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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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Deutsche Telekom’s New 384kbps Speed Throttle “Emasculates the Internet in Germany”

The German Internet is functionally broken.

The German Internet is functionally broken.

Deutsche Telekom, the largest telecommunications company in Germany, has announced it will introduce a brazen Internet Overcharging scheme for customers signing up for its broadband DSL service, including a throttle that reduces speeds to just 384kbps after as little as 75GB of monthly broadband usage.

For now, only new Telekom Deutschland customers signing up after May 1 will be affected by the usage limits. Customers will be offered the option of upgrading their Call & Surf package to get a larger usage allowance, although many parts of Germany are still reliant on DSL and its variants that cannot deliver the advertised speeds that go with the larger allowances:

  • Up to 16Mbps: 75GB per month
  • Up to 50Mbps: 200GB per month
  • Up to 100Mbps: 300GB per month
  • Up to 200Mbps: 400GB per month

“We want to offer customers the best network in the future and we will continue to invest billions to make that happen,” said Michael Hagspihl, marketing director of Telekom Deutschland. “However we cannot continue to sustain higher usage demand while lowering our prices. Customers with very high data volumes will have to pay more in the future.”

Company officials argue German broadband usage demands are accelerating at an ever-increasing rate, putting strain on the company’s network resources.

But critics question if usage demands are the root of the problem, why is DT exempting itself and its “preferred partners” from the data cap, including certain services that offer very high bandwidth video?

The Net Neutrality activist group Netzpolitik.org says DT is “massively violating Net Neutrality while the federal government looks away dreaming that the free market will solve the problem somehow.”

The group points out DT has admitted the speed throttle only applies to content providers who have not partnered up with the German telecom giant.

DT is exempting all of its own in-house content providers, the private television service Entertain, and telephone services (when provided by DT). For everyone else: the speed throttle gets closer the more customers use services like Apple iTunes or Amazon’s Lovefilm service. But DT says those companies can also get special treatment for the right price.

DT’s preferred partner cooperating agreements let “high quality content producers” pay for a managed services contract that guarantees exemption from the speed throttle and prioritization of their traffic on DT’s network, even if it means slowing down non-preferred partner content.

A parody future offer from DT.

A parody future offer from DT.

“You cannot thumb your nose at Net Neutrality principles any better if you tried,” said Rene Pedersen, an Internet activist in Köln. “DT will have their emasculated two-tier Internet and all of Germany will have to suffer the consequences. Their own arguments do not even make sense. If there is a capacity crisis, how can they exempt some video providers that now consume the most network resources?”

throttle“Until a few years ago, providers – just like the post – were just deliverers of packages,” said Netzpolitik’s Andre Masters. “This principle is called Net Neutrality – the equal treatment of data packets on the Internet, regardless of sender, recipient, or content. Now providers want to have a direct influence on the content sent, because they want to earn more money.”

Technology publisher Heise Online says the new usage restricting tariff has “triggered a veritable sh**storm” among net users who consider a 75GB usage limit untenable, particularly for families with multiple Internet users.

Heise is also critical of claims DT has made in the press that suggests German Internet users must either accept the usage caps or understand the company will have to spend at least €80 billion ($108 billion) to build a national fiber network to manage growing traffic.

In contrast, Goldman Sachs last year estimated the cost of wiring every home in the United States with Google Fiber would cost $140 billion, a number now considered inflated. Verizon FiOS managed to get costs down for its own fiber network to a level that suggests Google would only need around $90 billion — $10 billion more than DT claims it needs.

“DT is being disingenuous when they suggest it will cost €80 billion to solve their capacity problem. For that amount every household in Germany would get their own fiber cable with 200Mbps speeds or more,” Heise writes in their editorial. “To avoid slowing users down with a speed throttle, only a small fraction of this amount is needed to extend the Internet backbone and peering agreements between providers. For years network traffic has grown exponentially and DT has kept up with demand. So why does DT suddenly need to reshuffle the cards now?”

DT has also received criticism for how it has depicted its heavy users — mostly as content thieves and software pirates using file swapping networks to steal copyrighted works. But instead of dealing with copyright violations, DT wants a sweeping usage cap system that punishes every customer that wants to use their broadband connection.

“Customers are not insatiable Gierschlünde who want everything for free,” writes Heise. “They already pay a lot of money to Telekom: 12.5 million DSL customers roughly translates into around a half billion euros in sales per month.”

Back to the future.

Back to the future.

The German news magazine Spiegel writes DT’s usage limits strangle the Internet for millions of Germans, especially for competing video providers:

When throttled, customers will need more than 23 hours to watch a DVD-quality movie. At Blu-ray resolution, it will take about two weeks to watch just one film.

[...] The implications of the end of Net Neutrality in Germany represents a form of economic censorship, and German politicians are standing by to watch it happen.

The federal government sees the Internet as a political bargaining chip and not as the social, cultural and economic tool it represents. The government acts in the interests of certain lobbyists, not Germany’s digital future. This allows German telecommunications companies to focus on their economic self-interests without government policies that demand investment in digital infrastructure.

A number of German Internet users are expected to switch to a cable provider, where available, to escape DT’s impending speed caps.

According to the Frankfurter Rundschau, many German cable companies also reserve the right to limit speeds for customers. But in practice, most don’t impose limits until traffic exceeds 60GB daily, and the speed cap is lifted the next day. A cable industry official says its cap currently impacts about 0.1 percent of customers, almost all who use peer-to-peer file swapping networks. Exempt from measurements that bring customers closer to a speed cap: web browsing, video streaming, and video-on-demand.

For now, Germany’s cable operators facing the same traffic growth DT speaks about find no need to impose further limits, stating their networks are handling the traffic with network upgrades as a normal course of business.

“It calls out DT’s claims as fraudulent, because cable Internet users visit the same websites and do the same things DT’s customers do and there only seems to be an ‘urgent’ problem in need of a speed throttle solution on BT’s network,” says Pedersen. “What needs to be throttled are the financial expectations of DT management and shareholders. The Internet is not their personal vault waiting to be plundered.”

http://www.phillipdampier.com/video/What if Net Neutrality.mp4

What if Net Neutrality did not exist?  [Subtitled] (1 minute)

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Austin Media Gushing for Google Fiber

Austin’s television news has gone all out for Google Fiber, which is being unveiled today at a press event. Stop the Cap! will have coverage of the announcement, but in the meantime, here is a roundup of local coverage about Google Fiber in Austin:

http://www.phillipdampier.com/video/KTBC Austin Google Fiber Headed to Austin 4-8-13.mp4

Austin’s local Fox affiliate KTBC reports city officials stayed tight-lipped about Google Fiber, but Google may have previewed its intentions by adding The Longhorn Network to its television lineup several months ago. Local technology experts say the upgrade is worth the wait and will be a boon to Austin’s economy. (2 minutes)

http://www.phillipdampier.com/video/KXAN Austin The wait is on for Google Fiber 4-9-13.mp4

Now that Austin will get Google Fiber, how long will residents have to wait to sign up? Mid-2014 is the estimate. KXAN explored how Google was unveiled in Kansas City. The station also took a look at other cities with gigabit fiber networks, many of them publicly owned alternatives to big phone and cable companies. KXAN compares the cost for 1,000Mbps service in different cities around the country. (3 minutes)

http://www.phillipdampier.com/video/KEYE Austin Google Announcement Draws Near 4-9-13.flv

KEYE notes Gov. Rick Perry is showing up for this morning’s unveiling of Google Fiber. In between some minor technical glitches in the report, some viewers say they are ready to sign up for $70 gigabit Internet now, just to stick it to Clearwire ($50 a month) and Time Warner Cable.  (2 minutes)

http://www.phillipdampier.com/video/KVUE Austin Google Going to Austin 4-9-13.mp4

KVUE says Google Fiber could boost Austin’s economy by luring even more high-tech companies. It could also stop Time Warner Cable and AT&T from trying more Internet Overcharging schemes on area customers.  (2 minutes)

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Wall Street Journal’s Distorted Views on Broadband Only See the Industry’s Point of View

Phillip Dampier

Phillip Dampier

The Wall Street Journal’s not-living-in-the-real-world editorial page strikes again.

The commentary pages have always been the weakest part of the Journal, primarily because they screech pro-corporate talking points in contrast to the more balanced reporting in the rest of the newspaper.

Mr. Holman W. Jenkins, Jr. decided to distort broadband reality (again) in yesterday’s edition with a glowing commentary on how wonderful broadband providers are in his piece, “Springtime for Broadband.” The only thing missing was a border in fine print labeled, “Sponsored by Verizon, AT&T, and your cable company.”

While your Internet bill is being hiked at the same time your provider is slapping usage limits on your connection, Jenkins dismisses consumer-fueled complaints about broadband price gouging, assaulting Net Neutrality, and overall poor customer service as part of Washington’s “broadband policy circus.”

Charges fly hourly that Google or some other company is guilty of gross insult to net neutrality (that sacred principle nobody can define). Oregon Sen. Ron Wyden has introduced legislation to regulate data caps and Internet pricing. Law professor Susan Crawford, until recently a White House technology adviser, clearly craves to be America’s next go-to talking head on broadband. Lately she’s been everywhere calling for a crackdown on the competing “monopolists” who supply Internet access.

How dare they complain, decries Jenkins in a robust defense of the 21st century version of the railway robber barons.

Comfortably playing patty cake with provider-fed talking points from the industry echo chamber, Jenkins is ready for battle, facts or not.

But wireless providers have invested big money to deploy high-speed mobile networks, and fixed and mobile are inevitably beginning to compete. The latest evidence: Australia recently predicted that up to 30% of households will go the all-wireless route and won’t be customers for its vaunted national broadband project.

Jenkins

Jenkins

Not exactly. The basis for this 30% figure is the National Broadband Network’s own business plan, which warns -if- the company raised prices to a maximum theoretical level, up to 30 percent of its customers would rely on wireless instead… by the year 2039. That is 26 years from now. You have nothing better to do in the meantime, right?

In fact, conservative critics of the fiber network, some defending the big wireless cell phone industry in Australia, have suggested fiber optics is a big waste of money because “wireless is the future.”

That old chestnut again.

“Now you can present a bulletin without touching a typewriter … it’s just there on the computer system, you don’t need a reel to reel tape recorder. I’ve got a touchscreen in front of me. Back then I had a big cartridge deck,” said Ray Hadley on 2GB radio. “Can you imagine the advances in technology in the next 26 years? I can’t. I can’t comprehend it. By the time they finish the NBN, it could be superseded by something we don’t even know about.”

NBN Myths, a website set up to tackle the disinformation campaign from political and industry opponents has one simple fact to convey: “Despite what you may have read from certain clueless commentators, there is not a single country or telecommunications company anywhere in the world that is attempting to replace fixed networks with wireless in urban areas, or even planning to do so in the future.”

Which would you rather have?

Which would you rather have?

Even Telstra, the biggest telecom company in Australia scoffs at such a notion, noting a growing number of its customers have both wired and wireless service, and they do not depend on one over the other.

Research firm Telsyte found that 85 per cent of Australians want speeds of 50Mbps or higher, speeds impossible for wireless to offer. In fact, when the NBN fiber network became available to Australians, almost half the current users as of October last year had chosen an even-faster 100Mbps plan option. But Australians also want mobile broadband, and they are signing up for that as well.

The Australian Bureau of Statistics notes the number of mobile broadband Internet connections also grew by around 40% in Australia between 2009 and 2010. But here is the Achilles heel of wireless: it cannot deliver the same speeds or capacity, and providers charge high prices and deliver low usage caps. As a result, the wireless industry has pulled off a coup: they earn enormous revenues from networks they have successfully rationed. The total amount of data downloaded over Australia’s wireless networks actually fell on a per user basis, despite the growth in customers.

Much of Jenkins’ commentary is spoon-fed by the industry-funded Information Technology and Innovation Foundation, which produces industry-sponsored studies designed to tell America all is well in our broadband duopoly.

In the latest federal survey, the average broadband speed in America is up to 15.6 megabits per second, from 14.3 a year earlier. Nearly half of customers who six months ago made do with one megabit or less have now moved up to higher speeds. Since 2009, the U.S. has gone from 22nd fastest Internet to the eighth fastest.

The 15.6Mbps figure comes from the Federal Communications Commission. The statistics about our global speed ranking come from Akamai’s voluntary speed test program. Other studies rate America much lower. More importantly, while providers in the U.S. try to squeeze out more performance from their copper networks, other countries are laying speedier fiber networks that are destined to once again leapfrog over the United States. Most charge less for their broadband connections as well.

Jenkins also quotes the ITIF which touts 20 million miles of fiber were laid in America last year. But the ITIF, when pressed, will admit the majority of that fiber was “middle mile” connections, institutional or business network fiber you cannot access, or fiber to cell towers. Fiber to the home expansion has stalled, primarily because Verizon has suspended expansion of its FiOS network to new areas after Wall Street loudly complained about the cost.

Jenkins argues that if we leave providers alone and stop criticizing their growing prices, declining competition, and fat profits, the marketplace will suddenly decide to invest in network upgrades yet again.

“The day may come when even Verizon, which visibly soured on its $23 billion FiOS bet, rediscovers an urge to invest in fixed broadband infrastructure to meet growing consumer lust for hi-def services,” writes Jenkins.

Would Wall Street rather see providers invest in network upgrades or return profits to shareholders? Investment expansion in the broadband industry comes when a company senses if they do not spend the money, their business will be swept away by others that will. Cable broadband threatens telephone company DSL, so AT&T cherry-picked communities for investment in its half-measure U-verse fiber to the neighborhood network. Google Fiber, should it choose to expand, will be an even bigger threat to both cable and phone companies. Municipal fiber to the home networks upset the incumbent players so much, they spend millions of ratepayer dollars in efforts to legislate them out of existence.

Jenkins’ view that giving the industry carte blanche to do and charge as it pleases to stimulate a better broadband future is as fanciful as NBN critics in Australia suggesting fiber upgrades should be canceled in favor of waiting 20+ years for improved wireless to come along.

He even approves of Internet Overcharging schemes like usage caps and consumption billing, calling it proper price discrimination in a “fiercely competitive” environment to defray a network’s fixed costs.

Do you think there is fierce competition for your broadband dollar?

Broadband’s fixed costs are so low and predictable, it literally calls out consumption pricing as just the latest overreach for enhanced profits. As Suddenlink’s CEO himself admitted, the era of big expensive cable upgrades are over. Incremental upgrades are cheap, the costs to offer broadband are declining, so it is time to reap the profits.

Jenkins closes with one recommendation we can agree with: “A low-tech way to stir up broadband competition would be to relax the regulatory obstacles to the actual physical provision of broadband.”

We can start by scrapping all the state laws the industry lobbied to enact that prohibit community-owned broadband competition. If big cable and phone companies won’t provide communities with the quality of broadband service they need to compete for 21st century jobs, let those communities do it themselves.

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

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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.

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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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A Look Inside Time Warner Cable’s Quarterly Results and Forthcoming Plans

timewarner twcIt’s time to take a look inside Time Warner Cable’s latest quarterly financial report and pick out some interesting developments that will impact customers during the first quarter of 2013.

Time Warner Cable managed 9 percent revenue growth in 2012, primarily from its broadband service, its strongest product. The company added another 500,000 broadband customers over the last year, primarily poached from telephone company DSL service. This growth in subscribers continues despite rate increases and the introduction of a $3.95 monthly modem rental fee introduced last fall.

CEO Glenn Britt noted that Time Warner Cable customers use and love their broadband service.

“The average customer used roughly 40% more capacity last year,” Britt noted.

But Time Warner Cable has plenty of capacity to handle that traffic growth.

Britt plans to leave as CEO of Time Warner Cable by the end of this year.

Britt plans to leave as CEO of Time Warner Cable by the end of this year.

Irene Esteves, Time Warner’s chief financial officer noted Time Warner Cable continues to decrease its capital spending. Overall, Time Warner spent $3.1 billion on capital expenditures in 2012, or just 14.5% of its revenue. That represents a 40-basis point decrease from 2011. The bulk of that spending was on business services, primarily from the costs of wiring business office parks and buildings for cable. Less than 12% of Time Warner Cable’s spending targeted residential services.

“Overall, we expect capital intensity will continue to decline modestly, with full year capital spending around $3.2 billion in 2013,” Esteves told investors.

Time Warner’s new modem fee is earning the company a major boost in Average Revenue Per User (ARPU). The average Time Warner customer now spends $103.79 a month for service, an increase of 6.3%. Three-quarters of that increase is attributable to the modem fee alone.

Customers are clamoring for higher broadband speeds. At the end of 2012, Turbo, Extreme and Ultimate subscribers comprised over 23% of the company’s residential broadband customer base, up from 19% a year ago and 11% three years ago.

Britt, expected to retire by the end of this year, noted the company’s biggest challenge during his tenure continues to be programming costs. But the company is contributing to that problem itself, spending $110 million in 2012 on its new regional sports networks in southern California, which feature the Los Angeles Lakers and the Los Angeles Dodgers.

“Our programming costs per subscriber has grown 32% in the last four years,” Britt complained. “Over that same period, the Consumer Price Index has risen by 9%. So the math is pretty simple, programming costs have been rising at more than three times the rate of inflation. Our residential video ARPU increased 16% over that same period, so we’ve effectively raised pricing a little faster than inflation but only half as fast as programming costs have risen.”

The rising price of cable service has caused Time Warner to lose a larger number of customers, particularly when promotional pricing deals expire. The company has retrained its retention agents to avoid losing customers to the competition as new customer promotions expire. Time Warner noted some of its strongest competition is coming from AT&T U-verse promotional pricing for double-play offers in Texas and the midwest. In Kansas City, Time Warner continues to dismiss competition from Google Fiber as largely irrelevant, although the company has boosted its maximum broadband speeds to 100Mbps in that city.

Time Warner's TV Everywhere app.

Time Warner’s TV Everywhere app.

Other highlights:

♦ TWC completed its DOCSIS 3.0 broadband enhancement rollout in 2012 and began a process of reclaiming bandwidth previously dedicated to the delivery of analog video. These steps will allow the company to continue to devote more network resources to enhancing broadband service, including handling more traffic and selling faster service.

♦ Optional usage-based tiers are available from most Time Warner Cable regions. The offer of a $5 monthly discount for customers keeping their usage under 5GB each month has received almost no interest from subscribers. Sources inside Time Warner tell Stop the Cap! the company never expected much customer interest, but the offer allowed Time Warner to introduce the concept of usage-based pricing without alienating current customers.

♦ Time Warner Cable’s “TV Everywhere” platform continues to expand. Various TWC TV apps now offer as many as 300 streamed video channels on both smartphones and streaming set-top boxes. In December the company expanded its offering to include video on demand, and last week those on-demand programs became available on the desktop. Time Warner expects to grow its on-demand library and introduce local television channels to its streaming apps in 2013.

♦ Time Warner is trying to improve the standing of its residential telephone service with the introduction of a Global Penny plan, which offers international calling to over 40 countries for one cent per minute. This helps the company market its phone service to subscribers choosing its various ethnic and foreign language television packages.

One-hour service windows are now available in most Time Warner Cable areas. In New York City, a 30-minute window is available for the first appointment of the day. The company is also expanding its self-install packages, letting customers do simple equipment installations themselves. The equipment is delivered free of charge by package delivery services and can be returned by mail as well.

♦ Although Time Warner is earning more from its broadband customers, the introduction of a modem rental fee did cause a significant number of customers to disconnect service, presumably in favor of a competitor. But the extra money in the cable company’s pockets more than makes up for the loss.

♦ Time Warner Cable’s forthcoming “hosted navigation product” represents a major change for the company’s set-top boxes. The “gateway” device will include 1TB of storage, can record up to six shows at once, and will automatically transcode video for an IP platform, letting customers view recorded and live programming on set-top boxes or wireless devices like smartphones and tablets inside the home. Expect to see the new device arrive in the second half of this year in many Time Warner cities.

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Cable Industry That Makes 90%+ Margin on Broadband Now Says Caps Are About ‘Fairness’

They are in the money.

Follow the money to the real root of this argument.

After conclusive evidence that cable broadband upgrades have eliminated any congestion problems, the cable industry has finally admitted usage caps are not about “congestion relief,” but are, in their view, “about fairness.”

Reports of the Internet data exaflood, tsunami, brownouts, or even blackouts are highly exaggerated and always have been. But we knew that from the first day Stop the Cap! got started.

In the summer of 2008, Frontier Communications attempted to define a top limit on their residential DSL accounts at a staggeringly small 5GB per month. Time Warner Cable initially thought 40-60GB a month was more than fair when it tried to ram its own Internet Overcharging scheme down the throats of customers in New York, North Carolina, and Texas in April 2009. Comcast said using more than 250GB a month could create congestion problems on their network and be unfair to other customers. To this day, AT&T, one of the nation’s largest telecommunications companies, claims that anything more than 150GB on their DSL service or 250GB on U-verse could bring their entire network to its knees.

The Holy Grail of Wall Street economics for broadband is to monetize its usage, creating an endless money party for what is today a utility service. Millions have been spent lobbying anyone who will listen that usage caps and consumption billing were essential to promote investment, upgrades, and to expand broadband service into rural America. Since those arguments have been made, broadband rates have increased, investment has decreased on a per customer and often real basis, and the government is now trying to chip in public taxpayer dollars to get providers to wire areas that will never pass demanding return on investment formulas.

The second prong of selling this meme is the creation of an Internet boogeyman — the “data hog,” a largely fictional creature that supposedly cares only about consuming every possible bit of bandwidth and slowing your web browsing to a crawl. Shouldn’t he pay more, you are asked, at the same time these same companies continue to raise your rates and now attempt to limit your use of a service that should cost less.

This week, Michael Powell, former FCC chairman turned head of the nation’s largest cable lobby — the National Cable & Telecommunications Association, capitulated on the “congestion” myth to an audience at the Minority Media and Telecommunications Association.

Asked by MMTC president David Honig to weigh in on data caps, Powell said that while a lot of people had tried to label the cable industry’s interest in the issue as about congestion management. “That’s wrong,” he said. “Our principal purpose is how to fairly monetize a high fixed cost.”

He said bandwidth management was part of it, though a more serious issue with wireless.

But he pointed out that the cable industry had to spend a bunch of money on its network before the first customer was signed. So, for a business that requires “enormously high” fixed costs — digging up the streets, put the wires in — and operational expense, “it is a completely rational and acceptable process to figure out how to fairly allocate those costs among your consumers who are choosing the service and will pay you to recover those costs.”

When will Washington regulators and lawmakers stop drinking the Kool-Aid handed them by high-paid lobbyists?

When will Washington regulators and lawmakers stop drinking the Kool-Aid handed them by high-paid lobbyists?

But our readers know Powell’s arguments are based on nothing more than the same empty rhetoric that declared the Internet exaflood was at hand.

Cable broadband was introduced as an ancillary service in the late 1990s utilizing cable television infrastructure that was constructed and paid off years earlier. Introducing broadband required only incremental investment and that remains true to this day. Cable operators more than cover their costs with sky high prices for service delivering some operators as high as 95% gross margin on broadband. Capital investments have broadly declined for years as have the costs to deliver the service on a per customer basis.

Suddenlink president and CEO Jerry Kent admitted the days of expensive system upgrades were over and it was now time to rake in profits.

“I think one of the things people don’t realize [relates to] the question of capital intensity and having to keep spending to keep up with capacity,” Kent said. “Those days are basically over, and you are seeing significant free cash flow generated from the cable operators as our capital expenditures continue to come down.”

Powell’s arguments ironically may apply partly to Verizon’s FiOS fiber network, which requires the retirement of copper wire infrastructure around since Alexander Graham Bell, but even Verizon covered much of its costs winning permission to raise rates years earlier to cover fiber upgrades. Much of that money was diverted to their wireless business instead. Today, Verizon FiOS manages just fine with no usage limits at all.

In fact, the only argument about fairness that should be open for debate regards the current cost of broadband service in the United States when compared against operators’ enormous profit margins. The lack of competition has allowed providers to increase prices and introduce “creative pricing” that always guarantees protection for the incredibly high average revenue per customer already earned.

Too often, Washington regulators and lawmakers drink the Kool-Aid handed them by an industry with an incentive to distort the truth. That incentive is the billions at stake in this fight.

Powell has even shelved the notion of the Cheetos-eating data hog burning up the Internet in his parent’s basement and has elected to try class warfare instead, claiming the most capacity is used “by a high end elite subsidized by the rest.” The real high-end elite are the telecom company executives cleaning up overcharging customers for a service that has become a necessity. Arguing for usage caps as a way to offer “lower prices” for those who cannot afford the ridiculously high prices the industry charges today only creates a new digital divide – the have’s and the have only so much.

Either way, providers laugh all the way to the bank.

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Why is a Michigan Public Service Commissioner Carrying AT&T’s Water?

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Isiogu

A current member of the Michigan Public Service Commission is penning guest editorials featuring AT&T’s favorite talking points: promoting the company’s deregulatory agenda and providing false memes about Internet Overcharging schemes like usage caps and consumption billing.

Orjiakor N. Isiogu, co-vice chairman of the National Association of Regulatory Utility Commissioners Committee on Telecommunications and member and immediate past chairman of the Michigan Public Service Commission wrote nearly identical pieces appearing in The Hill, the Detroit Free-Press and the Battle Creek Enquirer that included misleading claims that could have come straight from an AT&T lobbyist’s “fact sheet.”

A sample:

The federal government has used the telecom industry as a model of how competition could be a better elixir than the guiding hand of government regulation. And the results are impressive. The high-speed Information Superhighway touches 95 percent of the U.S., and most consumers can choose from among six or more wireless or wireline providers (90 percent can choose from at least two). And the price of Internet access — measured by megabits per second — has fallen 87 percent since 1999, even as the speed has increased tenfold;

80 percent of U.S. homes now have access to download speeds of 100 megabits per second, and 4G wireless service will soon be available nationwide, with speeds of up to 20 megabits per second;

Despite the evidence, however, there are those who wonder whether there is sufficient competition for Internet access, whether speeds are too slow and prices too high. Others object to new pricing plans that allow a consumer to purchase the amount of bandwidth that best suits his needs.  In fact, some have asked the government to stop these new tailored pricing plans, even though these plans save nearly all consumers from having to underwrite the “outliers” whose monthly usage is gigantic — over 300 GBs a month or the equivalent of over 500 standard definition movies;

And if Teddy Roosevelt were with us today, he would likely argue that we can walk and chew gum at the same time, pointing to the banking industry as an example of industry excesses in need of a public check and the telecom industry as an example of how private competition, with occasional nudges, could better make the markets work.

In reality, if Teddy Roosevelt were alive today, he’d ask why a state commissioner working for the public is instead carrying water for the large telecommunications companies he oversees.

Did Roosevelt advocate the government keep their hands off AT&T and other consolidating telecom companies?

Did Roosevelt advocate the government keep their hands off AT&T and other consolidating telecom companies?

Isiogu doesn’t know his history either.

Roosevelt made no distinctions between the excesses of one industry over another. He strongly believed all major interstate corporations (and that would cover Isiogu’s friends at AT&T, Comcast, and other big telecom companies) should be subject to federal regulation and, in some cases, have their rates set by the government to ensure the public was charged fairly for the services they received. Roosevelt learned his lesson well from the oil, railway, and tobacco trusts his government sued to break up after years of consolidation and rapacious greed at the public’s expense. Those companies all claimed to be competitive as well.

Few industries have consolidated faster than the telecom sector, which is gradually rebuilding the Bell System in AT&T and Verizon’s image and a cable cartel that agrees never to compete directly with other cartel members.

Isiogu’s “facts” are disturbingly incomplete and misleading for a telecom regulator ostensibly serving the public interest.

For example, his claim that Americans can choose among six or more different providers ignores the fact AT&T and Verizon are counted twice (wired and wireless), no competition exists among multiple cable operators or phone companies, and many of the other options Isiogu counts (almost always wireless) do not provide coverage in suburban and rural Michigan. The average consumer in the U.S. has two practical choices for broadband — the cable or phone company.

While Isiogu sings the praises of American broadband, the rest of us have watched the price of Internet service continue to increase, whether customers want faster speeds or not. The industry itself admits it can raise prices because the competitive landscape and consumer love of broadband gives companies “pricing power.”

He also doesn’t mention the price of 100Mbps service or the fact it is not offered by either AT&T or (outside of one city) Time Warner Cable — both industry leaders. Wireless is no panacea either. 4G service may offer faster speeds, but usage plans that start with just a 1GB allowance make it hard (and expensive) to take advantage of the technology improvements. Just a few years ago those plans offered unlimited access.

Isiogu also tapdances around the fact no broadband provider in the country wants to sell a “pay for what you use” plan. Instead, companies create usage allowances that come with steep overlimit fees and, as AT&T executives have told shareholders, deliver limitless potential revenue growth as subscribers are forced to upgrade as their usage grows.

Most consumers favor and appreciate unlimited-use plans for predictable pricing and ease of mind. But flat rate plans ruin providers’ goals to monetize broadband usage and are usually eliminated when consumption pricing arrives, another fact Isiogu does not bother to disclose.

Isiogu has gotten remarkably cozy with the industry he oversees, even resorting to mind-bending pretzel logic that calls regulation for the banking sector a good idea and oversight of his industry friends a disaster.

What is disturbing is while Isiogu pens these industry friendly guest editorials in his spare time, he is also in a position of power to oversee and regulate these same companies in the public’s interest.

That represents a clear conflict of interest Teddy Roosevelt could see and feel from his grave.

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UsageCapMan Takes Exciting Trip Through D.C.’s Revolving Door; Now FCC’s Chief Economist

From writing friendly reports defending Internet Overcharging to the FCC's new chief economist -- D.C.'s revolving door keeps on spinning.

From writing friendly reports defending Internet Overcharging to the FCC’s new chief economist — D.C.’s revolving door keeps on spinning for Professor Steven Wildman.

The Federal Communications Commission has proved that Washington’s revolving door enjoys perpetual motion with the announcement it hired a new chief economist who just three weeks earlier was peddling his findings favoring usage caps and consumption billing before a National Cable & Telecommunications Association gathering that paid for his research.

Professor Steven Wildman’s move from the cable industry’s go-to-guy for defending Internet Overcharging to a cushy new position at the FCC just weeks after shilling for the country’s largest cable industry lobbying group is shocking even by Washington’s standards.

Remarkably, FCC Chairman Julius Genachowski praised this cheerleader of wallet-pilfering by saying “his deep economic expertise and problem solving abilities” are the perfect fit for an agency pressed with challenging initiatives – like charging you more for your broadband service and calling it “pro-consumer.”

There is no doubt Wildman has deep economic expertise — he has found success penning dubious research bought and paid for by an industry that expects his findings to echo their own talking points. His problem-solving abilities at fixing the facts around the cable industry’s agenda are also unquestioned.

But his research reports aren’t worth wasting your monthly usage allowance to download because they only tell part of the story.

At the December NCTA Connects event, Wildman was the darling of the cable industry echo chamber telling tall tales about the problems of broadband penetration in a country where providers enjoy up to 95 percent gross margins on broadband pricing:

“One of the key mechanisms through which positive welfare effects are realized is the crafting of lower-priced plans for users who otherwise might not take service, while users who have a more intensive demand for broadband are able to contract for more advanced services. We also showed that UBP has flexibility advantages for users whose data service needs vary over time. Because UBP creates an incentive to offer lower cost-lower usage plans to consumers who otherwise could not profitably be served at a unitary price, UBP can be an effective tool for promoting increased broadband penetration in the United States, a role that is enhanced by the fact that low price-low usage options reduce the financial risks to consumers thinking about trying broadband for the first time.”

“Tiered pricing also has benefits for the recovery of shared network costs and for network investment. Whereas investment decisions are also influenced by other factors, including the costs of extending networks, potential revenues, and overall economic conditions, we found that, other things equal, usage tiers will likely contribute to better cash flows and stronger incentives to invest in broadband plant, both to improve the quality of service for current customers and to extend networks into unserved and underserved territories.”

usage cap manWildman does not mention his cable benefactors earn a higher percentage of profit on broadband than oil sheikhs in the Middle East rake in charging $90+ for a barrel of oil. So it is unsurprising his analysis lacks one simple solution providers could use to differentiate their services and enhance broadband penetration: lower the price to compete. He also ignores the fact that true usage pricing would offer consumers a chance to pay only for what they actually consumed during a month, but those plans are not on offer anywhere.

Wildman ignores the real industry agenda: monetizing broadband usage to create even higher profits. The cable industry is well on its way, using the enormous market power enjoyed in the current monopoly/duopoly state of consumer broadband to preserve today’s near-extortionist pricing while trying to pick up customers currently unwilling to pay, charging for slightly discounted service that comes with a paltry usage allowance.

The meme that unlimited, flat rate broadband is somehow responsible for America’s broadband-unserved is a popular one at the FCC, where Chairman Genachowski has applauded usage based pricing as an “innovative” experiment that could change how broadband is marketed in the U.S. and promote its expansion.

While those in D.C. may live in a bubble populated by industry lobbyists, others do not.

http://www.phillipdampier.com/video/NCTA Connects The Pros and Cons of Broadband Peak Load Pricing Dec 2012.flv

Message Confusion: While some in the cable industry still advocate usage pricing and caps as a matter of “fairness” and as a salve for peak time congestion, today’s advocates of usage-based billing appearing at a cable-industry event in December admit congestion is simply no longer a problem on wired networks. Sandvine’s Dave Caputo and Professor David M. Lyons of Boston College Law School dismiss the notion of congestion-based pricing only during peak usage, arguing congestion is no longer the real issue driving usage caps. That is why everyone must be subjected to higher priced, usage-capped broadband no matter what time of day they use the network. (3 minutes)

The inevitable outcome of "differentiated pricing" is charging consumers more to access popular websites, as is already the case in countries like Colombia.

The inevitable outcome of “differentiated pricing” is charging consumers more to access popular websites, as is already the case in countries like Colombia.

Wildman argues that like car manufacturers that offer many different models ranging from basic to well-appointed with luxury extras, providers should be free to offer different types of plans to consumers.

Wildman’s auto analogy fails because consumers have more than a dozen different manufacturers to choose from, each making a range of different models. For broadband, the overwhelming majority of Americans have two choices: the cable and phone company. Unlike auto manufacturers that respond to consumer demand, broadband providers are hellbent on eliminating the overwhelmingly popular flat rate, unlimited option in favor of mandatory usage pricing and/or usage caps. It would be like telling auto-buyers that their Honda Accord, Toyota Camry, or Chevy Malibu no longer met the needs of manufacturers. Instead, you have one choice: the Toyota Yaris. But you can get it with heated leather seats, so what’s the problem?

Wildman also ignores the fact providers already sell different plans, based on different speeds. Customers with only light web use can select a cheaper, lower speed tier and never notice the difference. Heavier users buy up into premium speed tiers, paying higher prices to cover their additional usage and expectations of performance.

Providers have spent the last few years trying to justify adding a usage component to the pricing equation and Wildman is perplexed by public policy and consumer groups overwhelmingly hostile to plans that would leave current pricing largely intact and add an artificial usage cap. Considering who pays for his research, this is not too surprising.

Wildman’s style of “innovation” already exists in countries like Canada, Australia, New Zealand, and in parts of Europe allowing everyone to witness what actually happens when these pricing schemes gain a foothold. Usage-based pricing has successfully boosted the profits of providers but has done nothing to expand rural broadband networks or offer customers big savings. When providers gorge on profits made possible in uncompetitive markets, the money goes straight into bank accounts or back to investors, not into capital spending to improve service or expand into areas deemed unprofitable to serve.

Customers despise usage caps so much that in Australia and New Zealand, the government has partially taken over rebuilding infrastructure with new fiber to the home networks and promoting international capacity expansion that will eventually banish usage pricing for good. In western Canada, Shaw Cable heard so much condemnation about usage caps during its listening tour, it greatly relaxed them. (The fact its biggest competitor Telus barely enforces their own caps didn’t hurt either.)

In the rest of Canada, independent ISPs have found a growing niche selling plans with considerably larger usage allowances or flat rate access. How did dominant providers like Bell (BCE) respond? They asked regulators to force the competition to stop selling flat rate service.

sandvine helping

How Sandvine helps providers “innovate.” Alaska’s GCI implemented its draconian caps and overlimit fees using Sandvine’s Internet Overcharging technology.

Wildman’s report flies in the face of reality, and every so often the cable industry itself admits as much. Take the word of Suddenlink president and CEO Jerry Kent, who runs a largely rural cable company that launched its own Internet Overcharging scheme:

“I think one of the things people don’t realize [relates to] the question of capital intensity and having to keep spending to keep up with capacity,” Kent said. “Those days are basically over, and you are seeing significant free cash flow generated from the cable operators as our capital expenditures continue to come down.”

Unsurprisingly, that sentiment did not make it into Wildman’s analysis either.

Wildman

Wildman

Financial reports from providers that have usage caps and those that don’t show the same remarkable trend: broadband expenses are way down, capital intensity is well within expected norms, and cable operators are not pouring their profligate earnings into expanding rural broadband.

That makes Wildman the consummate team player, and hardly the best choice for taxpayers who will cover his salary for a few years before he takes another trip through the revolving door back to his industry friends. When Americans wonder why Washington doesn’t seem to be living in the reality-based community, this is why. We can hardly expect Mr. Wildman to represent our interests when he has spent the last several years representing an extremely profitable industry reviled for its overcharging, poor service, and scheming, and will be more than welcomed back if he remembers his friends while working at the FCC.

This latest move represents another disappointment from Chairman Julius Genachowski, who increasingly appears to be warming up to a telecommunications industry he used to aggressively oversee at the start of his tenure.

http://www.phillipdampier.com/video/NCTA Connects The Evolving Internet -- Patterns in Usage and Pricing Dec 2012.flv

Three weeks ago, the Three Musketeers of Internet Overcharging appeared at a cable industry-sponsored event promoting usage caps and consumption billing. Sandvine CEO Dave Caputo makes his living scaring providers and consumers about Internet growth and (conveniently) selling the equipment that manages the traffic “tsunami” with speed throttles and usage limits. Professor David M. Lyons of Boston College Law School calls usage pricing “second degree price discrimination,” a term he hopes the industry will rebrand into something less ominous and obvious. He argues selling broadband at incremental costs will never recover “fixed costs” for networks the cable industry itself admits have already been largely paid off. Professor Steven Wildman, now on the way to the FCC as its new chief economist, peddles research bought and paid for by the cable industry. They got their money’s worth. (1 hour, 9 minutes)

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Panic 911: Big Telecom Front Group’s Silly Defense of Internet Overcharging

Phillip "Oh look, more industry-backed research in denial of consumer-loathing of Internet Overcharging" Dampier

Phillip “Oh look, more industry-backed research in denial regarding unpopular usage caps and consumption billing” Dampier

It seems America’s biggest industry-funded broadband astroturf group, Broadband for America, thinks the New America Foundation completely misses the point of “new pricing strategies” like restrictive usage caps, costly consumption-based billing, and fiendishly high overlimit fees. In a hurry, they released this particularly weak argument favoring usage pricing:

A new report by the New America Foundation suggests that “dwindling competition is fueling the rise of increasingly costly and restrictive Internet usage caps” in the broadband sector. But as we’ve explained before, these experimental new pricing strategies are actually signs of competition in the market and ultimately benefit consumers.

In terms of competition between broadband service providers, a study by Boston College Law School Professor Daniel Lyons concluded “data caps and other pricing strategies are ways that broadband companies can distinguish themselves from one another to achieve a competitive advantage in the marketplace.” He also concluded these practices were not anti-consumer: “When firms experiment with different business models, they can tailor services to niche audiences whose interests are inadequately satisfied by a one-size-fits-all flat-rate plan.” Indeed, many consumers are no longer satisfied with one-size-fits-all rate plans. Since data usage by individual users can vary dramatically, imposing a one-size-fits-all approach to pricing would result in light data users subsidizing the use of heavier ones. As Michigan State University Professor of Information Studies Steven Wildman explains, not having usage-based pricing models “means that light users pay a higher effective rate for broadband service, cross-subsidizing the activities of those who spend more time online. With usage-based pricing, those who use more bandwidth contribute more toward the cost of building and maintaining broadband networks.”

Broadband providers should be free to experiment with usage-based pricing and other pricing strategies as tools in their arsenal to meet rising broadband demand on their networks. Moving forward, Lyons recommends instituting public policies that allow providers the freedom to experiment, in order to best preserve the spirit of innovation that has characterized the Internet since its inception.

Broadband for America thinks they are clever when they introduce “academic papers” that extend credibility to their arguments. No, Broadband for America, we get the point. Your benefactors want to charge customers more  money for less service and call that a fair deal.

The wheels driving their talking points start to fall off the moment one peaks under their covers:

1. Broadband for America (BfA) is America’s largest telecom industry front group, backed almost entirely by cable and phone companies and dozens of supporting groups that are typically funded by those companies, have telecom industry board members, or whose lifeblood depends on doing business with Big Telecom companies.

2. Experimental pricing plans that largely leave existing pricing in place -and- impose new service limitations is not a sign of competition that benefits consumers, it is proof of its absence. With today’s broadband duopoly, there is little risk imposing new fees or service restrictions when the only competition you have typically follows suit. There is no evidence that usage-based pricing is saving consumers money, particularly when broadband providers are using their marketplace power to further increase prices.

3. There is no evidence “many consumers are no longer satisfied with one-size-fits-all rate plans” for home broadband. In fact, the reverse has been proved conclusively, sometimes by industry-funded researchers.

4. With a 90-95% gross margin on broadband, there is plenty of room for price cuts -and- unlimited broadband, but why give those profits away when lack of competition doesn’t provide the necessary push. Instead, providers’ ideas of “innovative pricing” are always upwards and include usage limits, modem rental fees, and other restrictions.

5. The railroad industry argued much the same case in the early 20th century when communities complained about wide pricing disparity, depending on local competition. We all know what eventually happened there.

6. Full disclosure, as is too often the case, is completely lacking at BfA. So we’ve offered to help:

The “study by Boston College Law School Professor Daniel Lyons” is accurate. He is now a faculty member there. But BfA fails to disclose the study was actually produced on behalf of the Koch Brother-funded Mercatus Center, which specializes in industry-friendly position papers on deregulation. Lyons is also on the Board of Academic Advisers at the Free State Foundation, itself an industry-backed astroturf group that advocates on behalf of large telecom companies, among others.

His colleague Michigan State University Professor of Information Studies Steven Wildman is also an adviser at the Free State Foundation. He is also a bit more transparent about where the money comes from for his studies advocating usage-based pricing – the National Cable and Telecommunications Association (NCTA), the largest cable industry lobbying and trade group in the United States.

The only surprise Lyons and Wildman could have delivered is if they advocated against these Internet Overcharging schemes. But then they probably would not have been invited to present their findings at an NCTA Connects briefing last week entitled, “Connecting the Dots on Usage-Based Pricing.

We at Stop the Cap! can connect the dots as well.

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