Telephone companies will lose up to half of their broadband market share if they insist on sticking with DSL technology to deliver Internet access, according to a new report from Credit Suisse analyst Stefan Anninger.

Anninger predicts DSL will increasingly be seen as the “dial-up” service of the 2010s, as demand for more broadband speed moves beyond what most phone companies are willing or able to provide.  Credit Suisse’s analysis says DSL accounts sold in the United States top out at an average speed of just 4Mbps, while consumers are increasingly seeking out service at speeds of at least 7Mbps.  The higher speeds are necessary to support high quality online video and the ability for multiple users in a household to share a connection without encountering speed slowdowns.

A lack of investment by landline providers to keep up with cable broadband speeds will prove costly to phone companies, according to Anninger. He believes a growing number of Americans understand cable and fiber-based broadband deliver the highest speeds, and consumers are increasingly dropping DSL for cable and fiber competitors.  Any investments now may be a case of “too little, too late,” especially if they only incrementally improve DSL speeds.

Anninger says providers may be able to offer up to 18Mbps in five years by deploying ADSL 2+ or VDSL technology, but by that time cable operators will be providing speeds up to 200Mbps, and many municipal providers will have gigabit speeds available.

The impact on phone company broadband market share will prove bleak for phone companies in all but the most rural areas, Anninger predicts.  He says by 2015, cable companies will have secured 56 percent of the market (up by 2 percent from today), phone companies will drop from 30 percent to just 15 percent, Verizon FiOS, AT&T U-verse, and wireless broadband will each control around 7 percent of the market, with the remainder split among municipal fiber, satellite, and other technologies.

Anninger is also pessimistic about wireless broadband being a wired broadband replacement in the next five years.

A Credit Suisse online survey of 1,000 consumers in August found that less than half would consider going wireless only.  The reasons?  It’s too slow, too expensive and most plans have Internet Overcharging schemes like usage caps and speed throttles.

Although cable companies are on track to be the big winners in broadband market share, still have one giant hurdle to overcome — a lousy image.  Just 36 percent of cable customers say they are “very satisfied” with their local provider.  More than 60% of FiOS and U-verse’s broadband customers said they are “very satisfied” with the services these advanced telephone company networks provide.  Consumer Reports has regularly awarded top honors to Verizon FiOS for the last several years.

Independent phone companies and smaller cable operators routinely score at the bottom, typically because they are relying on outdated technology to supply service.

This makes the marketplace ripe for disaffected consumers to jump to an alternative provider.  Unfortunately, as most Americans face a duopoly of the cable company they hate and the phone company that doesn’t deliver the services they want, there is no place for them to go.

Anninger also predicts the risk of broadband reform by reclassifying broadband under Title II at the Federal Communications Commission is now “minimal.”  That suggests Net Neutrality enforcement at the FCC is not a priority.  The Credit Suisse analyst says if action hasn’t been taken by winter or spring of next year, it’s a safe bet the Commission will never re-assert its authority.

"DVD's are so five years ago!"

Netflix, which has seen its Canadian streaming-only video service welcomed with usage cap reductions by Rogers Cable, has finally started to wake up to the threat its online video business model is one speed throttle or usage cap away from oblivion.

As the video rental company now contemplates launching a streaming-only version of its service in the United States, it has now firmly waded into the Net Neutrality debate.  In a filing earlier this month, Netflix impressed upon the Federal Communications Commission the importance of prohibiting providers from establishing blockades to keep its competing video service from threatening cable-TV revenue:

“The Commission must assure that specialized services do not, in effect, transform the public Internet into a private network in which access is not open but is controlled by the network operator, and innovative Internet-based enterprises are permitted effective access to their consumers only if the enterprises pay network operators unreasonable fees or are otherwise seen by such network operators as not threatening a competitive venture.”

Netflix online video packs a real wallop, as Americans embraces the service as a suitable and cheaper replacement for premium cable movie channels.

Sandvine, which pitches “network management” products to the broadband industry, reported Netflix now represents more than 20 percent of all downstream broadband traffic in the United States during peak usage times between 8-10pm.

The company’s financial results seem to affirm its growing impact as an online video entertainment player.  The Washington Post reports in the third quarter, Netflix saw a 52 percent gain in subscribers to 16.9 million. Revenue increased 31 percent to $553 million. But most interesting: 66 percent of subscribers watched more than 15 minutes of streaming video compared with 41 percent during the same period last year. The company predicted Wednesday that in the fourth quarter, a majority of Netflix subscribers would watch more content streamed from the Web on Netflix than on DVD.

That prompted CEO Reed Hastings to say Netflix should now be considered a streaming company that also offers DVD-by-mail service.

If providers launch Internet Overcharging schemes that limit broadband usage or throttle their competitors to barely usable speeds, that growth could come to an end quicker than the introduction of the next “unfair usage policy.”

Sandvine’s research confirmed something else.  As broadband speeds increase, so does usage.  In Asia where broadband speeds are dramatically higher than in the United States, Sandvine found median monthly data consumption is close to 12 gigabytes per household compared to 4 gigabytes in North America.  And Asians stay very close to their broadband connections, using them on average for almost 5.5 hours per day, compared to just three hours for North Americans.

When one considers the majority of broadband users are only starting to discover online video, those numbers are headed upwards… fast.

GCI delivers unlimited downloads of customers' money.

GCI spokesman David Morris either does not know what his own company does to abuse its customers or he openly lied about it in statements to the media:

GCI said it hasn’t yet charged anyone fees for exceeding the data limits (some customers dispute this), but the company began contacting its heaviest data users this summer to move them to new, limited plans. The company is also upgrading Internet speed for its customers this year at no extra cost.

GCI said it hasn’t decided when to enforce the data limits on everyone else. The crackdown might not happen until next year, according to Morris.

Apparently Morris is living in a time warp, because “next year” is this year.

After our article earlier this morning, Stop the Cap! started receiving e-mail from angry GCI customers with bills showing outrageous overlimit fees running into the hundreds of dollars GCI claims they are not charging.

Our reader Steve in Alaska sums it up:

“GCI is a bad actor that abuses its customers with bait and switch broadband, baiting customers with expensive unlimited bundled plans and then switching them to limited plans with unjustified fees,” he writes. “A legal investigation exploring whether this company is violating consumer protection laws is required, especially after misrepresenting the nature of these overcharges in the Alaskan media through its spokesman.”

GCI is apparently iterating the credit card industry’s tricks and traps.

Our reader Scott’s latest broadband bill shows just how abusive GCI pricing can get:

GCI: the Grinch That Stole the Internet (click to enlarge)

Scott was floored by GCI’s Festival of Overcharging, which turned a $55 a month bill for broadband into nearly $200.  It exemplifies everything we’ve warned about over the past two years with these pricing schemes:

Well it finally happened, I got hit with GCI internet bill shock, $196.58 total for my 8Mbps plan with 25GB usage.

My usage prior to this has always been around 15-20GB/mo according to them — just the usual web surfing/e-mail with a little online gaming over the weekends (Eve Online) but not much.

Something ratcheted up my usage to nearly twice that (I did buy one game off Steam for digital delivery), which still would have been perfectly reasonable given the $75.00/mo plan I chose — that’s double what most people pay for unlimited in the lower 48 states. I only moved to this plan because their $135/mo bundle plan wasn’t affordable due to the required overpriced digital phone + taxes.

I tried calling their customer service and just got the company line about how expensive it was to provide their service, and I must have an open Wi-Fi router or “downloaded” too many YouTube videos, iTunes, or other content. He also stressed five or six times lots of customers go over their limits thanks to Netflix streaming and you really can’t use it with GCI Internet service.

To date I’ve never gotten a straight story from them on how this is managed, or from their marketing material which never mentioned overage until recently, or their reps that used to say you’d get a phone call to warn you if you went over their limits. The rep I spoke to most recently claims you’re supposed to call them daily or every other day – or login to a special portal online to monitor usage.

Either way this company has no sense of customer service, nor does it operate in the interest of Alaskan consumers that are cut off from the lower 48 and need reliable and affordable Internet services.

Stop the Cap! recommends making a copy of David Morris’ comments and notifying GCI you are not paying their overage fees because they are “obviously in error,” at least according to the company’s own spokesman.  Then get on the line with the State of Alaska’s Consumer Protection Unit and the Better Business Bureau and demand your overlimit fees be credited or refunded.  We’ve even got the complaint form started for you.  GCI values its A+ Better Business Bureau rating, so chances are very good they’ll take care of you to satisfactorily close the complaint.

GCI’s claims that with Internet usage limits, the company can deliver its customers faster speeds.  But Stop the Cap! argues those speeds are ultimately useless when GCI allows you to use as little as 3 percent of your service before those overlimit fees kick in.

A Broadband Reports reader ran the numbers before speed upgrades made them even worse:

Rhode Island politicians and some local television stations are celebrating a $21.7-million federal stimulus grant awarded to a non-profit consortium of educational, governmental and health-care organizations to construct a new fiber optic network that some claim will help “improve broadband service” for Rhode Island residents.

Unfortunately for residents of the Ocean State, the proposed network of 339 miles of fiber cable represents an example of “look, but don’t touch.”

The OSHEAN (pronounced ‘Ocean’) project is yet another example of an institutional network that is strictly off-limits to residential homeowners, unless they happen to use the service at an area school or library.

But politicians who appear at announcement ceremonies to celebrate stimulus awards, and the media that covers them, far too often sell the benefits of such projects to residents who can’t ultimately use the service their tax dollars are helping to fund.

Many parts of Rhode Island already receive access to fiber service from Verizon FiOS, which represents another reason to keep consumers out.

“Verizon would object strenuously if this stimulus grant allowed OSHEAN’s network to be available to anyone who wants access,” writes our reader Mike who lives in Providence.  “So to keep Verizon and other providers quiet, the network promises not to directly wire any residence or individual business who wants access.”

Instead, the network will predominately benefit Brown University, the City of Providence, Lifespan hospitals, the Rhode Island Division of Information Technology, the University of Rhode Island and the U.S. Naval War College.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WPRI Providence Providence RI to get statewide fiber optic network 10-17-10.flv[/flv]

Here is WPRI-TV in Providence misleading viewers about the benefits of a broadband stimulus award, suggesting it will somehow improve residents’ Internet service.  (1 minute)

A controversial proposition on the ballot to extend a 1970 telecommunications tax to cell phones and “digital phone” service that largely did not exist when the tax was originally enacted has created a war of words between Chula Vista, Calif., mayor Cheryl Cox and the cable company that bears her last name (but no relation) — Cox Cable.

The proposed tax extension would broaden the types of telecommunications services that are subject to it, including Cox Cable’s “digital phone” service and broadband.  Cox officials appeared at city council meetings to oppose the tax, saying it would result in higher bills for customers.

But when Cox went on the air with “informational ads” the mayor accused of undermining support for Proposition H, Cox and the cable company started trading barbs in the local media.

Now the controversy has drawn the attention of San Diego’s local ABC affiliate.  On Monday, Mayor Cox accused Cox Cable of punishing the city by withdrawing free Internet access at the end of the year for City Hall, public libraries, and public safety agencies including the fire and police departments.

Mayor Cox called the timing of Cox’s announcement suspicious, coming the same day she did an interview complaining about Cox on San Diego’s KGTV-TV.

Under the terms of Cox’s franchise agreement with the city, Chula Vista was supposed to receive free Internet service through 2019, but now the cable company is reneging on the deal, a charge Cox Cable vigorously disputes.

Mayor Cox

With Chula Vista’s current budget crisis, the cash-strapped city is weighing the $30,000 a year it will cost to obtain the service at Cox Cable’s business rates, which could cause the city’s 1,012 computers, most available to the public, to lose access Jan. 1st.  Mayor Cox is also concerned the police department will lose its own connection, which it uses to communicate with other police departments and the Department of Justice.

The tax at the center of the debate, known as the City’s Utility Users’ Tax or U.U.T., amounts to 5 percent and is charged primarily to landline telephone customers.  Because of the way the tax ordinance was worded in 1970, technology changes that have taken place since have allowed more residents to escape paying the tax by switching to cell phone service or “digital phone” Voice Over IP service offered by Cox Cable or other broadband providers.

As a result, potential revenue earned from the tax has dropped over the years, especially as residents disconnect landline service.  With Chula Vista facing a $4 million deficit in the city budget, city officials are looking for new revenue sources.

Proposition “H,” before local voters Nov. 2nd, would keep the rate at 5 percent, but extend the tax to other telecommunications services, including:

• Wireless communications
• Text Messaging
• Prepaid/Postpaid telecommunications
• Private communication services
• Paging
• VoIP
• Toll free numbers

“Proposition H is all about continuing to fund the services we all benefit from: maintaining streets and parks, keeping libraries open, and the police protection and fire services that keep us safe,” Mayor Cheryl Cox wrote in a recent guest editorial in the San Diego Union-Tribune.

City officials are warning that without the estimated $5.6 million in estimated revenue from the tax, the city will have to cut services to cover the budget shortfall or raise other taxes.

Like many cash-strapped communities and states who have watched tax receipts plummet from dramatically lower property tax collections and increases in funding mandates, Chula Vista is trying a combination of budget cuts and tax increases to cover the difference.  But local voters are in no mood for tax increases, and last year rejected a proposal to raise the area’s sales tax by one percent.

Judging from the well-organized opposition campaign, local voters may be on track to disappoint the city a second time.

Mayor Cox’s editorial advocating approval of the tax extension even met resistance from the newspaper it was printed in:

But business and taxpayer organizations question that claim and contend the long-term tax hike could be much bigger than 5 percent as new communications devices come to the fore. They argue Chula Vista hasn’t done enough to shore up its finances long-term to deserve voter support of a tax increase.

On balance, we agree. While city leaders have overseen some $40 million in budget cuts and eliminated 259 jobs, they mostly have been AWOL on one of the most crucial issues in modern government finance: the extreme cost of public employee pensions.

[…]This framing of the debate is not fair to Chula Vista taxpayers who now cover the entire cost of pensions that allow city firefighters and police officers to retire at age 50 with 90 percent of their final annual pay and general employees to retire at age 60 with 90 percent of annual pay.

These policies must be recognized as unsustainable and then be drastically changed. Only when that happens will Chula Vista’s leaders have the credibility to ask voters to raise their own taxes.

Vote no on Proposition H.

The San Diego South Chamber of Commerce ridiculed the tax as a “dash for cash” and many area small business associations are also opposed.

While the debate rages, the mayor’s office accused Cox Cable of being too cute by half by pretending to be a “neutral” party.  The cable company claimed its ads were “informational” and did not take a position either for or against the proposition.

But KGTV notes the ad only mentions groups opposed to the tax — no supporters, and ends with the tagline, “Proposition H: It’s not what it seems.”

An expenditure report obtained by 10News shows Cox Communications spent more than $2,400 on the Proposition “H” ad and additional literature. The report also lists money going towards Proposition H opposition. A Cox spokesman said they wanted to choose “neutral” but had to chose between “support” and “opposed” on the filing.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Chula Vista Debate 10-20-10.flv[/flv]

Three reports from KGTV-TV San Diego trace the dispute over the tax over the last few months.  Also included is a portion of a video from a taxpayer’s group opposed to the telecom tax.  (13 minutes)