Providers have a love-hate relationship with fiber optics.  When confronted with a competitor rebuilding their network to provide fiber to customer homes, many providers lampoon and mock fiber’s capabilities, claiming it’s more light than substance.  But when a provider itself wants to do fiber on the cheap, which means not actually providing true fiber-to-the-home service, they’ll bandy about marketing slogans like “100% fiber optic network” or “advanced fiber network.” Fiber is better, and those who have it want to promote it.  Those that don’t want to pretend they do.

Bell has decided it can deliver truthiness in fiber optic broadband by simply chopping a letter off the end of the word ‘fiber.’

Fibe is a close cousin of AT&T’s U-verse system.  It uses fiber optics part of the way, but relies on the same old copper phone wire that’s hanging on those phone poles in your front or back yard.  Because of the shorter distance of copper involved, Bell can use more advanced VDSL2 technology for a faster connection.

That’s certainly an improvement over Bell’s anemic DSL service, difficult to provide to many Canadians spread across the countryside.  But don’t mistake it for Verizon FiOS, or any other true fiber to the home service.  After learning the details, you won’t mistake it for a great consumer value either.

Fibe offers some urban and suburban Canadians new choices in broadband speed: 6/1Mbps, 12/1Mbps, 18/1Mbps and 25/7Mbps at prices ranging from $31.95-52.95 per month ($5 higher for standalone broadband service).  Prices may be slightly lower in some areas depending on what’s on offer from competitors.

But Bell also brings an uninvited guest to the party: Internet Overcharging usage limits.  They also reserve the right to throttle your speeds lower when using high traffic applications.

Check out the company’s marketing rhetoric next to the limitations:

• “Fibe 6 will light up your online life.” The bulb burns out after 25GB of consumption, and your online life is in the dark until the next billing cycle begins.
• With Fibe 12, “You’re totally cool and connected online.” Unfortunately, after 50GB of usage, -you- are left out in the cold.
• “Digital defines who you are. At any given time, you are networked and on your game.” With Fibe 16, the game is over after using 75GB.  Then you can redefine yourself with a good book for the rest of the month.
• “You’re a master of the digital universe. A power++ online user who blazes through bytes and is always looking for more upload speeds. Nothing less than the awesome power of Fibe 25 will do.” Fibe 25, like Fibe 12, sputters out after 75GB of usage.  Then Bell is the master… of your wallet.  There’s nothing like blazing fast speed that gets a bucket of cold water thrown on it with a usage limit and overlimit penalty.  Nothing else will do… for Bell.

Bell is among the more nervy providers out there.  After creating Internet Overcharging schemes that force customers into low usage allowance plans, the company offers to sell you “usage insurance” to protect you from their own paltry limits!  For an additional $5 per month up front, you get protection from their overlimit penalties for up to 40 additional gigabytes of usage.  Of course, you pay the fee whether exceeding the limit or not.  If you don’t have Overcharging Insurance, look out.  Overlimit penalties start at $1/GB and run to $2 and beyond for some smaller allowance plans.  For now, Bell limits the maximum overlimit penalty to $30 per month, but that can change at any time, as Rogers customers have found out.

Fibe appears to be primarily available in parts of Toronto and the GTA.  Selected customers may also receive a letter offering 50 percent off their IPTV video package for one year.  Expect the service to primarily launch in larger cities.  Living in a rural community in a province like Alberta, Saskatchewan or Manitoba?  Don’t hold your breath waiting for these kinds of services to arrive anytime soon.

[flv width=”640″ height=”405″]http://www.phillipdampier.com/video/Bell Entertainment Overview.flv[/flv]

A Bell-produced overview of their new Fibe IPTV service.  (6 minutes)

They're in your neighborhood, just waiting to break into your home network, according to WXYZ-TV in Detroit

The biggest security threat most broadband users will encounter doesn’t come from identity thieves or kiddie porn rings roving neighborhoods looking for unsecured computers to exploit — it’s from your neighbors looking for free access to your broadband service.

Local newscasts have recently been running sensationalist stories of mysterious cars parked on neighborhood streets driven by ne’er-do-wells barging onto unsecured home wireless networks.

In fact, the most common threat isn’t from drive-by crime rings, but right next door.  With most broadband accounts providing flat rate service, the occasional uninvited guest ‘borrowing access’ probably goes unnoticed.  But should Internet Overchargers have their way, the consequences of account sharing in a world with paltry usage limits and usage-based-billing could show up on your monthly bill.

In countries where these overcharging schemes already have taken firm root, reports of customers receiving enormous broadband service bills are common.  In Australia, rarely a week goes by without someone reporting a hacked wireless network incident.  Consumers have been forced to become watchdogs, constantly checking usage statistics to ensure someone in the neighborhood hasn’t been “borrowing” their Internet account and blowing through their monthly usage allowance.

One customer, who lives in an apartment complex, shares a too-common story:

Over the past 24 hours someone (or something?) has been sucking the life out of my internet connection and chewed up 10Gb of my quota. How do I troubleshoot the cause of this? I have a Buffalo WHR-G54S Wireless Router and my network is secured.  I live by myself in a small block of apartments; I have had no visitors either.

Another customer discovered when it’s your word against your provider’s, the provider wins:

Yesterday, I was checking my broadband bill and was surprised to find out that they had charged me for downloading an extra 4 GB of data. I checked my usage online for the current month and it was already 8GB! This is despite the fact that I have been on holiday for ten days, and my normal usage involves casual browsing and downloading e-mails.

Furthermore, I never exceeded my download limit since I started with my ISP. My ISP also confirms that this is quite unusual and against my normal usage pattern. I have asked them to provide me some usage statistics but they can only give me the data that I already see on my account online.

The cost of exceeding the limit can be enormous.  BigPond in Australia, for example, has a few Internet plans that charge a $0.15 per megabyte overlimit penalty.  That’s $150AUD per gigabyte.

[flv]http://www.phillipdampier.com/video/WXYZ Detroit Open Wi-Fi Risks 1-26-10.flv[/flv]

WXYZ-TV in Detroit ran this sensationalist report on drive-by hackers breaking into wireless networks. (3 minutes)

The solution suggested by most Internet Service Providers is to enable built-in wireless security.  How much protection that provides and whether customers will be able to understand how to configure security remain open questions.

Some phone companies providing DSL service have plenty of older equipment still in customer homes that only supports the older WEP security standard.  That’s insufficient to protect consumers from intrusion because WEP security has been seriously compromised.

“WEP as a security measure is so broken that your (and everyone else’s) kid sister can easily circumvent it,” computer security researcher Ralf-Philipp Weinmann told the BBC.  Weinmann is co-author of the aircrack-ptw tool that can crack WEP in minutes.

Anyone caring about their privacy, said Weinmann, should not use WEP to stop others using their wi-fi hotspot.

Current generation wireless routers typically provide both WEP and the more secure WPA standard. But now there is evidence WPA can also be compromised, with a little help from “cloud computing,” which puts several high powered computers together to quickly work on cracking your password. A service has even been launched to let would-be crackers rent time on the “cloud” to “test” network security passwords, starting at just $17. In as little as 20 minutes, those with relatively simple passwords will find their network security compromised.

You can protect yourself by at least making sure your router is “secured” with a password.  Most every router comes with instructions or software that make this process as simple as possible.  When you have a choice of security standards, aim for WPA2, if available.

Thus far, most reported WPA network break-ins occur because the user is relying on a simple password — often a common word, name, series of numbers, or something similar that is much easier to break. Try to use a password that is not a word in a dictionary, doesn’t correspond to information anyone could mine off your Facebook page (city/town, school, birthday, parents or siblings names, etc.), and would be impossible to guess off-hand.

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How to secure your wireless network (6 minutes)

Your Bill from MTN - Internet Overcharging Gift Wrapped

South Africans using the wireless services of MTN may be in for quite a shock in the coming weeks as the company attempts to collect for customer data usage charges it forgot to bill last fall.  Some customers have discovered the company automatically debited their checking accounts for thousands of dollars of “back usage” customers deny using.  Once again, when choosing whether to believe a faulty usage meter and billing system or the customer, Internet Overchargers believe the meter that fills their pockets with customer cash.

Benzi Kornizer is one customer impacted by the data discrepancy.  Despite using MTN’s data service for several months without incident, the company is trying to withdraw R10000 ($1,321 US Dollars) from Benzi’s checking account.  Kornizer pays R600 ($79) per month for 3GB of wireless data usage.  MTN’s usage meter, after the installation of a new billing system, claims he used more – more than $1,000 more.

“I received a letter from MTN, with no reference number, no date, no details of the problem and now I am having trouble getting my problem resolved,” Kornizer told ITWeb.

MTN believes in their usage meter, which it is using as justification to back-bill customers, despite admissions of ongoing billing problems.  Affected customers are receiving letters signed by customer relations executive Eddie Moyce admitting prior under-billing.

“MTN is in the process of re-processing the used data and customer call data records and will debit the affected customers’ accounts accordingly,” the letter states.

MTN’s billing practices, now a story in the South African media, resulted in a statement released by the company.

“We are extremely sensitive to the fact that billing errors have had an impact on the pockets of our subscribers. We will not suspend any voice or data contracts as a result of this error, and MTN will credit the accounts where double-billing errors occurred. MTN subscribers will also retain their loyalty points accrued over this period. MTN will investigate and evaluate every query on a case-by-case basis,” says Moyce.

He explains that the trouble stems from an upgrade of the billing system the company is using. “We have invested millions in a new billing system, which went live at the end of 2009 and is proving to be successful. However, we are still working hard to rectify the fallout from the previous system.”

The company admits the complete transition to the new billing system may take years to complete.  That leaves customers like Kornizer playing broadband usage roulette, never certain what the company’s meter will finally read, even months after the billing cycle ends.  Although MTN claims their meter is “proving to be successful,” customer complaints are pouring into consumer protection agencies and websites.

Kornizer is threatening to sue MTN in court.

Eddie Moyce, customer relations executive, spoke with MoneyWeb about the billing problems experienced by MTN. (5 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

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A sampling of the complaints from just the last 48 hours about MTN’s Usage Meter on consumer site HelloPeter, which has logged more than 9,000 customer complaints thus far against MTN:

“My December bill for my MTN Data Contract suddenly hits R3000 despite an normal usage of +-R320. I call the Autopage Accounts only to be told that there is a billing problem. However, any reply from MTN that this is a backbilling issue can be refuted. On my itemised billing, it shows that on Christmas day I used 1.2GB of data in 2 sessions a few minutes apart! Now, my modem is a 1.8Mbps but downloading 600MB in seconds is absolutely incredible!”

“Last month I received a data usage bill for R1901 which I thought was insane as it has always been R249 per month.  I queried it and a itemised bill was sent though, which showed the ‘usage’, so I could not argue, then on the 23rd I received an SMS saying MTN incorrectly billed customers for that period and we would get a full credit for the incorrect amount. Then I check my account and another R2693 was debited from my account.”

“My average monthly MTN bill for internet access via a modem is R271.27 which was boosted by a November bill for R521.20. I paid this amount even though it looked very high. I was astounded by my December bill for R 5395.48! I spoke to [customer service] who tells me that I must wait 25 working days for my query to be assessed! In the meantime I must pay the R5394.48 or else my [service] will be suspended! MTN insists I must pay before they audit my account.”

“I migrated my internet from a 500 meg to a 3 gig package, completed the paperwork and was assured that everything is in place and will be faxed through for the migration. After receiving an account for over R11000,  I was informed that the migration was never made. I do not have the forms, but the personnel remembered the transaction and called the accounts department. Answer, ‘Sorry, we made a mistake and did not do the migration for you, but you did use the data so you must pay the account’.”

“Since October 2009 I’ve been billed R 16000 mostly for data use. My account was suspended three times without notice….  [The company won’t send me] proof of the amount used.”

“My bill from MTN ranges between R1200 and R1400 a month – In October, November and December 2009, I received bills between R11 000 and R14 000 a month! When I queried these bills the answer was always the same: These are amounts that were not billed ‘forgot’ to bill me this amount and ‘there was an error’ on their system and this usage was not billed for. When asked for proof of some kind – seeing as I have not been using the account in December 2009, they told us they could not provide this. Nor would the call centre agent put me through to a Manager to discuss or sort it out. The last time we spoke to someone, they told us to ‘just pay it’ or make a payment plan to pay it off. I have no intention on paying any amounts due to their system faults and without proof of how I could use between R11 000 to R14 000 a month. Inconsistent billing, no service, no response to messages left, no responses to emails and faxes. I had no choice but to change service providers.”

“I am presently on the 500MB package for internet service, cost; R239/Mth. Yet my bill arrives stating just over R1400. I know I have not exceeded my allowance as I check it before and after each session and I only use it to Skype family back home, plus some VERY minor surfing on the odd occasion. This has been raised twice now with MTN, both times I have been greeted by a ‘it happens often’ mentality, told they can not find a reason why the bill is so high and the billing dept will get back to me in 21 days. This is going to be AFTER the money is taken out of my account. Evidence on this website indicates that grossly overcharging their clients is hardly an isolated occurrence here and there, but a standard procedure. This they seem to find an acceptable way to treat their customers. I wonder how they would feel if their clients all decided to settle bills in 21 days or at their leisure, through no fault of their own. To the present time this problem remains unresolved and not taken seriously by MTN.  TOTALLY UNACCEPTABLE.”

Phillip Dampier

While reviewing coverage on Comcast’s new usage meter, I ran across a disappointing quote from an article in The Hill newspaper from Gigi Sohn, president of public interest group Public Knowledge:

But as more consumers are downloading movies and streaming TV shows on their computers, bandwidth use is inching up. Imposing caps on consumers can become a form of discrimination, said Gigi Sohn, president of Public Knowledge, this morning at a panel I moderated about copyright and net neutrality.

“Public Knowledge doesn’t oppose usage-based pricing,” she said. “But if you set the cap low enough you discriminate against high-bandwidth applications. “If consumers have a finite amount of bandwidth each month, they could be forced to stay away from bit-hogging sites, like video high-quality video streaming services.

Sohn seems to grasp the very real risk of rationed broadband, but drops the ball completely in not opposing the scandal that “usage-based pricing” represents for broadband users.  It was a real disappointment to see a group fail to understand the implications of these kinds of Internet Overcharging schemes.  As the industry seeks to further monetize broadband usage, these pricing changes guarantee fatter profits and reduced costs for providers, and a higher bill for rationed broadband for consumers.

Comcast’s two year old 250GB usage cap seems generous by today’s standards, but note it has remained the same, despite growing overall broadband usage.  What was generous two years ago is slightly less so today, and could be downright stingy a few years from now.

For customers stuck with providers with a different definition of “generous,” it is even more worrisome.  Rochester, New York faced the prospect of a 5GB usage allowance from the local phone company’s DSL service, or a 40GB allowance from the local cable operator.  The latter called their experiment fair, consumption-based pricing, but in reality it would have tripled the cost of broadband service for residents seeking to maintain the same level of service they enjoyed previously.  There should be plenty to oppose in a $150 monthly broadband bill.

Usage-based billing makes providers very happy counting your money

Internet Overcharging schemes involve all the ways a profitable broadband industry, enjoying record revenue and declining costs, could force consumers to pay more for the exact same service they receive today:

• The arbitrary usage cap, which ranges incredibly from 5GB-250GB per month, depending on the provider.
• The false “consumption/usage-based pricing” model which doesn’t actually charge consumers for what they use, but rather confines them into ranges of data allowance plans that carry stiff penalties for consumers who exceed their limit.  Think cell phone plan for broadband, only markup the penalty fee by several thousand percent above cost.
• The overlimit penalty or fee, which seeks to punish and monetize usage at the same time.  Customers, most of whom don’t have a clue about what a “gigabyte” is, will pay a stiff price for not intuitively knowing how much they’ll use month to month, and pay an overlimit penalty of $1-5 per gigabyte for excess usage.  That’s far above the pennies per gigabyte large providers pay, but it’s a great way to make consumers think twice about daring to use high bandwidth services like online video.
• The overlimit insurance policy, which Bell Canada introduced to protect consumers from their own rapacious pricing.  They pocket the proceeds from the “insurance” as well, picking customer pockets at every opportunity.
• The usage meter, not subject to independent scrutiny or verification.  What they say you used, you used, even if you didn’t.  Customers have learned these meters aren’t as accurate as providers suggest they are.

The fact is, customers pay for access based on speed, which has its own natural built-in usage limits.  You can’t exceed certain consumption thresholds if your service doesn’t deliver the speed required to do so.  Heavier users naturally gravitate towards faster speed, often premium-priced tiers.  Lighter users often choose “lite” plans (when the provider makes them aware they exist) which deliver lower speed service perfectly adequate for web page browsing and e-mail.  Current pricing models remain highly profitable for providers, even more so than some of the other components of their “triple play” packages.  It’s the service consumers cancel last.

With a duopoly for wired broadband service in most American communities, tolerating “usage-based pricing” that isn’t (or will be overpriced even when offered) repeats the terrible mistake Canada made which today lives with the results — pricey, slow-speed broadband and a decline in broadband rankings.  Canadians are livid about handing over considerably more of their money for throttled, usage-limited Internet access.

Public Knowledge advocates for Net Neutrality.  In terms they might better understand, advocating for Net Neutrality while also not being opposed to the industry’s definition of “network management,” defined to create an exploitable loophole, makes Net Neutrality protection meaningless.

Without a ban on such pricing schemes, providers will keep their best possible tool to stop the threat of broadband video competing with their pay television offerings, and can favor certain content partners over others with exemptions from the dreaded cap ‘n tier system.

Matthew Henry, Internet Policy Counsel for Data Foundry, a database company, said on the panel that usage-based pricing presents serious “conflicts of interest” for cable companies that provide both cable TV and Internet services.

As people watch more cable content online, as both Comcast and Time Warner are pushing with their TV Everywhere services, more demands are placed on their broadband networks.

“Companies have a real incentive to force consumers to turn off the computer and pick up the remote,” he said.

Public Knowledge should carefully consider what happens in a Net Neutral world with onerous data caps and consumption pricing that exists for some, but not all online services.  It’s an end run around the kind of open Internet we all support.

A survey conducted by International Data Corporation on behalf of Zeugma Systems, a company that makes an edge router for broadband networks, shows that consumers simply hate bandwidth caps and will likely switch to another carrier if they have the option

Over the last year, over 600 articles here have documented the abuse of consumers’ wallets from such schemes.  We’ve also shown the real world consequences this pricing has in retarding development of new multimedia applications and higher bandwidth features.  Innovative high bandwidth services seeking funding in a usage-capped world are deemed untenable if usage limits or overpriced broadband make customers think twice about using them.  In the south Pacific, online video services have been literally shuttered simply because of data caps.  Australian broadband, littered with caps and consumption billing, has become so bad the government is proposing its own National Broadband Plan to provide relief to those down under.  Public Knowledge’s position would bring that broadband backwater to America if it became commonplace here.

Make no mistake — consumers are overwhelmingly opposed to such pricing, already pay higher-than-average costs for broadband, and are threatened with even higher bills if such schemes are imposed.

Public Knowledge needs to carefully reconsider its position and get on the side of consumers who recognize highly profitable broadband providers don’t need another major payday at their expense.  Free Press understands the implications.  We respect and appreciate Public Knowledge’s hard work for consumers on other issues.  We invite them to join the consumer movement to retain fair broadband pricing.

Consumers are increasingly cutting down their cable packages to keep their monthly bill down

Cable television customers have finally reached their limit.  For years, annual rate increases well in excess of inflation have annoyed customers, but beyond complaining, few actually dropped service.  That has begun to change as the economy, consumer debt, job fears, and other expenses have finally provoked customers to begin paring back on their cable package.

According to research from Centris, a consumer research organization, a virtual ceiling of tolerance for cable rate increases appears to have been reached for many subscribers.  Although consumers are not dropping cable en masse, they are not simply accepting a higher bill either.  They are dropping services from their cable package.  In 2008 and 2009, premium movie channels and pay per view suffered most from customer downgrades.  Consumers with multiple premium movie channels started by dropping one or two of them, and their use of pay per view service also dropped.  As the financial impact of the recession wore on, the next round of rate increases caused additional erosion — by late 2009 many consumers discontinued all of their premium services.

The goal?  To reduce or at least maintain a consistent monthly bill.  The average amount consumers are paying for digital cable dropped from $79 a month in the third quarter of 2008 to $70 in the third quarter of 2009.  That decline didn’t come from discounts from the industry — it came from dropping channels and services. In 2010, consumers are still pruning away, now impacting digital basic cable and smaller add-ons like sports and movie tiers.  They are also phoning their provider threatening to cancel service altogether if additional discounts cannot be found.  Cable operators, not surprisingly, have managed to find plenty of savings for consumers who ask and stand their ground, ready to walk away from cable.

The cable industry has sought to promote bundled services as an anti-erosion measure.  It’s much harder to walk away from a provider supplying your television, Internet, and phone service, especially if they lock you into a multi-year service agreement with a cancellation fee.  The savings promoted from bundled services come largely as a result of steeper price increases on standalone products and services, manufacturing “added value” for so-called “triple play” packages.

Some customers have divorced from pay television service altogether, deciding relentless price increases and the 500 channel universe shoveled in their direction just isn’t worth the price.  For many American families, however, such drastic cord cutting would border on traumatic, and they haven’t managed such a drastic step.

Luckily, a growing number of consumers have discovered taking the Luddite approach to television entertainment isn’t a requirement any longer.

Cutting the Cord With Online Viewing

With the growing penetration of fast broadband service in homes across the country, online video has rapidly become one of the most popular online services, particularly when it’s available for free.  The benefits don’t stop at the cost — programming catalogs are becoming increasingly deep and diverse allowing fans to watch entire seasons of shows on-demand, with a limited commercial load.  A consumer looking for something to watch might easily find more entertainment online than wading through hundreds of cable channels of niche and re-purposed programming (and program length commercials).

Cable companies are well aware of the trend towards online video.  First considered part-curiosity, part-piracy, today online video is provided by the major American networks, cable programmers, independent filmmakers, YouTube, and of course, Hulu.  It isn’t just for those torrent sites anymore.  And there is plenty of room for online video to grow.

The industry uses research companies like Centris to carefully track subscriber trends.  They want to be out in front of any sea change in viewing practices that could impact their business model and their revenue, and avoid repeating the mistakes others made in ignoring a potential threat for too long.

Wall Street is well aware of the potential threat as well.

Craig Moffett, a cable industry analyst with Sanford C. Bernstein is among the most prominent trend-watchers for the cable industry.  He sees some warning signs for the future.

“Still no evidence of cord-cutting, but as prices spiral higher, the stresses on the system are unquestionably growing,” Moffett said.

So far, the cable industry has decided the best way to fight potential losses is to get into the game themselves on their terms.  Comcast and Time Warner Cable, the nation’s largest cable operators, are launching their TV Everywhere concepts, which provide their broadband customers with online access to a myriad of cable programming, on demand, and currently for free.  The catch?  You must be a verified, current pay television customer.  If you want to watch a basic cable show, you need a basic cable subscription.  Want to watch Bill Maher online?  You can, assuming you are a verified HBO premium television subscriber.

Comcast’s system is already up and running.  Time Warner Cable is expected to roll out their system sometime this year.

The industry is even selling the public they applaud the online video experience as a win for customers.  Time Warner Cable president and CEO Glenn Britt said, “TV Everywhere is an all-around win for those of us who love television. It will give our customers more control over content and allow them greater access to programs they are already paying for, while enhancing the distributors’ and networks’ robust business model that encourages the creation of great content.”

He didn’t say it also protects Time Warner Cable’s flank from cord-cutting.  Lose the cable subscription and your access to online cable programming goes with it.

But the question remains, is that enough to protect cable television revenue?

The answer might be no.

[flv width=”400″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Invasion of the Cable Killers 9-15-09.flv[/flv]

Bloomberg News reported on ‘The Invasion of the Cable Killers’ — new hardware that lets you bypass cable, back on September 15, 2009.  (2 minutes)

The Coming Online Viewing War: The Players Assemble

Who owns and controls programming ultimately controls the distribution of it.  Time Warner Cable took several shots at Fox a few weeks ago when threatened with the loss of Fox programming over a contract dispute.  Alex Dudley, spokesman for Time Warner Cable, told NY1 viewers much of Fox’s programming is available online for the taking, so even if the network was thrown off the cable company’s lineup, viewers could simply bypass the dispute and watch online… for free.  His message – the dollar value Fox places on its programming is diminished when it gives it away for free online.

The fact so much of network programming is available online for free is part of the dispute over how much cable operators should pay to carry networks on their cable systems.  When the industry passes along those carriage fees to consumers, will that be the last straw for some who will drop their cable subscription and simply watch everything online?

“They’re the ones who are going to resist these price increases that the programmers are trying to push,” said Dudley. “One need look no further than the music industry for an example of what happens when consumers feel taken advantage of by an entire industry.”

Dudley’s remark is more telling than he realizes.  The cable industry is well aware of what happened when the music and newspaper industry ignored nascent challenges to their business models like piracy or free access to their content.  To cable operators, the music and newspaper industries’ online experiences are lessons to be learned and not repeated.  The music industry waited too long to crack down on piracy and lost pricing power as consumers simply stole what they rationalized was overpriced.  The newspaper industry failed to erect pay walls to control access to their content, and newspaper subscribers dropped print subscriptions to read everything online for free.  Cable industry control of content and distribution is key to protecting their business model for pay television.  More on that in a moment.

Now two other parties want to be heard on this matter — consumer electronics manufacturers and advertisers.

The Roku box is popular among Netflix subscribers who want to stream TV shows and movies to their television sets

This week, Advertising Age is running a story on the implications of cord-cutting.

The magazine takes note that online viewing doesn’t require a computer any longer.  Samsung, Boxee, Apple TV, and even Microsoft, manufacturer of the XBox, are now selling devices that bypass cable television and grab online video for users, often for free.

Netflix has already managed that for a monthly fee, and is rolling out service on all sorts of devices, from a set top box that streams content from the web to your television to video game consoles, and now even builds-in the service to some televisions and Blu-Ray DVD players.  Microsoft’s XBox Live service could be germinating a cable television service of its own, as it seeks to license content from programmers starting with Disney’s ESPN.

All of these services, along with traditional laptop or home computer viewing, could evolve into formidable challengers for the pay television industry.  Oh, and some new televisions on offer at this year’s Consumer Electronics Show build in support for Skype, a Voice Over IP telephone service, so phone revenue could be at risk as well.

Advertising Age believes this could be one of the entertainment industry’s biggest business battles of the next few years as millions, if not billions of dollars are at stake.

For the moment, the public face of the debate is a combination of downplaying its potential impact while the players quietly position themselves and their assets for the fight certain to come.

Both Dudley and Britt at Time Warner Cable call the potential trend towards online viewing interesting, but not much of a threat at the moment.

“We see some interesting stuff out there, but right now people are watching more TV than ever; cable-cutting is largely on the fringe,” said Dudley.

“A lot of manufacturers have come out and made announcements, but I don’t think they really are in a position to erode the pay-TV subscriptions that the cable industry has today,” said Park Associates research analyst Jayant Dafari.

“For many people, cable works just fine; the quality is great; the DVR functionality is great; the only gripe they have is that they’re paying for it,” Boxee’s founder and CEO Avner Ronen told Advertising Age. But “there is a growing generation out there where the whole definition of entertainment is changing, and their main source of entertainment is the internet.”

[flv]http://www.phillipdampier.com/video/CNBC Wii At the Movies 1-13-10.flv[/flv]

CNBC covered last week’s announcement of a partnership between Nintendo and Netflix to provide Netflix on the popular Nintendo Wii, in this exclusive interview with Reed Hastings, chairman and CEO of Netflix and Reggie Fils-Aime, Nintendo of America president & COO (January 13, 2010 – 5 minutes)

‘If It Becomes A Problem, We’ll Just Cut Them Off‘

The cable industry is in a comfortable position to leverage its control over programming and distribution to ultimately limit any competitive threat from online viewing.  In addition to mega-deals like Comcast’s acquisition of content-rich NBC-Universal (a partner in Hulu), the cable industry owns, controls, or can leverage carriage of its cable lineup contingent on programmers not giving away too much for free.  Advertising Age:

One tech exec, who asked not to be named, predicted that the minute cable operators start to feel the disruption, they will clamp down and use their market power to keep TV and films from seeping into next-generation devices. They’re already putting the squeeze on networks; any free distribution is an argument for lower cable distribution fees.

Stop the Cap! is also a player in this struggle, because a key component of the cable industry’s control of programming is the means it is distributed to consumers, and cable modem service representss one half of the duopoly most Americans find when shopping for broadband.  One potential strategy to eliminating the cord-cutting option is to enact Internet Overcharging schemes like usage limits and consumption billing that effectively makes it impractical for a consumer to “switch” to broadband for all of their online viewing.  Switching to the other half of the duopoly may not be an alternative. As online video projects like TV Everywhere will also be available to telco TV partners who wish to participate, there is every incentive to also limit video consumption on Verizon’s FiOS or AT&T’s U-verse systems.

Effective competition against entrenched players in the marketplace is impossible if those players control the content, the means of its distribution, and the ability to cut you off if you watch too much or switch to an independent competitor.

But this is history repeating itself.  Many of the same players and interests followed the same protectionist path against another competitor – satellite television.  It took strong regulatory policy from Washington to force a fair and level playing ground for an industry that didn’t want to sell content to its competitors, overcharged for access, and kept effective competition at bay for years, all while happily increasing rates for beleaguered consumers.

Here we go again.