Have we got a deal for you!

You’ve heard all the excuses:

• Internet traffic has grown and unlimited pricing threatens to make broadband unprofitable;
• We need these pricing schemes to help pay for improved infrastructure to handle traffic;
• If we don’t adopt this pricing now, a great data tsunami — an exaflood — will wash broadband down the sink;
• It’s not fair to make light users pay for heavier users.

Despite the fact provider financial reports show a trend towards reduced spending on infrastructure, data transport costs continue to drop, and debunking of exaflood horror tales, providers persist in demands for this so-called “fairer pricing” for broadband service.

But what is fair?

As Canada contends with an Internet Overcharging scheme that limits consumption to an average of 40-60GB per month, with $1-5 per gigabyte in overlimit fees, does this represent fair pricing?

The Toronto Globe & Mail decided to investigate, and the results will come as no surprise to readers here.

Fact: Usage is growing exponentially, especially among users streaming online video.  Canadians, just like Americans, are swarming towards multimedia-rich content from YouTube to Netflix.  Usage growth of 50 percent per year is not out of line.  But as the newspaper discovered, extraordinary growth alone does not deliver the whole story.  The capacity to handle that Internet traffic has not only kept up with growth, it has exceeded it, at levels of unprecedented efficiency.

The Globe & Mail notes:

[…] Processing power, hard disk densities and transmission rates grew at rates closer to 60 per cent per year over the same period. In addition, the servers and routers and other electrical equipment that are the backbone of the Internet are much more energy efficient than they were ten years ago, which has dramatically reduced the cost of operations.

In simple terms, the bandwidth explosion is real, but it’s been more than offset by more powerful and more energy-efficient machines. So, we can reject the notion that increased usage is the a significant rationale for huge Internet price increases and usage-based billing.

Costs down, but prices going up?

Among virtually every provider, the percentage of average revenue spent on broadband network expansion per customer has dropped.  Even Verizon, which suspended expansion of its fiber to the home network, has not faced an avalanche of new costs to deliver large amounts of data to FiOS customers.

But what about the “fairness” proposition.  Should light users pay less than heavy users?  Historically, even in countries where usage-based pricing is the norm, usage-limited customers still pay comparatively high prices for broadband service, particularly when measured on cost per megabit per second against the usual lower caps cheaper plans provide.  So-called “light usage” plans also have natural usage caps built-in — they come with far slower speeds that, at their worst, discourage use of high bandwidth services.

The Globe & Mail concluded: “Rather than ensuring consumers receive fair Internet pricing, the Canadian Radio-television and Telecommunications Commission seems content to line the pockets of cable and telecommunications companies by forcing Canadian consumers to pay Internet data rates that have no basis in reality.”

Here’s why:

Wholesale Data Costs

The “fairness” argument falls apart when the truth is revealed about the wholesale costs large providers pay for their Internet connections.  Assuming the providers’ arguments that pay-per-use pricing is fair, the prices they ask Canadians to pay for that use certainly are not.

The Globe & Mail again:

Approximately four years ago, the cost for a certain large Telco to transmit one gigabyte of data was around 12 cents. That’s after all of its operational and fixed costs were accounted for. Thanks to improved technology and more powerful machines, that number dropped to around 6 cents two years ago and is about 3 cents per gigabyte today.

Are these valid numbers? After the recent CRTC decision regarding UBB, it was announced that effective March 1st, Bell will be charging Third Party Internet Access (TPIA) providers $4.25 for a 40 GB block of additional data transfer.

The fact that Bell is able to sell 40 GB of data to wholesalers for $4.25 and still make a profit demonstrates that the true cost of data transfer is well below the 10.5 cents per gigabyte they are charging wholesalers. One TPIA provider agreed the 3 cents per gigabyte figure is probably close to the true cost.

So why are Internet service providers charging consumers $1 or more per gigabyte of data used beyond their respective data caps? That’s a good question.

The “good answer” is: profits.

With providers charging overlimit fees from $1 per gigabyte on Bell’s most generous plans to $5 per gigabyte for Rogers’ Ultra-Lite plan, this represents overcharging of at least 10-50 times what it actually costs the providers to deliver that data.

Broadband costs in the United States are dramatically lower than in Canada, in part because of a larger marketplace and because of greater capacity and more competition, yet proposals from some American providers sought similar limits and overage pricing.

But considering the true cost of the service, charging closer to 10 cents per gigabyte — not $1 or more — would represent a fair price.  So long as regulators like the CRTC cater to providers, consumers will pay considerably more.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/CTV Usage Based Billing 2-1-11.flv[/flv]

CTV News explores Usage-Based Billing, and why it will makes an expensive broadband experience even more costly in the days ahead.  (6 minutes)

Verizon Wireless isn’t entirely rolling out the welcome mat for new iPhone customers.  PreventCAPS, one of our regular readers, dropped us a note indicating Verizon quietly added something new to the terms and conditions for new customers as of Feb. 3rd, which just so happens to coincide with the date the company started taking orders for the Apple iPhone — it reserves the right to throttle your speeds and “optimize” your browsing experience with caching and network management techniques that could reduce the quality of online videos and other bandwidth-intensive graphics.

Important Information about Verizon Wireless Data Plans and Features

As part of our continuing efforts to provide the best experience to our more than 94 million customers, Verizon Wireless is introducing two new network management practices.

We are implementing optimization and transcoding technologies in our network to transmit data files in a more efficient manner to allow available network capacity to benefit the greatest number of users. These techniques include caching less data, using less capacity, and sizing the video more appropriately for the device. The optimization process is agnostic to the content itself and to the website that provides it. While we invest much effort to avoid changing text, image, and video files in the compression process and while any change to the file is likely to be indiscernible, the optimization process may minimally impact the appearance of the file as displayed on your device. For a further, more detailed explanation of these techniques, please visit www.verizonwireless.com/vzwoptimization

If you subscribe to a Data Plan or Feature on February 3, 2011 or after, the following applies:

Verizon Wireless strives to provide customers the best experience when using our network, a shared resource among tens of millions of customers. To help achieve this, if you use an extraordinary amount of data and fall within the top 5% of Verizon Wireless data users we may reduce your data throughput speeds periodically for the remainder of your then current and immediately following billing cycle to ensure high quality network performance for other users at locations and times of peak demand. Our proactive management of the Verizon Wireless network is designed to ensure that the remaining 95% of data customers aren’t negatively affected by the inordinate data consumption of just a few users.

These kinds of “network management” techniques, which include speed throttles, reduced quality graphics, and caching (which can result in stale web pages being served to your mobile device), are all made possible by the Federal Communications Commission’s failure to implement Net Neutrality protections for wireless providers.  While Verizon stresses it will treat all content to the same network management techniques equally, the “improved” broadband experience Verizon claims to offer is more likely to improve the company’s bottom line from reduced spending on network upgrades.

Like most providers, Verizon isn’t willing to be specific about what amount of usage is likely to trigger the throttle, why it needs to be maintained for the remainder of the billing cycle even when network congestion is not a problem, and what speed customers will be stuck with for the rest of the month.

Broadband Reports reached out to Verizon for specifics and discovered the provider has not actually implemented these measures… yet:

“The notice yesterday simply reserves the right for new customers or renewing their contracts,” Verizon spokesman Jeffrey Nelson tells Broadband Reports. “We’re reserving the right to actively manage the network in specific ways should that need exist – and only for customers who are under contract that includes that provision,” he says. “Because this is down the road – if at all – it’s too early to tell what those triggers might be, or what throughput limitations would look like.”

Verizon may be concerned about the potential impact millions of data-craving iPhone customers will bring to its network in the coming weeks.  Existing customers with Android devices or Blackberry handsets are safe for now — the provision only impacts customers who sign new contracts as of last Thursday.

Verizon says it will retain its unlimited data option (with the right to throttle service) for a “limited time only.”

Prime Minister Harper's government is facing an open revolt by Canadian consumers over Internet Overcharging.

A full-scale revolt among consumers across Canada has brought the issue of Internet Overcharging to the highest levels of government.

A spokesman for Prime Minister Stephen Harper said the government is very concerned about a decision from the Canadian Radio-television and Telecommunications Commission that has effectively forced the end of unlimited use broadband plans across the country.

Both the Liberal and NDP parties have made a point of protesting the CRTC decision, which happened under the Conservative Party’s watch.  Harper’s Industry Minister Tony Clement stepped up his remarks this morning which hint the government is prepared to quash last week’s decision by the CRTC, which has already forced price increases for broadband service across the country.

“The decision on its face has some pretty severe impacts,” Clement told reporters in Ottawa after NDP and Liberal critics in the House of Commons repeatedly pounded the government on the issue of so-called “usage-based billing.”

“I indicated the impacts on consumers, on small business operators, on creators, on innovators. So that’s why I have to work through a process, cross my T’s, doc my I’s. When you’re dealing with a legal process, that’s what you have to do. But I will be doing that very, very quickly, and getting back to the prime minister and my colleagues very, very quickly,” said Clement.

As of this morning, more than 286,000 Canadians have signed a petition protesting the Internet Overcharging schemes.

The protest movement has now been joined by small and medium-sized business groups who fear the impact new Internet pricing will have on their businesses.

Richard Truscott, with the Canadian Federation of Independent Business, normally a group that prefers less government action, said his members are demanding a stop to the pricing schemes before they get started.

“The vast majority of small businesses rely on reasonably-priced Internet service to conduct their operations,” he said. “Generally this is the sort of thing that hits the most innovative sector with higher costs.”

Most cable and phone companies are lobbying Ottawa politicians to keep the new usage-based billing schemes, and several are pretending the protest movement doesn’t exist.

AgenceQMI, a cable-company owned wire service, is also coming under fire for misrepresenting Clement’s positions on the pricing schemes in a news report issued yesterday.  The wire service claimed Clement supported the CRTC’s position, something Clement adamantly denied this morning.

The National Post, a self-described conservative newspaper, this morning published an editorial supporting usage-based pricing, claiming a handful of users were creating a problem that light users should not pay to solve.  But many readers leaving comments on the article strongly disagreed, claiming the newspaper is out of touch.

Although the regime of usage caps, speed throttles, and overlimit fees have been in place with most major providers for at least two years, the culmination of several events in the last six months have brought the issue to the boiling point:

1. The arrival of Netflix video streaming, which provides unlimited access for a flat monthly fee;
2. The ongoing limbo dance among several providers who are reducing usage allowances when competitive threats arrive;
3. The increase in providers now enforcing usage limits by billing consumers overlimit fees that spike broadband bills;
4. Recent examples of bill shock, which have left some consumers with thousands of dollars in Internet charges.

Bill Shock

Kevin Brennan, a graphic designer who works from home and downloads large files from clients, was first hit with extra charges in November, which cost him $34 above his usual Shaw bill.

“I’d never been contacted about going over before,” he told the Calgary Herald, adding he was also over in December. “Thirty-four dollars doesn’t seem like much, but over the course of a year it adds up.

“What concerns me, outside my own business, is the lack of innovation people will be able to do. And it makes Shaw a monopoly. . . . if you watch TV or the Internet, you pay more to them.”

Shaw reduced its usage allowance for customers like Brennan late last year from 75 to 60GB on its most popular broadband plan.  It also now enforces a $2/GB overlimit fee.

John Lawford, counsel for the Public Interest Advocacy Centre, told the Herald the concern isn’t just that smaller companies can no longer offer unlimited plans, which reduces competition.

“The phone and Internet and cable companies of the world are playing it both ways. They’re saying, ‘Well, there’s these big data hogs that are using too much, we’ve got to punish them to keep the price down.’ On the other hand they’re buying media companies so they have stuff to shove down the wires, which doesn’t count toward your cap,” Lawford said. “That’s anti-competitive.”

Most Canadian media companies are now tightly integrated with large telecommunications companies.  CTV, Canada’s largest commercial network, is now owned by Bell, the country’s biggest phone company.  Rogers, Shaw, and Videotron — the largest cable companies in Canada own cable and broadcast stations, newspapers, and magazines.  They also control cellphone companies, Wi-Fi networks, and have interests in satellite providers as well.

When a competitor like Netflix arrives to challenge the companies’ pay television interests, turning down consumers’ broadband usage allowances discourages cord-cutting.

The CRTC’s decision to allow Bell to charge usage-based pricing for wholesale accounts was the final death blow to unlimited Internet according to several independent service providers, because virtually all of them rely on Bell — a company that received taxpayer subsidies to build its broadband network — for access to the Internet.

Canadian Parliament

TekSavvy, a company that used to offer unlimited use plans, can do so no more.  In a statement to customers, TekSavvy laid blame on regulators for being forced to increase prices.

“From March 1 on, users of the up to 5Mbps packages in Ontario can expect a usage cap of 25Gb (60Gb in Quebec), substantially down from the 200Gb or unlimited deals TekSavvy was able to offer before the CRTC’s decision to impose usage based billing,” read a statement sent to customers.

TekSavvy spokeswoman Katie do Forno said the CRTC decision is a disaster for Canadian broadband in the new digital economy.

“This will result in unjustifiably high prices and a reduction in innovation,” said do Forno. “I think it’s going to change behavior about how people use the Internet.”

The company underlines the point by including “before and after” pricing schedules on its website, an unprecedented move.  Shaw, western Canada’s largest cable company, was heavily criticized for trying to hide their reduction in usage allowances.

Ottawa residents are planning direct action to protest the decision this Saturday.  Shawn Pepin is organizing the protest rally.

“What they’re doing right now looks like a cash-grab scheme, and people aren’t going to take it,” he said.

[flv width=”640″ height=”388″]http://www.phillipdampier.com/video/CBC News Pay As You Go Tony Clement 2-1-11.flv[/flv]

Minister of Industry Tony Clement was pressed by CBC Television about the Harper Government’s stand on Internet Overcharging.  The CBC asks why Canadians are paying some of the world’s highest prices for broadband and why Clement is finally getting involved.  Watch as he mysteriously avoids stating the obvious: Canadians are in open revolt and politicians from competing parties are taking their side.  (9 minutes)

"If you have to ask how much, you can't afford it."

Knology, which bought out Sunflower Broadband last year, has elected to carry forward the old owner’s Internet Overcharging schemes, charging broadband customers penalty rates for exceeding their usage allowances.

The company’s explanation for their overpriced bandwidth comes with a tall tale about their competitors they simply made up out of thin air:

Data transfer allotments allow Knology to offer higher speed service with lower prices. Unlimited, open usage plans offered by other providers typically employ network controls to slow down the high usage customers.

That’s news to us, and to their nearest competitor AT&T.  They deny speed throttling any of their U-verse or DSL customers.

While the company’s download speeds are impressive — up to 50Mbps — their upload speeds are not, topping out at a paltry 1Mbps.

Knology's pricing is nearly identical to its predecessor Sunflower Broadband, except for the $5 rate hike for its most popular Silver plan.

Knology claims they expand usage allowances based not on network capacity, but by the percentage of customers they gouge with overlimit fees:

Data transfer allotments: Each level of internet above includes the amount of data transfer indicated measured in Gigabytes (GB). The data transfer allotments are increased regularly, based on usage patterns, to ensure the number of customers who go over their allotments remains under 10%. Additional GB of data transferred beyond the allotment is billed at $1.00 per GB if not purchased at a discount before the end of the billing period. The percentage of Knology customers charged for extra data transfer beyond their allotment was 6.1% in April 2009.

Paul Bunyon, Knology's new director of marketing

Bemusingly, customers with time machines who can travel into the future and determine they will exceed their allowance for the month can pre-purchase an increase in their usage allowance at a discount.

No time machine?  Then you either pay the standard overlimit rate, watch your usage like a hawk, or potentially over-buy excess usage that expires at the end of the month.

Customers tell Stop the Cap! the company’s single, unlimited use package is “the same piece of garbage it always was,” writes Larry who lives in Lawrence.  He had high hopes Knology would do the right thing and abandon Sunflower’s overcharging schemes.

“Apparently not, and after a month with their unlimited service, I have scheduled my U-verse installation with AT&T,” Larry writes. “Even on Knology’s limited packages, they don’t provide the speeds they promise.”

Larry also says the higher speed tiers Knology offers deliver diminishing returns.

“If their uplink is congested, or the web sites you visit are busy, it won’t matter if you have 10Mbps or 50Mbps — the speed is effectively the same,” he says. “Besides, upload speed is more important these days and 1Mbps is just plain lousy in 2011.”

“Bye, bye SunKnology.”

Sunflower's Old Broadband Plans & Pricing (February 2010)

"This will never end well."

Stop the Cap! and our allies Free Press teamed up to expose Frontier’s usage limits for what they are — a broadband ripoff.

KOVR-TV in Sacramento ran an excellent piece on Frontier’s latest embarrassing screw-up: driving their declining landline broadband customers away with unjustified and arbitrary usage caps.

One new piece of the story: Frontier could bring its usage rationing sideshow to a community near you.  As Stop the Cap! informed readers from the beginning, the company has quietly been tracking customers’ usage, looking for outliers they can suggest are using too much.  Now the company says it is ready to drop the hammer on heavy users.

Stephanie Beasly, Communications Manager — Frontier Communications:

“The company letters were sent to customers that are using an excessive amount of the network. Well beyond any reasonable amount for an average user and significant enough to negatively affect other customers’ user experience.

The letters are meant to communicate to these customers that their usage is in excess and we would like to work with them to adjust their plan or their usage. In most cases our customers were not aware of their usage patterns and are willing to work with us to adjust their plans to fit their lifestyles. We do not have a customer capacity on our network. We are looking to work with these customers to help prevent degradation on our network to ensure the customer experience.

The pricing structure was put in place to help us maintain the network experience for all customers. If you choose to use a significant amount of bandwidth we believe you should pay for the service accordingly.

The letters were sent to four markets across the company. We routinely review network usage patterns and these users jumped out as consuming an inordinate amount of bandwidth, enough to negatively affect other customers’ user experience.

All of Frontier markets are reviewed for usage patterns as the markets receiving the letters were reviewed. These specific markets were not targeted.

The customers using an excessive amount of data negatively impact the network for other users. Preventing us from providing adequate bandwidth to all of our users during peak and non-peak times.”

There is less and less to like about Frontier Communications, despite the fact they plan to deliver broadband service to rural Americans unlikely to see it from anyone else.  We’re glad someone is willing to provide the service, but 1-3Mbps broadband with arbitrary usage limits and potentially confiscatory pricing ($250 a month for residential customers), is a trade the devil might make.

Stop the Cap! will continue to organize opposition to Frontier’s foolish pricing schemes wherever they appear.  We will help customers find an alternate provider wherever possible, preferably one that remembers a customer should be treated like gold, not mined for it.

In suburban Sacramento, we highly recommend SureWest — a fiber-to-the-home service provider that not only has no Internet Overcharging scheme, but provides service at speeds that frankly embarrass Frontier’s last-century DSL.  They will even cover up to $200 of any early cancellation fee Frontier charges (and if Frontier tries, we want to know about it).

Our reader, Mr. Brown, was pleasantly surprised to find that SureWest’s speeds just blow Frontier out of the water.  He’s saying goodbye to his 6/0.5Mbps DSL line from Frontier and hello to 25/25Mbps service from SureWest that will also save him $10 a month!  He is also happy to see the back of Frontier’s Overcharging Nanny telling him to get off the Internet.

“[These caps] are a slippery slope and Internet providers need to know that action such as these will result in lost profits,” Mr. Brown wrote on KOVR’s website.  Departing customers typically drop -all- of their Frontier services, costing the company landline revenue as well.

Indeed, Frontier continues to lose more landline customers than its adds, and bungling policies like overcharging for Internet service will only accelerate the departure of angry customers.

Unfortunately, Frontier’s failures extend way beyond their broadband service.

The golden parachute for some, just not for you.

Frontier’s way of doing business has:

• given customers one more reason to cancel their landline service;
• ruined a fiber-to-the-home service that a child should be able to market successfully;
• irritated subscribers with “price protection agreements” that are little more than tricks and traps — delivering all of the protection to Frontier’s bottom line and making you pay the price;
• destroyed what few reasons remain for customers to waste their time with DSL broadband wherever cable or municipal providers exist;
• delivered big dividends and results only to shareholders, siphoning away important financial resources needed to upgrade their facilities.

In Everett, Washington Frontier cannot even manage the steady flow of customers canceling FiOS video service after news of a shocking $30 a month rate increase.  After telling customers they should “upgrade” their Frontier service to DirecTV satellite, those customers that tried encountered news that DirecTV never heard of the promotion Frontier was offering:

Two hours on the phone, six customer service people and a disconnected call — it wasn’t the introduction to DirecTV that one local man had hoped.

A FiOS television customer, Rick Wright sought to take advantage of an offer made last week by Frontier Communications and its partner, DirecTV.

[…]When Wright called initially, the Frontier customer service person was familiar with Frontier’s offer and transferred Wright to DirecTV to get an installation date before cancelling his FiOS TV service. At DirecTV, Wright spoke to six people over a two-hour span before being disconnected. Wright called back to DirecTV the following day only to be told that he was misinformed about the offer. Frontier spokeswoman Stephanie Beasly said Thursday that she was taking care of Wright’s problem.

On Friday, more than a week after Frontier first announced its new offer, Wright said his television service still remained up in the air. Several other FiOS television customers in Snohomish County reported difficulty in getting the free DirecTV offer.

Late last week, Frontier acknowledged some miscommunication between the company and its partner, DirecTV. On Thursday, Beasly said she believed those issues had been resolved. She did not return a request for further information Friday.

DirecTV spokeswoman Jade Ekstedt suggested in an e-mail that FiOS customers should contact Frontier directly for assistance.

“The offer … is a valid Frontier Communications promotion that includes DirecTV service, and DirecTV always works with its partners on valid offers that they introduce into market,” Ekstedt wrote, when asked whether DirecTV is honoring Frontier’s offer.

Complaints are arriving at a steady pace, reports the Washington State Attorney General’s office.

This is a story that never ends well.  But don’t worry — the executives responsible for the notorious bungling have their spots on the compensation lifeboats already reserved.  Too bad customers will likely go down with the ship.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KOVR Sacramento Call Kurtis Bill May Triple For Excessive Internet Usage 1-13-11.mp4[/flv]

KOVR-TV in Sacramento worked with Stop the Cap! and Free Press to develop this story about Frontier’s unjustified Internet Overcharging schemes.  (4 minutes)