Phillip 'Not Picking Up What Moffett Puts Down' Dampier

Tech, business, and even a few mainstream media outlets have been booking Sanford Bernstein’s Craig Moffett as an independent observer of all-things-broadband, without revealing he literally has a vested interest in boosting profits for the telecommunications industry.

The latest of Moffett’s heavily-slanted ideas appeared over the weekend on ZDNet, where Larry Dignan’s Between the Lines column used one of Bernstein’s “research notes” to provoke readers into a discussion about Internet Overcharging:

Metered broadband access is inevitable and may even be good for adoption of speedy Internet access.

That’s the argument from Bernstein analyst Craig Moffett in a research note. Moffett sets the scene:

• The FCC’s open Internet push allows for metered broadband.
• AT&T has introduced usage caps across its wireline business. DSL customers are limited to 150 GB of monthly consumption. U-Verse subscribers get 250 GB, or the same as Comcast. Users will be charged an extra $10 a month if they exceed the cap and it’s $10 per 50 GB after that.
• AT&T has already introduced tiered wireless plans.
• Time Warner Cable has a few usage based pricing pilots underway.

Moffett

Nowhere in Dignan’s column does he disclose Moffett is a paid Wall Street analyst working for the interests of investor clients of Sanford Bernstein who want to maximize the value of their telecommunications stocks.  Moffett’s long history of statements about industry pricing reflect those interests, which are often very different from those of most consumers.  Moffett’s world view: anything that brings in more revenue is good for shareholders (rate hikes, metered billing), anything that drives down shareholder value is not (infrastructure upgrades, pricing cuts, customer defections).

On that basis, Moffett has been called a “cable stock fluffer” by our friends at Broadband Reports for his relentlessly pro-cable industry commentary, even while ridiculing transformational projects like Verizon’s FiOS fiber to the home network for being “too expensive” and not delivering enough return on shareholder investment.  Consumer Reports delivers the opposite view: high marks for Verizon FiOS, mediocre to lousy marks for most of the nation’s cable operators.

While there is nothing inherently wrong with Moffett doing his job on behalf of his paying clients, using his views outside of that context — particularly when those interests go undisclosed — is journalistic malpractice.

Oh, and Time Warner Cable abandoned their usage-based pricing pilots in 2009 after customers declared war on the cable company.  Those darn customers, ruining the industry’s plans!

The rest of Moffett’s research note doesn’t get much better in the “true facts”-department:

The goal of moving to usage based pricing is not to undermine competition from Netflix (or anyone else… although it certainly wouldn’t be good news for Internet video). And it is most decidedly not to simply “raise prices for broadband” as Public Knowledge or New America would have it (although it might well do precisely that, too). Instead, it is nothing less than to re-align the entire business model of today’s infrastructure providers with the next generation of communications… so that broadband providers might stop fighting against the tide and embrace it instead.

With usage based pricing, broadband providers, and Cable operators in particular, can create an “iso-profit” curve, where the amount they make from a physical connection is about the same whether someone uses that connection for linear video or, alternatively, web video. The goal is not to stifle competition, but instead to create indifference not just to the end state of video by-pass, but indeed for all points along the way. The adoption of usage based pricing would be transformational to the debate for Cable operators, inasmuch as it would essentially indemnify them against all potential outcomes.

Moffett represents his interests, not yours.

Yet some of Moffett’s earlier statements would seem to argue with himself.

For instance, back in March Moffett was making plenty of noise about AT&T’s caps precisely targeting video providers like Netflix:

Moffett believes usage caps have everything to do with stopping the torrent of online video.  He notes AT&T’s caps are set high enough to target AT&T customers who use their connections to watch a considerable amount of video programming online.

“Only video can drive that kind of usage,” Moffett writes.

Moffett has repeatedly predicted any challenge to pay television models from online video will be met with pricing plans that eliminate or reduce the threat:

“[I]f consumption patterns change such that web video begins to substitute for linear video, then the terrestrial broadband operators will simply adopt pricing plans that preserve the economics of their physical infrastructure,” Moffett said. “Of course, any move to preserve their own economics has far-ranging implications. Any move towards usage-based pricing doesn’t just affect the returns of the operators, it also affects the demand of end users (the ‘feedback loop’).”

The only thing usage-based pricing indemnifies is the industry’s confrontation with revenue-eroding cable-TV cord-cutting.  And Moffett knows this, although he would probably give rave reviews to bringing similar usage-based-billing to cable television packages, which would charge you for every show you watched on top of your monthly bill.

These pricing models, already firmly rooted in Canada, have done nothing to bring the “next generation of communications” to our neighbors to the north.  Indeed, Canada’s ranking in broadband continues its decline as large cable and phone companies pocket the profits instead of committing to wholesale upgrades of their networks to deliver the kind of service increasingly common in Europe and Asia.

But the real laugh out loud moment comes last: Moffett’s prediction that AT&T’s usage pricing will increase broadband adoption.  Perhaps that’s true if you prefer telecommunications companies abuse you, but as we’ve documented over the past three years, these pricing schemes never save anyone money — they just increase the price of your service while decreasing the value of it.

Prime Minister Stephen Harper

Canada went to the polls last week and managed to deliver a predictable majority for incumbent Prime Minister Stephen Harper and his Conservative Party.  Even Americans ignorant of Canadian politics knew as much, but more than a few with an interest in the country’s telecommunications future were stunned to watch some long-standing parties get handed their hats and ushered out the door into the political wilderness (for at least a few years anyway).

The former mighty Liberal Party — the one that always saw themselves as Canada’s Natural Governing Party, succumbed to an embarrassing election failure.  Leader Michael Ignatieff not only oversaw the loss of more than 40 Liberal seats in the House of Commons, he couldn’t even manage to hold his own, losing his Toronto-area seat in Etobicoke-Lakeshore.  The centrist party won just short of 19 percent of the popular vote.  That’s a long fall for the party of former Prime Minister Jean Chrétien, who won three successive majority governments in 1993, 1997 and 2000.  Much of the party’s strong support in Ontario collapsed, with seats swiped by Conservative and NDP candidates.  The centrist era is evidently over for now.

The Liberals take on telecommunications issues seemed mostly to rely on bashing whatever the Conservatives were doing.  Much of their criticism seemed to delight in Tory missteps and disorganization, particularly over what the party felt was incoherent policy direction for telecom issues.  Unfortunately, presenting a credible digital strategy alternative was not a high priority for the Liberals, and voters fretting about Internet Overcharging saw as much.  The Liberals have also taken flak for being too “establishment” and business friendly in recent years.  As a result, many former Liberal voters took their votes elsewhere.  At least Liberal Industry critic Marc Garneau survived.  He was successful at crystallizing the usage based billing (UBB) issue (and the CRTC’s failure by adopting it) in a way that consumers could easily understand.

The biggest catastrophe befell the Bloc Québécois, the separatist-motivated party in Quebec.  Outside of wins on the Gaspé Peninsula riding that covers the rural regional county municipalities of La Haute-Gaspésie, La Matapédia, Matane and La Mitis, and a few victories around Trois-Rivières, the Bloc was effectively obliterated — left with just four seats.  They had 47. That means the BQ is now too small to even count as an official party in Canada.  Observers say it was Quebec’s version of “throw the bums out,” with a very strong voter sentiment against “the establishment,” which in Quebec means the BQ.  Which Canadian party is the least establishment?  The NDP — and votes flowed in that direction.

On telecom issues, BQ members didn’t seem to appreciate Bell and Videotron’s usage-based-billing policies any more than the rest of Canada, and Bell in particular endured harsh questioning from BQ members at earlier hearings.

But the big news from the election was the sweeping realignment of Opposition to the Tories into the hands of the NDP – Canada’s social-democratic, left-wing New Democratic Party.  The NDP has championed opposition to UBB like no other party in Canada. Digital affairs critic Charlie Angus, who is a brash firebrand against corporate telecom abuse and their lackeys on the CRTC, will get an even larger platform to blast away at anti-consumer policies on offer from the telecom regulator.  Both Angus and the NDP champion Net Neutrality as well.  Two MPs from Toronto, Peggy Nash and Andrew Cash, will also bring strength to the NDP’s policy platform on copyright issues.

The NDP won most of the seats lost by the BQ in Quebec, and also won strongholds in western Ontario, northern British Columbia, Manitoba, and the Western Arctic.  In fact, NDP wins in Quebec were so frenzied, Leader Jack Layton found himself presiding over a dramatically younger caucus, including three McGill University students and a bartender in the heavily francophone riding of Berthier-Maskinonge.  That presents a problem for newly elected Ruth Ellen Brosseau, who so disbelieved she was a serious candidate, she spent the last week of the campaign running around Las Vegas.  She also doesn’t speak French.  A local station that finally reached her in Las Vegas to discuss her win had to abandon the interview when she was unable to offer coherent answers to questions in Quebec’s majority language.  Rosetta Stone is in her near future.  So is a trip to her district — Brosseau told the Trois-Rivières newspaper Le Nouvelliste she has never stepped foot in the riding before.  But she offered the people there seemed nice.

While the NDP doesn’t have a majority, they are sure to call out any Conservative telecommunications policies that appear to be anti-consumer, and turn them into media events — good news for a country whose television media often ignores telecommunications stories.  A five minute interview with Charlie Angus will surely deliver plenty of amusing soundbites for the evening news.

With the strengthened majority of the Conservative Party, it’s a safe bet Canadian telecommunications policies will no longer be stuck in neutral.  There are open questions if Tony Clement, Industry Minister will retain his portfolio or make a move elsewhere in government.  Clement has steadfastly insisted UBB is unacceptable to him and the government.  The upcoming review by the CRTC of their earlier decision is likely to give the government some time to sort things out.  The Conservatives ignored Openmedia.ca’s request for a formal position against UBB, something that does give us pause.

It will remain important for Canadian consumers to keep the pressure on the Tories to act when regulatory bodies like the CRTC fail.  The natural view of the Conservatives in to let the marketplace sort things out, but even they recognize that is an impossibility in a duopoly.  When 500,000 Canadians sign a petition against UBB, standing with big cable and phone companies would be political suicide.

What Conservatives are likely to promote is increased competition.  So far, that has not meant much, especially as consolidation continues in the broadcasting and telecommunications sector.  The Tories best answer for now is throwing doors open to foreign investment in telecommunications, especially in wireless.  That will mean relaxing foreign ownership rules which could help new cell phone entrants — Wind Mobile, Mobilicity and Public Mobile expand their competitive reach.  If the Tories adopt the new rules, even AT&T could move north of the border — but that will bring no relief to Canadians seeking an escape from Internet Overcharging schemes.  Other issues likely to come up — copyright reform legislation, royalty taxes imposed on digital devices, and piracy.

Among the public interest groups that have historically steered clear of the fight against usage caps and usage based billing is Public Knowledge.

Stop the Cap! took them to task more than a year ago for defending the implementation of these unjustified hidden rate hikes and usage limits.  Since then, we welcome the fact the group has increasingly been trending towards the pro-consumer, anti-cap position, but they still have some road to travel.

Public Knowledge, joined by New America Foundation’s Open Technology Initiative, has sent a letter to the Federal Communications Commission expressing concern over AT&T’s implementation of usage caps and asking for an investigation:

[…] Public Knowledge and New America Foundation’s Open Technology Initiative urge the Bureau to exercise its statutory authority to fully investigate the nature, purpose, impact of those caps upon consumers. The need to fully understand the nature of broadband caps is made all the more urgent by the recent decision by AT&T to break with past industry practice and convert its data cap into a revenue source.

[…] Caps on broadband usage imposed by Internet Service Providers (ISPs) can undermine the very goals that the Commission has committed itself to championing. While broadband caps are not inherently problematic, they carry the omnipresent temptation to act in anticompetitive and monopolistic ways. Unless they are clearly and transparently justified to address legitimate network capacity concerns, caps can work directly against the promise of broadband access.

The groups call out AT&T for its usage cap and overlimit fee model, and ponder whether these are more about revenue enhancement than network management.  The answer to that question has been clear for more than two years now: it’s all about the money.

The two groups are to be commended for raising the issue with the FCC, but they are dead wrong about caps not being inherently problematic.  Usage caps have no place in the North American wired broadband market.  Even in Canada, providers like Bell have failed to make a case justifying their implementation.  What began as an argument about congestion has evolved into one about charging heavy users more to invest in upgrades that are simply not happening on a widespread basis.  The specific argument used is tailored to the audience: complaints about congestion to government officials, denials of congestion issues to shareholders coupled with promotion of usage pricing as a revenue enhancer.

If Bell can’t sell the Canadian government on its arguments for usage caps in a country that has a far lower population density and a much larger rural expanse to wire, AT&T certainly isn’t going to have a case in the United States, and they don’t.

The history of these schemes is clear:

1. Providers historically conflate their wireless broadband platforms with wired broadband when arguing for Internet Overcharging schemes.  When regulators agree to arguments that wireless capacity problems justify usage limits, extending those limits to wired broadband gets carried along for the ride.  Dollar-a-holler groups supporting the industry love to use charts showing wireless data growth, and claim a similar problem afflicts wired broadband, even though the costs to cope with congestion are very different on the two platforms.
2. Providers argue one thing while implementing another.  Most make the claim pricing changes allow them to introduce discounted “light user” plans.  But few save because true “pay only for what you use” usage-based billing is not on offer.  Instead, worry-free flat use plans are taken off the menu, replaced with tiered plans that force subscribers to guess their usage.  If they guess too little, a stiff overlimit fee applies.  If they guess too much, they overpay.  Heads AT&T wins, tails you lose.  That’s a clear warning providers are addressing revenue enhancement, not network enhancement.
3. Claims of network congestion backed up with raw data, average usage per user, and the costs to address it are all labeled proprietary business information and are not available for independent inspection.

There are a few other issues:

In the world of broadband data caps, the caps recently implemented by AT&T are particularly aggressive. Unlike competitors whose caps appear to be at least nominally linked to congestions during peak-use periods, AT&T seeks to convert caps into a profit center by charging additional fees to customers who exceed the cap. In addition to concerns raised by broadband caps generally, such a practice produces a perverse incentive for AT&T to avoid raising its cap even as its own capacity expands.

In North America, only a handful of providers use peak-usage pricing for wired broadband.  Cable One, America’s 10th largest cable operator is among the largest, and they serve fewer than one million customers.  Virtually all providers with usage caps count both upstream and downstream data traffic 24 hours a day against a fixed usage allowance.  The largest — Comcast — does not charge an excessive usage fee.  AT&T does.

Furthermore, it remains unclear why AT&T’s recently announced caps are, at best, equal to those imposed by Comcast over two years ago.  The caps for residential DSL customers are a full 100GB lower than those Comcast saw fit to offer in mid-2008. The lower caps for DSL customers is especially worrying because one of the traditional selling points of DSL networks is that their dedicated circuit design helps to mitigate the impacts of heavy users on the rest of the network. Together, these caps suggest either that AT&T’s current network compares poorly to that of a major competitor circa 2008 or that there are non-network management motivations behind their creation.

AT&T has managed to create the first Internet version of the Reese's Peanut Butter Cup, combining Comcast's 'tolerated' 250GB cap with AT&T's style of slapping overlimit fees on data plans from their wireless business.

As Stop the Cap! has always argued, usage caps are highly arbitrary.  Providers always believe their usage caps are the best and most fair around, whether it was Frontier’s 5GB usage limit or Comcast’s 250GB limit.

AT&T experimented with usage limits in Reno, Nevada and Beaumont, Texas and found customers loathed them.  Comcast’s customers tolerate the cable company’s 250GB usage cap because it is not strictly enforced — only the top few violators are issued warning letters.  AT&T has established America’s first Internet pricing version of the Reese’s Peanut Butter Cup: getting Comcast’s tolerated usage cap into AT&T’s wireless-side overlimit fee.  The bitter aftertaste arrives in the mail at the end of the month.

Why establish different usage caps for DSL and U-verse?  Marketing, of course.  This is about money, remember?

AT&T DSL delivers far less average revenue per customer than its triple-play U-verse service.  To give U-verse a higher value proposition, AT&T supplies a more generous usage allowance.  Message: upgrade from DSL for a better broadband experience.

Technically, there is no reason to enforce either usage allowance, as AT&T DSL offers a dedicated connection to the central office or D-SLAM, from where fiber traditionally carries the signal to AT&T’s enormous backbone connection.  U-verse delivers fiber to the neighborhood and a much fatter dedicated pipeline into individual subscriber homes to deliver its phone, Internet, and video services.

A usage cap on U-verse makes as much sense as putting a coin meter on the television or charging for every phone call, something AT&T abandoned with their flat rate local and long distance plans.

Before partly granting AT&T’s premise that usage limits are a prophylactic for congestion and then advocate they be administered with oversight, why not demand proof that such pricing and usage schemes are necessary in the first place.  With independent verification of the raw data, providers like AT&T will find that an insurmountable challenge, especially if they have to open their books.

[flv width=”640″ height=”368″]http://www.phillipdampier.com/video/Bell’s Arguments for UBB 2-2011.flv[/flv]

Canada’s experience with Usage-Based Billing has all of the hallmarks of the kind of consumer ripoff AT&T wants Americans to endure:

• A provider (Bell), whose spokesman argues for these pricing schemes to address congestion and “fairness,” even as that same spokesman admits there is no congestion problem;
• Would-be competitors being priced out of the marketplace because they lack the infrastructure, access, or fair pricing to compete;
• Big bankers and investors who applaud price gouging and are appalled at government checks and balances.

Watch Mirko Bibic try to rationalize why Bell’s Fibe TV (equivalent to AT&T U-verse) needs Internet Overcharging schemes for broadband, but suffers no capacity issues delivering video and phone calls over the exact same line.  Then watch the company try and spin this pricing as an issue of fairness, even as an investor applauds the company: “I love this policy because I am a shareholder.  That’s all I care about.  If you can suck every last cent out of users, I’m happy for you.”  Finally, watch a company buying wholesale access from Bell let the cat out of the bag — broadband usage costs pennies per gigabyte, not the several dollars many providers want to charge.  (11 minutes)

Remember when Bell’s head of government affairs Mirko Bibic told Parliament usage-based billing was necessary because he didn’t think it fair that all Canadians should pay for “heavy users” of the company’s Internet service?  That was a few months ago.  This is April — time for a rate increase that will jack Bell broadband service rates up an additional $3 a month, effective in May.  That’s a rate increase every customer will pay, and comes with Bell’s everyday Internet Overcharging scheme — usage caps and overlimit fees.

Stop the Cap! reader Alex in Quebec sent a copy of his bill showing Bell’s “Price Update.”  They don’t even want to call it a rate increase.

Bell's notification to customers in Quebec their bills are going up.

“Bell Canada will increase their Internet rates by as much as 15% (for Québec ”Essential” users),” Alex says. “Although $3 may seem like a negligible charge, it especially affects those with budget Internet plans, such as Essential, E Plus, and Performance ‘Fibe’ 6.”

Bell’s website cannot even get the story straight, originally telling customers their overlimit fees would now be rounded to the nearest gigabyte, instead of megabyte.  A Bell spokesperson tells Stop the Cap! that is a typo — they really still mean megabyte.

Bell is one of the few phone companies out there actually increasing their long distance calling rates as well, Alex tells us.  The original announcement came around the same time as the earthquake in Japan, underlining how essential long distance can be during natural disasters.  Many cable companies have waived long distance fees to Japan altogether.  Not Bell.

The rate increases mean customers like ‘Jackorama’ in Hamilton will pay $56.90 for “up to 7Mbps” ‘Performance DSL’ service.  After HST fees, he’ll pay $64.30 just for broadband service, with a 60GB monthly usage limit.  If he exceeds that, he’ll pay even more — $2.50 per gigabyte, or, if he knows he’ll exceed the cap in advance: $5/month for 40 GB, $10/month for 80 GB, or $15/month for 120 GB.

That also assumes Bell can count usage correctly, and there is every indication they cannot.  The company has admitted its usage meter is prone to errors — misreads they are still prepared to bill their customers.

One of Canada’s largest phone companies is willing to admit it is prepared to launch an Internet Overcharging scheme on its broadband customers now, while western Canada’s largest cable company would prefer to wait until after the next election to spring higher prices on consumers.

When Shaw’s president Peter Bissonnette told investors and the media he believes users who use more should pay more, all that needs to be put in place is exactly how much more Shaw customers will pay for already-expensive Internet access.  With Shaw making noises about usage-based billing, Telus felt it was safe enough to dive right into their own usage cap and overlimit fee pricing scheme.

Shawn Hall, a spokesperson for Telus, told CTV News that the phone company was ready to begin overcharging customers as soon as this summer.

Shawn Hall (CTV BC)

“It’s only fair that people pay for how much Internet capacity they use,” Hall told CTV.

Telus doesn’t seem to be too worried about the fact usage-based billing has become a major issue in the upcoming elections.  A review of the pricing scheme by the Canadian Radio-television and Telecommunications Commission is due within months, but the phone company isn’t going to wait.

Shaw is being more cautious.  After the pretense of a “listening tour,” and with federal officials breathing down their necks, Shaw wants to wait until the elections are over before moving forward on their own price gouging, according to Openmedia.ca.

As Stop the Cap! has told our readers repeatedly, corporate “listening tours” about Internet Overcharging are about as useful as lipstick on a pig.  Providers don’t actually listen to their customers who are completely against these pricing schemes — and every survey done tells us that represents the majority of customers.  Instead, they only hear what they want to hear, cherry-picking a handful of useful statements in order to make it appear they are responsive to customer needs.

Shaw heavily redacted their own meeting minutes on their website, completely ignoring a large number of customers unalterably opposed to usage-based billing of any kind.  Instead, statements that fit their agenda were repeated in detail, especially those that suggested average users don’t want to pay for heavy users.

Shaw executives discuss with investors how they will stick customers with usage-based billing, despite customers telling them they don’t want these schemes. April 13, 2011. (7 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

It’s like arguing marathon runners should pay extra for the oxygen they consume because others don’t breathe as much.  It’s all a lot of hot air.

Broadband traffic costs providers only a small percentage of the amount they charge customers, and that number is dropping.  Yet providers want to raise prices, restrict usage, and charge punitive fees for those who exceed their arbitrary usage limits.

The power of the duopoly in place across most of western Canada has given providers little to fear from overcharging consumers.

Shaw CEO Bradley Shaw told investors they know few customers will switch providers if usage-based billing is imposed.

“We are of the mind that we still have a tremendous upside in terms of pricing power on our Internet services,” Shaw said.

The fact many Shaw customers have no other choice other than Telus does not escape Shaw’s notice either.

Telus’ Hall even had the nerve to call their Internet Overcharging pro-consumer.

Bissonnette

“It’s going to be really customer friendly,” he said. “You’d be forgiven for the first month you go over. You’d get lots of warning, lots of notice that you were going over with options of moving to other plans.”

Except an unlimited one — that is not available.

Openmedia.ca is trying to hold politicians’ feet to the fire on the issue of Internet Overcharging, demanding answers from every major party in Canada about how they will keep providers from imposing these pricing schemes.

Every major party, with one exception — the Conservative Party of Canada, has answered.  That’s the party currently in power.

Liberal Leader Michael Ignatieff has spoken out against usage-based billing, while NDP Leader Jack Layton has promised to ban it outright if elected to power.

Nearly a half-million Canadians have signed a petition opposing usage-based billing, and providers are showing once again they are not open to listening to anyone but their bean counters, intent on extracting as much cash as possible from Canadian customers’ wallets.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CTV British Columbia – Shaw planning to revive metered internet billing critics 4-25-11.flv[/flv]

CTV in British Columbia covers Shaw’s plans to revive metered Internet billing later this year.  (2 minutes)