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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
Guest
jr

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

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
Guest
Ron Dafoe

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
Guest
George Ou

“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.

Ron Dafoe
Guest
Ron Dafoe

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
Guest
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
Guest
DM

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
Guest
CONSUMER

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
Guest
Stew

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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