[flv width=”512″ height=”404″]http://www.phillipdampier.com/video/Al Franken on Net Neutrality SXSW 3-14-11.flv[/flv]

Sen. Al Franken (D-Minn.) delivered comprehensive remarks at today’s South By Southwest (SWSW) gathering in Austin, Tex.  Franken declared the fight for Net Neutrality is by no means over, and claimed corporate opponents and some members of Congress are “using a rhetorical technique called ‘making stuff up'” to fight the rules guaranteeing a free and open Internet.  Franken added an open Internet does not mean open season for online content piracy, but preserving today’s online experience is crucial for entrepreneurs working in the 21st century digital economy, as well as for the creative talent attracted to SXSW.  (45 minutes)

Craig E. Moffett joined Sanford C. Bernstein & Co. as the Senior Analyst for U.S. Cable and Satellite Broadcasting in 2002.

Craig Moffett, perennial cable stock booster, predicts AT&T’s move to implement usage limits on its broadband customers will provide cover for cable operators to rush in their own Internet Overcharging schemes, starting with budget-priced usage plans.

Moffett released a research note Monday claiming Charter Communications, Cox Communications, and Time Warner Cable are among the first most likely to move towards limiting their customers’ broadband usage, with Comcast standing on the sidelines, at least for the moment.

Moffett thinks AT&T’s announcement is excellent news for wired providers, who could reap enormous new profits on top of some of the world’s most expensive broadband packages.

“AT&T’s move provides air cover that makes it easier for all of them to follow,” Moffett told his clients. “We view the move as good news for all the terrestrial broadband operators.”

Moffett believes usage caps have everything to do with stopping the torrent of online video.  He notes AT&T’s caps are set high enough to target AT&T customers who use their connections to watch a considerable amount of video programming online.

“Only video can drive that kind of usage,” Moffett writes.

Moffett has repeatedly predicted any challenge to pay television models from online video will be met with pricing plans that eliminate or reduce the threat:

“[I]f consumption patterns change such that web video begins to substitute for linear video, then the terrestrial broadband operators will simply adopt pricing plans that preserve the economics of their physical infrastructure,” Moffett said. “Of course, any move to preserve their own economics has far-ranging implications. Any move towards usage-based pricing doesn’t just affect the returns of the operators, it also affects the demand of end users (the ‘feedback loop’).”

AT&T's revenue is on the rise, especially from its broadband and wireless service divisions.

AT&T’s announcement that it is will impose usage limits on its DSL and U-verse (wireline) customers this May is just another case of overcharging consumers for Internet access.

Stop the Cap! has been reviewing AT&T’s financial reports looking for justification for imposing usage controls on the company’s customers.  Most providers who enact these kinds of pricing schemes claim they are about controlling heavy users, reducing congestion, and covering the costs to provide the service.

But after reviewing some of AT&T’s financial reports, the only explanation apparent for these limits is a quest for additional revenue and profits from subscribers.

AT&T continues to earn billions every quarter — $7 billion in the last three months alone — from its data products division, the vast majority of which comes from selling IP — Internet access — services to customers.  At the same time, the company continues to cut operations and support expenses, reducing its operating costs, and increasingly relies on its wireless and wireline divisions for the majority of the company’s revenue.

There is no evidence AT&T broadband usage costs are significantly impacting the company’s revenue in any way.  In fact, its U-verse platform, which can deliver higher speed, premium broadband service (at a correspondingly higher price) is actually delivering higher revenue from the “heavy users” the company is now complaining about.

In short, AT&T wants to reap the financial rewards of selling more costly, higher speed broadband service, but wants to limit customers’ use of those services.

We reviewed both the quarterly and annual results for AT&T’s wireline division and discovered what we routinely find true among every provider that wants to implement an Internet Overcharging scheme: the company wants to raise prices on broadband customers even as it enjoys ongoing cost reductions to manage broadband traffic and reduces the amount of investment made to manage it.

AT&T's own facts and figures tell the story of a company that has no need to slap usage limits on its broadband customers.

Some interesting facts from AT&T:

• AT&T earns $5 billion (annualized revenue stream) from its U-verse platform;
• AT&T saw 30 percent revenue growth from residential broadband alone;
• 45 percent of AT&T’s revenue in wireline services comes from broadband/IP services;
• In 2011, AT&T says it has a “focus on growth” — of revenue and profit, that is.  The company seeks increases in its “operating margins,” plans capital expenditures that will be focused on a “slight increase in wireless spending,” and ongoing cost-cutting where possible.

AT&T plans to continue to invest in U-verse expansion, critical for a company that is rapidly losing revenue from departing landline customers. In the 2010 Annual Report, AT&T noted the vast majority of cash used in investing activities went towards construction costs related to improved wireless network capacity, which is dramatically different than wired broadband service, and U-verse.  This does not cover ongoing expenses from providing the service.

It’s an important strategy for AT&T, which needs to replace revenue from lost landline customers:

We continue to lose access lines due to competitors (e.g., wireless, cable and VoIP providers) who can provide comparable services at lower prices because they are not subject to traditional telephone industry regulation (or the extent of regulation is in dispute), utilize different technologies, or promote a different business model (such as advertising based) and consequently have lower cost structures.

In response to these competitive pressures, for several years we have utilized a bundling strategy that rewards customers who consolidate their services (e.g., local and long-distance telephone, high-speed Internet, wireless and video) with us. We continue to focus on bundling wireline and wireless services, including combined packages of minutes and video service through our U-verse service and our relationships with satellite television providers. We will continue to develop innovative products that capitalize on our expanding fiber network.

Unfortunately, the benefits U-verse provides broadband users will be tempered by usage limits on it.

Considering AT&T’s U-verse pipeline is one giant broadband connection, the disturbing fact the company will not implement these overcharging schemes on its voice or video services cannot be ignored.  Only the broadband service, on which customers could entirely bypass AT&T’s TV and phone products for a competitor, is impacted.  The risk of that happening with the company’s usage cap is now diminished.

As Stop the Cap! has warned for nearly three years — this is the ultimate end run around Net Neutrality. Instead of actively blocking or throttling competing services, AT&T simply uses a usage limit to discourage customers from using the competitor, relying on unlimited AT&T TV and phone services instead.

AT&T's annual report illustrates the ongoing wireline losses attributable to departing landline customers.

But things are much brighter in the broadband division. Notice the increasing revenue.

U-verse represents a successful example of benefits earned when companies invest in their networks to provide improved service to customers.

But what happens when companies gradually reduce their expenses and investments in those networks? They try and make up the difference with an Internet Overcharging scheme that places limits on service to keep costs down and profits up.

Broadband Reports has obtained a leaked memo stating AT&T plans on eliminating its flat rate broadband plans for DSL and U-verse customers effective May 2nd.

On that date, AT&T will limit its DSL customers to 150GB per month and its U-verse customers to 250GB per month in what will be the largest Internet Overcharging operation in the nation.  Customers who violate the usage limits will face a three-strikes-you’re-overcharged penalty system.  After three violations of the usage limit, customers will pay an additional $10 for each block of 50GB they consume.  Although that represents just $0.20 per gigabyte, less than some others have imposed, it is not pro-rated.  Whether a customer uses one or fifty “extra” gigabytes, they will face the same $10 fee on their bill.

Customers will begin receiving notification of the change in the company’s terms of service March 18.

AT&T claims only 2 percent of their DSL customers will be exposed to the Internet Overcharging scheme.

“Using a notification structure similar to our new wireless data plans, we’ll proactively notify customers when they exceed 65%, 90% and 100% of the monthly usage allowance,” AT&T’s Seth Bloom told Broadband Reports. The company also says they’ll provide users with a number of different usage tools, including a usage monitor that tracks historical usage over time, and a number of different usage tools aimed at identifying and managing high bandwidth consumption services.

“Using a notification structure similar to our new wireless data plans, we’ll proactively notify customers when they exceed 65%, 90% and 100% of the monthly usage allowance,” AT&T tells us. The company also says they’ll provide users with a number of different usage tools, including a usage monitor that tracks historical usage over time, and a number of different usage tools aimed at identifying and managing high bandwidth consumption services.

However, AT&T’s accuracy in measuring broadband usage is open for debate.  The company is facing a class action lawsuit over its wireless usage billing.  According to the suit, AT&T consistently inflates usage measured on customer bills.  No third party verification or oversight of usage meters is mandated — customers simply have to trust AT&T.

AT&T ran trials in Beaumont, Tex., and Reno, Nev., from 2008 with a range of usage limits.  Customer reaction to the trials was hostile, and the test ended in early 2010.  In December, FCC Chairman Julius Genachowski told providers the agency was not opposed to usage limits and consumption billing schemes, leading some to predict the green light was given to companies willing to test whether customers will tolerate Internet Overcharging.

AT&T claimed this weekend its new pricing was going to benefit customers.  So long as customers keep paying their bills, AT&T will not “reduce the speeds, terminate service or limit available data like some others in the industry,” Bloom said.

But the usage limits come at the same time Americans are increasing their consumption of online video and other high bandwidth services.  Usage limits which may appear to be reasonable at first glance become punishing when they do not change over time and customers increasingly risk exceeding them.  Once established, several companies have repeatedly lowered them to further monetize broadband service usage.  AT&T has delivered some of the lowest usage limits in the wireless industry, so it has faced customer criticism in the past.

Customers tied to existing term contracts may likely avoid the usage caps temporarily.  Others will not stick around long enough to find out.

“I will be canceling my U-verse service on Monday and go back to Time Warner Cable,” writes Stop the Cap! reader Jeffrey.  “I will never do business with a provider that imposes overlimit fees on usage that literally costs them next to nothing to provide.  It’s like charging extra for every deep breath.”

Some of our other readers are headed back to Comcast, which has a 250GB usage cap, or exploring DSL provided over AT&T lines by third party companies, which likely will not impose usage limits, at least for now.

“Charging 20 cents per gigabyte isn’t too bad, but you just know AT&T will lower the caps or jack those rates up,” our reader Ian writes. “It is very important to send AT&T a message right now we are prepared to quit doing business with them over this issue, or else we will be nickle and dimed to death by them tomorrow.”

Our reader Jared asks whether new legislation has been introduced to curb unjustified Internet Overcharging.  In 2009, then Rep. Eric Massa (D-N.Y.) introduced a bill to ban Internet Overcharging unless companies could prove it was justified.  At the moment, there is no new legislation, but when providers attempt to overreach and impose pricing the vast majority of broadband customers oppose, that could change.

At the moment, Stop the Cap! recommends AT&T customers begin to explore alternative providers and prepare to terminate their service with AT&T unless they scrap their Internet Overcharging scheme.  AT&T earns billions in profits from their broadband division and spends millions on lobbying.  With this amount of largesse, AT&T does not need this pricing scheme to remain profitable.

Community broadband networks deliver the best value and speed for North Carolina consumers and businesses

Word has reached Stop the Cap! that hundreds of e-mails and phone calls are pouring into Rep. Marilyn Avila’s (R-Time Warner Cable) office protesting her hard work on behalf of the state’s largest cable company.  We are being called “mean and nasty” by those supporting Avila’s anti-consumer bill, H.129.

Our answer to that: we are not “mean” or “nasty.”  We are fed up c0nsumers (and voters) who have serious concerns about certain state legislators who introduce bills custom-written by cable lobbyists to enact their business agenda into law.

These anti-community broadband bills have come year after year in North Carolina, despite the fact the state has an “also-ran” reputation as a broadband backwater, with tremendous room for improvement in broadband speed, price, availability, and choice of providers. The bills have also been nothing but trouble for those that have introduced them, alienating constituents and bringing them bad press:

Ty Harrell resigned his office in disgrace over financial irregularities, but he was already in hot water when he introduced his bill. We were stunned when his office staff literally handed the phone to a cable industry lobbyist sitting there to answer questions.  We held him accountable.

David Hoyle did not leave office at his finest moment either, openly admitting on television Time Warner Cable wrote the bill he introduced.

This year, it’s Ms. Avila, who repeatedly promised to hold existing community-owned networks harmless by exempting them from the draconian, project-killing legislation she has proposed.  But after closed door meetings, we learned those promises were hollow.  The words of her bill may have changed, but the results are exactly the same — she is micromanaging community networks into insolvency (while exempting the companies that wrote the bill she introduced).

The unanswered, critical question every legislator needs to ask is: How does H.129 improve North Carolina’s dismal broadband ranking and deliver improved service?

The former Rep. Harrell

The answer is, it does nothing.  Not only does it ignore the chasm of low quality service prevalent west of Charlotte and north of Winston-Salem, it specifically erects roadblocks to keep any community from trying to resolve a situation they’ve dealt with for years and years.  Ask any rural community’s leader if they’ve heard from constituents upset by the unavailability or quality of broadband in their area and you will get an earful.  The truth is, had the cable and telephone companies in the state had a real interest in providing 21st century service to these communities, they would have already done it.  With H.129, they can rest easy knowing nobody else will try.

This is not an auspicious position for Ms. Avila to take.  She ran for office upset with backroom deals, insider political maneuvering, and closed government.  Reviewing her campaign platform, the one thing she emphasized time and again was her promise to bring “open government” to the people in her district, just north of the state capital.

Where is the open government on H.129?  Nowhere to be found.

Stop the Cap! would have loved to include the complete video record of the first meeting to modify her bill to protect incumbent providers.  Only there is no video record.  The meeting was held behind closed doors, and it took a source to reveal details about how the cable and phone companies ran it as their own.  It’s the epitome of the kind of back-room deals Ms. Avila railed against in her campaign.

Considering the results, we can understand why the meeting was secret.  The cable lobby understands full well the power of sunshine’s disinfecting power.  Shining a bright light on the cozy connection between legislators and the companies whose interests they brazenly represent tells a story they do not want the voting public to hear.

Unfortunately, it gets worse.  We’ve learned Ms. Avila plans to bring H.129 to a vote in the Finance Committee as early as this Thursday, with no public discussion allowed.  Voters can be spectators of their own broadband demise, but they will not be allowed to say a word about it.  Meanwhile, certain members of the legislature have had plenty of time to meet repeatedly with cable and phone company lobbyists.

As we’ve seen time and time again, that lobbying campaign of disinformation tries to muddy the implications of bills such as these.

You cannot hear if you are not open to listening.

Legislators who may not understand what H.129 is really all about need to hear from the public and communities to understand precisely what they are voting for and what impact this legislation will have.  The ripple effects go far beyond just keeping Time Warner and CenturyLink free from pesky competition.

Neither company is truly harmed by community broadband networks.  In fact, both of them have thumbed their noses and shrugged their shoulders even in the presence of much larger competitive threats in their urban markets — Time Warner for the phone company and AT&T’s U-verse, which is available in limited areas.

The best thing Ms. Avila could do is withdraw her legislation because it simply is not in the best interests of North Carolina.  Barring that, she should do what she promised and specifically exempt ALL existing community networks in the state from the provisions of her bill.  At this point, that delivers a win to bondholders who will see their investment pay off, communities can continue to provide service to interested customers, and everyone else will continue to enjoy the benefits of lower rates these networks bring every telecommunications customer.

That’s common sense to everyone except the cable and phone companies that will stop at nothing to bury community-owned providers.

Where does your legislator stand?  If you have not made your feelings known to the members of the Finance Committee, time is running out.  Call and e-mail them and let them know you expect them to vote NO on H.129 when it reaches their committee this week.  We’re going to do our best to watch what may turn out to be another “voice vote” that prevents voters from knowing how individual members voted.  This time, we’ll be paying close attention to the lips and movements of individual committee members and take our own vote so we know who to thank and who needs to held accountable.

Finance Committee Members

(click each name for contact information)