"We're going to need another roll."

Astroturf: One of the underhanded tactics increasingly being used by telecom companies is “Astroturf lobbying” – creating front groups that try to mimic true grassroots, but that are all about corporate money, not citizen power. Astroturf lobbying is hardly a new approach. Senator Lloyd Bentsen is credited with coining the term in the 1980s to describe corporations’ big-money efforts to put fake grassroots pressure on Congress. Astroturf campaigns generally claim to represent huge numbers of citizens, but in reality their public support is minimal or nonexistent. — Common Cause’s Wolves in Sheep’s Clothing Part II: More Telecom Industry Front Groups and Astroturf.”

The telecommunications industry has gone all out with a new super-sized front group claiming to “work to bring the Internet to everyone.”  The so-called Broadband for America (BfA) Coalition launched a new website, Broadband for America, which is completely infested with industry players and groups they call “independent consumer advocacy groups,” but are in reality mostly astroturfers themselves.  More than 100 corporate providers and special interest front groups make up the BfA, which they brazenly claim “represent the hundreds of millions of Americans who are literally connected through broadband.”

Of course, what is missing from this mess are the hundreds of millions of actual American consumers.  They aren’t on the list.  Also missing after checking more than 100 BfA member websites is any press push to notify their members they are now a part of this group.  In fact, none of the so-called public interest websites seemed at all interested in promoting their new found friends.

The BfA wants you to think the industry party list is a strength, not a weakness:

The range of members of BfA is evidence of the importance which is being placed on the issues of broadband availability and broadband adoption. It is also evidence of BfA’s commitment to being a full participant on behalf of all stakeholders to provide a central clearinghouse for the latest thinking, the most advanced assessments, and the widest variety of views and opinions on the future of broadband in America.

That’s a word salad that can be condensed down considerably to: The Mother of All Astroturf Front Groups.

A comprehensive guide to the members of the BfA can be found below.  It was developed from extensive research into the background and financing of many of these groups, as well as their membership in classic astroturf groups that are run against consumer interests.

When The National Cable & Telecommunications Association is on your member list, along with giant providers like AT&T and Verizon, you know we’re far, far away from defining this group as “pro-consumer.”

Over the last week pouring across websites and independent documentation, I encountered a few particularly brazen astroturf groups and the individuals that run them whose names kept coming up time and time again.

One of the more interesting groups that caught my eye was the Child Safety Task Force.  What could be wrong with a group like that?  Who could possibly ever find fault with a group that sounds like they are dedicated to unyielding protection of our children.

But when one visits their website, some cautionary lights begin to flash when you read their Mission Statement (italics mine):

“The Child Safety Task Force believes that legislation and regulatory decisions concerning children’s safety measures should be grounded in principles of good-governance and sound science.”

Perhaps I have been doing this too long, but the portions in italics sound suspicious.  A child safety group whose primary task is involvement in public policy.  Uh oh.  That smells like lobbyist.  The enigmatic “good-governance and sound science” sounds like code words for pro-industry protections from consumer groups.

Indeed, group president Robert K. Johnson is the Zelig of astroturfers.  He’s everywhere.  He was president of the now-defunct Consumers for Cable Choice, a front group for AT&T and other providers advocating for telco TV and strident opposition to Net Neutrality.  Amusingly, Johnson’s group broadened its focus by dropping the word “cable” from its title and renaming themselves Consumers for Competitive Choice (C4CC).  New name, same old notorious astroturfing.

Johnson’s idea of “child safety” is to poo-pooh the risk of phthalates in children’s toys.  I haven’t found too many consumer groups adopting that kind of pro-plastics industry position.  Johnson testified under the C4CC moniker before the House of Delegates, Maryland General Assembly with this in his opening statement:

“A case in point is the effort by some states to include phthalates in legislation limiting the amount of lead and other proven carcinogens in children’s’ toys. The effort is misplaced and ultimately detrimental to consumers.”

Apparently not satisfied that C4CC was pro-child safety-sounding enough, Johnson’s Child Safety Task Force & C4CC have linked to one another as resources without clearly disclosing their common ties.

Johnson also founded Consumers’ Voice, which Verizon trashed in 2002: “Consumers’ Voice . . . should really be named `AT&T’s Voice.’ At a recent National Conference of State Legislatures meeting, a representative from this group admitted that it is entirely supported by AT&T. Moreover, Consumers’ Voice has no state chapters or affiliates. Johnson actually is an AT&T hired gun.” – William R. Roberts, president, Verizon Maryland, Inc., (Cumberland Times-News, August 22, 2002.) Another BfA member, Consumers First (California), could easily be confused with the former, but no matter, it receives funding from AT&T (and Verizon) too, and belonged to Johnson’s now defunct Consumers for Cable Competition.

Another astroturfer paradise comes courtesy of the LawMedia Group (LMG), a secretive Washington DC public affairs firm. The firm’s website says it “unites the worlds of law, communications, strategic counseling and crisis management into seamless campaigns for Fortune 100 companies, trade associations, start-ups and non-profits.”  Ads for LMG describe its services as including “government relations” (lobbying), “grassroots lobbying,” “issue/initiative/petition management,” “media production” and “opposition research.”

LMG has a nasty habit of ghostwriting op-ed pieces on behalf of third parties, occasionally without their knowledge, and send them in for publication as supposedly written by those individuals.  Last summer, LMG submitted a column it wrote on behalf of Mel King, a Boston-area community organizer and staunch Net Neutrality advocate that turned out to oppose Net Neutrality.  King admitted that LMG was involved and refused to say whether “he was paid for the use of his name,” reported CNET News.

LMG reportedly has two major clients of interest to our readers – Comcast, the nation’s largest cable operator and Microsoft.  The former is looking for cable and broadband industry-friendly advocacy (opposition to Net Neutrality, favoring government “hands off” policies governing cable operators and broadband) and the latter has particularly been interested in Google bashing, especially surrounding a Yahoo-Google advertising deal.

One of LMG’s specialties is reportedly to co-opt groups that most would assume would have no direct interest in the issues its clients hire the PR firm to promote.  Yet suddenly these non-aligned groups  spring forth with amazingly detailed, uniform advocacy for LMG’s clients’ positions in the media, to members of Congress, and even in submitted comments to regulatory agencies.

Would you find it curious that in 2008 The American Corn Growers Association would suddenly find the need to rush a letter to the Justice Department urging them to launch an investigation into Google’s ‘search monopoly?’  Apparently the harvest was finished and they had free time on their hands.  But they only started the trend, because similar letters on the letterheads of the League of Rural Voters and the Latinos in Information Science & Technology Association also followed.  The latter just happens to also turn up as a member of the BfA.

That’s no coincidence.  BfA member Intertribal Agriculture Council, which is supposed to advocate for the wise stewardship of Native-American lands for the benefit of its people, suddenly decided to throw its two cents into last year’s Sirius-XM Radio merger debate, publicly endorsing the deal and urging the FCC to approve it. That was also an action item on the LMG priority list, according to Sourcewatch. They were joined by several other groups that common sense would suggest wouldn’t spend five minutes pondering this transaction.  Among them include (again) the League of Rural Voters and the Latinos in Information Science & Technology Association.  Some other BfA members also chimed in: the National Black Chamber of Commerce, The Latino Coalition, and the American Association of People With Disabilities.

The Latino Coalition left a lot of heads scratching in 2007 when it advocated against bans on exclusive cable providers in rental properties.  Consumers moved into apartment buildings and found they had to take whatever the landlord made available — no satellite TV or competing providers allowed.  Consumer groups howled demanding these exclusive agreements be banished to give consumers choices for subscription television.  The Latino Coalition told the Los Angeles Times that was a bad idea, and anti-consumer.

The Latino Coalition, a nonprofit advocacy group, warned the FCC that prohibiting exclusive contracts could leave minority and low-income residents with higher bills or no service at all.

“The advantages of these exclusive contracts are important selling points for apartment buildings in urban neighborhoods where residents wouldn’t otherwise have the ability to negotiate the best price for cable TV or broadband services,” Latino Coalition President Robert G. de Posada wrote to the FCC.

It comes as no surprise de Posada also opposed Net Neutrality.  He criticized the concept passionately, telling EbonyJet magazine in 2007 it represented “over regulation of the Internet.”  Net Neutrality would, according to de Posada, “stifle rather than facilitate entrepreneurism.”

Among the Coalition’s corporate partners: AT&T and Verizon.  The former’s logo appears at the bottom corner of the The Latino Coalition home page.

Apparently astroturf coordinators like to use some of the same groups for different issues.  This past May, the Intertribal Agricultural Council had a new-found common cause with, of all things, small-jet operators opposed to a proposal to shift some of the airline carriers’ federal tax burden onto small jet aviators.  Jets fly over farmland, and some might even cross over reservations, so I guess that’s a legitimate priority item for a Native American group like IAC, right?

The IAC joined forces with The Alliance for Aviation Across America (AAAA), a group run by LMG according to Sourcewatch.  But they were not alone.  Two more BfA members coincidentally also turn up as improbable members of the AAAA: the National Grange of the Order of Patrons of Husbandry and U.S. Cattlemen’s Association.

Astroturf Warehouse Club: We lie in bulk and pass the BS on to you!

The practice of bringing non-aligned groups into public policy debates, particularly those involving minorities, can be a public relations miracle worker, especially for lobbying projects that don’t exactly look consumer friendly.  Often, minority public interest group involvement is highlighted by lobbyists appealing to public officials who can make or break a merger deal or vote up or down on regulatory matters.  If Native Americans, Latinos, African Americans, and the disabled are against Net Neutrality or for Internet Overcharging schemes, maybe there is something elected officials are missing.

In reality, all they frequently miss is the public relations lobbying machine in Washington that runs the show.  Even worse is when legitimate consumer voices are crowded out because all of the chairs set out for real consumers are occupied by astroturf groups pretending to represent consumer interests.

One group, the National Caucus and Center on Black Aged, was another oddity in the Broadband for America member roster, until one started taking a closer look at who serves on the group’s Board of Directors.  The connection to Verizon was immediately obvious.  B. Keith Fulton, a Board member, is also President of Verizon West Virginia.  Fulton joined Verizon in 2004 as vice president of strategic alliances and corporate responsibility, where he led a Washington, D.C.-based team that worked with more than 100 national organizations on communications related public policy issues.

But the connections with big telecom didn’t stop there.  Jarvis C. Stewart, chairman, is also Managing Partner at Stewart Partners LLC, a Washington, DC Public Relations firm.  A 2006 press release admits a further connection: “Stewart Partners currently manages the federal legislative and public affairs agendas of global industry titans such as […] Verizon.”

Muckety, which graphically illustrates public/private connections shows yet more involvement, this time with William Clyburn, Jr., who also serves on the group’s Board. It maps links between Clyburn and the U.S. Telecom Association and AT&T through Clyburn Consulting.

Clyburn Consulting’s website states:

“At Clyburn Consulting, we guide telecommunications stakeholders through the federal legislative process.  We provide strategic analyses of the technical aspects as well as the political implications of telecommunications policy debates.  The impending updates to our telecommunications laws will have a major impact for years to come on how we process voice, video, and data.  Clyburn Consulting is at the forefront of shaping the future of telecommunications. Clyburn Consulting has been instrumental in persuading Members of Congress to support major legislation for a Fortune 500 telecommunications firm (guess who? –PD).  William Clyburn is integrally involved in garnering support by not only providing access to Congressional offices for the client, but also by substantively engaging senior staff on the technical issues.”

On June 8, 2009, the National Caucus and Center on Black Aged wrote the FCC about the national broadband strategy.  Without disclosing any connections to the telecommunications industry, the group advocated:

Unfortunately too many seniors are not aware of these critical, and often life-saving, benefits. In order for more seniors to see the importance of having broadband, barriers must remain low for adoption. Only 15% of seniors cite price as the reason why they have not brought broadband into their homes. Currently, private sector network providers are investing billions of dollars to build out and maintain broadband infrastructure. This investment has enabled affordable prices. If the FCC’s broadband plan does not maintain incentives for the private sector to continue to invest, consumers will see fewer options and possibly higher prices.

We hope that the FCC will provide for continued investment on the part of private sector participants while working to bring broadband to every household in the country. Our nation’s African American seniors have so much to gain from broadband and they deserve to experience its benefits.

When some of these groups testify in hearings or submit written comments “representing consumer interests” when they are in fact acting like sock puppets backed with industry money, too many legislators may be persuaded to support an industry position thinking it’s what consumers really want.

Therefore, it’s important to provide additional disclosure about the groups, companies, and organizations that attempt to claim to speak on your behalf, the consumer broadband user.

This comprehensive breakdown of the members of BfA is by no means absolutely complete.  It is based on a week’s worth of research into the groups and their ties.  As much as possible, links are provided to back up assertions made.  Some groups may have discontinued their support of individual astroturf campaigns that have since expired, but considering the fact most of them are coming back for a repeat performance, past is prologue.

Feel free to build on this work in our Comment section.  We’ll use additional information as part of an effort to construct a resource database for consumers and others at risk of being hoodwinked by the astroturf bonanza that is Broadband for America.  Don’t bother exposing them on their own site’s community forum; it has some seriously draconian rules for user participation:

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Be sure to check out our complete rundown on the members of Broadband for America.  It’s in part two of this Astroturf Special!

[Update: 5:13pm Friday: I hoped to have this up Thursday night, but wanted to add additional links to the article to be certain people can verify the information contained within it.  It’s on a final proofread right now and will be posted within the next two hours.]

Over the past week, I have been involved in some in-depth research on a matter that concerns me greatly — the special interest astroturfing problem.  An article that normally would have taken less than a day to write has now run close to a week, just because under every rock there is yet another special interest group, telecommunications company, or hired gun lobbyist working for what should be legitimate public interest groups.  What is even more disturbing is the apparent influence some of these groups, with yet undisclosed telecommunications company connections, have on public broadband policy, because government agencies and our elected officials do not realize they are taking input from industry-connected front groups.

The stage is being set once again this year for a public debate on issues like the National Broadband Plan, Net Neutrality, and our own battle against Internet Overcharging schemes.  Before this battle goes too far, some of the opponents working against consumer interests need to be revealed.  Therefore, a very lengthy special report is forthcoming shortly that will be required reading for any visitor to this site, so you fully comprehend what is taking place, and are well prepared to engage these groups.  We’ve already tangled with some of the astroturf groups who’ve debated us, and we’ve done so successfully.  Soon, there will be many more.  When fighting for an honest National Broadband Plan, Net Neutrality, and no Internet Overcharging schemes, this is your chance to call out the cozy little astroturfing game that has been used successfully in the past to fool legislators into believing they are doing the right thing by us, actual consumers.

I hope to wrap up work on the piece by later tonight, assuming I don’t encounter even more entanglements along the way.  This is why coverage this week has been more sparse than usual.  Hopefully after publication, you will understand why.

Phillip “Doesn’t Derive a Paycheck From Writing This” Dampier

I see it took all of five minutes for George Ou and his friends at Digital Society to be swayed by the tunnel vision myopia of last week’s latest effort to justify Internet Overcharging schemes.

Until recently, I’ve always rationalized my distain for smaller usage caps by ignoring the fact that I’m being subsidized by the majority of broadband consumers.  However, a new study from Robert Shapiro and Kevin Hassett at Georgetown University is forcing me to reexamine my personal bias against usage caps.

There’s a shock, especially after telling your readers caps “were needed.”

As I predicted, our astroturfing and industry friends would have a field day over this narrowly focused report that demands readers consider their data, their defined problem, and their single proposed solution.  The real world is, of course, slightly more complicated.

I used to debate some of my economist friends on why I thought metered pricing or more restrictive usage caps were a bad idea, but I couldn’t honestly say that my opinion was entirely objective.  My dislike for usage caps stems from the fact that I am a heavy broadband user and an uncapped broadband service is very beneficial to me since everyone else pays a little more so that I can pay a lot less on my broadband service.  But beyond self interest, I can’t make a good argument why the majority of broadband users who don’t need to transfer a lot of data should subsidize my Internet requirements.

Your opinion is still not entirely objective, George.  Your employer has industry connections.

Our readers, many of whom are hardly the usage piggies the industry would define anyone who opposes these overcharging schemes, all agree whether it’s 5GB or 150GB per month, they do not want to watch an Internet “gas gauge” or lose their option of flat rate broadband pricing that has worked successfully for this industry for more than a decade.  George and his friends assume this is an “us vs. them” argument — big broadband users want little broadband users to subsidize their service.

That’s assuming facts not in evidence.

What is in evidence are studies and surveys which show that consumers overwhelmingly do not want meters, caps, usage tiers, or other such restrictions on their service.  They recognize that a provider who claims to want to “fairly charge” people for service always means “everyone pays more, some much more than others.”  To set the table for this “fairness,” they’ve hired Washington PR firms to pretend to advocate for consumers and hide their industry connections.  Nothing suspicious about that, right?

Although George can’t make a good argument opposing usage caps, that doesn’t mean there aren’t any.  Among the many reasons to oppose caps:

• Innovation: Jobs and economic growth come from the online economy.  New services created today by U.S. companies, popular here and abroad, would be stifled from punitive usage caps and consumption billing.  Even the broadband industry, now in a clamor to provide their own online video services, sees value from the high bandwidth applications that would have never existed in a capped broadband universe, and they are the ones complaining the loudest about congested networks.
• Consumer Wishes: Consumers overwhelmingly enjoy their flat rate broadband service, and are willing to pay today’s pricing to keep it.  The loyalty for broadband is much greater than for providers’ other product lines – television and telephone.  That says something important — don’t ruin a good thing.
• The Fantasy of Savings: As already happened across several Time Warner Cable communities subjected to “experimentation,” the original proposals for lower consumption tier pricing offered zero savings to consumers who could already acquire flat rate “lite” service for the same or even lower prices.  Even when tiers and usage allowances were adjusted after being called out on this point, consumer outrage continued once consumers realized they’d pay three times more for the same broadband service they had before the experiment, with absolutely no improvement in service.  Comcast and other smaller providers already have usage caps and limits.  Pricing did not decline.  Many combine a usage allowance -and- lower speed for “economy” tiers, negating the argument that lower pricing would be achieved with fast speeds -and- a usage allowance.
• Justifying Caps Based on Flawed Analysis: The report’s authors only assume customer adoption at standard service pricing, completely ignoring the already-available “economy” tier services now available at slower speeds.
• Speed Based Tiers vs. Consumption Based Tiers: Consumers advocate for speed-based tiering, already familiar to them and widely accepted.  New premium speed tiers of service can and do already generate significant revenue for those who offer them, providing the resources for network expansion providers claim they need.
• Current Profits & Self Interested Motives: Broadband continues to be a massively profitable business for providers, earning billions in profits every year.  Now, even as some of those providers reduce investments in their own networks, they claim a need to throw away the existing flat rate business model.  Instead, they want paltry usage allowances and overlimit penalties that would reduce demand on their networks.  That conveniently also reduces online video traffic, of particular concern to cable television companies.
• Competition & Pricing: A monopoly or duopoly exists for most Americans, limiting competition and the opportunity for price savings.  Assuming that providers would reduce pricing for capped service has not been the result in Canada, where this kind of business model already exists.  Indeed, prices increased for broadband, usage allowances have actually dropped among some major providers like Bell, and speed throttles have been introduced both in the retail and wholesale markets.

More recently, building our colocation server for Digital Society has made me realize that usage caps not only has the potential to lower prices, but it can also facilitate higher bandwidth performance.  Case in point, Digital Society pays $50 per month for colocation service with a 100 Mbps Internet circuit, and at least $20 of that is for rack space and electricity.  How is it possible that we can get 100 Mbps of bandwidth for ~$30 when 100 Mbps of dedicated Internet bandwidth in colocation facilities normally costs $1000?  The answer lies in usage caps, which cap us to 1000 GBs of file transfer per month which means we can only average 3 Mbps.

One thousand gigabytes for $30 a month.  If providers were providing that kind of allowance, many consumers would consider this a non-issue.  But of course they are not.  Frontier Communications charges more than that for DSL service with a 5GB per month allowance in their Acceptable Use Policy (not currently enforced.)  Time Warner Cable advocated 40GB per month for $40-50 a month.  Comcast charges around $40-45 a month for up to 250GB.  Not one of these providers lowered their prices in return for this cap.  They simply sought to limit customer usage, with overlimit fees and penalties to be determined later.

Of course, web hosting is also an intensively competitive business.  There are hundreds of choices for web hosting.  There are also different levels of service, from shared web hosting to dedicated servers.  That is where the disparity of pricing is most evident, not in the “usage cap” (which is routinely more of a footnote and designed to keep Bit Torrent and high bandwidth file transfer services off their network). There is an enormous difference in pricing between a shared server environment with a 1000GB usage cap and a dedicated rack mount server located in a local facility with 24 hour security, monitoring, and redundancy/backup services, even with the same usage cap.

So the irony of a regulation intended to “protect” the little guy from “unfair usage caps” would actually force our small organization onto the permanent slow lane.

Actually, the Massa bill has no impact on web hosting usage caps whatsoever.  George’s provider friends would be his biggest risk — the ones that would “sell” insurance to his organization is he wanted assurance that his traffic would not be throttled by consumer ISPs.  I’d be happy to recommend other hosting providers for George if he felt trapped on a “slow lane.”  That’s because there is actual competition in web hosting providers.  If the one or two broadband providers serving most Americans had their way, it would be consumers stuck on a permanent slow lane with throttled service, not organizations like his.

So, who is in agreement with George on this question?  None of his readers, as his latest article carries no reader responses.  But fellow industry-connected astroturfers and providers themselves share their love:

• “This is the story that ISP’s have failed to tell effectively — that consumption-based billing may, in fact, be fairer for consumers.” — Michael Willner, CEO Insight Communications
• “Ars Technica reports on an interesting theory being floated by former Clinton economic advisor Robert J. Shapiro and Federal Reserve economist Kevin A. Hassett” — Brad, astroturfer Internet Innovation Alliance
• “The only way … is to introduce some form of equitable pay-as-you-use pricing.  And I could not agree more.” — Ulf Wolf, Digital Communities Blogs (sponsored by AT&T, Qwest, etc.)

PC Magazine reported even Robert Shapiro, one of the report’s authors, is not advocating for usage caps:

“We’re not talking about a bandwidth cap,” Shapiro said during a call with reporters. “We were looking simply at the different pricing models and their impact on the projections of broadband uptake based on these income sensitivities.”

The report does not specify how ISPs should implement pricing, Shapiro said. “The most important thing to me as an economist is the flexibility – that is, Internet Providers can better determine than I can the particular model that works best.”

That’s not the message astroturfers are taking forward, as they try and sell this as “pro-consumer.”

There was quite a buzz this week over a story in The Business Insider reporting that Hulu reaches more viewers than Time Warner Cable (the nation’s second largest cable operator) has subscribers.  They found 38 million Americans watched Hulu and just 34 million Americans are Time Warner customers.

It’s interesting trivia, but really doesn’t mean all that much… yet.  In fact, Comcast, the nation’s largest cable operator has 62 million subscribers, so Hulu has a long way to go to beat Comcast, not to mention websites like Google Video and YouTube, which have more than 120 million combined viewers.

More importantly, Time Warner Cable has no trouble monetizing its business, as any cable subscriber knows when that ever-increasing bill arrives every month.  The same cannot be said for Hulu, which originally depended on an advertising model to sustain itself, at the same time the domestic online advertising marketplace imploded with the near-economic collapse last fall.  If television networks and newspapers can’t sell their ad inventories, the online advertising market, still a novelty for many advertisers, is in even worse shape.

Time Warner Cable is not losing any sleep over Hulu at the moment, and if they do become a nuisance, that consumption billing concept (or hard usage cap) is always an option to deter people from watching too much.

Broadband providers who pass along video content to their customers, without any ownership interest in those videos, are stuck in the position of owning “dumb pipes.”  In the month of July alone, comScore estimated that more than 21.4 billion videos were viewed on American-owned video websites.  Those videos ranged from the five minute karaoke performance from the guy in Des Moines who posted his performance to YouTube, to hour long dramas watched on a network TV website.

What people didn’t watch were all of the most popular shows from cable networks.  Dedicated viewers who needed to watch the entire second season of A&E’s Crime 360 show had to head to Usenet newsgroups or Bit Torrent websites to ferret out someone’s personal recording collection uploaded to share.  A&E only streams one episode from the second season at a time.

That explains why the cable industry is in a hurry to test their TV Everywhere project.  Cable and other pay-television customers will discover a lot more videos hosted on cable network websites suddenly “authenticating” their subscription status, and locking out those who don’t have a subscription (or offering teaser videos or a much more limited menu of viewing choices).

The upsides for TV Everywhere include pleasing existing pay television subscribers with more online videos.  They also get to sell advertising to accompany these on demand videos.  Those cable network websites may also have ads on them and can also promote their other programming.  Perhaps even more importantly, the industry will have a new tool in their subscriber retention arsenal — the ability to delicately remind subscribers wavering over whether to continue their cable TV package that they can forget about replacing it with watching shows online for free. Owning or controlling the content (and the distribution network) is always better than simply being used to transport someone else’s content.  You can’t giveth and taketh away content you don’t own — you can just make it prohibitively expensive to watch with Internet Overcharging schemes.

The downside, at least in their eyes, is the amount of bandwidth these videos will occupy on their existing distribution platforms.  In 2008, the “big threat” that demanded usage caps and/or consumption billing came from Bit Torrent.  In 2009, it’s online video.

Of course, two of the nation’s largest providers that have “appreciated” consumption billing and usage caps — Comcast and Time Warner Cable — are also enthusiastic founding partners of TV Everywhere.  That presents a problem.  A video platform like TV Everywhere, which may one day usurp Google’s dominance in online videos, is being run by the same people trying to convince Americans of broadband capacity problems and the need to cap usage or switch to consumption billing schemes.  TV Everywhere effectively takes the wind out of that argument because, as any consumer will ask, if your platform is too congested to handle online video, why in the world would you seek to make the “problem” much worse?

That’s a rhetorical problem astroturf groups are being hired to explain away.  They apparently couldn’t sell it to consumers during focus group testing, so now they’ll try the sock puppets instead.

Another day, another angle on Internet Overcharging, this time from the team of Dr. Kevin A. Hassett & Dr. Robert J. Shapiro.  These two economists at the Georgetown Center for Business and Public Policy have produced a very narrow report that takes a new angle on why Internet Overcharging schemes like consumption billing represent the answer to universal broadband adoption.  The study claims that the era of the “exaflood” is nearing, and private broadband providers are being called on to spend $100-300 billion dollars to meet the needs of the top 20% of “high bandwidth users” using most of the bandwidth.

The report asks, should the costs be divided equally between every customer, which they posit will increase broadband pricing across the board, or should 80% of those costs be paid by the 20% they claim consumes the most?  Their fingers are pressed firmly on the side of the scale marked “heavy users pay more,” theorizing that alone will increase broadband adoption.

What makes Towards Universal Broadband: Flexible Broadband Pricing and the Digital Divide different from the usual refrain that consumption billing is the “fairest way” to price broadband service is the presumed added benefit that such pricing will benefit rural communities, minorities and the poor.  Namely, that unless we move to such a system, rural consumers and low-income Americans will never purchase broadband service because of price sensitivity.  Increase pricing for everyone, they suggest, and the United States will not achieve the president’s ambition for universal broadband adoption.

The report is an industry dream come true.  Expect the usual suspects to wave it around in the air as “proof” of the need to overcharge you for broadband.

But before the Money Party gets started, let’s critically evaluate whether this report represents the solution we’ve been waiting for, or a nice excuse to simply increase prices and promise upgrades later.

It quickly becomes obvious the report is myopic from start to finish, presuming facts not in evidence, or that come from self-interested parties, and relies only on a single solution — price increases.  The only debate is over which customers pay more: all of them or just the “heavy users.”

Smart readers already know in the end, everyone pays more no matter what.

And Now the Rest of the Story

Of course, the differing rates of broadband adoption across racial, geographic and income classes are strongly interrelated. A large portion of the disparity in uptake rates by race and geography, for example, are driven by differences in household income. Studies have indicated that uptake rates also are strongly correlated with education and the need for high speed Internet in the workplace.

Our difficult economic times have reversed these trends over the past two years, and the broadband access gap between African‐Americans and white Americans widened in both 2008 and 2009. Broadband adoption among African‐Americans rose only slightly in 2008 and 2009 following several years of much more substantial increases. Meanwhile, broadband adoption by white households continued to rise steadily. As a result, the broadband‐access gap between the races was wider in 2009 than it had been in 2005. A significant rural‐urban gap in broadband uptake rates also has persisted, as rural Americans increased their broadband access at about the same pace as those who live in cities and suburbs.

Respondents to the Pew survey report that their average bills for broadband service fell from $39 to $34.50 between 2004 and 2008. Interestingly, adoption continued to rise in 2009 despite a jump in prices back to the 2004 level. To some extent, the 2009 price levels may reflect the willingness of a growing number of Americans to pay more for premium services that provide even higher speeds. The average monthly cost of basic service stood at $37.10 in 2009, while premium subscribers paid an average of $44.60, according to the Pew Survey. Additionally, economic studies have concluded that households that have adopted broadband Internet are far less price sensitive or “price elastic” than prospective adopters.

These findings are supported by recent experience, which suggests that adoption would have been even higher in 2009 if the price increases had not occurred. Pew reports, for example, that almost one in ten Americans either cancelled or cut back Internet service for financial reasons between April 2008 and April 2009. These cutbacks were greatest at the bottom of the income scale, with 17 percent of households earning $20,000 or less reporting that they reduced or gave up service during 2008.

Most of the Pew data in this section is verifiable, but really only tells a small part of a much greater story.  The broadband adoption rate continues to grow, but users are price sensitive, especially as  income levels decline.  It’s common sense to assume that the higher a cost for a product or service, the lower the adoption rate among income challenged consumers.  Of course, at no point do the authors ever contemplate broadband provider complicity in the current pricing structure for broadband.  They merely accept the status quo duopoly that most consumers face in broadband pricing, which is now on the increase as providers face revenue challenges in the video and telephone marketplace.  The racial component of their argument is hardly explored, so we have no idea whether it is an issue of income, household location, social factors, or some other hurdle we don’t know about.

Also totally unexplored is the question of broadband availability in rural communities.  In those areas, broadband adoption starts with having a service to adopt in the first place, followed by the value of a service at the slow speeds for high prices typically on offer.

My biggest criticism of this report is its tunnel-vision-like approach to defining the problem and crafting a single solution for it.  The report hints at something very pertinent to this debate, but then completely ignores it going forward.

“To some extent, the 2009 price levels may reflect the willingness of a growing number of Americans to pay more for premium services that provide even higher speeds.”

One might think a report based on how to obtain the revenue necessary to build broadband networks of the future might want to explore the potential revenue earned from premium services delivering higher speeds, particularly considering those enhanced services are often adopted by those that use their connections to a much greater degree than average consumers.  Indeed, since the report will later suggest that 20% of the customers who consume the most data should pay 80% of the costs for upgrades, it’s more important than ever to consider whether these customers already present a financial solution to their self-described dilemma.  Would higher usage consumers gratefully accept higher pricing for faster tiers of service?  Would speed-based tiering represent a better, more positive solution for consumers and the industry in lieu of consumption based pricing for every broadband consumer.  The authors don’t bother to find out.

The report also seems to downplay the fact that 100% of consumers may never want broadband service in their home, and that doesn’t necessarily represent a problem.  Customers that have it, the report notes, are more committed to keeping it than those who don’t have it are about getting it in the first place.  I’m not certain that actually represents a problem, particularly if it means pickpocketing loyal customers in an effort to capture potential new customers that simply don’t want the service at any price.

Hassett and Shapiro are either unaware, or ignore, the fact many providers already heavily market to non-broadband customers, offering promotional pricing and discounts, as well as “economy” tiers providing cheaper, albeit slower, broadband service.  These economy tiers are still significantly faster than dial-up, and provide enough of an enhanced online experience to bring budget-minded consumers on board, if only to discard their current dial-up service provider.

Customers who spend significant amounts of time online already demonstrate their loyalty to the product — it’s one of the few success stories in the current economy for cable and telephone companies who are seeing slowed growth or declines from their other product lines.

To Capture New Customers, You Should Be Able to Experiment on Your Loyal Customers

As policymakers consider the future of broadband policy, they must try to determine whether the historic pattern of technology diffusion will replicate itself with broadband or whether the re‐widening of the Internet access gap is a harbinger of new challenges.  Specifically, they must ask themselves what would happen to adoption trends if Internet service providers change their consumer pricing models to accommodate additional costs arising from expanded demand for bandwidth. This paper is intended to provide insights into those questions by examining the impact of various pricing approaches and pricing allocations among consumers.

Policymakers might also want to consider whether the current model for providing broadband, which is a monopoly or duopoly for most consumers, is the best thing for this country.  They might also want to take a look outside of their theory bubbles and review what happened in Canada where their experiment came to life.  Not only did pricing changes anger existing customers, it ultimately provided little, if any savings for consumers.  Indeed, when the usage caps arrived and consumption billing arrived, so did price increases and speed throttles.  Policymakers need not dwell too much on their theories and numbers provided by this report, when a quick trip to Toronto or Montreal can provide real world evidence that these schemes don’t provide real savings to consumers, just higher pricing and more restrictive service, and a continued decline in Canada’s broadband rankings.

None of this is explored in this report, of course.

When Self-Interested Parties & Astroturfers Provide the Facts & Figures…

An inescapable and critical flaw in this report is the repeated reliance on data from known astroturfers, funded by the broadband industry to represent their interests, along with self-interested parties like equipment manufacturers whose sales will, in part, depend on making a case for a need to buy their “solutions” to the “problems” they define.  At no time do the authors ever consider whether the data they are relying on is credible, much less provide readers with some disclaimers about source self-interest.

Cisco Systems, for example, has forecast that Internet traffic will quintuple from 2008 to 2013, driven largely by video and what it calls “visual networking.”

Cisco is well known for their reports predicting connectivity calamity… unless you manage it by purchasing Cisco products, of course.  This report cites Hyperconnectivity and the Approaching Zettabyte Era, something we criticized back in June for not exactly being an independent, dispassionate piece.

In one, widely‐cited report, EDUCAUSE, a higher‐education technology group estimated that providing “big‐broadband” to every home and business, with sufficient bandwidth to meet demand, would cost an additional $100 billion over the next three to five years and even larger investments in capacity going forward.

Apparently the authors stopped reading EDUCAUSE’s report after capturing the dollar data they cited, because unlike Hassett and Shapiro’s very narrow focus on justifying broadband pricing ripoffs, EDUCAUSE’s A Blueprint for Big Broadband, by John Windhausen Jr., calls out the failures prevalent among broadband providers in the United States.  Windhausen suggests consumption billing trials are a symptom of a broadband provider not making appropriate investments in their network, instead relying on temporary fixes like usage caps to try and reduce demand on their broadband platforms.  He specifically mentioned Time Warner Cable’s experiment in April as an example.

Windhausen advocates for a range of solutions to the capacity crunch that don’t involve ripping off consumers by charging them ever-increasing prices for service, or consumption billing.

Solutions do include:

• Leadership, Vision, and Goals – America should lead the world in broadband speed and availability, with 100Mbps being the target by 2012.
• Organization – Establish a Broadband Council that includes consumers (remember us?), business leaders, and public officials to implement and oversee broadband policy.
• Tax Incentives – Reward the private sector for taking risks on the most advanced technological solutions (fiber in particular) to overcome Wall Street resistance.
• A New Universal Broadband Fund – Direct subsidies to rural and other difficult markets to ensure broadband equality.
• Openness – Net Neutrality protections enforced by law.
• State and Municipal Broadband and Rights-of-Way – An end to industry-driven legal prohibitions on state/municipal broadband service.
• Consumer Education – Efforts to educate consumers about the benefits and managing risks from the online world.
• Broadband Technology Research – America should be a leader in discovering and managing new breakthrough’s in broadband technology.

Or just impose consumption billing on consumers, as Dr. Kevin A. Hassett & Dr. Robert J. Shapiro advocate, and providers will magically lower prices for consumers and create and build the next generation of broadband networks with the money they earn.

Hassett and Shapiro need to get out more and review the documentation assembled over the course of two weeks in April when Time Warner Cable attempted their experiment, because those promised network upgrades, assuming consumers accepted the consumption billing proposal (and they in loud and large numbers did not), turned out to come without any firm dates, and just weeks later were dismissed by the CEO as unnecessary in the short term, because Time Warner Cable has plenty of capacity on their existing network.

It’s hard to sell an “exaflood” when the broadband provider’s CEO denies there is one at hand.

But Hassett and Shapiro still try:

Another estimate cited by David McClure, the head of the U.S. Internet Industry Association, and John Ernhardt, Senior Manager of Policy Communications for Cisco Systems, projects that the long‐term investments required to keep up with fast‐rising bandwidth demand could cost an additional $300 billion over 20 years. (David McClure, “The Exabyte Internet,” U.S. Internet Industry Association, 1 May 2007)

Teletruth, a watchdog site, identified USIIA as one of several groups that TeleTruth called out for its association with an industry public relations/public policy agenda:

U.S. Internet Industry Association

• “The U.S. Internet Industry Association (USIIA), a 13-year-old trade association that represents “companies engaged in Internet commerce, content and connectivity.” Verizon is the biggest name represented on its board of directors.”
• David P. McClure, President and CEO, U.S. Internet Industry Association, is also an author of the NMRC Muni Wifi report.
• USIIA has been a client of Issue Dynamics.

The USIIA has been pushing the theory of the “exaflood” that remains highly dubious in the eyes of independent researchers who also study broadband traffic.  Hassett and Shapiro accept it on face value.

Heavy Users Are Already Hooked & Won’t Mind Paying More Anyway

Absent another source of revenue, such as a system that assesses fees on content providers or high bandwidth users, the costs of these additional investments will generate broad price increases substantially larger than those experienced during the expansion of dialup Internet access.

Heavy bandwidth users are assumed to be relatively price insensitive, so their broadband subscription rates remain unaffected by price increases. We do not have adequate data to assess this assumption, but it is reasonable given the likelihood that habit formation would drive consumers to continue the practices that have driven their high bandwidth usage to date. To the extent that high bandwidth users are more sensitive to higher prices than we have assumed, companies would have to choose between spreading the cost to lower bandwidth users, and increasing prices more for high bandwidth users.

We’re clearly well into the realm of “assuming facts not in evidence” with the authors’ assumptions on the price sensitivity of customers: heavy, medium, or light.  When Time Warner Cable attempted their experiment, there was considerable outrage at the premise of consumption billing, because consumers don’t want this pricing, regardless of their usage.

The authors’ arrogant presumption that once consumers are hooked on the service, they’ll continue to pay more (much more under the ‘20% of users pay for 80% of the $100-300 billion dollar upgrades’ formula) comes with no evidence of any kind.  In fact, all of the evidence is that consumers will become upset and raise hell with the providers that try it.

Assessing fees on content providers was an industry favorite just a few years ago, and it’s interesting to find this “solution” brought up yet again.  It was an astroturfer favorite, and was one of the major points of contention over the Net Neutrality debate, now firing up once again.  The industry wants to Re-Educate consumers about consumption billing and is now faced with re-fighting the Net Neutrality debate and this nice report, from the industry’s perspective, appears right on cue.

How About Asking the Industry to Take Some of their Profits and Invest in Their Own Networks

Totally absent from this report is even a cursory review of the current profits earned by broadband providers using the existing flat rate pricing formula.  They are well into the billions. Today, despite those profits and the scary “exaflood” rhetoric,  many have reduced the amount of money they spend on their broadband networks for needed upgrades.  Instead, it appears some of that money is being funneled into public policy lobbying efforts to get consumers to accept much higher pricing for broadband under the guise of “fairness.”

Nowhere are the authors willing to explore industry investment in their networks, much less the implications of a national broadband policy that will play a part in constructing, overseeing, and operating a national broadband platform in the interests of citizens, not simply shareholders.

An obvious path to bigger profits for providers already exists, and consumers enthusiastically support it as being an even fairer solution — charging a premium for higher speed tiers of broadband service.  No light user is going to commit to spending $60+ dollars a month on a premium speed package, but many of the larger consumers of broadband data will do so, happily.  Those investments can easily pave the way for DOCSIS 3 deployments which benefit every customer on a cable network, from light users not subjected to neighborhood congestion, to average users that can quickly access the content they want, to heavy users that will enjoy the faster online experience they have clamored for, and demonstrate a willingness to pay to achieve.

That’s a broadband success story everyone can agree on.

Unfortunately, it’s also the one that requires providers spend some of those big profits to construct the networks capable of providing premium speed tiers.  For them, the path of least resistance is to stall upgrades as long as possible by slapping consumption billing and usage caps on consumers to get them to reduce their usage, even as their own broadband bandwidth costs continue to decline.

Why We Don’t Pick Up What They Are Putting Down

Consumers’ real world experiences mean a lot more than statistical theories (especially when some of those statistics are fed by the self-interested broadband industry).  They know cable bills never decrease, only increase, unless you drop services.  They know many phone companies aren’t willing to invest in fiber optics to the home and settle for ordinary DSL or hybrid fiber-copper systems that don’t deliver much real “savings” in the end.  The authors assume that consumers and policymakers will accept the premise that if you allow them to overcharge a portion of broadband customers, it will miraculously create benevolent pricing for income challenged consumers who will finally adopt broadband because of the public-service-like generosity of the broadband industry to give them a much reduced price.

That’s one theory the authors cannot prove, and don’t even try.

In Canada, the authors’ findings have already been tested, and it was bad news for consumers right down the line.  First price increases, then usage caps, then speed throttles, then even more price increases.  Even the highest speed premium tiers carry relatively paltry usage caps, diminishing their potential value to Canadian consumers.  And this rapacious capture of consumer cash has not exactly provided Canadians with world class broadband.  Instead, Canada falls further and further behind in global broadband rankings, evoking outrage from consumers upset that the upgrades they were sold on aren’t exactly in a hurry to arrive, and even when they do, the usage caps, throttles and ever-increasing prices remain.

That’s not broadband I can believe in.