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Sit Down For This: Astroturfing Friends Sold on Pro-Internet Overcharging Report

Phillip Dampier September 7, 2009 Astroturf, Data Caps, Editorial & Site News, Recent Headlines 38 Comments
Phillip "Doesn't Derive a Paycheck From Writing This" Dampier

Phillip "Doesn't Derive a Paycheck From Writing This" Dampier

I see it took all of five minutes for George Ou and his friends at Digital Society to be swayed by the tunnel vision myopia of last week’s latest effort to justify Internet Overcharging schemes.

Until recently, I’ve always rationalized my distain for smaller usage caps by ignoring the fact that I’m being subsidized by the majority of broadband consumers.  However, a new study from Robert Shapiro and Kevin Hassett at Georgetown University is forcing me to reexamine my personal bias against usage caps.

There’s a shock, especially after telling your readers caps “were needed.”

As I predicted, our astroturfing and industry friends would have a field day over this narrowly focused report that demands readers consider their data, their defined problem, and their single proposed solution.  The real world is, of course, slightly more complicated.

I used to debate some of my economist friends on why I thought metered pricing or more restrictive usage caps were a bad idea, but I couldn’t honestly say that my opinion was entirely objective.  My dislike for usage caps stems from the fact that I am a heavy broadband user and an uncapped broadband service is very beneficial to me since everyone else pays a little more so that I can pay a lot less on my broadband service.  But beyond self interest, I can’t make a good argument why the majority of broadband users who don’t need to transfer a lot of data should subsidize my Internet requirements.

Your opinion is still not entirely objective, George.  Your employer has industry connections.

Our readers, many of whom are hardly the usage piggies the industry would define anyone who opposes these overcharging schemes, all agree whether it’s 5GB or 150GB per month, they do not want to watch an Internet “gas gauge” or lose their option of flat rate broadband pricing that has worked successfully for this industry for more than a decade.  George and his friends assume this is an “us vs. them” argument — big broadband users want little broadband users to subsidize their service.

That’s assuming facts not in evidence.

What is in evidence are studies and surveys which show that consumers overwhelmingly do not want meters, caps, usage tiers, or other such restrictions on their service.  They recognize that a provider who claims to want to “fairly charge” people for service always means “everyone pays more, some much more than others.”  To set the table for this “fairness,” they’ve hired Washington PR firms to pretend to advocate for consumers and hide their industry connections.  Nothing suspicious about that, right?

Although George can’t make a good argument opposing usage caps, that doesn’t mean there aren’t any.  Among the many reasons to oppose caps:

  • Innovation: Jobs and economic growth come from the online economy.  New services created today by U.S. companies, popular here and abroad, would be stifled from punitive usage caps and consumption billing.  Even the broadband industry, now in a clamor to provide their own online video services, sees value from the high bandwidth applications that would have never existed in a capped broadband universe, and they are the ones complaining the loudest about congested networks.
  • Consumer Wishes: Consumers overwhelmingly enjoy their flat rate broadband service, and are willing to pay today’s pricing to keep it.  The loyalty for broadband is much greater than for providers’ other product lines – television and telephone.  That says something important — don’t ruin a good thing.
  • The Fantasy of Savings: As already happened across several Time Warner Cable communities subjected to “experimentation,” the original proposals for lower consumption tier pricing offered zero savings to consumers who could already acquire flat rate “lite” service for the same or even lower prices.  Even when tiers and usage allowances were adjusted after being called out on this point, consumer outrage continued once consumers realized they’d pay three times more for the same broadband service they had before the experiment, with absolutely no improvement in service.  Comcast and other smaller providers already have usage caps and limits.  Pricing did not decline.  Many combine a usage allowance -and- lower speed for “economy” tiers, negating the argument that lower pricing would be achieved with fast speeds -and- a usage allowance.
  • Justifying Caps Based on Flawed Analysis: The report’s authors only assume customer adoption at standard service pricing, completely ignoring the already-available “economy” tier services now available at slower speeds.
  • Speed Based Tiers vs. Consumption Based Tiers: Consumers advocate for speed-based tiering, already familiar to them and widely accepted.  New premium speed tiers of service can and do already generate significant revenue for those who offer them, providing the resources for network expansion providers claim they need.
  • Current Profits & Self Interested Motives: Broadband continues to be a massively profitable business for providers, earning billions in profits every year.  Now, even as some of those providers reduce investments in their own networks, they claim a need to throw away the existing flat rate business model.  Instead, they want paltry usage allowances and overlimit penalties that would reduce demand on their networks.  That conveniently also reduces online video traffic, of particular concern to cable television companies.
  • Competition & Pricing: A monopoly or duopoly exists for most Americans, limiting competition and the opportunity for price savings.  Assuming that providers would reduce pricing for capped service has not been the result in Canada, where this kind of business model already exists.  Indeed, prices increased for broadband, usage allowances have actually dropped among some major providers like Bell, and speed throttles have been introduced both in the retail and wholesale markets.

More recently, building our colocation server for Digital Society has made me realize that usage caps not only has the potential to lower prices, but it can also facilitate higher bandwidth performance.  Case in point, Digital Society pays $50 per month for colocation service with a 100 Mbps Internet circuit, and at least $20 of that is for rack space and electricity.  How is it possible that we can get 100 Mbps of bandwidth for ~$30 when 100 Mbps of dedicated Internet bandwidth in colocation facilities normally costs $1000?  The answer lies in usage caps, which cap us to 1000 GBs of file transfer per month which means we can only average 3 Mbps.

One thousand gigabytes for $30 a month.  If providers were providing that kind of allowance, many consumers would consider this a non-issue.  But of course they are not.  Frontier Communications charges more than that for DSL service with a 5GB per month allowance in their Acceptable Use Policy (not currently enforced.)  Time Warner Cable advocated 40GB per month for $40-50 a month.  Comcast charges around $40-45 a month for up to 250GB.  Not one of these providers lowered their prices in return for this cap.  They simply sought to limit customer usage, with overlimit fees and penalties to be determined later.

Of course, web hosting is also an intensively competitive business.  There are hundreds of choices for web hosting.  There are also different levels of service, from shared web hosting to dedicated servers.  That is where the disparity of pricing is most evident, not in the “usage cap” (which is routinely more of a footnote and designed to keep Bit Torrent and high bandwidth file transfer services off their network). There is an enormous difference in pricing between a shared server environment with a 1000GB usage cap and a dedicated rack mount server located in a local facility with 24 hour security, monitoring, and redundancy/backup services, even with the same usage cap.

So the irony of a regulation intended to “protect” the little guy from “unfair usage caps” would actually force our small organization onto the permanent slow lane.

Actually, the Massa bill has no impact on web hosting usage caps whatsoever.  George’s provider friends would be his biggest risk — the ones that would “sell” insurance to his organization is he wanted assurance that his traffic would not be throttled by consumer ISPs.  I’d be happy to recommend other hosting providers for George if he felt trapped on a “slow lane.”  That’s because there is actual competition in web hosting providers.  If the one or two broadband providers serving most Americans had their way, it would be consumers stuck on a permanent slow lane with throttled service, not organizations like his.

So, who is in agreement with George on this question?  None of his readers, as his latest article carries no reader responses.  But fellow industry-connected astroturfers and providers themselves share their love:

  • “This is the story that ISP’s have failed to tell effectively — that consumption-based billing may, in fact, be fairer for consumers.” — Michael Willner, CEO Insight Communications
  • “Ars Technica reports on an interesting theory being floated by former Clinton economic advisor Robert J. Shapiro and Federal Reserve economist Kevin A. Hassett” — Brad, astroturfer Internet Innovation Alliance
  • “The only way … is to introduce some form of equitable pay-as-you-use pricing.  And I could not agree more.” — Ulf Wolf, Digital Communities Blogs (sponsored by AT&T, Qwest, etc.)

PC Magazine reported even Robert Shapiro, one of the report’s authors, is not advocating for usage caps:

“We’re not talking about a bandwidth cap,” Shapiro said during a call with reporters. “We were looking simply at the different pricing models and their impact on the projections of broadband uptake based on these income sensitivities.”

The report does not specify how ISPs should implement pricing, Shapiro said. “The most important thing to me as an economist is the flexibility – that is, Internet Providers can better determine than I can the particular model that works best.”

That’s not the message astroturfers are taking forward, as they try and sell this as “pro-consumer.”

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jr
jr
10 years ago

These people all have fantasies about being at dinner parties with Glenn Britt types and they’re willing to justify quintupling of monthly fees to make their dream a reality

John Passaniti
Admin
10 years ago

I had to laugh when George pointed to usage caps as being the reason why bandwidth for Digital Society’s colocated server is affordable. Phil hits the nail on the head by pointing out the real reason is that web hosting and colocation services operate in a very competitive environment, offering a huge variety of service levels and options. George (who apparently lives in San Jose) sorted through the large number of choices he had for colocation, and eventually ended up using the services of a company called Waveform Technology that has a data center in Troy, Michigan. George knows that… Read more »

Ron Dafoe
Ron Dafoe
10 years ago

The problem I have with alot of his articles is that he compares apples to oranges, just as this article does. His argument these days seems to be that becuase host providers have a bandwidth cap that ISPs should be able to have a cap. All your points are spot on above. I have posted comments on his site, and he has said that I don’t know how the internet really works. Guess what, I have 20 years of networking experience across all levels of networks. I know how it works. Keep watching those guys, as they are in my… Read more »

George Ou
George Ou
10 years ago

“One thousand gigabytes for $30 a month. ”

Do not conflate colocation prices (where you go to the ISP) with broadband prices (where the ISP has to install and maintain several miles of cabling to your house.

The whole point of this example is that consumers should have the flexibility to trade usage allowance for higher bandwidth. Since the majority of consumers and businesses want bandwidth more than they want big usage caps, then this is an important choice for them to have.

George Ou
George Ou
10 years ago

Stop putting words in my mouth Philip. The choices I would personally like to see is VERY low cost option that is affordable to low-income people who currently don’t have broadband. This accounts for 20% of the population. a. Low bandwidth and small usage cap Mainstream option that is reasonably priced and reasonable performance for 60% of the population a. Balanced option where there’s sufficient bandwidth and sufficient usage cap big enough for most of this population b. Option that favors a huge usage cap over bandwidth (preferably lower priority but higher peak bandwidth) c. Option that favors much higher… Read more »

Tim
Tim
10 years ago
Reply to  George Ou

Quick queastion:
How low in price do you really think the ISP’s, ie cable and phone companies, will go if there were caps implemented? Just curious what you think is low.

preventCAPS
preventCAPS
10 years ago
Reply to  George Ou

I fail to see why each option has an “and blah blah blah cap”. Charging by bandwith (as has been the standard) has cap is built in already… Say I have a 10mbps connection from my ISP. I then have a cap of 108GB a day, or roughly 3 terrabytes a month. (10mbps/8bits * 60 seconds in a minute * 60 minutes in an hour * 24 hours in a day * 30 days in a month). ISPs gambled that not everyone would be using their allotment concurrently with everyone else, and so they cheated by sharing bandwith to keep… Read more »

Smith6612
Smith6612
10 years ago
Reply to  preventCAPS

And it does. For a matter of fact, a few local ISP technicians in my area do agree that caps are in fact the worst way to go with managing a network, and if they didn’t want people using the network or even heavily in that sense, they simply wouldn’t even bother offering higher speeds in the first place and we’d still be stuck with low speeds. This is exactly the way they said it. Like with DSL, your “cap” is your sync rate minus overhead. With cable, it’s whatever you get in the configuration file. Fiber, that’s whatever the… Read more »

Michael Chaney
10 years ago
Reply to  George Ou

And what I don’t understand is why the current model is broken in your eyes?

http://www.timewarnercable.com/SanAntonio/learn/hso/roadrunner/speedpricing.html

Why not just roll out DOCSIS 3.0 and add another tier to the top of the lineup? Simple, fair, and extremely profitable.

George Ou
George Ou
10 years ago
Reply to  Michael Chaney

“And what I don’t understand is why the current model is broken in your eyes?” What I don’t understand is why you insist on putting words in my mouth. You seem to have bought into Mr. Dampier’s misleading blog headline that I somehow want consumers to be “overcharged”. Dampier has already admitted that he is ok with some form of usage cap so long as the cap size and the price is right, which is no different than what I am suggesting. So does that mean Dampier is in favor of overcharging consumers as well since he’s admitted he’s ok… Read more »

Ron Dafoe
Ron Dafoe
10 years ago
Reply to  George Ou

I think you need to go back and read the history of this site. This site does not exist to get the government involved. . Let’s face it, TWC did not back down becuase their customers where against it, they backed down because the government stepped in and made a deal. The fact is, there is no competition in most markets. The free market solution will not work. What is so wrong with consumer protection oversight when there are no choices to choose from? The market will not work with 1 or 2 providers in most areas. That is the… Read more »

George Ou
George Ou
10 years ago
Reply to  Ron Dafoe

“This site does not exist to get the government involved” Are you kidding? http://stopthecap.com/take-action-2/ How do you make such a blatantly misleading statement with a straight face? “The fact is, there is no competition in most markets. The free market solution will not work” OK I see what your problem is. Your understanding of the facts simply do not reflect reality. The fact is that even if we don’t include wireless and satellite broadband service, nearly 9 out of 10 homes have a choice of two wired broadband providers. “When asked, I think most people would welcome 4 or 5… Read more »

Ron Dafoe
Ron Dafoe
10 years ago
Reply to  George Ou

You show a blantant misunderstanding of the history of this site, as well as it’s users. Regulation was brought into the picture, because it was forced into it, by the companies themselves. It has been stated by Philip himself, this site, and many of it’s users that regulation was the last resort. It has become clear to alot of people that the only way these things are not going to be forced onto consumers is with the help of more powerful people than us. When you don’t get something, or understand a differing viewpoint, you attack and degrade things. Do… Read more »

Ron Dafoe
Ron Dafoe
10 years ago
Reply to  George Ou

You act like this site did not exist before this legislation existed. The fact is it did, long before. That is certainly not the focus of this site, as you suggest:

http://stopthecap.com/about-us/

George Ou
George Ou
10 years ago

Philip, Do you expect your laptop to have the same processor speed, same storage, and same screen size as your desktop computer? Why is it that people pay more money for a smaller screen, slower processor, and less storage? Could it be because laptops are more expensive to produce and that people value their mobility? Has it occured to you that people pay for wireless data access for the same reasons? We know that a 150GB cap 6 Mbps DSL connection at $35 a month sounds MUCH better than a 5GB cap 1 Mbps connection at $60 per month. But… Read more »

Ron Dafoe
Ron Dafoe
10 years ago

Thank you Philip, I actually wrote a very similiar comment, but then did not submit it. I didn’tfeel it is worth it to talk to him about these things last night. He continually changes the subject, does not address points of comments and latches on to useless things, like I wanted 4 or 5 lines coming into my house. I want the same thing – 1 fast wire, where I have a choice of who provides the service over that wire. I will use one of their favorite analogies – Electricity. Guess what? I ahve a choice of who I… Read more »

Michael Chaney
10 years ago
Reply to  George Ou

“9 out of 10 homes have a choice of two wired broadband providers” …cite sources please. “You do have 4 or 5 today if you count intra-modal as well as facilities based compeition, and that’s not even count satellite or wireless.” ….umm…what? Last time I checked I didn’t have the option of calling up my favorite intra-modal whateverthehellthatis and getting Internet service. And let’s keep not counting satellite and wireless as they are either sub-par or limited services. “I hope you’re not naive enough to think that 4 to 5 wires coming into each home is even remotely feasible.” ….it’s… Read more »

George Ou
George Ou
10 years ago
Reply to  Michael Chaney

““Close to 9 out of 10 homes have a choice of two wired broadband providers” …cite sources please.” Cable covers roughly 95% of all dwelling units in America. DSL covers roughly 86% of all homes in America. I would say that’s pretty close to 9 out of 10 homes with access to two providers. “You do have 4 or 5 today if you count intra-modal as well as facilities based compeition, and that’s not even count satellite or wireless.” ….umm…what? Last time I checked I didn’t have the option of calling up my favorite intra-modal whateverthehellthatis and getting Internet service.”… Read more »

Michael Chaney
10 years ago
Reply to  George Ou

I’m well aware of what it means to grant common carrier status to a SINGLE infrastructure to handle multiple providers. I guess I should have be more clear. My point was that no one here is naive enough to think overbuilders are going to drag 4+ wires to everyone’s house. There’s also a GROWING number of people who are adopting 4G LTE too, but that really doesn’t mean anything to anyone here or anywhere (if so then lucky you). I can also guarantee you that current 3G networks are no wire-line substitutes for even the lightest business user. Most mobile… Read more »

DM
DM
10 years ago
Reply to  George Ou

Mr. Ou, I don’t think you understand the concept of citing your sources. Could you please provide a proper citation to verify your claims? I think that it would be best to format this into APA style. “Cable covers roughly 95% of all dwelling units in America. DSL covers roughly 86% of all homes in America. I would say that’s pretty close to 9 out of 10 homes with access to two providers.” I really do want to see where you are getting your data from. I also find it interesting how you worded your comment. Is there a difference… Read more »

Ron Dafoe
Ron Dafoe
10 years ago
Reply to  George Ou

George, you are either not reading what people write, or intentionally misrepresenting people. Either way, the trait is not a good one.

Please go re-read the messages and comment on the points, unless you have no answer.

Ron Dafoe
Ron Dafoe
10 years ago
Reply to  George Ou

DM, his sources are straight from the cable companies and DLS companies. Here is the method that they use: “The cable industry calculates the Homes Passed percentage by dividing the total number of TV households supposedly passed by cable into the total number of TV households in the country. But even a cursory comparison of Census Bureau and cable industry statistics shows that the distinctions between housing units, households and TV households were lost long ago in an apparent rush by the cable industry to demonstrate a comprehensive nationwide build-out. In 2000, the cable industry in half a dozen states… Read more »

George Ou
George Ou
10 years ago
Reply to  George Ou

Source? http://www.ncta.com/Stats/BroadbandAvailableHomes.aspx

119.8 million homes passed by high speed cable broadband service as of 2008. That’s virtually every home in America.

Some of NCTA’s stats used to say “dwelling units” because there are more dwelling units than there are homes in America. They actually passed 123.4 million dwelling units but the NCTA recently changed their stats to reflect just homes.

DSL penetration is not that high, but ithey’re still in the high 80% range. I sources I had were in for-fee reports from some of the major analyst firms. I have to look up a publically linkable source.

Michael Chaney
10 years ago
Reply to  George Ou

Well 99.999% of people are fed up with astroturfers and their skewed “data”.

Source:
http://www.michaelchaneyisalwaysright.com/myowndatatobackmeup.aspx

Tim
Tim
10 years ago

What boggles my mind about George is that he wants caps because he thinks it will “lower” the prices for the po’ people. He is dreaming if he thinks they will lower the prices. That would cut into their profit margin. Ever wonder why Time Warner didn’t open advertise their Road Runner lite service until recently? They don’t want you on a low priced tier period! They don’t make money on low priced tiers like they do on the premium tiers. He has yet to answer a basic question I posed to him because he can’t. All the hubbub that… Read more »

Michael Chaney
10 years ago
Reply to  George Ou

I just want to know why all the choices you “personally want to see” involves caps? What wrong with just reinvesting in your network to provide the uncapped service consumers want? Why all the personal love for caps? Do you enjoy paying for overage time on your cell phone or getting dinged for extra text messages? Do you enjoy having to constantly check your used minutes or texts and curbing your usage to accommodate some cap? Do you love it so much that you want to apply that to every other service you have? Do you also want to apply… Read more »

Ron Dafoe
Ron Dafoe
10 years ago

Here is some more of “their” unverified data: “At the direction of Congress, the FCC has issued an Annual Report in each of the last seven years describing the status of competition in the video programming market.[11] One of the foundations of the FCC’s Annual Reports, and the most widely used measurement of cable availability, is the number of “Homes Passed” by cable.[12] The cable Homes Passed number is intended to reflect the percentage of American consumers who have access to cable services. Conversely, the remaining percentage reflects those consumers who likely have access to MVPD services only through DBS.… Read more »

Ron Dafoe
Ron Dafoe
10 years ago
Reply to  Ron Dafoe

There is also this: http://www.allbusiness.com/government/government-bodies-offices-us-federal-government/6355927-1.html The cable industry calculates the Homes Passed percentage by dividing the total number of TV households supposedly passed by cable into the total number of TV households in the country. But even a cursory comparison of Census Bureau and cable industry statistics shows that the distinctions between housing units, households and TV households were lost long ago in an apparent rush by the cable industry to demonstrate a comprehensive nationwide build-out. In 2000, the cable industry in half a dozen states reported more TV households passed than the total number of households reported by the… Read more »

DM
DM
10 years ago

Mr. Ou, I am a bit frustrated by your response to my comment. First, you did not provide a citation in the APA style. I feel that APA is important because it attempts to specify the author(s), date of publication, and the party or parties responsible for releasing the information. It also acts as a filter in narrowing down where exactly the cited information can be found. Second, the link you did post, in my opinion, does not verify any of the information that you have provided. It is simply a web page on the NCTA’s web site that shows… Read more »

CONSUMER
CONSUMER
10 years ago

George, George, George! I beg you to stop insulting our intelligence. I know it is hard for you to believe, but nobody buys your BS. Consumers are not stupid. You are simply a very ineffectual and annoying paid mouthpiece. I apologize for sounding harsh….but you really need to accept the fact that consumers DO NOT WANT CAPS OF ANY KIND. You can spew your specious arguments until you are blue in the face, but you will never convince anyone that caps are good for anything other than draining a consumers wallet….. oh yeah, they also make for one hell of… Read more »

Stew
Stew
10 years ago

George,

You do not understand the consumer. I live in beaumont TX. When TW went to caps I dropped them (as well as the tv anbd phone). I went o ATT and they sent a letter after sending my modem saying they would have caps (funny compition). I called them to cancel my internet, phone and satellite tv. (also my yellow pages ads). They relented and gave me unlimited internet that they advertized.

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