[Updated 1:00pm ET: Stop the Cap! reader Michael Chaney found a video interview done last fall with some Australian providers falling all over themselves to praise themselves for Internet Overcharging schemes, and suggest American providers learn from them how to get away with trying the same thing.]

The group managing director of Telstra (Australia), Justin Milne, wants you to know that the era of free love is over.  They are sick and tired of letting content producers like Ninemsn (a partnership between Australia’s Nine Network ((think ABC or CBS)) and Microsoft’s MSN) use their pipes for free to send those video clips to their customers.  It’s time to break out the checkbooks and start paying them for freeloading on their network.

In a commentary for ZDNet Australia, Milne equates Net Neutrality with greed and “economic self-interest dressed up as moral virtue.”  Pot to kettle, especially when he quotes Franklin Roosevelt:

Franklin Roosevelt said during the Great Depression that heedless self-interest reflected not only bad morals but bad economics too.  Seventy years on, his advice still rings true.

Yes it does, and Telstra is a perfect example of that in practice, offering dreadful broadband service with paltry limits on usage and heavy throttles on speed when one exceeds them, all for a substantial price.  Telstra’s own self-interest leaves a lot of Australians despising the provider and begging for alternatives.  The morality of a company that now wants content providers, with whom it has no business relationship, to pay them money to reach their customers, can be left to the reader’s determination.

This is a tune we’ve heard before.  AT&T’s former CEO Edward Whitacre was the guy who first lit the flame to the gas line of abusive provider tactics using generally the same language:

How do you think they’re going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using. Why should they be allowed to use my pipes?  (11/07/05)

Justin Milne

After Whitacre was educated that providers already pay hosting fees, infrastructure and licensing costs, and provide the very stuff that drives consumers to sign up for AT&T’s broadband services (and pay them for it) in the first place, Whitacre did a full reversal three months later:

“Any provider that blocks access to content is inviting customers to find another provider. And that’s just bad business.” (3/21/06)

Milne follows in Whitacre’s earlier footsteps, except he wants to be paid by everyone.  His customers are already subjected to limits on usage, which have limited Australia’s multimedia online experience years behind most others, and now he wants to have the money he earns from Internet Overcharging -and- the right to limit content that reaches his customers to only those who pay Telstra for the right to deliver it:

“Some content providers such as ninemsn argue that Telstra should subsidise the cost of the ninemsn customers visiting their internet sites. We might also assume [they] would prefer petrol to be free for their cars, and Hayman Island would like air travel to the resort free,” Milne wrote.

“But Shell, Qantas and Woolworths do not give their services away for free. Just like BigPond and the rest of Australia’s ISPs, they need to charge their customers a fee so that over time their investment is recouped,” he said.

Of course, Shell, Qantas and Woolworths only charge once for their products and services.  They don’t install a toll booth on a road and claim that because a full petrol tank weighs more than a near-empty tank, there needs to be a surcharge toll.  Qantas doesn’t send people down the aisle on a flight with a collection plate demanding more money for your ticket because the plane was packed.  All of Australia’s ISPs charge their customers for providing broadband connectivity.  Telstra does as well.  The difference is that Telstra wants to charge its customers a fee and also charge the websites you choose to visit a “transport fee” on top of that.  Your bill as a customer doesn’t go down because of “cost sharing.”  Telstra’s profits simply go up.

Milne’s problem with Net Neutrality is its core principle that all legal data traveling across the net must be treated equally.  That means Telstra has no way to enforce their HissyFit.  In the absence of Net Neutrality, they can block, limit, or throttle those that refuse to pay them.

The cost of the infrastructure to support this traffic has been borne almost entirely by internet service providers, and not by the publishers. In Telstra’s case alone, the company has invested billions of dollars in the Next G mobile broadband network covering 99 per cent of Australian consumers, the HFC cable network in major cities and the extensive ADSL network.

Unfortunately there is no magic pudding, so this investment must be repaid by the beneficiaries of the internet — the users on the one hand, and the publishers who seek to make money from those users through advertising and subscriptions.

Milne almost suggests they did this out of the goodness of their heart, and their investment was not going to be paid back.  The fundamental reality is that subscribers to those services are Telstra’s customers and they pay for that service, such as it is.  That is where that investment will be recouped.  Demanding a company that has no business relationship with your company to pay up or else face the potential of being cut off is akin to extortion.

I offered Milne two alternative suggestions:

• Expand your network to create infrastructure suitable to meet the needs of your subscribers, who will sign on in greater numbers to your service.
• Create hosting platforms and services at attractive prices to content providers who will use your service to host their content (and pay you for actually doing something for them).

Barring that, this is nothing but a HissyFit from another provider looking for a payday.

Michael Chaney, one of our readers, discovered this video interview compilation done last fall by ZDNet.  Enjoy the Internet Overcharging excuse making, where the customer becomes the enemy, and the creativity to find new ways to charge more in without bounds.

“The attempt is being made certainly in the UK but also in the US to push that cost onto the content owner by saying, you pay, and we’ll prioritise your traffic,” he said. “[And] if you don’t pay, your traffic will be really crap.”

[flv width=”480″ height=”360″]http://www.phillipdampier.com/video/ZDNet Australia Providers 2008.flv[/flv]

Beaumont, Texas

Stop the Cap! reader Mark who went to war with Time Warner Cable in the Beaumont area when they tried to impose Internet Overcharges on his account (and got his money back), found himself back with AT&T after dropping Time Warner Cable.  Mark is among many who made it clear that imposing these kinds of billing schemes is not up for discussion — he will cancel service immediately.

Before Mark returned to AT&T, he called the company’s customer service sales center and asked about usage limits and other pricing tricks and traps, and they responded, “there are no cap limits.”  That’s because for most of AT&T’s coverage area, that’s true… for now.  The company has been testing Internet Overcharging with usage allowances and overlimit fees in two cities – Beaumont, Texas and Reno, Nevada.  Unfortunately, not every AT&T sales representative seems aware of this fact, even when you provide them with an address and telephone number within the test area.

“We received the modem and before I had opened the package a certified letter arrived from AT&T,” Mark says.

“It was a letter stating that AT&T had introduced usage limits, and I called them immediately to  cancel,” he said.

When you live in a city with two broadband providers, both engaged in Internet Overcharging, you discover you run out of options very quickly.  Or do you?

“I called AT&T and talked to an upper level retention agent named Jennifer, and told her if I could not get a flat rate Internet plan from AT&T, I wanted to also cancel my two phone lines and my business Yellow Pages ads,” Mark said.

Even when providers claim to “listen to their customers” on issues like this, the one word they always truly understand is: CANCEL.

“Jennifer immediately agreed to note my account that there would be no usage overlimit charges, which effectively gave me flat rate service,” Mark said.

The AT&T representative also sent him a $75 gift card and promised to investigate getting him faster DSL service on the Elite tier he tried before, and failed to receive.  To date, Mark hasn’t been billed one cent more than his standard monthly rate, despite AT&T’s ongoing “tests” in Beaumont.  As long as that remains true, and AT&T works on getting him more reasonable speeds, Time Warner Cable has lost a customer, potentially for good.

Mark feels he’s living on the front line of a battle between consumers and providers over what is rapidly becoming a utility as important as telephone service.

“I feel the Internet is going to pass Americans by if something is not done,” Mark adds.  “I personally will not pay the kind of fees the ISP’s want to charge.”

Mark is also curious why these “tests” are being imposed on residential customers, and not business customers who are charged prices providers claim are justified considering their “higher usage.”

“Starbucks and Books a Million all have Internet service from these companies and provide it to their customers,” Mark notes.  “Were they exempt?”

Time Warner Cable’s testing, now suspended, never involved commercial accounts.  AT&T doesn’t appear to have included their business accounts in any tests either.

If you are an AT&T customer in Beaumont or Reno, you may have a shot at exiting a test you never wanted to be a part of in the first place.  Simply insist on either being exempted from Internet Overcharging schemes, or take your business elsewhere (Time Warner Cable in Beaumont, for now, may be your best option.)  Retention specialists may be the only representatives empowered to exempt you, so you may have to indicate your intent to cancel service before reaching one.

If you are under a contract with an early termination fee, ask the competitor if they’d be willing to cover your exit fee.  Time Warner Cable is doing that in some markets.  If not in full, negotiate and see how far they’ll go.

Report any results of your efforts to us.  We’ll pass the word on to others.

One of the arguments used by those who want to engage in Internet Overcharging is that people already “pay for what they use” for gas and electric service, so why shouldn’t they adopt the same attitude towards Internet service.

Historically, people did used to pay for their usage of online services, before there was a World Wide Web.  CompuServe, QuantumLink, PeopleLink, Delphi, GEnie, AOL, among many others used to provide access to dial-up users for a fee which varied depending on the amount of time spent accessing the service.  Rates during business hours were outrageous (CompuServe charged upwards of $12-16 per hour in the 1980s), but more reasonable during the evenings.

But as costs to provide the service declined, providers rapidly abandoned that type of pricing for flat rate, unlimited access for one monthly price.  Internet Service Providers worked the same way, with customers first using dial-up modems to connect for one monthly price.  Nobody worried about watching the clock or meters.  It has worked that way ever since, with highly profitable results for broadband providers.

MetroPCS Coverage Map (click to enlarge)

Now, some of these companies hunger for more of your dollars, and they are attempting to convince you their pricing should be similar to utilities like gas, electricity, and water (while conveniently not allowing themselves to be regulated like those providers).  They scrupulously avoid comparing their service with telephone companies, which are really the closest cousins to broadband service.

Now we know why.  While some broadband providers want to move away from flat rate pricing, telephone companies are moving toward flat rate pricing.

In addition to unlimited local, statewide, and nationwide flat rate long distance plans, MetroPCS, a regional prepaid mobile telephone provider, has announced a new unlimited international flat rate calling plan for just $5 per month.

To be eligible for $5 Unlimited International Calling,  customers must choose an unlimited calling plan starting at $40 per month.  For an additional $5, customers get unlimited calling to 100 countries.

MetroPCS sees this new international flat rate plan as a “game changer” in the industry, drawing large numbers of new subscribers who love to call overseas.  The company may even attract tourists who sign up with a “throwaway” basic mobile phone just for the duration of their visit.  The costs for the service are dramatically lower than roaming rates, especially for international calls, even with the price of the phone.

The only downside?  MetroPCS operates in only a limited number of cities, although they maintain roaming agreements with Leap Wireless (Cricket) to extend their coverage.  Once one company offers flat rate international calling, others will certainly follow, potentially establishing a new paradigm for truly unlimited mobile phone calling, regardless of where you call.

"As you can see I'm only at 26.35% and (Cogeco's) notification says I'm at 85% (of my allowance)?" (click to enlarge)

“You can trust us, we’re the cable company!”

One major implication of Internet Overcharging schemes is putting your faith in an industry that already strains credulity when it comes to justifying rationing and price gouging your Internet access.

Back in April, we raised the issue of  “meters” and “gas gauges” being used to measure customer usage having absolutely no oversight or verification that the “readings” they were providing actually represented your usage.

Our concerns were justified.

Broadband Reports has been tracking Cogeco customers finding their own measurements completely at odds with the Canadian cable operator that often reports far different numbers.

In the end, whose “meter” will Cogeco trust?  Theirs of course.

Here are some Cogeco customers sharing their frustrations:

“Well today is Friday the 19th of June and the Monitor is still down and with this being the month that we have to pay you would think the system would be up and working properly. I have a strange feeling that come some time next month people are going to open there bills and see extra charges that shouldn’t be there and Cogeco is going to end up losing a bunch of customers.”

“I don’t understand how they can charge for overages if they can’t properly meter their services.”

“Mine is showing 0 for both upload and download for the past 4 days. Then again I am not going to complain about it not reporting my usage. I kinda hope it stays this way.”

“Here’s a direct quote from my overage email received on Friday: “You have reached 100% of your Internet usage monthly limit. You have reached the MAXIMUM of your Internet usage monthly limit. Additional usage charges will be credited this month. Charges for additional usage will not take effect until June 2009.  I also show 40GB of usage on June 1st while each day after shows normal daily habits. Good job Cogeco. Combined with the increased rate for the Pro package, your overage charges are already forcing me to consider other tv and internet providers.”

“I think what this might do is force users to suck down every byte of their Cap to use their connection to the fullest. Before you never cared, because you could always just get what you wanted, when you wanted. But now since its monitored I know I am going to make sure that take full advantage every month.”

“Not showing any bandwidth for the past 3 days – how can Cogeco prove the authenticity of the meter? Bull.”

“This is exactly what I was thinking. Three days without any change to the meter, and I am supposed to pay for this?”

“This morning, it is telling me am I at 92%… there’s no way I did almost 12 GB of transfer yesterday. What is up with this thing? At this rate, I’m going to probably have to fork over some $$ for extra bandwidth this month, but I’m really wondering how accurate this thing is.”

“I called in to see what I’m at for the month, the rep said 68GB – monitor showing 105GB with 4 blank days. Who the hell is right?”

“First time I pay an overage I’m canceling.”

“Even if these are not governed by Weights and Measurements Canada, there would be a lawsuit for billing on services not rendered.  I’m paying for 100GB, and being overbilled at 23GB. Breach of contract, fraud, take your pick.”

Cable's Fear Factor: the Online Video Threat

[Updated 12:11pm EDT: Scott McNulty from Comcast notes in our comment section that the TV Everywhere concept will count against the 250GB usage allowance Comcast grants residential broadband customers, and suggests the concept is non-exclusive and voluntary.  We debate Scott on that point — see the Comments below the article to follow along and add your thoughts.]

The best kept secret in the broadband industry is now out.  Stop the Cap! reader Lou dropped us a note to say the New York Times has decided to let cable’s big secret out of the bag in an article published today entitled, “Cable TV’s Big Worry: Taming the Web.”  Lou writes, “finally, the mainstream media is pointing out that the real threat to Time Warner Cable and others is Hulu.”

In addition to the obsession to “monetize” content that is currently given away for free online, many in the cable industry believe the best way to tame the web is to control the content and method of distribution.  If you subscribe to a cable TV package, you’re approved.  If you don’t, no online video for you!  Once accessibility is limited to those “authenticated” to access the content, a handful of companies can determine exactly who can obtain their video programming, for how long, and at what price.  For everyone else not going along, discouraging ‘unauthorized’ viewing and disrupting underground distribution are powerful tools for providers to protect their video business model.

What is the best way to do that?  Internet Overcharging schemes of course.  By raising the alarm that online video growth will create a tsunami-like wave of Internet brownouts and traffic jams, and by trying to pit subscribers against one another based on perceptions of their usage, the message that will be part of any cable industry “education” campaign is that limits, tiers, fees, and penalties are the answer to all of these problems.  Watching Hulu every night?  Naughty. With this 20GB monthly limit, we’ll put a stop to that.  Netflix movie tonight?  Do you really want to risk going over your allowance and incurring “necessary” overlimit fees and penalties that represent more than 1,000% markup over our actual costs?  Wouldn’t it be fairer to your neighbors to watch HBO on your cable package instead?

Is it Fair for Big Trucks to Pay More On the Information Superhighway Because They’ll Wear It Out Faster?

In cities across the country, those interested in Internet Overcharging schemes are already engaged in focus group testing.  We know, because some of our readers have been stealth participants, informing us about all of their pretzel-like logic twisting games designed to convince the public that cable and telephone companies are not going to gouge you again with a higher bill.  Some want to use toll road analogies, others are using gas and electric comparisons, and one had the novel idea of putting a plate of food in the middle of the conference table and asking if it would be fair for just one person to eat 75% of it while the rest “go hungry.”

Unfortunately for them, by the end of the session, two of our readers attending two different panels derailed their efforts and had panels eating out of their hands in opposition to Internet Overcharging schemes, and collected a nice $75 (and uncapped lunch) for their efforts.

The Times piece only adds more evidence to help make the case that Internet Overcharging schemes aren’t about broadband fairness — they are part of a protection racket to protect fat profits earned from selling video packages to consumers.

Aware of how print, music and broadcast television have suffered severe business erosion, the chief executives of the major media conglomerates like Time Warner, Viacom and NBC Universal have made protecting cable TV from the ravages of the Internet perhaps their top priority.

“The majority of profits for the big entertainment companies is from cable programming,” said Stephen B. Burke, the president of Comcast, the nation’s largest cable company.

The major worry is that if cable networks do not protect the fees from paying subscribers, and offer most programming online at no cost — as newspapers have done — then customers may eventually cancel their cable subscriptions.

It’s My Cousin’s Fault

In other words, you and I are probably not the biggest threat the industry faces from the ultimate nightmare of eroding profits.  It’s really my cousin’s fault.  He, like many in their 20s, moved into his new home and didn’t do what many of us routinely did when we moved — start the newspaper service, connect the telephone line, and get the cable TV hooked up.

He did call Time Warner Cable — to only install Road Runner broadband Internet service.  He reads the news online, relies exclusively on a cell phone, and watches DVD’s and online video on his giant flat panel television.

The cable industry is horrified my cousin represents their future.

There is no sign of that happening anytime soon, but a recent poll by the Sanford C. Bernstein research group found that about 35 percent of people who watch videos online might cut their cable subscription within five years.

“We don’t think that it’s a problem now, but we do feel a sense of urgency,” Mr. Burke said.

An Urgency to Overcharge

Like most industries that have grown fat and happy on their traditional business models, the most common first response to a challenge to that model is to resist it.  The cable industry in particular has enjoyed a largesse of profits earned from years of de facto monopoly status in most communities, with the majority of its services being largely unregulated.  Cable rate increases have almost always exceeded the rate of inflation, and the public relations talking points for those rate increases has always been, “due to increased programming costs, which represent the increasing diversity and excellence of the cable channels we provide you….”

With prices for “basic/standard service” cable now approaching $60 a month, many younger customers just aren’t interested anymore.

Watching consumers abandon cable television packages for access through broadband gives executives and Wall Street analysts like Sanford C. Bernstein heartburn.  Until recently, many customers never contemplated the idea of getting rid of video packages and just keeping the broadband service they already have.  Not until Hulu.  That one website now represents a considerable amount of online video traffic from subscribers, and the cable industry isn’t in control of it, much less profiting from it.

Hulu represents a threat to be resisted.

You Use Too Much Internet, So We’ll Create Something That Will Make You Use More

To be fair to everyone, we have to get rid of the flat rate plan you’ve enjoyed for more than a decade and replace it with tiered pricing to be “fair” to subscribers because of enormous traffic growth. That what Time Warner Cable customers heard during a planned nonsensical trial of an Internet Overcharging scheme in four American cities, rapidly shelved when consumers rebelled and New York Congressman Eric Massa and Senator Charles Schumer got interested (Rochester, NY was a selected trial city).

It becomes all the more ludicrous as subscribers learn Time Warner Cable’s answer to the traffic jam is to add even more traffic… their traffic… onto their broadband lines.

Evidently online video is only a crisis requiring urgent action when it isn’t their online video.

One idea, advanced most vocally by Jeffrey L. Bewkes, the chairman of Time Warner, and embraced by many executives, would be to offer cable shows online for no extra charge, provided a viewer is first authenticated as a cable or satellite subscriber.

Mr. Bewkes has called the idea “TV Everywhere,” but others in the industry refer to it by other names: “authentication,” “entitlement,” and Comcast has called its coming service “OnDemand Online.”

“If you look at TV viewing, it’s up, even though the questions and stories are all about the role of video games and Internet usage and other uses of time,” Mr. Bewkes said.

The first test of the new system, which will authenticate cable subscribers online and make available programs on the Web for no additional charge, will be announced Wednesday, between Comcast and Time Warner. The trial will involve about 5,000 Comcast subscribers, and television shows from the Time Warner networks TNT and TBS.

It will be interesting to watch whether or not “no additional charge” means such content will be exempted from Comcast’s 250GB monthly usage limit, and whether Time Warner Cable will change their Subscriber Agreement to exempt their TV Everywhere service from the existing language in their agreement permitting Internet Overcharging schemes.  Time Warner Cable already exempts their “Digital Phone” product.

Ixnay on the Coin Chatter Already

The Times piece also raises eyebrows about the potential for collusion and antitrust violations in secretive meetings among industry executives, although they deny it.

The electronic media chiefs, including Mr. Bewkes, Jeff Zucker of NBC Universal and Philippe P. Dauman of Viacom, among others, have been more careful, so as to avoid being accused of collusion: much of the discussions have been on the telephone and in private, one-on-one chats during industry events. Pricing is rarely, if ever, discussed, according to executives involved in the discussions.

“We can’t get together and talk about business terms, but we can get together to work on setting open technology standards,” said Mr. Dauman, the chief executive at Viacom, which owns cable networks like MTV, VH1, Comedy Central and BET.

Although the representations from the industry seem benign, the potential for something far worse is always there.  Control the keys to unlock the door to online video (and the tools to lock out or limit the “other guy”), and you’ve got a plan to make sure people don’t dare drop their cable video package.  Where did the online video go from your favorite cable channel website?  It’s on TV Everywhere, and you don’t get in without an invitation.

One holdout among the major chief executives appears to be Robert A. Iger of the Walt Disney Company. At an industry conference this year he warned that gambits like TV Everywhere could be “anti-consumer and anti-technology” because such a plan would place cable programming behind a pay wall.

So much for “no extra charge.”

It’s Time to Investigate

Rep. Eric Massa (D-NY), is the House of Representatives’ watchdog on this issue.  He’s already connected the dots and realizes they lead in only one direction — to consumers’ pocketbooks.  Massa has introduced HR 2902, the Broadband Internet Fairness Act, specifically to prevent broadband providers from falling all over themselves to engage in anti-competitive, anti-consumer price gouging, all to cover their bottom lines.

This legislation, and Rep. Massa, needs your immediate support.  Call Congress and ask your representative to co-sponsor this vitally important bill.  The New York congressman is protecting consumers nationwide, and deserves your thanks and support.

Stop the Cap! also now calls on Congress and the appropriate regulatory bodies to begin an immediate investigation into the industry’s “cooperation” to launch TV Everywhere, and other similar projects. Specifically, we ask that an appropriate and thorough review be conducted to ensure that no collusion or antitrust violations have, are, or will take place as a result of this project.  We also call for a review of the “authentication” model proposed by the cable industry to ensure it does not exclude any consumer that subscribes to a competing video provider (satellite, telephone company, competing independent cable company, municipally owned provider, etc.), and that no “free pass” language be permitted that exempts their project from the terms and conditions that they seek to impose on others not affiliated with this project.

Senator Schumer’s long history of consumer protection would make him an excellent choice to lead such an investigation.

Once again, Net Neutrality must be the law of America’s online land.  Only with the assurance of a level playing field can we be certain no provider will attempt to exert influence or special favor over content they own, control, or distribute.