If you want better Canadian broadband with fewer tricks and traps and live in Ontario or Quebec: put the house up for sale, pack up your things, and head west.

Canada’s heavily metered and capped broadband is ubiquitous in the country’s two most-populated provinces where a convenient duopoly of Bell and Rogers in Ontario and Bell and Videotron in Quebec control the vast majority of the broadband market.  But cross west into Saskatchewan and things start to look a lot better.

Canadians telecommunications consultancy The Seaboard Group praised SaskTel, the provincial phone company, for refusing to slap usage caps on its customers.  SaskTel does not deliver the cheapest Internet access by any means, but the company is investing heavily in fiber optic upgrades to turn the page on aging copper wire infrastructure.  Stringing fiber through Regina, Saskatoon and beyond may seem counterintuitive to other providers.  Saskatchewan, one of Canada’s “prairie provinces,” is hardly packed with people.  With more than 20 million Canadians living in Ontario and Quebec, Saskatchewan gives its 1 million residents a lot of open space.  Sparser populations usually translate into higher costs per customer for upgrades, but SaskTel persists.

SaskTel has historically relied on traditional DSL and has competition in larger communities from Shaw Cable, western Canada’s largest cable operator.  Although SaskTel’s DSL delivers lower speeds than Shaw can provide, it does so with no usage limits.

Shaw’s decision to provide considerably more generous usage allowances has kept the pressure on SaskTel to upgrade its infrastructure to compete.

SaskTel CEO Ron Styles told the Leader-Post its fiber optic network will give cable a run for its money, and until then, it is satisfied undercutting cable pricing for broadband, delivering a far better experience than either Rogers or Bell provides eastern Canadians, Styles says.

Seaboard president Iain Grant found that what customers are willing to pay for service can also influence what prices providers charge.

“The price is more based on what you’re prepared to pay,” Grant said.

People in western Canada evidently are not willing to hand over as much money as their friends in Ontario and Quebec.

West of Saskatchewan lies Alberta and British Columbia — Telus territory.  Telus is western Canada’s largest phone company and also principally competes with Shaw Cable.

Shaw has forced Telus to back down on fueling enhanced revenue with usage caps of its own, and has been aggressively upgrading its network with additional fiber optics and DOCSIS 3 technology, forcing Telus to embark on its own upgrade effort.

Macleans reports western Canada’s more-competitive broadband market has been good for consumers, but has also exposed a difference in priorities for providers.

With Shaw breathing down its neck, Telus has committed to a $3 billion fiber optic network expansion in B.C., improved wireless coverage, and more IPTV service.  Macleans notes Telus is the only major telecom or cable company in Canada that hasn’t purchased a television asset, focusing instead on its core businesses of connecting customers.

In eastern Canada, Bell faces Rogers and Videotron.  Critics contend Bell sees no imminent threats there, and the phone giant is spending its money elsewhere, announcing a $3.4 billion acquisition of Astral Media — an entertainment company owning 24 specialty cable channels and pay-TV networks, including the Movie Network and HBO Canada.

Bell’s latest “investment” follows its 2010 $1.3 billion buyout of CTV and last year’s $1.32 billion co-purchase of Maple Leafs Sports and Entertainment (the other buyer was their ‘arch-competitor’ Rogers Communications).

While Telus spends money on upgrading its broadband and video services to customers, Bell is positioning itself to control 34% of Canada’s TV universe.  Bell is also the same company that advocated slapping nationwide usage-based pricing on Canadian broadband consumers to pay for the “network upgrades” it contends were needed to handle increasing demand.

Comcast Monday announced it was exempting its new Xbox streaming video service from the company’s long standing 250GB monthly usage cap, claiming since the network doesn’t exist on the public Internet, there is no reason to cap its usage.

Net Neutrality advocates immediately denounced the cable operator for violating Net Neutrality, giving favorable treatment to its own video service while leaving Netflix, Amazon, and others under its usage cap regime.

Public Knowledge president Gigi Sohn:

“The Xbox 360 provides a number of video services to compete for customer dollars, yet only one service is not counted against the data cap—the one provided by Comcast.” Sohn said. “This is nothing less than a wake-up call to the Commission to show it is serious about protecting the Open Internet.”

Stop the Cap! believes Comcast also inadvertently undercut its prime argument for the company’s 250GB usage cap — that it assures “heavy users” don’t negatively impact the online experience of other customers:

We work hard to manage our network resources effectively and fairly to ensure a high-quality online experience for all of our customers. But XFINITY Internet service runs on a shared network, so every user’s experience is potentially affected by his or her neighbors’ Internet usage.

Our number one priority is to ensure that every customer has a superior Internet service experience. Consistent with that goal, the threshold is intended to protect the online experience of the vast majority of our customers whose Internet speeds could be degraded because one or more of their neighbors engages in consistent high-volume Internet downloads and uploads.

The threshold also addresses potential problems that can be caused by the exceedingly small percentage of subscribers who may engage in very high-volume data consumption (over 250 GB in a calendar month). By applying a very high threshold on monthly consumption, we can help preserve a good online experience for everyone.

Comcast argues around the exemption of the Xbox service by reclassifying it as somehow separate from the public Internet.  The company then tries to claim the Xbox app functions more like an extra set top box, not as a data service.  But, in fact, it –is– a data service delivered over the same cable lines as Comcast’s broadband service, subject to the same “last-mile congestion problem” Comcast dubiously uses as the primary justification for placing limits on customers.

Cable providers who limit broadband use routinely use the “shared network experience” excuse as a justification for usage control measures.  Since cable broadband delivers a fixed amount of bandwidth into individual neighborhoods which everyone shares, a single user or small group of users can theoretically create congestion-related slowdowns during peak usage times.  Cable operators have successfully addressed this problem with upgrades to DOCSIS 3 technology, which supports a considerably larger pipeline unlikely to be congested by a few “heavy users.”

Comcast’s argument the Xbox service doesn’t deserve to be capped because it is delivered over Comcast’s own internal network misses the point.  That content reaches customers over the same infrastructure Comcast uses to reach every customer.  If too many customers access the service at the same time, it is subject to precisely the same congestion-related slowdowns as their broadband service.  Data is data — only the cable company decides whether to treat it equally with its other services or give it special, privileged attention.

Even if Comcast argues the Xbox streaming service exists on its own segregated, exclusive “data channel,” that represents part of a broader data pipeline that could have been dedicated to general Internet use.  The fact that special pipeline is available exclusively for Comcast’s chosen favorites, while keeping usage limits on immediate competitors, is discriminatory.

Comcast customers who have lived under an inflexible 250GB usage limit since 2008 should be wondering why the company can suddenly open unlimited access to some services while refusing to adjust its own usage limits on general broadband service.

Stop the Cap! believes Comcast has forfeit its own justification for usage caps and network management techniques that can slow customer Internet speeds.  We have no problem with the company offering unlimited access to the Xbox streaming service. But the company must treat general Internet access with equal generosity, removing the unjustified and arbitrary usage cap it imposed on customers in 2008.  After all, if the company can find vast, unlimited resources for a service it launched only this year, it should be able to find equal resources for a service it has sold customers (at a remarkable profit) for more than a decade.

Anything less makes us believe Comcast’s usage caps are more about giving some services an unfair advantage — violating the very Net Neutrality guidelines Comcast claimed it would voluntarily honor.

Stop the Cap! strongly believes usage caps are increasingly less about good network management and more about controlling and monetizing the online experience, seeking marketplace advantages and new revenue streams from consumers who already pay some of the world’s highest prices for broadband service.  As we’ve argued since 2008, Internet Overcharging through usage caps and usage based billing is also an end run around Net Neutrality.  The evidence is now apparent for all to see.

[Thanks to our readers Scott and Yannio for sharing developments.]

Phillip "The Mayans Never Met AT&T" Dampier

AT&T has used the specter of a nationwide wireless bandwidth crisis to pressure Washington to adopt its agenda for additional mobile spectrum.  But talk of a looming “data tsunami” has done nothing to stop AT&T from heavily marketing their most data-hungry devices — smartphones and tablets to customers.

In fact, the “broadband shortage business” has become enormously profitable for the former Ma Bell.

Switch to a Smartphone

Wireless carriers like AT&T aggressively market smartphones because they drive the highest average monthly revenue earned from customers.  So far, the marketing push has been an unparalleled success.  PricewaterhouseCoopers reported smartphones accounted for 48% of all wireless phone sales in 2011, up from 30% in 2010.  More than half of customers upgrading their old phones chose smartphones to replace them — an enormous increase over just 36% of upgrades in 2010.  Because smartphones are designed for an online experience, most companies mandate customers subscribe to a data plan, often adding $30 or more per phone, per month to a wireless phone bill.

AT&T’s 4th quarter results told the story, and it was all smiles.  AT&T celebrated customer enthusiasm for smartphones and the data they consume with no worries about “data tsunamis” or “bandwidth crises”:

• In 2011, AT&T’s growth engines — wireless, wireline data and managed services — represented 76 percent of total revenues and grew 7.5 percent versus 2010, led in the fourth quarter by:
  • 10.0 percent growth in wireless revenues
  • 19.4 percent growth in wireless data revenues, up $956 million versus the year-earlier quarter
• 9.4 million smartphone sales, best-ever quarter and 50 percent more than previous quarterly record and nearly double 3Q11 sales; 82 percent of postpaid sales were smartphones
• Best-ever quarter for Android and Apple smartphones, including 7.6 million iPhone activations

Double-Digit Growth for Wireless Revenues. Total wireless revenues, which include equipment sales, were up 10.0 percent year over year to $16.7 billion. Wireless service revenues increased 4.0 percent, to $14.3 billion, in the fourth quarter.

Wireless Data Revenues Increase 19.4 Percent. Wireless data revenues — driven by Internet access, access to applications, messaging and related services — increased by $956 million, or 19.4 percent, from the year-earlier quarter to $5.9 billion. AT&T’s postpaid wireless subscribers on monthly data plans increased by 16.4 percent over the past year. The number of subscribers on tiered data plans also continues to increase. About 22 million, or 56 percent, of all smartphone subscribers are on tiered data plans, and about 70 percent have chosen the higher-tier plans.

Wireless Margins Reflect Record Sales. Fourth-quarter wireless margins reflect record-setting smartphone sales and customer upgrade levels. This was offset in part by improved operating efficiencies and further revenue gains from the company’s growing base of high-quality smartphone subscribers.

Forcing Customers to Upgrade… Or Else

AT&T's 2G Exit Strategy Started in 2009 (Courtesy: Blackberry News)

Back in 2009, AT&T decided it was inventory clearance time, released a memo entitled “2G Exit Strategy,” and slashed prices on 2G “feature” or “messaging phones” to attract customers looking for a bargain.  A few years later, the company is now sending letters to some of them strongly recommending they upgrade to a new, potentially more expensive phone.  If they don’t, AT&T writes, “your current, older-model 2G phone might not be able to make or receive calls and you may experience degradation of your wireless service in certain areas.”

AT&T hopes many customers will adopt smartphones, because the plans that accompany them are far more expensive than the 2G “messaging” plans they replace. AT&T wants to repurpose 1900MHz 2G spectrum for other services, but sometimes customers are left holding the bag if they don’t want the designated replacement phone(s) AT&T is willing to provide.

In Grand Valley, Col. last fall, AT&T created lines outside its stores as customers were compelled to upgrade phones and service plans to continue reliable AT&T service:

AT&T isn’t actually discontinuing the 2G network — it is moving 2G service to less-favorable spectrum it owns in order to make room for improved 3G coverage.  That might work fine in areas less expansive and rugged than western Colorado, but in the Grand Valley, it means many customers will find they no longer have data service at all.

The ongoing tower upgrades have also disrupted cell service generally, and when customers arrive at AT&T’s stores to complain, the employees on hand attempt to upsell them more expensive phones to “fix” the problem.

“There is significant pressure on carriers to migrate to the most efficient networks while needing to address the issue of spectrum scarcity,” explains PricewaterhouseCoopers’ Dan Hays. “We are beginning to see carriers shut off legacy networks and force customers to migrate to new technologies.”

Internet Overcharging for Profit Without Raising Company Costs

AT&T has no worries about data tsunamis and "exafloods" when app makers or consumers are willing to pay more.

With customers seeking to get the most out of expensive wireless data plans, data usage naturally goes up. But so do prices, meaning the “data tsunami” carriers warn about is not bad for their bottom line at all.

In 2011, consumer research group Validas found average data consumption was up 34.7% for all users, from 448.8MB in January to 604.8MB by December.  AT&T responded with a price increase and an allowance boost that will benefit only a tiny minority of customers.  The most popular data plans now cost $5 a month more: $30 for 3 gigabytes, up from $25 for 2GB and $50 for 5GB, up from $45 for 4GB.  But Validas found only 5% of wireless customers use more than 2GB of data per month, with only 2.7% using more than 3GB.

That translates into higher AT&T bills for the 97% of customers who don’t come close to using even 2GB a month.  Although the price hike delivers no tangible benefit to the overwhelming majority of customers, it does deliver an extra $5 a month from their bank account to AT&T’s.

The “Anyone Pays But Us” Model for “Heavy Traffic”

With online video “clogging” the wireless airwaves, companies like AT&T should be interested in offloading as much video to wired or Wi-Fi service. But late last month, the company suggested a way customers could bypass its stringent data caps by allowing content companies to pay for the wireless traffic their customers generate.

“A feature that we’re hoping to have out sometime next year is the equivalent of 800 numbers that would say, if you take this app, this app will come without any network usage,” said John Donovan, who oversees AT&T’s network and technology. “What they’re saying is, why don’t we go create new revenue streams that don’t exist today and find a way to split them … “It’d be like freight included.”

Only wasn’t the railroad already overburdened with traffic, threatened with a nationwide slowdown?  If one is willing to flash enough money, it’s remarkable how quickly the tidal wave of wireless congestion and despair can be pushed back out to sea.  Just don’t tell Washington lawmakers.  This is a crisis of epic proportions after all.

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/Bloomberg Carriers Facing Data Tsunami 3-21-12.mp4[/flv]

Derek Kerton, principal analyst at Kerton Group, talks about increased demand for data and the impact on wireless carriers. Kerton compares it to today’s gasoline prices. Demand=higher prices.  Wall Street folks like Kerton thinks more spectrum isn’t the total answer.  Smaller cell sites and more Wi-Fi might be.  Otherwise, prepare for bill shock.  (4 minutes)

Netflix continues to step up its attacks on providers who implement Internet Overcharging schemes on their wired broadband customers.

That concern is understandable as Netflix increasingly transitions to broadband streaming instead of mailing DVD’s to customers.

Getting in the way are five of the nation’s seven largest broadband providers, all imposing limits on customers just as they discover they might be able to do without cable television.

Netflix’s streamed HD shows now consume around 2GB per hour, according to Netflix general counsel David Hyman.  That can eat through usage allowances quickly.  Hyman penned an op-ed in the Wall Street Journal last year blasting the practices of usage caps and consumption billing.

Hyman

“Wireline bandwidth is an almost unlimited resource due to advances in Internet architecture,” Hyman wrote. “The marginal cost of providing an extra gigabyte of data—enough to deliver one episode of 30 Rock from Netflix—is less than one cent, and falling.”

That doesn’t seem to matter much to Comcast, CenturyLink, Charter Communications, and Cox.  All four providers have introduced hard usage limits on customers — a usage cap.  Exceeding it gives any of those providers the right to cut off your broadband service.  AT&T, always one to see a financial angle, charges for excess use of their DSL and U-verse service — $10 for every 50GB. Time Warner Cable recently announced its own experimental “optional” usage pricing package for very light users who consume fewer than 5GB per month.  It will slap overlimit fees on those participating customers who break through the 5GB ceiling at a rate of $1/GB, an enormous markup.

Providers with strict caps usually argue they come as a result of their own network’s capacity problems.  Cable operators who do not consistently manage their network traffic can experience traffic clogs by overselling service without upgrading capacity to sustain user demand.  But providers like Comcast, Cox, and Charter resolved those capacity problems with upgrades to DOCSIS 3 technology, which offer operators an exponentially bigger pipeline for Internet traffic.

Although Comcast promised to regularly review and adjust usage caps since implementing them four years ago, the nation’s largest cable operator has thus far seen no need to raise them.

“We feel that that is an extraordinarily large amount of data,” says Comcast’s Charlie Davis. “That limit is there to make sure we provide a great online experience for every single paying customer.”

Wall Street bankers have closely monitored the industry’s early results from Internet Overcharging, and have been encouraged, so long as operators implement it carefully.

Credit Suisse in a 2011 report to its investor clients suggested the key for successful usage-based pricing is to introduce it slowly and keep “sticker shock to a minimum in the early days” to reduce backlash by consumers and lawmakers.

Once established, the sky is the limit.

Netflix itself is also battling an Internet Overcharging scheme it faces — double-dipping by cable operators like Comcast.  In addition to the fees Comcast collects from customers for its broadband service, the cable operator also wants to be paid directly by Netflix to allow the movie service’s traffic on its network.

That’s an Internet toll booth, charges Netflix and consumer groups.  It’s also uncompetitive, says Hyman.

This month Comcast unveiled its own movie and TV show streaming service — Xfinity Streampix — from which, unsurprisingly, the cable company has not sought extra traffic payments from itself.

Opposed to Internet Overcharging

Three providers which don’t cap customers don’t see a reason to try.

Verizon Communications says its fiber network FiOS has plenty of capacity and has no plans to restrict customers’ enjoyment of the service.  In 2009, Cablevision’s Jim Blackley told one panel discussion usage caps are not in the cards.

“We don’t want customers to think about byte caps so that’s not on our horizon,” Blackley said. “We literally don’t want consumers to think about how they’re consuming high-speed services. It’s a pretty powerful drug and we want people to use more and more of it.”

California’s Sonic.net Inc., goes even further.  Its CEO, Dane Jasper, believes the Federal Communications Commission needs to be more assertive about protecting America’s broadband revolution and the customers that depend on the service.

The fact different operators can take radically different positions on the subject, despite running similar networks, suggests technical necessity is not the reason providers are implementing usage restrictions and extra fees on customers.

As Hyman writes:

Bandwidth caps with fees piled on top are a lousy way to manage traffic. All of the costs of supplying residential broadband are for supporting peak usage. Bandwidth consumed off-peak is completely free. If Internet service providers really wanted to manage traffic efficiently, they would limit speeds at peak times. If their goal is instead to increase revenues or lessen competition, getting consumers to pay per gigabyte is an excellent strategy.

Consumer access to unlimited bandwidth is good for society. It fosters innovation, drives commerce, and advances political and social discourse. Given that bandwidth is cheap and plentiful and will only grow more so with time, there is no good reason for bandwidth caps and fees to take root.

Consumers and regulators need to take heed of what is happening and avoid winding up like the proverbial frog in a pot of boiling water. It’s time to jump before it’s too late.