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Widespread Usage-Based Pricing: Netflix Would Instantly Lose 2/3rds of Its Subscribers

Moffett

Moffett

A consolidated cable industry envisioned by Dr. John Malone, currently bidding for a merger between Charter Communications and Time Warner Cable, would feature widespread usage caps and usage billing and could obliterate competition from over-the-top online video providers, predicts a cable industry analyst.

Craig Moffett, now out on his own as co-head of independent Wall Street research firm MoffettNathanson, says broadband usage pricing is the sleeper issue of the last five years.

“I’ve written for years that [usage based pricing] is the single most important issue in all [the telecom sector],” Moffett said in an interview last week. “I’ve always been amazed by how little attention people have always paid to the issue.”

The Street reports that a unified cable cartel limiting consumer access to the Internet or more importantly monetizing that access would immediately devastate streaming video competitors including Netflix, Amazon, YouTube and Hulu.

If usage based pricing were implemented across the cable industry tomorrow, Moffett believes Netflix’s subscriber base would immediately fall from 30 million to 10 million. Nascent video players like Intel and Apple would likely find their business plans untenable, and some analysts believe the sweeping price changes would probably end the shift towards integrating streaming technology into large flat panel television sets.

Consumer backlash is the inevitable result of usage pricing, say concerned analysts.

Consumer backlash

Moffett says the impact would be broadly felt. Other analysts predict it could cause a national consumer uprising, especially at a time when other countries are swiftly moving to get rid of usage limits and consumption-based billing that have never been popular with customers.

“I think it will become clear that over the summer the window may have already closed for the cable operators to move to a usage based pricing theme,” Moffett said.

The Federal Communications Commission has done almost nothing about the issue of usage caps and usage pricing. Former FCC chairman Julius Genachowski even applauded the unpopular price scheme, calling it an important innovation.

Customers call it something else, and an uproar from consumers and competitors alike could overshadow the broadband successes of the Obama Administration. It would represent “a laughable setback for the nation’s communications infrastructure,” predict increasingly pessimistic Wall Street analysts concerned about the inevitable backlash.

The Street:

In a new broadband pricing regime, regulators would have to condone what consumers and competitors would immediately recognize as anti-competitive. Meanwhile, immensely popular content providers such as Netflix, Amazon Prime, Hulu, YouTube and the like would have to lose a Washington lobbying battle to the interests of cable monopolies, their arcane billing and off shored customer service.

Hollywood and broadcast networks would lose marginal new content buyers such as Netflix. Tablet makers such as Apple, Google, Samsung and Amazon would see the value of their fastest growing products put at risk.

Most importantly, it would be an affront to one of the few clear consumer victories for the Department of Justice in the Obama administration.

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Malta Gets 250/20Mbps Cable Broadband; National Fiber Network Also On the Way

maltaThe people of Malta will soon have a choice between a cable broadband provider offering 250/20Mbps service or a fiber to the home network now under construction that will be capable of delivering gigabit broadband across the island — all without usage limits or speed throttles.

Starting this month, for €96 per month ($128), customers of Melita can buy a triple play package of phone, broadband, and cable television that includes a free upgrade to 250/20Mbps.

“The FibrePower 250 product leverages the investments Melita has made in the past years and further strengthens the company’s position as Malta’s fastest service provider,” said Michael Darmanin, director of marketing and corporate services at Melita. “We are seeing an exponential growth in demand for higher speeds and capacity. This is driven by more people connected in the same household or business, more devices and more consumption of video over the Internet.”

Darmanin added the Maltese people want fast and unlimited broadband service, and they will deliver it, starting at Tigne Point (Midi) and Fort Cambridge in Sliema. The service will then gradually be rolled out in other Maltese communities.

Malta, in the Mediterranean Sea, has a population of around 450,000. The country has two major telecom companies: Melita which delivers cable service and GO, which delivers DSL service over the telephone network. Vodafone used to offer a now-discontinued WiMAX service across the island, which never had a significant market share.

250-MBPS-WITH-THE-XXL-HOME-ENT-PACKThe Maltese government made broadband expansion a national priority and set regulatory policies that would increase competition. But the government also insisted that telecom market improvements also benefit customers, and the country laid the foundation of its broadband policy on encouraging the development of a nationwide fiber to the home network.

The tradeoff: the government would deregulate the broadband marketplace and remove regulatory obstacles and unnecessary red tape governing pole usage and underground trenching, but in return providers must meet government objectives towards enhancing broadband speeds and price competition.

melitaAs a result, Melita has aggressively invested in cable broadband upgrades that have delivered broadband speeds faster than what most Americans and Canadians can buy from their cable providers. The cable operator plans to be among the earliest adopters of DOCSIS 3.1 which will support up to 10/1Gbps broadband speeds.

Not to be outdone, GO is rolling out its own fiber to the home network supporting interactive IPTV and faster broadband speeds. It will then be able to retire its DSL service, which now provides respectable Internet speeds up to 35Mbps.

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Comcast Turns Your $7/Month Wireless Gateway Into Their Public Wi-Fi Hotspot

Comcast Wireless Gateway (Model 2)

An older Comcast Wireless Gateway (Model 2)

Comcast customers may soon find themselves providing free Internet access to other Comcast customers under a new initiative announced today that will turn millions of homes into Wi-Fi hotspots.

The “xfinitywifi” project will activate a second 15-25Mbps Wi-Fi signal from Comcast’s XB2 and XB3 wireless gateways that any Comcast broadband customer can reach as long as they stay within 250-300 feet of the gateway.

“We’ve been able to add certain feature functionality to the firmware of our devices,” Tom Nagel, senior vice president of business development, told CED. “The way its architected is we sort of logically split the modem in two. On the private side, you still get the same things. You can do your own security, you can manage, you can do port forwarding and all the things that no one really understands but are available to you. On the public side what happens is it’s logically a separate network. We actually provision a separate service flow to that cable modem for the public side. If that public side uses up what we’ve given them, there is no getting from someone else.”

In simplified terms, Comcast is opening up a second dedicated Internet connection for its public Wi-Fi service that will not share your existing broadband service. The two networks will co-exist from the wireless gateway, and although the available bandwidth cannot be combined to increase connection speed, customers do have the option of connecting various wireless devices to either the home Wi-Fi or public Wi-Fi connection. The public Wi-Fi service is exempt from usage measurement, caps, and/or consumption-based billing at this time. (Comcast last year suspended usage caps in all of its service areas except Nashville and Tucson.)

In beta tests, Comcast claims customers did not object to sharing their Wi-Fi wireless gateways as long as it did not affect their speed and protected their privacy.

xfinity wifiNagel says the service was designed to address both concerns, noting a 50Mbps Blast customer will still have full access to 50Mbps service, regardless of how many wireless visitors are connected to the customer’s gateway.

“There’s also no leakage of the public and private security functions as well,” Nagel said. “We do two totally different security regimes in the box and there’s really no way to get in between the two. We do provide people the ability to opt out of the service but there have been very few people that have done that, like sub fractions of 1 percent.”

Comcast enables the new service with a firmware upgrade automatically sent to customers when an area is ready for a Wi-Fi launch. Customers in Washington, D.C.; Philadelphia; Boston; Northern Virginia, Chicago, Atlanta; Delaware; and California will likely be among the first to receive the new service.

Some customers do have a problem with Comcast charging them for equipment Comcast is appropriating for its own benefit.

“This is a fine deal for Comcast, which can keep charging customers $7 a month for their gateway and benefit from millions of new hotspots they did not have to build themselves,” said Comcast customer David Tate. “If customers get wise and buy their own [gateway/cable modem], Comcast’s new Wi-Fi service will begin losing hotspots as customers return the equipment to avoid the fee. They should be charging a lot less or nothing at all for equipment if they want us to host their hotspots.”

Tate also believes Comcast will ruin its own service if they attempt to bring usage caps back.

“If Comcast brings back the cap, I wouldn’t want anyone else sharing my connection and I would avoid using Comcast’s Wi-Fi if they counted that usage against my allowance,” Tate explained. “If they exempt the wireless service from caps, customers can just connect to that network to avoid the cap so they would have a big loophole.”

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Time Warner Cable Laying Groundwork for Usage Pricing, Higher Modem Fees

timewarner twcTime Warner Cable has laid the foundation to eventually begin charging broadband customers usage-based pricing, raise the modem rental fee originally introduced last fall, and continue to offer customers unlimited broadband service if they are prepared to pay a new, higher price.

Time Warner Cable CEO Glenn Britt spoke at length at this week’s Bank of America/Merrill Lynch Global Telecom and Media Conference in London about how Time Warner Cable intends to price its broadband service going forward. The moderator peppered Britt with questions as investors looked on from the audience about if and when the cable company can raise prices for its broadband service or start a usage pricing plan that will generate higher revenues based on metering customer usage.

Britt

Britt

Britt repeated his earlier assertions that Time Warner Cable has no interest in capping customer usage. In fact, the company sees fatter profits from increased usage, as long as customers are willing to pay for it.

For the first time, Britt admitted customers seeking unlimited service should be ready to pay a higher cost for that option, telling the audience Time Warner would set a premium price on the unlimited tier and offer discounts to customers seeking downgrades to comparatively cheaper, usage-based pricing plans. The company hopes this new approach will limit political opposition and customer push-back.

Britt also said there is room to grow Time Warner Cable’s monthly modem rental fee ($3.95 a month), comparing it against Comcast’s current rental fee, which is $7 a month.

Britt complained that increasing usage and demand for broadband speed was requiring the company to invest more in its broadband service, something not clear on the company’s quarterly balance sheets. Real investment, except for expansion by the business/commercial services division, has been largely flat or in decline for several years. Time Warner Cable’s broadband prices have increased over the same period.

Britt also admitted that the costs to offer the service remain comparatively minor.

“In broadband there are the costs of connectivity and peering and all that sort of stuff, but they are pretty minor compared with (video) programming costs so it appears that broadband is usually profitable versus video.”

Britt also admitted the cable industry in general is increasingly dependent on broadband revenue and the profits it generates to shore up margin pressure on the industry’s formerly lucrative video service. As programming costs increase, pressure on profits increase. Yet the cable industry remains profitable, primarily because broadband earnings are making up the difference.

The meter is lurking

The meter is lurking

“I think if you look at the U.S. cable companies the EBITDA margins have been remarkably stable over a long time period,” Britt said. “The mix has [recently] changed. The video gross margin is getting squeezed, the broadband gross margin is larger and we are growing broadband so that is helping. The voice gross margin is higher than video and a little less than broadband and until recently that has been a growing part. And then we have business services which are growing rapidly and have a high gross margin.”

Additional Quotes:

Cable Modem Equipment Rental Charge: “It was received with a minimum of push-back and we’re still actually charging less than Comcast ($7/month), so I think there is room to charge more going forward. People can buy their own if they want and a small percentage of customers have chosen to do that which is fine with us.”

Usage-Based Pricing: “In order to keep up with the demand for throughput and speed which is going up every year, we are going to have to keep investing capital which we do on a regular basis, so we are going to have to figure out how to get paid for that. I think inevitably there is going to be some usage dimension, not just speed within the package, so what we have done is to put in place pretty much throughout our footprint, with a few exceptions, the idea that you can buy the standard service that [includes] unlimited usage and that costs whatever it costs, but if you want to save $5 (and that is the first thing we put in place) you can agree to a consumption limit, and we can start expanding on that.”

“I think the key to this — there has been push-back against caps in the past — I think the reason for the push-back is it was perceived in a sort of punitive, coercive fashion. The usual rhetoric is, ‘gee 20 percent of the people use 80 percent of the bandwidth or some number like that — we need to make them stop using so much.’”

“My feeling is we actually want everybody to use more, we want to invest the capital, we just want to get paid for it. So I think we should always have an unlimited offering and that should probably cost more than it costs today as the usage goes up and then people who don’t use as much should have the opportunity to save money. They don’t have to but they can, so I think that is a much more politically and consumer-acceptable way to do it than a sort of punitive thing people talk about.”

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Broadband Lessons from JCPenney: Listen to Wall Street or Customers?

Phillip "I Shop At TJMaxx" Dampier

Phillip “I Shop Online” Dampier

Last week, JCPenney launched their nationwide redemption tour, apologizing to millions of ex-customers that fled the former retail giant, begging them to come back.

It took over a year for JCPenney to get the message that “disciplining” and “re-educating” customers to accept the wisdom of everyday higher prices with few sales and almost no coupons was hardly the door-busting success “miracle worker” CEO Ron Johnson originally had in mind. The ex-Apple executive was rewarded a $52.7 million signing bonus to take over JCPenney’s tired leadership and in return he dragged sales down 28.4% from the year before, with same store sales down 32%. Johnson’s new vision also steamrolled one-third of JCPenney’s online business.

The day those results became known, he confidently showed Wall Street he did not dwell in the reality-based community: “I’m completely convinced that our transformation is on track!” (For Kohl’s benefit anyway.)

Johnson also believed in a “less is more” philosophy in human resources, overseeing layoffs of 13 percent of the company’s workforce last April, with another 350 let go in July.

Despite the fact his all-new, rebooted vision of JCPenney was about as popular as bird flu, he stayed, even as customers and employees didn’t.

It wasn’t that the company didn’t know customers had a problem with all this. Many complained about the radical, unwanted changes at JCPenney, particularly middle-aged professional women representing one of the stores’ most important business segments. Company executives simply didn’t listen.

A year later, some of the same analysts that cheered JCPenney’s crackdown on discounting now wonder if the company will survive 2013. Many fretted about the real possibility the last customer to brave the “new era” of JCP might forget to turn the lights out when they left for good. Others were mostly furious the board let Johnson go.

Despite the tragic consequences, the conventional wisdom on Wall Street remains: Alienating customers with a revamp nobody asked for and “everyday pricing” designed to boost profits every day was not the problem, how Johnson implemented the strategy was. He just didn’t educate customers enough.

We see the same warped thinking in the broadband marketplace, particularly with usage caps, consumption billing, junk fees and the general ever-increasing price of broadband itself.

On providers’ quarterly results conference calls, the regular questions challenging leaders of the industry are not about providers charging too much for too little. The real concern is that your ISP is leaving too much ripe fruit on the tree:

  • Where is the revenue-boosting usage caps and consumption billing, Time Warner Cable?
  • Comcast: can’t you raise prices further on those recent speed increases to maximize additional revenue?
  • Verizon: why are you spending so much on fiber broadband upgrades customers love when that money could have gone back to shareholders?
  • AT&T: Is there anything else you can do to exploit your market share and make even more money from costly data plans?

The best ways a consumer can reward a good broadband provider include remaining a loyal customer, paying your bill on time and upgrading to faster speeds as needed. For Wall Street, the growing demand for broadband is a sign there is plenty of wiggle room for at-will rate increases, new fees and surcharges, contract tricks and traps, customer service cuts, and monetizing usage wherever possible. After all, you probably won’t cancel because the other guy in town is doing the same thing.

This is what sets the broadband marketplace of today apart from most retailers: consumers don’t have 10-20 other choices to take their business to if they are fed up.

Comcast or AT&T? Both charge a lot and have usage limits on their broadband service for no good reason. Your other alternatives? A wireless provider charging even more with an even lower usage cap. Or you can always go without.

While providers may tell you there is a healthy, competitive broadband marketplace, Wall Street knows better. When Time Warner Cable recently announced it would dramatically curtail new customer promotions and concentrate on delivering fewer services for more money, nobody bothered asking whether this would result in a stampede to the competition. What competition?

Although Google is delivering much-needed, game-changing competition in a tiny handful of cities, most Americans will not benefit because the best upgrades and lowest prices are only available where Google threatens the status quo. A larger number of municipalities are done putting their broadband (and economic) future in the hands of the phone and cable company and are building their own digital infrastructure for the good of their communities.

For everyone else, we can dream that one day, someday, the cable and phone company most Americans do business with will be forced to run their own JCPenney-like apology tour for years of abusive pricing and mediocre “good enough for you” broadband with unwarranted usage limits. Time Warner Cable went half way, but until competition or oversight forces some dramatic changes, we should not count on providers to actually listen to what customers want. They don’t believe they need to listen to earn or keep your business.

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Time Warner Cable’s Horn Of Plenty for Austin: Free Wi-Fi for Broadband Customers

Austin gets a horn 'o plenty with free Time Warner Cable Wi-Fi because Google is coming to town.

Austin gets a horn of plenty with free Time Warner Cable Wi-Fi because Google is coming to town.

As Time Warner Cable faces forthcoming competition from Google Fiber in Austin, the company is responding with the construction of a free Wi-Fi network for its broadband customers to protect its business.

TWC WiFi is available now from a limited number of hotspots, but hundreds more will become available across Austin in 2013 as the company builds out its wireless network.

Time Warner Cable customers with Standard Internet or above qualify for free access, as do Business Class customers. Others can trial the service for free and then buy access for $2.95 an hour.

“Increasingly, our Austin customers want to take their high-speed Internet with them out of the home and on-the-go,” said Area Vice President Kathy Brabson. “The TWC WiFi network we are building for Austin will allow our customers to greatly maximize their TWC Internet subscription at no additional charge.”

It is no coincidence Time Warner Cable has selected Austin for a Wi-Fi rollout. The Wi-Fi service was specifically intended to provide more value for Time Warner Cable customers in competitive markets to keep them from switching to a competitor.

It represents a sea change for a cable company that in 2009 targeted Austin for an Internet Overcharging scheme that would have slapped a usage limit and consumption billing on the area’s broadband customers. With the advent of strong competition from Google, Time Warner Cable is giving customers something instead of taking things away.

Austin customers can download the free TWC WiFi Finder app available in Google Play and the Apple App Store or visit www.twc.com/wificoverage to view the hotspot coverage map as the wireless network grows. Once authenticated, customers can also access Wi-Fi hotspots in other cities including New York City, Los Angeles, Chicago, Philadelphia, Atlanta, Baltimore, Boston, Washington, D.C., San Francisco, Orlando, Tampa, Kansas City, Charlotte and more.

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AT&T, Time Warner Cable Claim They Are Ready for Google Fiber in Austin

me too

AT&T suddenly announced it was ready to build its own gigabit fiber network in Austin.

AT&T and Time Warner Cable report they are ready to make more investments in their operations in Austin, Tex. to compete with Google Fiber when it arrives in the middle of next year.

Time Warner Cable says it already operates a multi-gigabit fiber optic network — one residential customers cannot easily access or afford. Residential broadband speeds at the cable operator top out at 50/5Mbps in Austin, at a cost higher than what Google plans to charge for 1,000/1,000Mbps service. AT&T’s U-verse network maxes out at 24/3Mbps, assuming customers have good copper wiring between AT&T’s fiber in the neighborhood and their home.

“The cable and phone company providers have purposely confused their networks’ maximum speed capacity with real end-user speeds for years, and when that fails to convince they simply claim customers don’t need or want those speeds anyway,” says Stop the Cap! reader and Austin resident Sam Knoll.

Knoll is enthusiastic about giving Time Warner Cable the boot, partly to pay them back for their aborted consumption billing trial attempted in Austin in 2009.

“I am not completely convinced Time Warner Cable understands just how much damage they did to their reputation when they pulled that stunt, and I’m certain they will attempt it again if they have a chance,” Knoll said. “The best thing customers can do is switch to a provider that believes usage caps and consumption billing are the fraudulent ripoff we know them to be. Google already knows this.”

Some Time Warner Cable customers in Austin never forgot the company tried to meter Internet usage in a failed experiment back in 2009.

Some Time Warner Cable customers in Austin never forgot the company tried to meter Internet usage in a failed experiment back in 2009. (Image: The Austinst)

Competition from deep-pocketed Google could eventually transform the broadband business model for American providers, assuming Google builds its fiber network in enough cities to challenge the conventional wisdom that prices have plenty of room to grow with faster Internet access. The more customers that sign up for Google’s already-super-fast broadband, the more providers will have to compete with better and faster service.

But AT&T is not convinced. The company announced yesterday it was prepared to build a gigabit fiber network not just in Austin, but also in surrounding Williamson County, with plenty of caveats.

“[We will only build the network if] the demand is there and if we get the same terms and conditions as Google received,” said AT&T spokeswoman Tracy King.

AT&T told the Austin American-Statesman the company wanted a faster regulatory approval process and permission to only build its faster fiber network in neighborhoods where there is proven demand for the service. Current franchise agreements often compel providers to offer service throughout the community and prohibits “cherry-picking” customers in high-income or low construction cost areas.

An AT&T official told KEYE-TV he had no idea how much AT&T would charge for gigabit broadband. Google charges $70 a month in Kansas City.

Austin has promised cooperation with Google, although it is not extending tax breaks or grants to the search engine giant. Google will get easy access to Austin Energy’s municipally owned infrastructure including utility poles and rights-of-way.

Google is speculated to be building showcase fiber networks to embarrass incumbent cable and phone providers who typically sell standard broadband service with speeds of 6-15Mbps in most larger communities. Rural areas are lucky to have 3Mbps service, and often much less.

But if Google intended to force major upgrades by cable and phone companies across the country, it might be disappointed with the response so far from AT&T and Time Warner Cable. Both companies indicate they will invest in and upgrade their networks to compete, but only in the service areas where Google-style competition exists. For the rest of the country, phone and cable companies are prepared to continue with the current “broadband scarcity” business model that delivers upgrades only occasionally, often accompanied by usage limits, consumption billing, and/or higher prices.

“Google has proved that there is a business model for selling abundant bandwidth as opposed to a business model for allocating scarce bandwidth,” said Blair Levin, a former chief of staff of the Federal Communications Commission.

“They are saying this is not an experiment. It is a business,” Levin told the newspaper. “In Kansas City, Google did the country an enormous favor. They said, give us regulatory flexibility to design the business and give us access to city property so we can build a network to lower the cost.”

http://www.phillipdampier.com/video/KEYE Austin Competitor Chimes In After Google Announcement 4-9-13.flv

KEYE in Austin talks with AT&T about their plans for a gigabit broadband network to compete with Google Fiber. The AT&T spokesman seemed more interested in pitching the company’s deregulation agenda and was short on specifics.  (3 minutes)

http://www.phillipdampier.com/video/KXAN Austin What competition will Google Fiber face 4-9-13.mp4

KXAN in Austin talked with Google competitors Time Warner Cable and AT&T about how they will respond to the Google Fiber challenge.   (3 minutes)

http://www.phillipdampier.com/video/KVUE Austin Fiber Wars in Austin 4-9-13.mp4

KVUE in Austin called Google’s entry into the city the opening salvo of ‘Fiber Wars,’ as AT&T promises its own gigabit network. Austin residents intend to take advantage of the competition to force providers to give them better deals to keep their business.  (3 minutes)

http://www.phillipdampier.com/video/KXAN Austin Google Fiber Possibilities Google Insider 4-9-13.mp4

KXAN explains the possibilities of gigabit fiber, but also asks a former Google insider why the search engine is getting into the broadband business.  (5 minutes)

http://www.phillipdampier.com/video/KTBC Austin Time Warner Cable Responds to Google 4-9-13.mp4

KTBC was skeptical of AT&T’s sudden interest in gigabit broadband. “Gee, what a coincidence,” commented the anchor of Austin’s Fox affiliate.  (2 minutes)

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Verizon Reaffirms No Usage Caps; Speed Matters: Almost 50% Opt for 50-75Mbps FiOS Service

http://www.phillipdampier.com/video/Bloomberg Verizons Fios Gaining Market Share 3-4-13.mp4

Bob Mudge, president of consumer mass business markets at Verizon Communications, Inc., has reaffirmed Verizon FiOS has no plans to implement usage caps or consumption billing on its fiber to the home broadband customers. Mudge also told Bloomberg News that broadband speed really does matter. Nearly 50 percent of FiOS customers have chosen to upgrade to at least 50Mbps service, which is priced just $10 higher than its entry-level 15Mbps plan. Mudge also talked about changes Verizon is making for FiOS installations in New York City. Twenty-five so-called “Magic” buses will replace 250 single technician trucks, transporting teams of technicians to small businesses and homes in and around the Big Apple.  (6 minutes)

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Google Illustrates the Big Broadband Ripoff: Costs Flat Despite Huge Traffic Growth

BBand

One of the side benefits of Google getting into the broadband provider business is learning first-hand what is reality and what represents provider spin and marketing nonsense used to justify high prices and usage limits.

As Google Fiber slowly spreads across Kansas City, the search engine giant is gaining first hand-experience in the broadband business. Google understands what cable operators endured in the 1980s and what Verizon was coping with until it pulled the plug on FiOS expansion: the upfront costs to build a new network that reaches individual subscribers’ homes and businesses can be very high. But once those networks are paid off, revenue opportunities explode, particularly when delivering broadband service.

Milo Medin, a former cable Internet entrepreneur and now vice president of access services at Google, presented a cogent explanation of why Google can make gigabit broadband an earner once construction costs are recouped. He demonstrated the economics of fiber broadband at a meeting of the San Jose chapter of the IEEE.

BB2

In addition to a long term investment in fiber, and the new business opportunities 1,000Mbps Internet provides, Google has learned from the mistakes other utilities have made and is trying to establish close working relationships with local governments to find ways to cut costs and bureaucracy.

In Kansas City, Google has placed staff in the same office with city zoning and permit officials. Working together in an informal public-private partnership to cut red tape, local inspectors have agreed to coordinate appointments with Google installers to reduce delays. That alone reportedly saves Google two percent in construction expenses.

“Governments have policies that can make it easy or hard, so I say, ‘if you make it hard for me, enjoy your Comcast,’” Medin said.

Internet traffic vs. costs

Internet traffic vs. costs

Medin notes broadband adoption and expansion in the United States is being artificially constrained by the marketplace, where wired providers are resting on their laurels.

More than a decade ago, people paid $40 a month for 4-5Mbps service, Medin noted.

Providers have kept the price the same, arguing they create more value for subscribers with ongoing speed increases.

But Medin notes overseas, prices are falling and speeds are increasing far faster than what we see in North America.

“Broadband in America is not advancing at nearly the pace it needs to be,” Medin argues. “Most of you have seen dramatic changes in wireless, but there’s never been a real step function increase in wired. That’s what’s needed for us to retain leadership in technology — and not having it is a big problem.”

CostsX

Medin points to OECD statistics that show the cost per megabit per month in the U.S. is the sixth highest among 34 OECD nations. Only Mexico, Chile, Israel, New Zealand, and Greece pay higher prices. Every other OECD nation pays less.

By leveraging fiber optics, which every provider uses to some extent, costs plummet after network construction expenses are paid off. In fact, despite the explosion in network traffic, provider bandwidth costs remain largely flat even with growing use, which makes the introduction of Internet Overcharging schemes like usage caps and consumption-based pricing unjustified.

“Moving bits is fundamentally not expensive,” said Medin.

In 1998, when cable broadband first became available in many markets, the monthly price for the service was around $40 a month. Internet transit prices — the costs to transport data from your ISP to websites around the world averaged $1,200 per megabit that year. Today that cost has dropped below $4 per megabit and is forecast to drop to just $0.94 by 2015.

Costs2

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Entertainment Producers Call Out Stifling Data Caps That Upset the Online Video Revolution

Public-KnowledgeData caps protect incumbent big studio and network content creators at the expense of independent producers and others challenging conventional entertainment business models.

That was the conclusion of several writers and producers at a communications policy forum hosted by Public Knowledge, a consumer group fighting for an open Internet.

A representative from the Writers Guild of America West noted that cord-cutting paid cable TV service has become real and measurable because consumers have a robust online viewing alternative for the first time. John Vezina, the Guild’s political director, noted how Americans watch television is transitioning towards on-demand viewing.

New types of short-form programming and commissioned series for online content providers like Netflix are also changing the video entertainment model.

Welch: It is about the money.

Welch: It is about the money.

But a digital roadblock erected by some of the nation’s largest broadband providers is interfering with that viewing shift: the data cap.

Data caps place artificial limits on how much a customer can use their Internet connection without either being shut off or finding overlimit fees attached to their monthly bill. Critics contend usage caps and consumption billing discourage online viewing — one of the most bandwidth intensive applications on the Internet. With broadband providers like Time Warner Cable, AT&T, Verizon, and Comcast also in the business of selling television packages, cord-cutting can directly impact providers’ bottom lines.

Providers have traditionally claimed that usage limits are about preserving network resources and fairness to other customers. But Time Warner Cable admits they exist as a money-making scheme.

Rachel Welch, vice president of federal legislative affairs at Time Warner Cable, says the cable company is not worried about limiting data consumption. It considers monetizing that consumption more important.

“We want our customers to buy as much of the product as possible,” Welch told PC World. “The goal of companies is to make money.”

Time Warner now offers customers a choice of unlimited service or a $5 discount if customers keep their monthly usage under 5GB, but some worry that is only a prelude to introducing expanded usage limits on a larger number of customers in the future.

For many consumers already hard-pressed by high broadband bills, worrying about exceeding a data allowance and paying even more may keep viewers from watching too much content online.

For that reason, Vezina called data caps “anti-innovation.”

“It hurts consumers [and] it hurts creators who want to get as much out to the public in as many ways” as possible, he said.

Public Knowledge has become increasingly critical of data caps in the last two years. The organization has questioned how ISP’s decide what constitutes a ‘fair’ usage limit and criticized inaccurate usage meters that could potentially trigger penalties and overlimit fees.

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  • Phillip Dampier: Register all third party call handlers and develop a protocol that includes a limit on how many times a call can be passed to another party, a provisi...
  • humbug: And anon, no I can't really afford it, but surprisingly, at least to you, I don't want to move just for decent communications access. The federal gov...
  • more humbug: GCI has a usage page where we're supposed to be able to monitor the usage. I usually quit any significant downloading about halfway through the billi...
  • JayS: Poor call completion seems to exist in all states, not just those that have recently deregulated;re-regulating, following the old rules, does not appe...
  • Michael Elling (@Infostack): Phil, Superlative work. I sincerely hope it has the much needed and necessary impact inside and outside the Beltway. Michael...
  • Chris Conder: Copper. A race to the bottom. Where are the men and women of fibre? Moral and optic. Its time to get real and build the infrastructure of the future....
  • Ryan Brodnax: This pisses me off in ways that you can't even imagine. First of all the company website says there is no limitations on usage at this time. I watch a...
  • Phillip Dampier: Thanks for alerting me. I've corrected it....
  • Pua Ford: Hartford, Colorado should be Hartford, Connecticut, where Pedro Segara is mayor....
  • Yvonne: Please, someone smarter than I, figure out how to "Market Basket" these people. This is "Big Brother" in reality. What happened to controlling monopol...

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