Filipinos looking for reasons why broadband providers want to limit their Internet usage can find all the explanations needed in the financial reports of companies enthusiastically supporting Internet Overcharging proposals.

As ABS/CBN News noted, “To say that 2010 was a difficult year for the Philippine telecommunications industry is an understatement.”

“Consumers are demanding an unlimited telecommunications experience,” says Renato Razón, an investor and telecom industry watcher for more than 30 years. “The wireless sector and the growth of the Internet, and the companies that compete to provide both, have turned telecommunications in this country on its head.”

Razón tells Stop the Cap! the privatization of telecommunications initially showed a lot of promise for investment and development to get the country on the Asian economic fast track.  But increasingly in recent years, companies have grown fat and lazy, trying to compete with existing networks in need of upgrades — in search of quick profits and no costly capital expenses.

“They learned what they think are important lessons from the huge amounts of money that were spent to build and upgrade wireless networks in the Philippines,” Razón tells us. “They were convinced it was worth countless billions to build wireless infrastructure and wait for the enormous profits that would come later, but then everyone wanted to get into the business and the big profits they thought they’d get never materialized.”

Razón says wireless competition that exploded across major cities in the Philippines was initially a boon to consumers, who today benefit from heavily marketed unlimited calling and texting plans at declining prices.  But now that profits are taking a hit, investors and company executives learned what they feel is a bitter lesson.

As wireless becomes a mature market in the Philippines — with more than 80 percent of consumers already using wireless devices, almost all of the marketing from existing providers targets customers of their competitors.  Customers threatening to switch force providers to offer steeply discounted retention deals that are often infinitely renewable.

Such fire sale pricing enrages investors, who are calling for greater industry consolidation among the three largest operators.  With a fourth provider possibly on the horizon, the chorus demanding that some of the players get out of the market through mergers and acquisitions for the “good of all” could soon grow too loud to ignore.

“Heavy competition is your worst nightmare — it results in price wars and everyone, except consumers of course, are hurt in the end,” he admits.  “I admit I have to divorce myself from the fact my family and I are also consumers — and we love the lower prices — but as an investor, I understand the loud demands to improve shareholder value.”

Razón says executive compensation, often tied to financial performance, delivers the ultimate incentive that executives answer first to shareholders, not customers.

“If a handful of customers get angry at you, that doesn’t cost you the company-paid vacation on the French Riviera and a healthy bonus — an angry compensation committee answering to a dispirited Board of Directors could,” Razón says.

Razón says it’s the same story wherever private companies control telecommunications with few regulations governing their operations.  He believes private market solutions without regulatory oversight helps him more than it helps you.

“I understand what the Philippine government wants — regulations to promote better broadband, but they are only hearing from industry people on how to accomplish that,” Razón believes.  “They answer to shareholders who think about short term results and the health of their investment, not the overall health of the broadband marketplace.”

With financial results for 2010 showing the impact of price competition and predictions of another year of anemic profits, providers are looking for new revenue streams.  Broadband offers one of the few major growth opportunities available to telecom companies in the short term, Razón says.

“At least half this country doesn’t have meaningful broadband, so if you can deliver service over existing infrastructure, keeping capital costs low, you couldn’t count the money coming in fast enough,” Razón says.  “DSL from the phone companies delivers it all — existing phone wires delivering a value-added service to existing phone customers.  It’s not fast, but it’s cheap.”

Rafael Aguado, the chief operations officer of Bayan Telecommunications, agrees the real revenue is in broadband:

“2010 was a challenging year for the telcos, as competition intensified and the Internet/social media and new technologies influenced the shift on consumer behavior on how to communicate, putting pressure on traditional revenue sources like voice calls and international long distance calls. Data and internet subscribers continued to increase and is expected to accelerate to the next level of sustained growth.  It was a difficult year for Bayan but performance was consistent with the industry trend. Total revenue decreased due to lower voice revenues but residential internet and corporate data services posted revenue growth. With sound operating expense management, we expect the year to end in double digit growth in EBITDA. Our growth drivers next year would continue to be data and internet services for both consumer and corporate sectors.”

Philippines Long Distance Telephone Co.

Razón believes usage caps are just another mechanism to protect companies from performing costly upgrades.

“If you can limit usage, you don’t have to spend as much capital upgrading,” Razón says.  “Investors don’t mind if you spend to expand DSL into new territories, because the costs are relatively low.  They will get upset if your support and ongoing costs increase, however.”

That could explain the growing burdens of wireless traffic on the country’s cellular networks.  Some providers have been accused of deliberately overselling access to their networks while refusing to upgrade them to meet growing demands, because the return on “unlimited use” doesn’t deliver:

“The telco industry had a good year but its profitability was greatly reduced due to the highly competitive ‘unlimited plans’ that each provider offered its subscribers. This trend would continue this coming year,” said Ivan Uy, chairman, Commission on Information and Communications Technology (CICT). “What needs to be looked into is the deteriorating service availability or accessibility due to network congestion brought about by the unlimited plans. Customer dissatisfaction has been rising because of higher frequency of dropped calls, delayed SMS, and line unavailability.”

When given a choice how to solve this problem, most companies prefer to advocate for usage limits, not mass scale upgrades.

Even long distance companies, which played through a price war more than a decade ago, see the flow of investment heading into broadband.  Unfortunately, in their eyes, usage demands are coming along as well:

“Competition intensified in the cellular business. Broadband grew strongly. Margins came under pressure even as demand for more network resources increased. For PLDT, 2010 has been a year when it maintained its market leadership in the face of these challenges. Our focus has been managing this transition where traditional revenue sources such as fixed toll revenues like IDD and NDD were on the decline while new revenue sources such as broadband were on the rise. We preserved margins by strengthening cost management given the modest top-line growth.

“We expect the challenges of 2010 to carry into next year. Demand for bucket and unlimited offers in the cellular space will continue. We expect that broadband will keep growing given the growing popularity of social networking and new access devices such as tablets and smartphones. PLDT will continue to invest in its network in order to fortify its market leadership.” — Napoleon Nazareno, president and CEO, Philippine Long Distance Telephone Co.

For a long term investor like Razón who has seen this all before, there is a better answer: invest in your networks and grow them faster than your competitors.

“You have to spend money to earn money I have always found and there is a ton of money to be spent and made on broadband in this country,” Razón says. “The low hanging fruit has already been picked — now we must spend to get broadband into towns and villages and we should also be investing in content and products we can sell to broadband customers.”

Razón thinks Internet Overcharging schemes are a foolish mistake.

“You can’t create value-added services on an artificially limited network and expect consumers to buy,” Razón said.  “If you limit usage, you discourage people from using the services that get them addicted to using it in the first place.  Get them hooked, keep them happy and you have a customer for life.”

AT&T customers looking for better service need to put down those cellphones and turn off the computer and pick up a good book.  AT&T recommends Fed Up! Our Fight to Save America From Washington, written by Texas Gov. Rick Perry.

Perry’s book, which compares Social Security and FDR’s “New Deal” social programs with a Communist takeover is so popular with the Big Telecom, it purchased over 700 copies to hand out for free to state legislators, lobbyists and activists attending a conservative policy summit luncheon.  Oh, and the company paid for the lunch, too.  Total cost?  More than $13,000 — all ultimately paid for by AT&T’s customers.

AT&T made sure every guest had their own personal hardcover copy of the governor’s book, something that didn’t go unnoticed by former Texas Solicitor General Ted Cruz, who thanked AT&T from the microphone for paying for the books.

“Governor Perry has written a book – a book that all of us very kindly have been given by AT&T,” Cruz said. “Thank you, AT&T.”

AT&T’s gladhanding of conservative state politicians doesn’t come accidentally, reports the Dallas Morning News.  With hundreds of millions in revenue at stake, AT&T’s investment in the state’s Republican dominated legislature guarantees the company’s voice will be heard on important legislative matters.

AT&T has spent as much as $9.3 million to lobby Austin lawmakers and regulators, according to Texas Ethics Commission data. AT&T’s political action committee has donated $494,740 to Perry during his nine years in office, according to Texans for Public Justice.

The latter group told the newspaper AT&T doesn’t get into the book club business lightly.

“It does raise concerns. AT&T has a lot of business before the state of Texas and Texas regulators,” said Craig McDonald, director of Texans for Public Justice, a group that tracks money in politics. “They are generally the largest lobby in the state. They can reach out and touch every lawmaker simultaneously.”

Elected officials who write books routinely find some of their biggest sales come from lobbyists, who buy books in bulk and hand them out at public speaking engagements, or simply shove them into the nearest storage locker.  It’s not about the book, it’s about the access companies like AT&T gain from the goodwill earned from buying copies.

Perry does not profit directly from the book sales, but his political interests do.  Proceeds of the book sales go to the Texas Public Policy Foundation’s Center for Tenth Amendment Studies, a group dedicated to protecting corporate interests and “state’s rights.”

AT&T’s corporate interest is protected by the Policy Foundation’s opposition to Net Neutrality, but the group generally opposes broadband stimulus funding, some of which is likely to end up in AT&T’s pockets.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/Texas Public Policy Foundation Net Neutrality.flv[/flv]

The Texas Public Policy Foundation invited two Republican FCC commissioners — one current and one former — to bash Net Neutrality and broadband reforms before a stacked panel and audience of like-minded thinkers.  (1 hour, 50 minutes)

HP's Snowjob: The company that brought you the $70 ink cartridge supports an end to flat rate Internet service to "save" you money.

HP’s Joe Weinman argues consumers are behind the drive to abandon flat rate, “all you can eat” broadband pricing.

Weinman, whose company sells products and services to some of America’s largest broadband providers, has taken up their position that flat-rate Internet service is bad for you, claiming many are paying too much for Internet service they use too little.

In an essay posted on GigaOM, Weinman brings back the all-y0u-can-eat buffet metaphor:

For the record, I like unlimited Internet access just as much as anyone else. However, such plans appear to be on their way out, and here’s why. As I’ve explored in ”The Market for Melons” (PDF), pay-per-use is not an evil plot by greedy robber barons, but a natural outcome of independent, rational consumer choice. Consider a town with an all-you-can-eat (flat rate) buffet and an a la carte (pay-per-use) restaurant. Smart shoppers on diets will save money by patronizing the a la carte restaurant, whereas heavy eaters will save money by visiting the buffet. As patrons switch, the average consumption of the buffet will increase, driving price increases for the luncheon special, causing even more users to switch to pay-per-use.

Bottom line: it is not the proprietors driving this dynamic, but the customers themselves acting out of pure, rational self-interest—light users, by deciding not to subsidize the heavy ones, foster the vitality of the pay-per-use model.

Unfortunately for Weinman, most American broadband customers don’t believe a word of this, and even he was forced to admit as much when he noted consumers “often prefer to overpay for flat-rate rather than save money but risk bill shock.”

Karl Bode at Broadband Reports wasn’t suckered for a moment either, noting:

[…]Cable industry lobbyists would like the public to believe that such a shift isn’t about making more money, it’s about helping the poor. Not only is the metered billing push absolutely about making money, it’s about artificially constricting the pipe to protect uncompetitive carriers and TV revenues from Internet video. But instead, there’s a very concerted effort afoot to portray this shift as necessary, inevitable, and even altruistic.

Most consumers prefer the simplicity of flat rate pricing, and understand that ISPs are perfectly profitable under the flat-rate pricing model. They also understand that this is a pipe dream forged by never-satisfied investors, and once implemented ends with ever soaring per gig fees and ever shrinking usage caps.

Weinman’s essay completely ignores the reality his preferred pricing model already delivers to those who live under it in Canada.  Canadian broadband rankings continue to decline as customers there pay higher prices for a lower level of service, with usage caps that actually decline when new competitive threats from online video emerge.

Just what the doctor ordered: HP's Rx for American Broadband

We had to take time out to respond directly to Weinman and his cheerleading friends (see the comments section), some who wrote comments below the piece and couldn’t be bothered to disclose they owe their day jobs to industry-backed dollar-a-holler groups that are committed to delivering on behalf of their provider benefactors:

When Big Telecom comes ringing with promises of savings from metered or capped broadband, hang up immediately.

These plans save almost nobody money and expose dramatic overlimit fees to consumers, creating the kind of bill shock wireless phone users endure.

The OPEC-like Internet price-fixing on offer from big players delivers broadband rationing and sky high prices, while retarding Internet innovations that providers don’t own or control.

Consumers are forced to double check their usage and think twice about everything they do online out of fear of being exposed to huge overlimit fees up to $10 a gigabyte for exceeding an arbitrary limit ranging from 5-250GB.

Americans already pay too much for Internet service and now the providers want more of your money. The rest of the world is moving AWAY from the pricing schemes Weinman would have us embrace. It’s such a serious issue in the South Pacific, the governments of Australia and New Zealand are working to address the problem themselves.

Providers are already earning BILLIONS in profits every quarter from their lucrative broadband businesses. Now the wallet biters are back for more, with the convenient side benefit that limiting consumption is a great way to prevent Internet-delivered TV from causing cord-cutting of cable TV packages.

As far as consumers are concerned, and Weinman admits as much, people are happy with today’s unlimited price models. When Big Telecom complains people are overpaying for broadband, wouldn’t their shareholders be telling them to shut up and take the money? There is more to this story.

Weinman defends the extortion proposition Big Telecom would visit on us: either give us limited use pricing or we’ll raise all of your prices.

But as consumers have already figured out, these providers never reduce prices for anyone. When was the last time your cable bill went down unless you dropped services?

Don’t be a sucker to Big Telecom’s “broadband shortage” or pricing myths. Broadband is not comparable to water, gas, or electric. The closest comparison (and the one they always leave out) is to telephone service, and as we’ve seen, that business is increasingly moving TOWARDS flat race, unlimited pricing.

Want to know what metered pricing does to the wallets of consumers? Just ask Time Warner Cable customers in Rochester, Greensboro, San Antonio, and Austin what they thought about the cable company’s “innovative” pricing experiment that tripled the price for the same level of broadband customers used to get for $50 a month. After the torches and pitchforks were raised over $150 a month broadband service, Time Warner backed down.

Either with or without metered pricing, the cable company raised its prices three times last year alone.

The industry’s meme that “usage-based pricing” in inevitable is only true if consumers allow it to happen.  The parade of Internet Overcharging advocates all share one thing in common — they earn a living from the providers that dream about these pricing schemes.  Always follow the money.  As we’ve exposed repeatedly, the vast majority of defenders of these kinds of pricing schemes are not consumers.  They are:

• The providers themselves;
• Wall Street banks, investors, and the business media catering to them;
• Non-profit groups receiving substantial contributions from providers;
• Industry-funded “think tanks” and research that can carry the industry’s public policy agenda, hoping the media that quotes them are too lazy to follow the money;
• Equipment and service vendors, unions, and other groups who depend on the business or jobs they get from providers.

If you are a Frontier DSL customer, your unlimited Internet service is at risk of being arbitrarily limited by a company that wants to cut costs and increase revenue… at your expense.

Suburban Sacramento residents deemed to be “using too much” Frontier Internet service are being told they have to ration their Internet usage or pay more — a lot more — for the same speed service.  Even worse, many customers are paying extra for a “Price Protection Agreement” from Frontier that protects Frontier’s profits while your Internet bill doubles.  That’s a price protection racket only the Sopranos could love.

Frontier’s own representatives are literally at a loss for words when told it’s easy to exceed their “5GB” limit just by web browsing and checking e-mail.  But they are even quieter when customers report Frontier’s own video website – my fitv, a “free online video service” heavily promoted by Frontier, is ultimately responsible for their looming $99.99 monthly Internet bill.

Frontier wants to get tough with some of their best customers.  As a result, many are exploring disconnecting service for a cable competitor.  The best way to fight these Internet Overcharging schemes is to make it clear to Frontier you will not submit to them.  The first step is to bring wider media attention to the issue.

Sacramento-Elk Grove Customers

• Contact the Sacramento Bee, the Elk Grove Citizen and other local newspapers and ask them to write a story about this;
• Contact KOVR-TV’s consumer reporter and ask him to do a story;
• Contact other stations and local call-in shows and draw attention to Frontier’s abuse of its customers;
• If you are on a “price protection agreement” contact the California Public Utilities Commission and file a complaint.

Points to consider raising:

• Frontier’s usage caps are easily broken using the company’s own video website, my fitv;
• What the company suggests most people will not exceed today is not reasonable tomorrow.  Besides, how much customers actually use is considered proprietary and we have to take their word on it;
• Customers on price protection agreements are being asked to pay more than double for the exact same quality of service they used to receive for less.  Where is the price protection?;
• Frontier is generous with their shareholders, paying outrageously high dividends out of step with their earnings, but are notoriously stingy with the customers that deliver them that revenue;
• Where’s the fire?  This is the same company that said it had more than enough capacity to take on millions of ex-Verizon broadband customers, but now suddenly can’t deliver the same level of service to existing customers in Elk Grove without doubling the monthly price?;
• Customers are being asked to pay $1 a gigabyte for a service that costs Frontier far less to actually provide;
• At a time when Frontier continues to lose landline customers, can they afford to alienate more, who take all of their business elsewhere?

Frontier alienating its own customers who pay for their landline and broadband DSL service does not sound like a winning business strategy.  Let Frontier know you will not do business with a company that abuses its big-spending customers.  Let them know in clear terms you will cancel all of your services if the company maintains its Internet Overcharging practices and you will encourage your friends and family to take their business elsewhere as well.

Netflix accounts for 20 percent of all broadband activity in the United States during prime time evening hours.  As expected, “Internet experts” that are really little more than paid lobbyists for the broadband industry have started to feed the media scare stories about the great Internet traffic crisis soon to befall the Internet.

Just a few years ago, it was peer-to-peer traffic responsible for Internet “brownouts,” but now Netflix offers an even better, more convenient scapegoat — especially for the broadband providers that compete with it.

Fortune magazine provides a handy dandy needle to pop the balloon of BS from the broadband industry bully boys:

Just for fun, try to guess the year in which the following warnings about the Internet’s impending meltdown were issued:

No. 1: “Over the coming six to 12 months, computer users around the planet are likely to experience the Internet equivalent of the Great Blackout, or at least frequent brownouts, as our information infrastructure staggers and struggles under the heavy onslaught of new users and new demands.”

No. 2: “Internet access infrastructure, specifically in North America, will likely cease to be adequate for supporting demand within the next three to five years.”

No. 3: “Will Netflix Destroy the Internet?  American broadband capacity might not be able to keep up.”

The answers: 1997, 2007 and this week—and that’s just a small sampling from the past 20 years. Such predictions of the Internet’s breakdown are always premised on  the arrival of a scary new device or application that will send lots of digital bits over the Net.  Back in 1995, when Internet sage Bob Metcalfe tried to explain why he foresaw “the Internet’s catastrophic collapse,” he cited a wave of new “Internet appliances,” in particular the dangerous Sony Playstation, which for the first time had Internet access!

[…]What the chicken littles often miss are the clever ways in which Netflix movies and other content get delivered.  Like most major companies that move lots of Internet traffic, Netflix contracts with companies whose job it is to deliver lots of bits, fast and cheap.  Netflix relies mainly on industry giant Akamai, which runs 77,000 servers with big hard drives that it has placed in every nook and cranny of the Internet.  When a college student downloads “Dexter Season 1” from Netflix there’s a good chance the show is already stored on campus on an Akamai box.

“That video is growing rapidly and going to be huge is true,”  says Akamai co-founder Tom Leighton. “But there’s tons of capacity out at the edges of the network….plenty of capacity in the last mile to your house.”  That capacity, he says, combined with smart delivery of Netflix content from nearby servers, means the Internet can handle Netflix just fine.  If all that traffic had to travel closer to the center of the Internet then many larger peering points would be overwhelmed, Leighton adds. (There’s reason to trust Leighton’s numbers on both counts: he’s also a professor of applied mathematics at MIT.)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KOCO Oklahoma City Netflix Crashing The Internet 11-4-10.flv[/flv]

Check out KOCO-TV Oklahoma City’s “Internet Panic” story, delivering the broadband industry’s talking points about Internet traffic jams in just 30 seconds.  (1 minute)