Phillip Dampier

This week, the tech community has been buzzing over new entrants in the world of cloud computing.  Apple’s iCloud in particular has sparked enormous media coverage as the company plans to encourage customers to access all of their favorite content over their broadband connection.  Apple is also moving towards online distribution of many of its software products, including the forthcoming OS X Lion operating system, suggesting consumers can pass up traditional physical media like CD-ROMs or DVDs.

Cloud storage theoretically allows you to store your entire music, video and photo collection online for easy access from any device.  Watching the 20-somethings buzz about 100GB+ secure file lockers and the end of traditional file storage as we know it has been amusing, but these people need to get their heads out of the clouds.  Unless they become politically involved in America’s broadband debate, it is not going to happen the way they hope it will.

Tech entrepreneur?  Meet broadband provider reality check: the Internet Overcharging usage cap and “excessive use” pricing scheme.

While Steve Jobs was introducing iCloud, broadband providers and their industry friends have been ruminating over the impact all of this new traffic will have on their broadband networks.  In an homage to former AT&T CEO Ed Whitacre’s “you can’t use my pipes for free,” the drumbeat for implementing “control measures” for cloud computing and video traffic has been amplified several times over by certain providers, Wall Street analysts, and their trade press and equipment supplier lackeys.

One alarmed provider pondered the impact of iCloud in terms of their past experience with iTunes, which also spiked traffic when it was first released.  Others balk at the notion of consumers using broadband platforms to move entire libraries of content back and forth, especially on wireless networks.  The only sigh of relief detected?  Apple won’t start iCloud with video content — just music, at least at first.

The enemies list

The biggest targets — the companies that get a lot of pushback from providers for using “their networks” to earn millions for themselves are Google, Netflix, Amazon and Apple.  Each of them are rapidly moving into the online entertainment business, threatening to provoke more cable TV cord-cutting.  Netflix is now responsible for 30 percent of online traffic during primetime hours, a fact that some use as an accusation — as if Netflix should be held to account for its own success. Amazon has opened its own cloud based music storage and is also increasingly getting into online video content streaming.  Apple has a novel approach at handling its forthcoming iCloud music feature which should save hours in uploading, but the company is also moving towards online distribution of a growing proportion of its software, including the huge bug fixes and upgrades that will easily exceed a gigabyte if you own several Apple products.

Google is a frequent Washington target and honestly delivers the only truly effective corporate pushback to anti-consumer broadband pricing some providers have contemplated.  In fact, Google is putting its money where its mouth is building a gigabit network larger providers repeatedly scoff at as unnecessary, too costly, and too complicated.

While millions in venture capital funds new online innovations, only a miniscule amount of money is being spent to counter the lobbying major providers are doing in Washington to redefine the broadband revolution in their terms, complete with usage pricing that bears no relation to cost, arbitrary usage limits, and ongoing lack of true competition.

Online innovation is grand, but allowing providers to strangle it with Internet Overcharging schemes guarantees to end the party real fast.

Individually, none of the new cloud services are likely to blow out usage caps in excess of 100GB, but in combination they certainly could.  Anyone using online file backup, cloud storage of video and large music collections, uses Netflix or other online streaming services, and spends lots of time on the web will easily approach the limits some providers have established.  That doesn’t even include large software updates.  Unless you have an unlimited usage plan on the wireless side, don’t even think about using most of these services with AT&T’s 2GB monthly wireless usage cap.

Glenn Britt: The Internet is a utility which is why we can keep raising the price.

In the handful of countries with ubiquitous Internet Overcharging, little of this will pose a problem — companies won’t launch cloud computing services in markets where usage caps will effectively keep customers from using them.

That is why it is critical for some of America’s largest technology companies to get on board the fight against Internet Overcharging, and demand Washington recognize broadband as a utility service that should be wide open and usage cap free.  The evidence is right in front of you.  Time Warner Cable CEO Glenn Britt recognizes the fact broadband is an essential part of our lives today, which is why he is confident enough to keep raising the price and charging even more in the future.  It’s not about “network congestion,” “building the next generation of broadband,” or “pricing fairness.”  Stop the Cap! started at ground zero for Time Warner Cable’s 2009 version of “pricing fairness” — $150 a month for an unlimited use broadband account that likely cost major providers less than $10 a month to provide.  It’s about pure, naked profiteering, unchecked by free market competition in today’s broadband duopoly.

Unless a company like Google can vastly expand its own broadband rollouts, it is increasingly apparent to me (and many others), we may have to move towards an entirely different model for broadband in the United States — one built on the premise of the Interstate Highway System.  One advanced, publicly-owned fiber network open to all providers on which telecommunications services can travel to homes and businesses from coast to coast.

Nobody says private companies shouldn’t be able to compete, but every day more evidence arrives they will never be inclined to deliver the next generation of service that other countries around the world are starting to take for granted.  They will instead protect their current business models at all costs, even if that means throwing America’s broadband innovation revolution under the bus.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CNN Will iCloud Measure Up 6-7-11.flv[/flv]

CNN takes a look at what makes Apple’s iCloud service different from competitors from Google and Amazon.  (5 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CNN Dropbox Cloud Computing 6-8-11.flv[/flv]

CNN talks with the folks at Dropbox about their cloud file storage system.  (3 minutes)

A consumer group has filed a complaint with the Federal Communications Commission alleging that Verizon Wireless is violating its agreement with federal authorities by attempting to restrict the use of third-party wireless tethering applications.

The basis of the complaint, filed by Free Press, is that Verizon agreed not to “deny, limit, or restrict” customers from accessing the applications of their choosing as part of Verizon’s LTE license spectrum agreement.

“Verizon’s conduct is bad for the public and bad for innovation. It also appears to be illegal under the FCC’s rules that govern Verizon’s LTE network. Users pay through the nose for Verizon’s LTE service, and having done so, they should be able to use their connections as they see fit. Instead, Verizon’s approach is to sell you broadband but then put up roadblocks to control your use of it,” said Free Press policy counsel Aparna Sridhar.  “In 2007, Verizon argued aggressively against the adoption of these basic openness protections. Having lost that policy battle but won the auction for the spectrum licenses, Verizon has adopted a new regulatory strategy: simply ignore the rules on the books. The Commission must move quickly to investigate and stop these harmful practices.”

As Stop the Cap! reported earlier, Verizon has taken measures to try and warn off customers using the third-party tethering apps instead of purchasing the company’s $20 tethering plan, which offers 2GB of data usage per month.  In addition to text warning messages, the company has asked Google to disable access to tethering software in the Android Market for Verizon customers.

From Free Press’ complaint:

Efforts to disable smartphone features and create barriers to this useful, productive, pro-innovation activity should cause concern no matter who initiates them; but when Verizon Wireless interferes with the use of third-party tethering applications, that conduct also violates the rules governing its LTE network. When Verizon purchased the licenses for the spectrum over which it has deployed LTE, it agreed to abide by a set of pro-consumer, pro-innovation openness principles. In particular, Verizon promised that it would not “deny, limit, or restrict the ability of [its] customers to use the devices and applications of their choice.” Verizon’s recent move to limit and restrict access to tethering applications by actively requesting that Google make them unavailable in the Android Market (the Google market for mobile applications) deliberately and unequivocally violates this prohibition. The FCC should immediately open an investigation to assess Verizon’s practices and determine appropriate penalties for this clear breach of the Commission’s rules.

[…] When the FCC auctioned the C Block of the Upper 700 MHz spectrum — the spectrum on which Verizon has deployed its LTE offering — the Commission adopted important license conditions to protect the openness of broadband networks. It provided that licensees using that spectrum “shall not deny, limit, or restrict the ability of their customers to use the devices and applications of their choice.” In the words of Chairman Kevin Martin, the Commission adopted the conditions to ensure that “[c]onsumers will be able to use the wireless device of their choice and download whatever software they want onto it.”

The more wireless carriers try to impose punitive usage caps on their customers, the more they will shop elsewhere for wireless service or turn to free Wi-Fi alternatives.  Those are the results of an important new report from Devicescape, a Wi-Fi advocate and software creator that allows for seamless Wi-Fi connections.

At the very top of the findings of the latest quarterly report: consumers overwhelmingly continue to despise usage caps and other Internet Overcharging schemes.  At least 73 percent suggest they will take their business elsewhere if their provider cancels their unlimited usage data plan, with 80 percent making changes in how they consume wireless data — especially moving usage to free Wi-Fi networks and off 3G/4G networks.

Almost 90 percent of smartphone users already connect to Wi-Fi at home and on the road, with 64 percent using Wi-Fi hotspots at work and in shops and restaurants at least once a day.

The report also makes it clear consumers want a hassle-free Wi-Fi experience.  It should be free and open access, with no annoying PIN codes or passwords.

Wi-Fi is quickly becoming an expectation more than a treat, and businesses and communities that don’t provide it will increasingly be judged negatively by some consumers.  An even greater negative reaction can be expected from those who treat Wi-Fi access as a profit center.  Customers don’t like paying extra for access at hotels, restaurants, or while browsing around shopping malls or business centers.  Forget about annoying login or customer agreement screens as well.

While many consumers claim they will switch wireless carriers over usage caps, in reality few are currently doing so for several reasons:

1. The alternative providers still offering unlimited use plans are perceived as having lower quality coverage areas (eg. Sprint);
2. Most major carriers have grandfathered their sizable base of “unlimited plan” devotees, allowing them to retain the popular plans even as they discontinue them for new customers;
3. Customers ultimately have few choices for unlimited service.

Where customers are stuck with a usage-capped data plan, they economize wherever possible.  In particular, many rely on Wi-Fi service instead of the wireless service provided by their wireless provider.

Ironically, that’s fine with many carriers, especially AT&T, which has been promoting efforts to offload as much 3G traffic as possible onto local Wi-Fi hotspots instead.

An artist rendering of Don River Park, part of the mixed-use spaces that hallmark the Toronto Waterfront revitalization project.

About seven years ago, Rochester’s Fast Ferry offered daily service between Rochester, N.Y. and Toronto’s Waterfront.  Tens of millions of dollars later, the Rochester Ferry Company discovered that nobody in southern Ontario was that interested in a shortcut to Rochester, many locals found driving to Canada’s largest city faster, more convenient, and cheaper, and the point of arrival on the Canadian side was hardly a draw — situated in a rundown, seedy industrial wasteland.

By the end of 2006, the ferry was sold and sent on its way to Morocco, the CBC got a barely used International Marine Passenger Terminal (built for the Rochester ferry) to use as a set location for its TV crime drama The Border, and the rundown waterfront was well-embarked on a major reconstruction effort.

This week, Toronto’s Waterfront learned it was getting a broadband makeover as well, with the forthcoming launch of insanely fast 10/10Gbps fiber broadband for business and 100/100Mbps for condo dwellers along the East Bayfront and West Don Lands.

Best of all, Beanfield Metroconnect, the parent company responsible for constructing the network, promises no Internet Overcharging schemes for residents and businesses… forever.  No usage caps, no throttled broadband speeds, no overlimit fees.  Pricing is more than attractive — it’s downright cheap for Toronto:  $60 a month for unlimited 100/100Mbps broadband, $30 a month for television service, and as low as $14.95 for phone service.  Bundle all three and knock another 15 percent off the price.  The provider is even throwing in free Wi-Fi, which promises to be ubiquitous across the Waterfront.

The project will leapfrog this Toronto neighborhood into one of the fastest broadband communities in the world.

Toronto Waterfront Fiber Broadband Coverage Map

“Having this sort of capacity available to residents will allow for a whole new world of applications we haven’t even conceived of yet,” said chief executive Dan Armstrong.

The rest of Toronto, in comparison, will be stuck in a broadband swamp courtesy of Rogers Cable and Bell, where average speeds hover around 5Mbps, with nasty usage caps and overlimit fee schemes from both providers.  DSL service in the city is notoriously slow and expensive, as Bell milks decades-old copper wire infrastructure long in need of replacement.

The public-private broadband project is a welcome addition for an urban renewal effort that has been criticized at times for overspending. Created in 2001, Waterfront Toronto has a 25-year mandate to transform 800 hectares (2,000 acres) of brownfield lands on the waterfront into a combination of business and residential mixed-use communities and public spaces.  At least $30 billion in taxpayer funds have been earmarked for the renewal project, although project managers say no taxpayer dollars will be spent on the broadband project.

Waterfront Toronto’s efforts have been recognized as bringing Toronto’s first “Intelligent Community” to the city with the construction of the open access fiber network.

Still, the public corporation has its critics.  Earlier this spring Toronto city councilman Doug Ford called the urban renewal project a boondoggle.  Other conflicts rage with the Toronto Transit Commission and the mayor’s office over other redevelopment projects.  But the revitalization project’s broadband initiative has significant support, especially among knowledge workers that could eventually become residents… and paying customers.

The 21st century broadband project is also likely to bring broadband envy across the entire GTA, who will wonder why service from the cable and phone companies is so much slower and more expensive.

For broadband enthusiasts, Toronto’s broadband future looks much brighter than yesterday’s failed ferry service, which proves once again that regardless of the technology — slow, expensive, and inconvenient service will never attract much interest from the value-conscious public.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/TVO The Need for High Speed 5-2010.flv[/flv]

Canada’s digital networks are some of the slowest in the world, running between one hundred to a thousand times slower than other countries in the developed world. In this episode of “Our Digital Future – The Need for High-Speed,” Bill Hutchison, Executive Director of Intelligent Communities for Waterfront Toronto describes the sorry state of Canada’s digital infrastructure, stressing the need for major investments in advanced broadband networks.  (4 minutes)

More than halfway into Glenn Britt’s appearance last week at a Wall Street-sponsored investor event, the head of the nation’s second largest cable company candidly admitted years of price hiking is finally driving a growing segment of America’s hard-pressed middle class out of the market:

“There is a segment of our economy that should be of concern.  We have a bifurcating economy where people who are college educated and like everybody in this room are doing okay.  For that segment, pay TV [pricing] is fine.  There is another group of people who are sort of falling out of the middle class.  For some of those people, pay TV is too expensive.”

That’s a remarkable admission from a cable company that has consistently raised prices for its products well in excess of inflation for at least a decade, and judging from the rest of his comments, there is plenty more of the same on the way.

Britt is nearing his 10th anniversary as CEO of what is now Time Warner Cable, formerly a division of AOL/Time-Warner.  In the past decade, the company he oversees has undergone a transformation in its business model. In 2001, digital cable was all the rage, delivering the 500-channel television universe at the cost of rapidly increasing cable bills.  Cable broadband was just coming back from the dot.com crash, with many Americans still mystified by the concept of “www” and whether a web address had a “/” or a “\” in it.

Time Warner Cable CEO Glenn Britt tells Wall Street investors at the Sanford Bernstein conference the company is using their customers’ addiction to high speed broadband as leverage for rate increases — three in the last three years. Britt’s world view for Internet Overcharging schemes like consumption billing are reinforced in a room where ordinary customers aren’t invited and the Wall Street types in attendance dream about the enormous profits such pricing would bring. June 1, 2011. (6 minutes)
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Today, broadband is threatening to become the cable industry’s most important product — one that Americans will crawl through broken glass to buy.  In larger cities, the competitive war between DSL and cable broadband has been settled and DSL lost.  That has brought Time Warner a steady stream of customers departing their local phone company and bringing their telecommunications business with them.  Even during the economic downturn, Britt notes, one of the last products people will agree to give up is their broadband Internet access.

“Broadband is becoming more and more central to people’s lives,” Britt said. “It is becoming our primary product. People are telling us that if they were down to their last dollar, they’d drop broadband last.”

Britt openly tells investors Time Warner Cable will take that last dollar, and many more.

“We are able to raise prices,” Britt notes. “As broadband becomes a utility, you can charge more.  So after a dozen years of not raising prices for broadband service, for the last three years we have been raising prices.”

Britt notes the company is also enjoying increased average revenue per customer as many upgrade their broadband service to higher speed tiers which deliver higher revenue to the cable operator.

But as the market for broadband matures, the next level of profits could come from so-called “consumption pricing,” which could make yesterday’s rate increases look like a miniscule price adjustment.  In 2009, Time Warner Cable sought to test new broadband pricing that would have tripled the cost of unlimited broadband from $50 a month to an astonishing $150 a month.  A firestorm of protests for this level of Internet Overcharging temporarily killed the prospect of OPEC-like profits, unsettling some Wall Street investors and analysts, many who refuse to let the dream die.

Among the biggest proponents of this kind of metered pricing is, in fact, Sanford Bernstein — the sponsor of the conference.  So it came as no surprise Britt faced additional browbeating in the hour-long interview to reintroduce these pricing schemes.  After all, Britt is told, AT&T has implemented a usage cap and Cable One has (what the interviewer calls) a “quite interesting” pricing model — delivering the smallest usage caps to customers with the highest speed tiers.  So when will Time Warner follow suit?

Once again, Britt said he’s a true believer in consumption billing and thinks the industry will move in that direction, but refused to give an exact timetable.  “Consumption billing” goes beyond traditional usage caps by establishing a combination of a flat monthly service fee, and additional charges for the amount of data you use.  Time Warner’s original proposal limited consumption to 40GB per month at today’s broadband prices, but added an overlimit fee of $1-2 for each additional gigabyte.

The strangest part of the hour was Britt’s defense of usage pricing with an impromptu discussion with his wife the evening before about the pricing models of public transit in European capitals (they’ve no doubt visited), and metropolitan New York City.

Britt shared that in the finest cities of Old Europe, bus and train travelers paid different rates based on how far they traveled within the city.  In New York, his wife noted, one price gets you access to any point in the city on the subway.  

How fair is that?

Aside from the hilariously unlikely scenario either Britt or his wife have stepped foot on a New York City public bus or subway train in the last decade, his rendition of “consumption billing is fairer”-reasoning fell flat because it argues a false equivalence between the cost to move data and the expenses of a public transit system.  Remember, Time Warner is the cable company that pitches unlimited long distance calling on the one platform that most closely resembles broadband — telephone service.

“People want us to invest more to keep up with the traffic,” Britt argued.  “People who use it should pay less — people who want to spend eight hours a day watching video online is fine with me, but they should pay more than somebody who reads e-mail once a week.”

This is the same Glenn Britt who just minutes earlier confessed the cable company has been raising prices on all of its broadband customers for three years in a row because they can.  Earlier attempts at consumption billing saved nobody a penny.  Light users were given a paltry usage allowance that could be largely consumed by downloads of security patches and software updates, after which a very punitive overlimit fee kicked in.  Besides, Time Warner Cable already sells a “lite” usage plan today that has few takers.  Most consumers want, and are willing to pay for a standard, flat rate broadband account.  That’s the account Britt and his Wall Street cheerleaders want to get rid of come hell or high water.

Britt is asked whether pay television is getting too expensive for the hard-pressed middle class. For many consumers, it is, which is why the company is developing its “welfare” tier called TV Essentials — a sampling of cable networks with plenty of holes in the lineup to remind subscribers what they are missing if they make do with this less expensive package. June 1, 2011. (3 minutes)
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Throughout the hour long interview, Britt’s read of the hard-pressed common American family comes across as more than a little hollow — more like hopelessly out of touch.  One part Marie “Let Them Eat Cake” Antoinette and one-part “we’ll throw a bone to some and raise prices on the rest,” Britt is content lecturing consumers — discouraging them from crazy ideas like “a-la-carte” cable pricing and reasonably priced broadband.

The Wall Street crowd loved every minute, and the friendly echo chamber atmosphere made Britt feel more than welcome at the conference.  While Time Warner Cable’s CEO spent more than a hour talking to Wall Street, he has no time to actually sit down and talk with his customers — the ones that want nothing to do with his Internet pricing schemes.  Indeed, at one point Sanford Bernstein’s host dismisses customers as “people who want everything for free,” a contention Britt partly agreed with.

Have another piece of cake.

If you are still wealthy enough to buy an iPad and are enjoying Time Warner Cable’s free streaming app, watch out. It may not be free for long. As Britt partially admits, Time Warner Cable is using the online video service as a “Trojan Horse” to get subscribers hooked on their online video, before they attach a price tag to the service. June 1, 2011. (3 minutes)
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And what about all of this much-ballyhooed “investment” in tomorrow’s broadband networks?

Britt confesses the cable company is spending less than ever on system upgrades and capital construction projects.  Why?  The company forecasts its demand and growth five years out and budgets accordingly.  The current target is to spend just 15 percent of revenue on such projects, and based on budget planning, there is no urgent need to upgrade Time Warner’s broadband networks to keep up with demand.  In fact, it was all smiles when Britt revealed one of the company’s biggest expenses — the costly set top box — may not be a permanent part of America’s cable future after all.  Britt offered there was a good chance capital spending might even decline further in the future.

Britt suggests the next generation of television sets will deliver the same functionality as today’s set top box at a cost paid by the consumer.  Time Warner’s slow march to all digital cable means the need for wholesale upgrades of cable systems is over for perhaps a generation.  And with an IP-based cable delivery platform, software upgrades and improvements can be made without paying the high asking price charged by today’s handful of set top manufacturers.

In fact, outside of programming costs, Britt doesn’t see any long term challenges to years of good times for investors. Even minor competition from the telephone companies, who generally charge prices very similar to what Time Warner Cable charges, pose no big threat.

His biggest nightmare?  A check on the industry’s near-unfettered power by Washington regulators.  Despite Britt’s claims the cable industry is already well-regulated, in fact it is not.  Since 1996, cable companies can charge whatever they choose for standard cable, phone and Internet service.  Consumption billing, which will almost certainly be seen as gouging by consumers, may trigger an unwelcome intrusion by Congress, especially if the industry continues to cause a drag on America’s broadband ranking, already waning.

For investors, the glory days of huge rate hikes for cable television are likely behind us, Britt warns.  But have no fear: for the generally well-heeled and barely-hanging-on there is plenty of room for more rate increases on broadband — and meters, too.

Once again, Britt unintentionally admits the truth: Time Warner Cable does not have a broadband congestion problem that requires an Internet Overcharging scheme to solve. In fact, he admits the cable company is spending less than ever on network upgrades for residential subscribers, and expects that trend to continue. He’s also avoiding overpaying for merger and acquisition opportunities. June 1, 2011. (6 minutes)
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