all away for free is not their idea of a sustainable business model.  Keeping tight control over content and its distribution is their ticket to maintaining profits.

Many Olympic events were not aired on NBC television, instead moved to NBC Universal-owned cable networks.

Older Americans who’ve gone back to over the air television are least susceptible to provider revenge, but content is still king and the cable industry will own an increasing percentage of it if the NBC-Comcast merger is approved.  While the two companies are currently promising not to dispense with free over the air broadcasting, an increasing amount of content could be diverted to pay television channels like cable sports networks, movie networks, and general interest basic cable channels.  Broadcasters themselves are now hungry for the same dual-revenue stream their cable competitors already enjoy – advertising income and subscription fees.

Most of the coming wars over pay entertainment are expected to be fought on the broadband battlefield.  For younger Americans relying on Hulu and other video streaming services, subscription fees are coming.  Hulu promises to keep some free viewing options open, but additional access to back episodes or certain series are likely to be restricted only to those who agree to pay an anticipated $9.95 per month.  The cable industry’s own TV Everywhere streaming services offers a clearer dividing line — its available only for those who maintain their pay television package.

Broadband providers, often the same companies that stand to lose from the retreat from television subscriptions, are considering making up the difference with limits on broadband service to make sure consumers can’t watch too much online, or charging consumption fees for heavy online viewers to make up their losses on the TV side.

The long-standing business relationship between content producers and distributors, such as those between Hollywood studios and cable companies, have led to a united front against would-be competitors.  For consumers seeking access to the latest Hollywood movies through low cost rental services or online video, expect to wait longer.  The window of time between a movie release in the theaters and when it becomes available for rental through Redbox or Netflix is growing longer to protect video-on-demand revenues for the cable industry and DVD sales for Hollywood.

Some consumers don’t mind the wait, but are still regularly reminded what they can miss when they don’t agree to a monthly pay television bill.

Jeremy Levinn, a 27-year-old personal trainer from Manhattan, told the Post he jumped the cable ship last year, but Time Warner Cable reminded him whose still boss during the Olympics, when numerous events were available only on Universal-owned cable channels including USA, CNBC and MSNBC and not broadcast over the air.

Click here to view the embedded video.

CNN aired this review of the next generation of television sets capable of connecting with your broadband service to receive television shows and movies over the Internet.  (4 minutes)

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Back in 2006, Alaska Senator Ted Stevens emphatically declared that the Internet was not a truck, but rather a series of tubes.  That’s why Net Neutrality was such a bad idea, get it?

Click here to view the embedded video.

Senator Ted Stevens Infamous “Series of Tubes” Speech from 2006.  (11 minutes)

Fundamentally misunderstanding technology and the Internet is not exclusively the domain of an ex-senator from the State of Palin, however.

North Carolina State Senator David Hoyle (D-Gaston County) managed to illustrate he didn’t know what he was talking about either.

Hoyle’s pretzel-like logic, in opposing municipal fiber broadband projects in the state, is that fiber optics could be obsolete within five years, so we shouldn’t even bother with them:

“You know the technology’s changing daily. Five years, ten years from now … wireless could replace most of fiber optics of coaxial cable or, or copper even. Might become not totally obsolete, but their ability to, uh, you know, to fund the debt service from the hard assets they had to put into the ground.”

If one extends that reasoning to his good friends in the cable and telephone industry — if fiber is potentially obsolete in five years, what about the phone company’s copper wires and the cable company’s coax?  Copper wiring was used for telegraphy starting in the 1830s and is still the backbone of today’s telephone networks.  Coaxial cable was invented in 1880 and still runs into virtually every cable subscriber’s home.  The first commercial application for a fiber optic communications system came in 1977.  In fact, most experts believe fiber optics will be the platform for America’s telecommunications network for at least the next quarter century.  The cable industry promotes its own use of fiber, and forward thinking phone companies like Verizon are relying on fiber to the home networks to stay relevant for the future.

Sen. David Hoyle (D-NC)

Fiber optic has all of the advantages:

• SPEED: Fiber optic networks operate at high speeds – up into the gigabits and still rising
• BANDWIDTH: large carrying capacity, and growing larger as advances continue
• DISTANCE: Signals can be transmitted further without needing to be “refreshed” or strengthened.
• RESISTANCE: Greater resistance to electromagnetic noise such as radios, motors or other nearby cables.
• MAINTENANCE: Fiber optic cables costs much less to maintain, and upgrades can occur without disturbing existing cable — just switch the laser technology used.

The costs to construct fiber networks, which used to be in the thousands of dollars per household, is now well under $1,000 for companies like Verizon.  Keeping happy customers and having the ability to market phone, broadband, and television services across an all-fiber network open new revenue streams which help defray initial expenses.  Fiber is an investment in the future.

Why isn’t wireless going to make fiber networks obsolete?

Allocating sufficient spectrum to support today’s high bandwidth applications is a practical impossibility, especially considering the politics and in-fighting from current spectrum holders to keep their allocations.  Spectrum is a limited resource, which guarantees limited competition, limited bandwidth, and higher prices.  While wireless applications will continue to be an important part of our communications future, it is unlikely they’ll be the favored method to support high bandwidth content in the near term.  Considering the implications of all of the new cell sites required to provide blanket coverage, it may never survive the inevitable howls of protest from neighborhoods who have to live with the eyesores.

Senator Hoyle opened his mouth and stupid fell out.  He’s not just wrong — his comments also carry implications for his constituents.

The City of Gastonia, along with Gaston County jointly filed an application alongside 35 others here in North Carolina seeking to get Google’s 1 Gigabit Fiber Optic to the Home Network.

How do city officials feel about their representative in the state legislature actively trashing fiber networks?  I will have that answer for you soon.

Click here to view the embedded video.

Senator David Hoyle (foreground, with back to camera) tells meeting fiber could be obsolete within five years.  (25 seconds)

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Today’s merger between CenturyTel (soon to be CenturyLink) and Qwest will combine 10 million Qwest customers and 7 million from CenturyTel into a single company serving 37 states in every region of the country except the northeast and much of California and Nevada.  CenturyLink gains access to Qwest’s highly valued portfolio of services sold to business customers and Qwest gets a partner that can help manage its $11.8 billion debt and help grow the last remaining Baby Bell, formerly known as US West, into a national player capable of withstanding ongoing erosion of landline service.

The deal will impact consumers and businesses, and will challenge regulatory authorities to consider the implications of ongoing consolidation in the traditional telephone service marketplace.  It brings implications for broadband service strategies for both companies, which we’ll explore in greater detail.

Breaking Up Was Too Hard to Do, So Let’s Put It Back Together

Ultimately, the genesis of this, and most of the other big telecom deals that we’ve witnessed over the past few years comes from the 1996 Communications Act, which deregulated large parts of the telecommunications industry and triggered a massive wave of consolidation that is still ongoing.  That legislation was the antithesis of the 1984 court ruling which ultimately led to the breakup of AT&T and the Bell System monopoly in 1984.  When President Clinton signed the 1996 bill into law, it allowed much of the Bell System to eventually recombine into two major entities:

• AT&T ultimately pieced itself back together with the acquisitions of:

BellSouth — serving the southeastern United States

Ameritech — serving the upper Midwest

SBC/Southwestern Bell — serving Texas and several southern prairie states

Pacific Telesis — serving California and Nevada

• Verizon became a regional powerhouse by combining:

NYNEX — serving New England and New York

Bell Atlantic — serving mid-Atlantic states

Qwest Tower - Denver

The remaining orphaned Baby Bell was US West, which comprised Mountain Bell serving the Rocky Mountain states, Northwestern Bell which covered the Dakotas, Minnesota, the prairie states not covered by SBC, and Pacific Northwest Bell which managed service for Oregon, Washington, and northern Idaho.  US West was subjected to a hostile takeover in 2000 by an upstart telecommunications company that was laying fiber optic cable in the late 1990s alongside the railways its owner, Philip Anschutz, also happened to own.  Qwest assumed control of US West that summer and rechristened it with its own name.  Owned by a Bell outsider, Qwest has always been the company that didn’t quite fit with the rest.

The company gained respect for its enormous fiber backbone that weaves across many American cities, including several in the northeast.  It is best known for its services to business customers.  On the residential side, the story is less impressive.  The company’s customer service record is spotty and the company has accumulated an enormous amount of legacy debt left over from earlier acquisitions.  Despite the company’s repeated efforts to find a partner, it took until today for it to finally find one.  There are several reasons for this:

1. Qwest’s service area is notoriously rural and expensive to serve.  Outside of its corporate headquarters in Denver, the majority of its service area is either mountainous or rural.  Even today, Qwest serves only 10 million residential customers, almost matched by CenturyTel’s own seven million largely rural customers scattered across the country.
2. Qwest’s history has been littered with financial scandals, starting with a series of deals with disgraced Enron from 1999-2001.  That was followed with charges of fraud and insider trading in 2005.
3. Qwest does not own its own wireless division and its previous efforts to deliver television service to customers were largely unsuccessful.  That made Qwest’s ability to withstand erosion in its core business – landline phone service, more difficult.
4. Qwest’s debt is downright frightening for would-be suitors.

Why Does CenturyTel Want to Buy Qwest?

CenturyTel claims such a transaction allows a combined company to become a larger player on the national scene.  By combining Qwest’s good reputation in the business telecommunications sector with combined efforts to deliver broadband products including high speed Internet, the company thinks the combination can’t be beat.  CenturyTel envisions packages of video entertainment, data hosting and managed services, as well as fiber to cell tower connectivity and other high bandwidth services to deliver replacement revenue lost from disconnected landlines.  It also believes it can realize cost savings from the merger and keep the company relevant on a stage dominated by Verizon, AT&T, and a few large cable companies.

But there are other reasons.  For the three super-sized independent phone companies that Americans are growing increasingly familiar with — Frontier Communications, Windstream Communications, and CenturyTel, their business models depend on their ability to constantly engage in deal-making and acquisitions.  All three companies have built their businesses on investors who see their stocks as “investment grade” financial instruments that dependably return a dividend back to shareholders.  As we’ve seen in countless quarterly financial results conference calls, all three companies are preoccupied answering questions from Wall Street about the all-important dividend.  TV personalities like Jim Cramer has specifically recommended these telecom stocks based, in part, on their dividend payout.  If that dividend dramatically shrunk or stopped, the share price for all three stocks would likely plummet.

One of the side effects of companies dependent on dividend payouts is their constant need to be on the lookout for additional merger and acquisition opportunities.  Here’s how it works.  Let’s say CenturyTel’s debt load and reduced revenue, caused by customer defections to cell phones or cable phone service, delivered a bad fiscal quarter for the company.  Cash flow was down, and company officials simply couldn’t keep the dividend payout at the same level as the previous quarter.  Since many people hold CenturyTel stock specifically because of the dividend, a downward turn in that payout could cause some to sell their shares, driving the stock price downwards.

CenturyTel is still digesting a previous merger with EMBARQ, which led it to rechristen the company CenturyLink

One way around this is to seek out a new merger or acquisition target.  By bringing two companies together, preferably one with a healthy cash flow, suddenly the big picture changes.  Your balance sheet now reflects the combined revenue from both companies, which incidentally makes the percentage of debt versus revenue look a lot healthier.  Cash flow immediately improves, especially if you can slash redundant costs.  Come next quarter, that dividend payout is right back up in healthy territory.

Sometimes companies become so preoccupied with their dividend and corresponding stock price, it can lead them to pay out more in dividends than a company earns in revenue.  While that’s great for investors, it is unsustainable in the long run.

Many critics of telecommunications companies employing this strategy claim it’s evidence that a company is biding time and unwilling to invest in innovation for the future.  Some also believe dividend payouts shortchange customers because they can eventually bleed a company’s ability to invest in service improvements, research and development, and capital investments to maintain their network and expand service.

As consolidation continues, the number of new buyout opportunities begins to shrink, and one shudders to think what happens when there is no one else to buy.  How long is this business model sustainable?

Both CenturyTel and Qwest also recognize the impact of ongoing disconnections from landline service, now averaging 10 percent of their customers a year.  Those departing customers are now relying on their cell phones or alternative calling services like cable company “digital phone” service or broadband-based calling from companies like Vonage or Skype.

The one service they hope can stem customer defections is broadband.  Unfortunately, telephone companies are increasingly losing ground against their cable modem competitors, who have an easier time increasing broadband speeds for customers now seeking online video and other high bandwidth applications.

Of course, one of the benefits of being a “rural phone company” is the fact cable competition is often unlikely.  In fact, some of the lowest erosion rates for landline service are in rural communities where the telephone company is the only game in town.  There is plenty of money still to be made offering high priced slow speed DSL service in communities with no cable competitor and spotty wireless broadband that is often slower and usage-limited.

All three of these big independent players are well aware of this, and maintaining a strong position in relatively slow speed DSL service also protects another revenue stream — Universal Service Fund revenue given to rural providers to equalize telephone rates.  CenturyTel recognizes the increasing likelihood much of that money will be diverted to stimulating broadband expansion, something the phone company is more than willing to do if it means preserving their subsidies.

The new combined Qwest-CenturyTel company hopes the merger can help both survive obsolescence.

For Qwest, a debt reduction may make it possible to spend more to deliver fiber-to-the-curb service, similar to AT&T U-verse.  That could increase broadband speeds and prompt them to reconsider their earlier decision to abandon IPTV in the western half of the country.

CenturyTel can continue to offer traditional DSL service with a more incremental upgrade approach in its more rural service areas, but tap into Qwest’s fiber network to reduce backhaul expenses and potentially pick up new business customers by offering Qwest-branded business services.  Company officials strongly hinted that, at least for now, CenturyTel’s existing customers will continue to find the video portion of their “triple play” package delivered by DirecTV satellite service, so no IPTV for them.

CenturyTel and Qwest's combined local service areas

What Does This Mean for Employees of Both Companies?

Mergers like this always generate great excitement over “cost savings” made possible by the merger.  Much of these savings typically come from employee expenses.  When you hear “cost savings,” think layoffs and pay cuts for all but top management.  Based on past precedent, Qwest employees can anticipate some serious job losses if this transaction closes, especially in the business office.  The combined company will be henceforth known as CenturyLink, with headquarters remaining in Monroe, Louisiana.  That is potentially bad news for Qwest’s employees in Denver.

The transaction is expected to generate annual operating cost savings (which CenturyTel calls “synergies”) of approximately $575 million, which are expected to be fully realized three to five years following closing.  The transaction also is expected to generate annual capital expenditure “synergies” of approximately $50 million within the first two years after close.  That means spending less on infrastructure improvements.

Billing and customer service are traditionally handled by CenturyTel when a company joins the CenturyTel family.  North Carolina customers can attest to that as EMBARQ, an earlier CenturyTel target, finally moves to CenturyTel’s billing system in the coming weeks.

For the sake of pushing the merger through state regulatory agencies, cutbacks in unionized technicians who handle service installations, repairs, and maintain the lines are not expected.  The Communications Workers of America issued a statement today that mildly acknowledged the merger announcement, saying the union “looked forward to serious negotiations with both companies” regarding employment security and assurances of aggressive high speed broadband rollout throughout both companies’ territories.

How the combined CenturyTel-Qwest company stacks up against other independent phone companies. (Q-Qwest, CTL-CenturyTel, FTR-Frontier, WIN-Windstream)

What Does This Mean for Qwest and CenturyTel Customers?

In the short term, nothing.  This merger will take at least a year to complete, assuming regulatory approval in every state where a review is required by state officials.  In 2011, should the merger be approved, Qwest customers can anticipate transition headaches as the Denver-based company winds down operations in favor of CenturyTel.  Billing and customer service will both be impacted.  Long term plans for major projects are likely to be stalled until the merger settles into place.  CenturyTel business customers will eventually see Qwest’s strong business products line become available in many CenturyTel service areas.  Eventually, some larger CenturyTel-served cities may find Qwest’s more advanced DSL service arriving on the scene delivering faster speeds.

Although CenturyTel has hinted it may review whether it’s now large enough to operate its own wireless mobile division, for the near term, expect the partnership to resell Verizon Wireless service to continue.

What is the View of Stop the Cap! on the CenturyTel-Qwest Merger?

Generally speaking, most of the industry consolidation that has been fueled by a deregulatory framework established by the Clinton Administration has not benefited consumers anywhere near the level promised by deregulation advocates.  The three largest independent phone company consolidators — Frontier, Windstream, and CenturyTel are spending more time and resources looking for new acquisitions and schemes to pay out dividends than they are working to enhance service in their respective service areas.  Smaller independent phone companies are deploying fiber to the home networks and answer to the communities where they work and live.  From companies like Frontier, we get Internet Overcharging schemes combined with slow DSL service, tricks and traps from “price protection agreements” that automatically renew, rate increases, and cost cutting.  Windstream plagues some of their customers with extended service outages, and CenturyTel’s promised broadband speeds often don’t deliver.

Unfortunately, bigger is not always better in telecommunications.  While the biggest players like Verizon seek to discard rural American customers, getting one of these three companies instead doesn’t always represent progress.  Our regulators are too often satisfied with basic answers to questions about broadband and service improvements that come with few details and deadlines.  It is just as important to ask what kind of broadband service a company will bring, at what speeds and price, and what usage limits, if any, will accompany the service.

Companies engaged in these mergers hope regulators don’t pin them down to specific service commitments and standards, which could harm the financial windfall these deals bring to a select few.  But they must be the first thing on the table, guaranteeing that customers also get the enjoy the “synergies” these deals are supposed to bring.

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The implications of cable-TV cord cutting continue to be discussed on several newscasts airing around the country, prompted by an Arbitron study showing Americans are more willing to give up their televisions than forgo the Internet.

In Providence, Rhode Island WNAC-TV spent five minutes pondering life without cable, noticing younger people are increasingly not even bothering to sign up, preferring the convenience… and price of watching everything online for free.

WNAC-TV’s The Buzz suspects the days of “free” might be numbered, however.

Click here to view the embedded video.

Make no mistake: The big cable, satellite, and telco carriers are still sitting pretty with more than 100 million TV subscribers. Nevertheless, a new report claims that more and more viewers are “cutting the cord” in favor of watching their favorite shows via over-the-air antennas (remember those?), Netflix, or the Web. (5 minutes)

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A survey released this week by Arbitron Inc. and Edison Media Research found, for the first time, that Americans are more willing to give up TV than the Internet.

Asked to choose the ”most essential” medium, 42 percent of the survey’s 1,753 respondents picked the Internet, 37 percent picked TV, 14 percent said radio and 5 percent said those dead-tree format newspapers.

That represents more evidence that major telecommunications companies will need to lasso control of the Internet before the cable television profit train derails.  That’s because the Internet delivers the prospect of a two-for-one deal.  Enjoy your online web surfing -and- stream your favorite television shows online at the same time — no more ever-increasing cable-TV bill for channels you never asked for and don’t watch.

Even more worrying for big cable — young people are increasingly never bothering to sign up for cable television in the first place.  In the 18-24 age group, 74 percent said they would quit TV before surrendering the Web, and many never bothered with subscription television to begin with.

The last time Arbitron and Edison posed this question in a survey was in 2001, back when dial-up access still predominated.  Back then, 72 percent of respondents said they could do without Internet and 26 percent said they’d give up TV.

“The shift over these nine years has been steady and profound,” said Edison Research president Larry Rosin.

Some consumers don’t want to watch television over their computers and would prefer to be entertained in a comfortable chair in the living room.  But Internet video innovation is increasingly solving that problem by coupling your television or DVD player to the web.  Several providers like Netflix even deliver their streaming video service through video game consoles.

How do cable companies stop the herd mentality to broadband video, leaving those big cable TV bills behind?  Stick a meter on broadband service, and charge consumers for every TV show they watch or simply put a limit on their broadband service.  The broadband usage cap or meter can, indeed, kill the online video star.

Click here to view the embedded video.

WJW-TV in Cleveland reports that more people are ready to ditch their televisions than being willing to part with their Internet connection.  (3 minutes)

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In what some believe may be the beginning of the end of the U.S. Postal Service, the plan to eliminate Saturday mail delivery this week was formally introduced to the Postal Regulatory Commission, an important step on the journey to sever home delivery to homes and businesses over the weekend.

In what the Commission called one of the most significant changes the Postal Service has ever presented to them for review, the proposal to sack Saturday mail seeks to take a bite out of a deficit the post office claims will reach $238 billion in ten years.

As more Americans move to broadband for online banking and bill paying, e-mail, and online commerce, mail volume continues to decline.  The recession isn’t helping either, as increasing postal rates challenge the torrent of profitable junk mail that reaches every American home.

But one decidedly-digital company is cringing at the thought of losing Saturday mail delivery — Netflix, the DVD-rent-by-mail firm whose sea of red envelopes moving to and from post offices around the country is a bright spot for a postal service under financial siege.  This single company expects to spend $600 million in postage this year alone.

The prospect of Netflix customers facing several days in a row with nothing new to watch horrifies those who’ve become accustomed to Saturday DVD delivery.

Netflix has tried to move towards video streaming movies and television shows over broadband connections.  Last week Netflix began offering Nintendo Wii owners the opportunity to stream the company’s on-demand library directly through the video game console, joining the PS3.

But Slate reports on-demand streaming at the prices studios are demanding means it will be a very long time before Netflix’s 100,000 title library is available for instant viewing:

While instantly streamed movies obviously eliminate postage costs, they are not a cost-free proposition for Netflix. Analysts suggest that the streaming technology itself is very cheap—it costs roughly five cents to stream 90 minutes of content—but the licensing fees can be exorbitant. Netflix won’t release the data on how much it pays for online licensing, but can apparently be quite expensive. Dan Rayburn, an analyst with Streaming Media, has said that he’s seen some streaming movies that cost as much as $4 per play.

The other potential skunk at the garden party is your Internet Service Provider, should they implement Internet Overcharging schemes like usage caps or usage-based billing.  That five cent price tag for 90 minutes of content Netflix pays would be considerably higher from ISPs seeking to charge thousands of percent markup for bandwidth.

America’s social commentators are concerned five day delivery is the beginning of the end for an institution that reaches every American.

CNN contributor Bob Greene notes no business has ever gotten ahead in the long term by reducing service to customers even as they continue to increase prices:

If mail delivery goes from six days to five, more and more Americans may decide they just don’t need it. People have available to them, as none of us needs to be reminded, computers with e-mail capability. You can correspond with friends and family and business associates; you can pay bills; you can send greetings.

Using the U.S. mail already means accepting that letters will be held up for a day between Fridays and Mondays. Elimination of Saturday mail would extend the bottleneck. And this is a country that increasingly demands speed; you’d think that someone, if only in an effort not to fall further behind, would be suggesting a seventh day of delivery be added.

Last year, the volume of U.S. mail fell by 26 billion pieces — from 203 billion to 177 billion.

The Postal Service, in gambling that doing away with a day of delivery will help heal its financial wounds, may be risking a lot.

There’s not much of a track record in American business for cutting back on services and then seeing the long-term bottom line grow. Companies that boldly announce they are going to cut their way to prosperity often cut their way to death.

If delivery is reduced to five days, and the number of letters mailed each year plunges further, the Postal Service could find itself in the position of having to eliminate even more services. Five days could conceivably go to four, or three; and if that didn’t stop the plummet in available funds, what would be the next step?

The letter carriers’ union isn’t happy about it either.  They’re convinced the post office’s plan will never survive Congressional oversight, and that in the end Saturday delivery will survive.

“We don’t see this thing — despite the hoopla that the postal service management has come up with — being approved by Congress,” said Drew Von Bergen, chief spokesman for the union that represents about 200,000 mail carriers, and 100,000 retirees.

Von Bergen told a reporter for KCRG-TV the mail carriers union sees the proposal as an overreaction to the dramatic decline in mail volumes that has resulted from a deep recession. If the postal service cuts Saturday delivery now, it will accelerate the demise of the postal service as other delivery services take up the slack, and Americans become disaffected with mail delays.

“It’s not just delivery,” Von Bergen said. “It’s delivery and collection. You’re talking about a two-day stoppage of mail movement in this country: Prescriptions, DVDs, packages people ordered by mail.”

On holiday weekends, the mail would stop for three days, Von Bergen added.

The unions are convinced the source of the nightmarish budget deficits comes from one thing: health care funding for retirees.  The recent health care reform legislation passed by President Obama does almost nothing to address the relentless immediate increases in health care costs which the Post Office must pre-fund in a type of escrow account.  If the government eliminated the pre-funding requirement, the U.S. Post Office would have finished 2009 with a cumulative surplus of $3.7 billion over its last three fiscal years according to American Postal Workers Union President William Burrus.

Click here to view the embedded video.

KESQ-TV in Palm Springs, California pondered the loss of Saturday mail delivery with area residents and mail carriers in this report that aired Monday evening.  (3 minutes)

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The United States has a goal of 100Mbps ubiquitous broadband service by 2020.  Hong Kong residents already have access to speeds up to 1Gbps, leaving many unimpressed with the American broadband goals established in the FCC’s National Broadband Plan.

City Telecom CEO William Yeung called out the current state of American broadband, noting many Americans are still stuck with megabit speeds in the single digits, while 100+ megabit access is widely available across most of Hong Kong from fiber optic networks.

Yeung thinks 100Mbps service will be considered slow by the time 2020 rolls around, noting an insatiable demand for enhanced broadband speeds.

Google’s Think Big With a Gig project underlines Yeung’s beliefs as hundreds of American communities clamor to be among those chosen for a demonstration project that will deliver up to 1Gbps speed to homes and businesses on an all-fiber network.

Yeung rejects the notion that wiring Hong Kong was a natural for super-fast fiber optic broadband just because of its dense population, reducing potential costs.

“I think it’s a matter of short term vs. long term thinking,” Yeung told Bloomberg News.

According to Yeung, American broadband providers are afraid constructing super-fast broadband lanes threaten to cannibalize their existing revenue streams, especially from cable television.  That’s because Americans could end up dropping their cable packages in favor of watching everything online.  Yeung also thinks Wall Street is preoccupied with short-term Return on Investment, making it difficult to upgrade to fiber service despite the enormous potential long term revenue, even in rural areas.

For Yeung, it’s all about marketing the benefits of fiber.  His company, City Telecom, is busily signing new subscribers despite the fact the island already enjoys near-universal broadband access.  Offering faster speeds and better service will drive customers to switch providers, Yeung believes.

Click here to view the embedded video.

Bloomberg News talked with City Telecom CEO William Yeung about fiber-optic broadband and the fact Hong Kong is well ahead of the United States on broadband speed and service.  (4 minutes)

Click here to view the embedded video.

City Telecom’s HKBN service has a history of running bizarre advertising.  One recent example is included here, along with a short promotional video touting the company’s accomplishments in constructing an all-fiber network.  (4 minutes)

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Dampier

Yesterday, the Federal Communications Commission formally introduced its omnibus National Broadband Plan to America, Congress, and the telecommunications industry.  The FCC seeks nothing less that a transformation of broadband to better meet the needs of Americans for years to come.

The 376-page plan recognizes broadband is no longer a novelty.  It’s now becoming one of the essential utilities of life — joining power, telephone and water service as something virtually every American will eventually have in their home.  But while the Commission lays the general groundwork for future regulatory policy to help achieve that goal, it ignores the historical reality that made universal service for utilities possible.

I am a strong believer in reviewing past mistakes to avoid repeating them in the future.  That is why Stop the Cap! occasionally turns back the clock and reviews history.  Railroad robber barons, telephone company monopolies, and electric service providers all abused their positions and consumers paid through the nose for service until the government finally broke up the anti-competitive trusts that limited competition.

Just like today’s broadband players, in the early 20th century, electric companies asked for and received favorable treatment by Congress.  The industry argued such treatment was required to make investors comfortable with the enormous amount of investment required to construct power generation facilities, run wiring to homes, and obtaining easy access to American streets and backyards.  Regulations must be kept to a bare minimum, providers demanded.  Anything else, they claimed, would discourage critical private investment, would create job losses, and slow deployment of service to millions of Americans.  Sound familiar?

By the time the American public realized electric companies were abusing their monopoly positions to charge outrageously high prices, the half-measures legislators proposed to control rates and improve service were often ineffective.

Just as with electric service, any broadband plan that seeks to tinker around the edges of the problem will not solve the problem.  Providers will find loopholes, lobbyists to help water down the provisions they dislike, and lawyers to mount endless legal challenges to stall reform.

The warning signs are already apparent in the FCC plan.  The agency seeks to cooperate with some of the biggest players in the industry that are responsible for what the FCC calls “the critical problems that slow the progress of availability, adoption and utilization of broadband.”

That ultimately means working with existing providers instead of creating the right conditions to welcome new players into the market.

America's broadband duopoly - just four percent of Americans have more than two providers to choose from

The anti-competitive, de facto duopoly pricing power available to cable and telephone companies has created an enormous digital divide for rural Americans who cannot pass “Return on Investment” means tests, prices broadband service out of reach for many, and seeks even higher pricing while proposing to limit service with Internet Overcharging schemes like “usage-based billing” and “usage limits.”

Where one lives is often the most important factor when considering broadband speed and service quality.  It’s the luck of the draw.  A customer on one side of the street may have the option of Verizon FiOS, a true fiber-to-the-home service providing equal upstream and downstream speeds far higher than the national average.  Across the street, a customer may only be served by another telephone company offering 1Mbps DSL with no alternatives.

Other Americans live within viewing distance of a utility pole where cable or telephone broadband service stops, giving them the choice of paying $10,000 to extend service, or living with dial-up or satellite fraudband.

Few phone or cable companies will ever consider invading another’s turf, even if customers begged.

But it gets worse.

The service customers can obtain from a provider varies even within its service area.  Verizon FiOS and AT&T U-verse is available in some neighborhoods, but not others.  What stops or slows service expansion?  Anything from a management decision on a whim to concerns by private investors, market conditions, cost controls, or changing revenue expectations that inhibit uniform service across the community.  Local governments used to manage this problem with franchise agreements that made approval conditional on supplying service across an entire community, but companies like AT&T lobbied their way to statewide franchising reforms that can eliminate local oversight.

The cable television industry has a better track record of providing uniform broadband service to customers in their respective service areas, but at what cost?  Time Warner Cable COO Landel Hobbs recently told a group of investors pricing for its Road Runner service can be increased at the company’s whim.  Comcast has already increased prices on its broadband service. Both companies have either tested or implemented usage limits and restrictions on their customers.

What makes these things possible?  Limited competition and insufficient oversight.

The FCC’s solution to limited competition includes vastly expanding wireless frequencies available to mobile broadband providers.  But here’s the problem.  The government will auction those frequencies off to the highest bidders, which are most assuredly the dominant industry players AT&T and Verizon.  For millions of Americans, that means no extra competition at all because their phone, broadband, video, and wireless service all come from these two companies.  The only way smaller players can compete in a bidding war is through consolidating mergers, which reduce the number of competitive choices in many cities.  If the government wants competition, it should provide incentives to spur its development.

Wall Street certainly won’t help much.  They loathe heavily competitive markets now, because inevitable price wars limit their returns.  Getting initial investment to construct new networks is problematic because investors don’t want excessive competition.  Providers howl it’s unfair for government to help their competitors, but their incumbency provides them with built-in benefits unavailable to new entrants.

The FCC recognizes the importance of broadband service as America’s next utility, but is afraid to regulate them as such.  They may have good reason not to try.  Comcast is presently suing the Commission in federal court, claiming they don’t have jurisdiction over broadband policy.  Should Comcast prove its case, the National Broadband Plan could be just another thesis for improved broadband, with no backing authority to implement its recommendations and regulatory changes.

That brings us to Congress.  While the FCC may bring its best intentions to the table with the National Broadband Plan, it’s very likely lobbying will force changes to what finally gets implemented, if anything.

The telecommunications industry never has a problem finding financial resources to hire lobbyists and spread lavish campaign contributions all over Washington.

They’ve already bought and paid for an enormous astroturf group called Broadband for America with 200 member organizations, virtually every single one backed by AT&T or Verizon money or personnel, or equipment providers who stand to earn substantially from broadband improvement.  They are running TV ads telling viewers private providers should be left alone to get the job done, something they’ve had a decade to accomplish with insufficient progress in key areas.

Many in Congress, especially on the Republican side of the aisle, will agree with BfA’s “hands-off” advocacy.  Early reaction from Republicans regarding the Broadband Plan is not favorable.  Rep. Cliff Stearns (R-Florida), the ranking Republican on the House Energy and Commerce communications, technology and the Internet subcommittee, told the Washington Post he wants the agency to stay focused on bringing access to people who don’t have it.

“I am concerned, however, that the plan may contain stalking horses for investment-killing ideas, such as so-called net neutrality mandates or a return to outdated, monopoly-era regulation,” he said.

Many Democrats with large telecommunications companies headquartered in or near their districts are likely also to advocate caution.

Regardless of what the FCC recommends, Congress will ultimately control the outcome.

Here are our recommendations you should consider sharing with your elected officials:

Congress and the FCC must be willing to stand up to the telecommunications industry which is not delivering world-class broadband service.  The United States is falling behind in access, pricing, and speed.  Simply accepting the provider argument that they should be left alone in an unregulated, duopoly marketplace is not an option;

Congress must deliver to the FCC clear authority to regulate broadband service and enforce Net Neutrality.  Recent court cases argue the Commission presently lacks that authority.  Congress should take every possible step to ensure the courts this isn’t the case.

Increased oversight of the broadband industry is essential.  Why does an industry making billions in profits need to consider usage limits and usage-based billing designed to deter residential use of broadband service?  Such limits are designed to protect cable-TV revenue that could disappear if Americans dump their television channel packages in favor of watching everything online on their existing broadband account.

Congress should not stand for an unregulated duopoly controlling a service that is becoming as essential as water, energy, and the telephone.  As broadband becomes an essential utility, why is the government not stepping in when the COO of the nation’s second largest cable company — Time Warner Cable, tells investors he can raise broadband prices on a whim?  Is this the 21st century version of the Robber Baron Era?  Robust competition guarantees no executive can make such a statement.  Congress must act to bolster competition, including financial and tax savings incentives for new providers willing to enter markets of all sizes;

Wireless mobile broadband spectrum auctions do not promote competition because the biggest incumbent players are sure to win the bulk of the frequencies, guaranteeing more of the same anemic competition.  Some of the newly available blocks of frequencies should be reserved for bidders who do not currently serve the market where those frequencies are available.  Only that guarantees new competition in wireless;

Free or deeply discounted access to basic Internet service at broadband speeds should be a part of any National Broadband Plan, to ensure access to every American who wants it.

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Click here to view the embedded video.

Stop the Cap! has received several requests for Sen. Al Franken’s (D-Minnesota) comments during the Senate hearing in early February reviewing the proposed merger.  So here, for your viewing pleasure, is the portion of the hearing where Franken comes out swinging in opposition to the ongoing consolidation of media companies in America. (February 4th – 14 minutes)

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Mark Cuban

Mark Cuban has once again entered the debate over online video, Internet Overcharging schemes, and giant corporate mergers… and mangled it.

Cuban, who owns HD Net as well as the Dallas Mavericks basketball team, occasionally presents cable industry talking points on his blog, but quickly gets into trouble when he strays from them.

This time, Cuban is annoyed with Sen. Al Franken (D-Minnesota) over remarks the senator made about the proposed Comcast-NBC merger.  Cuban seized on comments by Franken that Comcast should put all of its television programming online.  Doing that, Cuban insists, would lead to higher prices for broadband and usage caps on it.

Where has Cuban been?  I realize the man is too wealthy to worry about the relentless rate increases Comcast and other companies force on consumers every year, but he also forgot Comcast already has a usage cap on its service, even before the feared video tidal wave arrives.

I get that no one really cares if Comcast has to spend money on capital improvements to add bandwidth to the home.  They should. Its pretty damn stupid to push consumption in a direction that will raise internet rates  to receive the same content for which there is already a phenomenal digital network in place to deliver that content.

Think about it for a minute Senator Franken. Comcast, and every large TV Provider has a digital network in place that can and does deliver gigabits of tv content perfectly,  every second of every day, to any TV set in any  home that is connected to their network. It works. Well.  What you are asking Sen Franken, is that Comcast duplicate the delivery of theirs and NBCUniversals shows on a network, the internet,  that is not, and has never been designed to handle the delivery of huge volumes of video and tv shows.

Cuban should be arguing that point with the cable industry.  TV Everywhere, the online video platform that will offer consumers access to “hundreds of TV shows and cable programming,” is their invention.  If Cuban’s fears are correct, why would the nation’s largest cable operators launch such an ambitious online video platform?

Cuban has bought into industry propaganda justifying usage caps.  There is always an excuse for rationing broadband service to boost profits.  First it was file sharing, now it’s online video causing the “serious problem” of customers using broadband service for more than just e-mail and web browsing.  Their solution – monetize it.  Usage caps and usage based billing are about preserving high profits, not protecting or increasing network capacity.  TV Everywhere proves that.

Franken does not advocate usage caps, as Cuban suggests.  The senator simply wants to be certain Comcast cannot act as a gatekeeper, determining who gets access to Comcast-NBC programming, and who does not.

Cuban should be welcome to such measures as a victim of Gatekeeper Abuse himself.  Mark, how many subscribers did you lose nationwide when Time Warner Cable unilaterally pulled the plug on your channels?

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HBO Go is currently only available directly to Verizon FiOS customers. Comcast customers have access through Fancast, and Time Warner Cable indicated it wasn't interested in participating in HBO Go, for now.

HBO subscribers who are also Verizon FiOS TV customers are the first to get access to the premium channel’s new online video portal — HBO Go, launched Wednesday with over 600 hours of HBO programming, available free to authenticated HBO and FiOS subscribers.

HBO Go is another project spawned from the cable and pay television industry’s TV Everywhere project — putting television programming online for anytime viewing, for free, as long as you maintain a cable or pay television subscription.

Ironically, the service launched Wednesday on Verizon’s telco-TV service FiOS, leaving lots of cable subscribers waiting for access.  If you subscribe to HBO through cable, satellite, or U-verse, the service remains unavailable to you, for now.  Comcast subscribers already had access to HBO’s programming through the Fancast Xfinity TV website.  If you don’t pay for television, the service remains unavailable to you indefinitely — they won’t sell it to you at any price.

“Ultimately this is about extending the subscriber lifecycle,” HBO co-president Eric Kessler said. “It’s more about subscriber retention.”

Subscriber retention through incumbent providers, he means.  HBO doesn’t want to risk selling direct to online consumers who might want to cut ties with their cable or other pay television provider.

Stop the Cap! reader Jared has FiOS and HBO and let us sample the service through his FiOS connection (his 25Mbps/25Mbps connection with remote access maxed out our Road Runner Turbo connection and still left him plenty of leftover speed).

Let’s start with the viewing experience.

It’s a big improvement over HBO’s Wisconsin trial in 2008 with Time Warner Cable, which required viewers to download Windows Media-encoded video files protected with Microsoft’s annoying digital rights management scheme.  It was cumbersome for trial participants, and dealing with Microsoft’s player and DRM cut Mac owners out of the trial.

HBO Go is Flash-based, using Adobe’s Real-Time Messaging Protocol to keep viewers from saving permanent copies for themselves (and potentially their friends.)  Using Verizon FiOS, viewers should rarely encounter any artifacts or speed-related viewing problems.  The picture was fine, even for me using remote access software. Of course, if your Internet connection is considerably slower than FiOS or your neighborhood suffers from online congestion, you could experience issues streaming HD content, but HBO Go is designed to buffer when encountering slower connections.  The files are encoded in MPEG-4 at 1.2Mbps and 2.6Mbps, which theoretically should be fine for the majority of viewers.  Comcast subscribers – remember watching counts against your usage cap.

Wandering around the HBO Go library was simple  — easier to navigate and less cluttered than Hulu.  The site was intuitive and should be easy to use for just about everyone.

Up to three members of your household can each watch programming from the service at the same time, even away from home, anywhere in the country.

HBO Go claims to be a work in progress — about 25% of the content will be refreshed by HBO every week, with new episodes available on the service immediately following their TV premiere.

But the service hardly offers a comprehensive viewing experience.  It’s much closer to Hulu or your cable company’s HBO on Demand service.

For example, rights issues limit virtually all of HBO’s original series to a handful of recent episodes or seasons.  Only The Wire has a complete library to watch from its premiere forward.  Curb Your Enthusiasm, aptly named when considering HBO Go, is missing completely.  So is Real Time with Bill Maher, although four of his earlier specials are archived on the site.

As for movies, there are gaping holes there as well.  Available titles resemble Cinemax’s selection of movies you’ve already seen.  There are gaps between what you can watch on HBO itself and what is available on HBO Go.  Babe is online, for instance, but anything Harry Potter isn’t.

In other words, what could have been a compelling addition for HBO subscribers feels redundant.  I would never pay anything extra for HBO Go, nor will it be a factor in keeping HBO.

Online viewers need not apply.

HBO could have used the opportunity to sell the service to non-cable subscribers for a monthly fee and pick up some additional revenue, but that wouldn’t sit well with the pay television cartel that is behind the TV Everywhere concept.  They don’t want you cord cutting — those that have are locked out of the HBO Go Clubhouse.  For now, I suspect few were clamoring to get in.

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Advertising Age this week predicted online TV could be about to undergo a transformation — into the online equivalent of advertising-packed traditional television.

Starting as early as this fall, that 47 minute “hour long” show you’ve watched with a handful of commercial interruptions may become a 59 minute show, with almost 15 minutes of additional advertising piled on your viewing experience.  Worst of all, if your service provider wants to stick you with a usage allowance or “consumption billing,” you will effectively be paying to watch commercials.

Imagine after receiving your monthly pay television bill, a company representative arrives to install a coin meter on the side of your TV.  Your monthly fee just gives you access to the channels, he explains.  Actually watching them costs more.

Why introduce more advertising?

Nielsen, a ratings measurement service, will start providing its subscribers ad viewing information regardless of whether the viewer sees it on a traditional television or online.  The catch is the advertising must be the same across platforms.  That means online video could run the same ads your local station or cable network carries.

“The financial models used for the current large video hubs in the online space are not sustainable,” said Jack Wakshlag, chief research officer for Time Warner’s Turner Broadcasting. One way to make online viewing more financially lucrative, several TV executives suggested, is to use it to aggregate viewing of popular shows across TV, online and other emerging media — and then use that rating as a means of negotiating for the cost of an ad against the program.

What’s lending traction to the idea of increasing the number of commercials in online TV runs is the “TV Everywhere” concept currently embraced by industry players Time Warner and Comcast, among others. Under the plan, cable subscribers would be able to watch their favorite shows via broadband for no extra fees, while non-subscribers would be blocked. If the media companies can use this idea to control how consumers watch TV programming, they may also be able to force a more traditional amount of advertising on them, too.

Even worse, many online video providers like Hulu are considering charging viewers their own fees, leaving consumers paying three times – twice in money for broadband service and a subscription fee, once in time wasted sitting through unstoppable ads.

Some consumers don’t mind the trade-off as long as viewing remains free.  But with Internet Overcharging schemes, online video ads count against your allowance.

One TV executive told the trade magazine research suggests that 80% to 90% of people would rather watch TV online with the same load of ads as a traditional TV show if it meant doing so for free. “People don’t want to pay more subscription fees on top of their cable subscription fee,” this executive said.

It is likely testing of full commercial loads will precede any large scale rollout, if only to gauge consumer reaction.  If people refuse to pay to watch commercial advertising, the industry will have to go back to the drawing board to come up with other ideas to monetize online video.

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For months now, several groups purporting to represent the interests of minorities have busily been attacking Net Neutrality as beside the point for the poor and unserved consumer who has been left out of the broadband revolution.  To varying degrees, several of these groups have been spouting broadband industry talking points to the Federal Communications Commission, members of Congress, and the public at large.

For them, and the profitable broadband industry they indirectly represent, providing access at affordable prices is much more important than making sure providers don’t lord over the network they provide to customers.

Access vs. Openness

Consumers are perplexed by this either/or proposition.  For us, both issues are vitally important.  In urban, income-challenged areas, affordability is a crucial issue.  In rural areas, access to anything resembling broadband comes before worrying about the price.  For all concerned, making sure the Internet is not subject to corporate content control, either through direct censorship or through the far-more-common practice of pricing and policy controls, is just as important.

Providers have their self-interest on display when they promote broadband expansion — they want to receive the public dollars available from the broadband stimulus package to pay for that expansion.  Of course, every step of the way they have their fingers all over the process, from broadband mapping that protects incumbents from potential competition, defining what constitutes broadband to be as slow and as cheap to provide as possible, to implement usage rationing through Overcharging schemes like usage limits and usage-based billing, and to advocate for public policy that keeps the Money Party of fat profits running as long as possible without oversight.

The entry of minority interest groups into the debate is nothing new.  Groups of all kinds, including many who one would think wouldn’t have an opinion on Net Neutrality, are all part of the discussion.  Debates ensue, statements are fact-checked, back and forth discussion ensues.  What disturbs me is the small handful of groups who are willing to deal the race card when their own views and statements are challenged and they are threatened with losing the argument. Ill-equipped to argue the merits of their case in detail and withstand the scrutiny of fact-checking, some have introduced race into the debate to obfuscate the issues.

While I don’t doubt their sincerity and passion advocating for increased access and affordability, too many of these groups hurt their own case by accepting generous contributions (or advisory board members) from the telecommunications industry.  Consumers who witness the near total alignment of views between these groups their corporate benefactors are right to be concerned.  Many are asking if those views represent true conviction or “a dollar a holler” advocacy.

The Black Agenda Report, which created this graphic, ponders the same questions many consumers are asking

As Stop the Cap! documented just a few months ago, Broadband for America is a great example of industry-funded astroturf in action.  Large numbers of groups with no apparent connection to the broadband policy debate have found their way onto the roster of members.  From a cattle association to a Native American group that also has a burning interest in sharing their views about corporate jet landing rights, the one thing in common with virtually every last one of them was a financial contribution and/or board member working for big cable or telephone companies.  Thus far, debating a cattle association has not brought charges of being anti-cow, although I suspect consumers are anti-bull.  Debating the merits of Net Neutrality with Native American groups has not brought charges of anti-Native American bias.

Stop the Cap! itself has been on the receiving end of racial rhetoric offered by one of the anti-Net Neutrality advocates out there, Navarrow Wright.  Wright is a former corporate executive at Black Entertainment Television, and spends his days now as a self-proclaimed social media and branding expert. Last year, after exiting as CEO of Global Grind, a hip hop social network, Wright launched Maximum Leverage Solutions, which claims to be a full service consulting firm specializing in social media strategy and Internet Consulting.

Just a few months later, Wright suddenly discovered a big interest in the concept of Net Neutrality.  While he doesn’t disclose his client list, would it surprise anyone if a telecommunications company hired his services for their own “social media strategy?”

Since last fall, Wright has been generating a mix of provider talking points, Google bashing, and attacking groups that support Net Neutrality.  He’s called supporters of an open Internet “digital elites,” the FCC a player of “dangerous games” by ignoring the anti-Net Neutrality public, Free Press a group that wallows “in crazy claims and race-dividing rhetoric,” and tries to connect support for Net Neutrality as somehow representing opposition to increased broadband adoption.

Challenging and debunking his talking points isn’t difficult — they are precisely the same ones the broadband industry has used for several years now.  We invited Wright to a full, in-depth discussion about the merits of Net Neutrality and broadband adoption.  We even got the discussion started, but that’s exactly where it ended.

Wright is also incredibly defensive about the issue of industry-backed mouthpieces and astroturf efforts in general.  Suggesting Wright’s views are inaccurate brings his resume in response, which I suppose was designed to impress readers with suggestions of his built-in expertise, belied by his silence on these issues prior to last year.  In Wright’s original comment, he took our comments about economically disadvantaged Americans and made it an issue of color:

Our piece:

The letter represents the groups’ concerns that broadband for many in America is simply not available, especially for the economically disadvantaged.  They’ve been swayed by industry propaganda to characterize Net Neutrality as a threat to addressing the digital divide by making service ultimately even more expensive.

His response:

Phil, I know (at least I hope) your intent wasn’t to suggest that people of color have been “swayed by industry propaganda” and aren’t capable of thinking for ourselves on technology issues.

James Rucker, executive director of Color of Change added to the debate in late January, wondering why some civil rights groups are only too willing to support discredited industry talking points and advocate against Net Neutrality.

Rucker discovered the same thing we did.  Challenging these groups to explain their positions brings forth repetitious inch-deep talking points and total silence when a rebuttal is offered.  If pushed, they obfuscate with claims their views are being disrespected, when in reality they are only being fact checked.  Perhaps inconvenient, and even slightly embarrassing, but it’s completely appropriate for consumers to ask whether a conflict of interest exists when a group advocates for the positions of the same industry that is sending them big contributions.

The risk, of course, is to tie an organization’s good name to demonstrably false provider propaganda that some groups are willing to repeat, nearly word for word.

Take for instance Wright’s claim that Net Neutrality will force providers to spend money they would otherwise invest for the benefit of the rural, the downtrodden, and the unserved:

That brings me to the other corporate interests: the Internet service providers. It is the ISPs who must invest in, upgrade, maintain and build out the networks that allow us to receive these cool applications. While I don’t find the network side as sexy as the content side, I do know that we have to have it and ISPs need capital to build and maintain it. So the question remains who is going to pay for maintenance and upgrades to the network if Google gets a free ride? Basic economics tells us that if government requires ISPs to give Google a free ride, there’s only one other place to look for the money: consumers like you and me. What’s more, there are those who want to make it even more unfair by insisting that your big-bandwidth-using neighbor should not have to pay more than you, even if all you want to do is check email and watch some YouTube. Who will all of this hurt the most? Low-income consumers.

The only color that really matters here is green

Wright doesn’t know his American telecom history.  Let’s discuss this fiction:

1. Bruce Dixon, a writer for the Black Agenda Report says it better than anyone: “Phone companies invented the digital divide more than a century ago as their core business model, preferring to extend service to affluent areas where they could levy premium charges, rather than building networks out to reach everybody.”  The cable television industry “franchise” requirement came as a direct result of cable industry redlining, the practice of wiring wealthy neighborhoods for cable while bypassing urban and rural areas deemed “unprofitable.”  It’s the same story for broadband, and Net Neutrality is beside the point.  The number crunchers look for Return On Investment (ROI) when considering who gets on the right side of the digital divide.  If they can’t make a killing on you, they’re not going to provide you service.  If you can’t afford their asking price, which is increasing regardless of Net Neutrality, why serve you?  Ultimately it is consumers who overpay for these networks, priced well above cost, generating literally billions in profits.  Why ruin a good thing with altruistic broadband expansion at a fire sale price?
2. Regardless of what Google is doing, providers are seeking new ways to further monetize broadband service, enriching themselves even further.  Prices go up even as the costs to provide the service go down.  The old chestnut about the next door neighbor being a usage piggy is just more of the same “us vs. them” propaganda from providers who want consumers to fight amongst themselves while they run to the bank with the money.  Grandma doesn’t want her broadband service limited either, and she’s way too smart to believe a provider promising dramatic savings for less service from companies that jack up her rates year after year.
3. The best way to guarantee affordable access to broadband service is to develop a national broadband plan that provides the same kinds of “lifeline” services already available for economically disadvantaged phone customers, legislative policies that force markets open to additional competition, government oversight to ensure providers are required to provide service throughout their respective service areas, and stimulus or Universal Service Fund assistance for projects that assure access to those who simply will never pass ROI tests.  Or we can solve everything by not passing Net Neutrality?  Please.
4. Google doesn’t have a free ride.  First, consumers -pay- providers for connectivity.  Ultimately, they are the customers — content producers are not.  Nothing prohibits an ISP from offering hosting services to content producers at competitive prices.  If Google, Amazon, Netflix, or Hulu want to host their content on servers owned by Verizon, Comcast, Time Warner, or AT&T, nothing stops them.  Google pays for its own connectivity to the Internet.  Customers pay for accessing it.  Now providers want to get paid again.  It’s like triple-charging for snail mail – you pay for a stamp to mail it, the person you wrote pays to receive it, and the airline that flew the letter cross country has to pay to transport it.

Remember, it’s the content that drives broadband adoption. ISP’s honestly don’t fret as much about traffic as they claim.  They just care whether they can own it, control it, and profit from it.  The evidence to back this up comes from cable and phone companies in a big hurry to stream video content over their TV Everywhere projects.  Nothing consumes bandwidth like online video, yet there they are enthusiastically embracing it.  They have to, because if they don’t control it, it could eventually lead to people dropping their cable TV subscriptions in favor of online viewing.

Wright’s blog promotes another industry favorite — the dreaded phony “exaflood” which threatens to bring chaos and disorder to our online world… unless we totally deregulate broadband and let them do whatever they want to “solve it.”  That’s more of the same.  We’ve seen the results of that for more than a decade now, and the very digital divide that Wright complains about comes as a direct consequence to letting broadband providers serve, or not serve customers as they please at the prices they want.

Wright and other civil rights groups can throw as many race cards as they like against consumers who see right through their corporate-backed agenda.  That’s because consumers know Net Neutrality isn’t an issue of black or white.  The only color that really matters here is green.

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