Phillip “Oh look, more industry-backed research in denial regarding unpopular usage caps and consumption billing” Dampier

It seems America’s biggest industry-funded broadband astroturf group, Broadband for America, thinks the New America Foundation completely misses the point of “new pricing strategies” like restrictive usage caps, costly consumption-based billing, and fiendishly high overlimit fees. In a hurry, they released this particularly weak argument favoring usage pricing:

A new report by the New America Foundation suggests that “dwindling competition is fueling the rise of increasingly costly and restrictive Internet usage caps” in the broadband sector. But as we’ve explained before, these experimental new pricing strategies are actually signs of competition in the market and ultimately benefit consumers.

In terms of competition between broadband service providers, a study by Boston College Law School Professor Daniel Lyons concluded “data caps and other pricing strategies are ways that broadband companies can distinguish themselves from one another to achieve a competitive advantage in the marketplace.” He also concluded these practices were not anti-consumer: “When firms experiment with different business models, they can tailor services to niche audiences whose interests are inadequately satisfied by a one-size-fits-all flat-rate plan.” Indeed, many consumers are no longer satisfied with one-size-fits-all rate plans. Since data usage by individual users can vary dramatically, imposing a one-size-fits-all approach to pricing would result in light data users subsidizing the use of heavier ones. As Michigan State University Professor of Information Studies Steven Wildman explains, not having usage-based pricing models “means that light users pay a higher effective rate for broadband service, cross-subsidizing the activities of those who spend more time online. With usage-based pricing, those who use more bandwidth contribute more toward the cost of building and maintaining broadband networks.”

Broadband providers should be free to experiment with usage-based pricing and other pricing strategies as tools in their arsenal to meet rising broadband demand on their networks. Moving forward, Lyons recommends instituting public policies that allow providers the freedom to experiment, in order to best preserve the spirit of innovation that has characterized the Internet since its inception.

Broadband for America thinks they are clever when they introduce “academic papers” that extend credibility to their arguments. No, Broadband for America, we get the point. Your benefactors want to charge customers more  money for less service and call that a fair deal.

The wheels driving their talking points start to fall off the moment one peaks under their covers:

1. Broadband for America (BfA) is America’s largest telecom industry front group, backed almost entirely by cable and phone companies and dozens of supporting groups that are typically funded by those companies, have telecom industry board members, or whose lifeblood depends on doing business with Big Telecom companies.

2. Experimental pricing plans that largely leave existing pricing in place –and– impose new service limitations is not a sign of competition that benefits consumers, it is proof of its absence. With today’s broadband duopoly, there is little risk imposing new fees or service restrictions when the only competition you have typically follows suit. There is no evidence that usage-based pricing is saving consumers money, particularly when broadband providers are using their marketplace power to further increase prices.

3. There is no evidence “many consumers are no longer satisfied with one-size-fits-all rate plans” for home broadband. In fact, the reverse has been proved conclusively, sometimes by industry-funded researchers.

4. With a 90-95% gross margin on broadband, there is plenty of room for price cuts –and– unlimited broadband, but why give those profits away when lack of competition doesn’t provide the necessary push. Instead, providers’ ideas of “innovative pricing” are always upwards and include usage limits, modem rental fees, and other restrictions.

5. The railroad industry argued much the same case in the early 20th century when communities complained about wide pricing disparity, depending on local competition. We all know what eventually happened there.

6. Full disclosure, as is too often the case, is completely lacking at BfA. So we’ve offered to help:

The “study by Boston College Law School Professor Daniel Lyons” is accurate. He is now a faculty member there. But BfA fails to disclose the study was actually produced on behalf of the Koch Brother-funded Mercatus Center, which specializes in industry-friendly position papers on deregulation. Lyons is also on the Board of Academic Advisers at the Free State Foundation, itself an industry-backed astroturf group that advocates on behalf of large telecom companies, among others.

His colleague Michigan State University Professor of Information Studies Steven Wildman is also an adviser at the Free State Foundation. He is also a bit more transparent about where the money comes from for his studies advocating usage-based pricing – the National Cable and Telecommunications Association (NCTA), the largest cable industry lobbying and trade group in the United States.

The only surprise Lyons and Wildman could have delivered is if they advocated against these Internet Overcharging schemes. But then they probably would not have been invited to present their findings at an NCTA Connects briefing last week entitled, “Connecting the Dots on Usage-Based Pricing.”

We at Stop the Cap! can connect the dots as well.

A new report critical of broadband providers’ implementation of usage-based billing and data caps finds providers are not using them to handle traffic congestion, instead implementing them to monetize broadband usage and protect pay television from online video competition.

The New America Foundation and the Open Technology Institute today released its report, “Capping the Nation’s Broadband Future?,” which takes a hard look at the increasingly common practice of limiting subscribers’ broadband usage.

The paper finds that provider arguments for limiting broadband traffic don’t make sense, but do earn more dollars from customers forced to upgrade their service to win a larger monthly usage allowance.

“Although traffic on U.S. broadband networks is increasing at a steady rate, the costs to provide broadband service are also declining, including the cost of Internet connectivity or IP transit as well as equipment and other operational costs,” the reports argues. “The result is that broadband is an incredibly profitable business, particularly for cable ISPs. Tiered pricing and data caps have also become a cash cow for the two largest mobile providers, Verizon and AT&T, who already were making impressive margins on their mobile data service before abandoning unlimited plans.”

The study finds providers are attempting to invent a climate of broadband scarcity, particularly on the nation’s wired networks, to defend the introduction of various forms of Internet Overcharging, including data caps, usage-based billing, and overlimit fees.

The New America Foundation is calling on policymakers to take a more active role in defending online innovation and controlling provider zeal to cap the nation’s broadband future.

The False Argument of Network Congestion

Providers’ tall tales.

The most common defense for usage caps providers put forward is that they curb “excessive use” and impact almost none of their customers. The report points out many of the providers implementing usage caps have left them largely unchanged, despite ongoing usage growth patterns. In 2008, the report notes Comcast measured the average monthly usage of each broadband customer at around 2.5GB. Just four years later that number has quadrupled to 8-10GB. While many customers rely on Comcast’s broadband service for basic e-mail and web browsing, the cable operator has begun to entice customers into utilizing its online video platform, which in certain cases can dramatically eat into a customer’s monthly usage allowance, which remained unchanged until earlier this year.

Many broadband providers are less generous than Comcast, some imposing caps as low as 5GB of usage per month.

“Data caps encourage a climate of scarcity in an increasingly data-driven world,” the report concludes. “Broadband appears to be one of few industries that seek to discourage their customers from consuming more of their product. Thus, even as the economic and engineering rationale for data caps on wireline broadband does not hold up given the declining costs of providing service and rapid technological advancement, the proliferation of data caps is increasing. The trend is driven in large part by a woefully uncompetitive market that allows the nation’s largest providers to generate enormous profits as well as protect legacy business models from new services and innovators.”

The argument that increased usage puts an undeniable burden on providers is untenable when one examines the financial reports of providers.

The study found, for example, Time Warner Cable’s latest 10-K report shows that connectivity costs as a percentage of revenue have decreased by half, from an already modest 1.20% in 2008 to a little over 0.60% in 2011.

In 2012, the company is again exploring ways to introduce usage caps on at least some of its customers, in return for a modest discount.

Upgrade? Spend Less and Charge Customers More Instead!

The report notes cable companies like Time Warner Cable and Comcast, whose networks were originally built for television services and have now been repurposed for broadband as well, are enjoying lucrative profits on
networks that have long been paid off. In fact, Time Warner Cable recently disclosed it earns more than 95 percent in gross margins on its broadband service, with additional rate increases for consumers likely in the near future. The company recently began charging its customers a modem rental fee as well.

Shammo

At these margins, the report concludes selling broadband service to “data hogs” who consume hundreds of gigabytes of traffic per month are still profitable for providers.

As financial reports disclose capital spending on network upgrades continue to fall, operators are instead content imposing usage limits on customers to control traffic growth and further monetize an already enormously-profitable business.

The nation’s largest phone companies also come in for criticism. The report quotes from Stop the Cap!’s coverage of Verizon’s chief financial officer openly admitting it is investing most of its available capital in the highly profitable wireless sector.

“It is clear that in shifting a greater percent of their overall capital expenditures to their wireless segments, Verizon and AT&T are more interested in expanding their dominance in the wireless industry than they are in upgrading DSL or expanding fiber connectivity to provide aggressive competition for residential broadband service,” the report found.

Verizon’s chief financial officer recently made the following statement at an investor relations event:

“The fact of the matter is wireline capital — and I won’t give the number but it’s pretty substantial — is being spent on the wireline side of the house to support wireless growth,” [Verizon CFO Fran Shammo] said. “So the IP backbone, the data transmission, fiber to the cell, that is all on the wireline books but it‖s all being built for the wireless company.”

Wall Street Educates Providers on How to Lead the Way With Data Caps

Although the majority of subscribers loathe usage restrictions on their already-expensive broadband accounts, a vocal group on Wall Street strongly favors them, and routinely browbeats providers on the issue.

Helping educate cable companies how usage caps can protect against cord cutting and further monetize broadband.

The report’s authors discovered some Wall Street banks even invest time and money developing presentations advocating usage caps and consumption billing to protect video revenue. A 2011 Credit Suisse presentation outlined ways usage-based billing can protect cable operators’ video revenues:

“…over the longer term, consumption based billing could reduce the attractiveness of over the top video options (e.g., Netflix and Hulu), as the economic attractiveness of such over the top options could be partially offset by a [broadband] bill that is higher, due to [broadband] overage charges that would be driven by large amounts of data being streamed via a customer’s [broadband] connection.”

Yet most cable operators vehemently deny usage caps and consumption billing are designed to decrease usage or protect video revenue. Credit Suisse and other Wall Street banks and analysts say otherwise, and express little concern over network congestion.

The report finds compelling evidence that data caps have effectively stopped new competitors and online innovation already, noting a Sony executive stated that the company was putting the development of its own online video service on hold, citing Comcast’s monthly usage cap.

The Wireless Cap Shell Game: Caps Protect Scarce Airwaves While Companies Promote More Usage, For a Price

The report also found suggestions of a forthcoming wireless traffic tsunami are greatly exaggerated. AT&T and Verizon Wireless have issued repeated alarmist rhetoric claiming that wireless data’s exponential growth is threatening to overwhelm available network capacity.

But both carriers recently changed pricing models to encourage consumers to bring more devices to their networks, along with suggestions customers upgrade to higher allowance plans to handle the additional traffic generated by those devices. In fact, both AT&T and Verizon Wireless see profitable futures in forthcoming “machine to machine” wireless traffic that will allow cars, appliances and medical devices to communicate over their respective mobile networks. AT&T’s security and home automation system also relies on its own wireless network, offering customers remote access to their homes, chewing up wireless bandwidth as they go.

Despite suggestions from both providers their new wireless data plans would save customers money, it has brought overall increases in the average revenue earned from each subscriber instead.

Comcast’s error correctly noting the return of a customer’s cable modem has cost a Washington, D.C. man his credit rating and $26,000 in additional mortgage fees. Now the man is suing Comcast to get his credit restored and his money back.

In June 2010, Marc Himmelstein bid Comcast adieu. The cable giant informed Himmelstein he was due a refund of $123.19 after the company’s equipment was removed from his home. But the company’s cable modem was left behind by mistake, costing Himmelstein $220 in unreturned equipment charges.

Himmelstein claims nobody from Comcast notified him about the missing modem, nor did he receive a bill for the difference between the equipment fee and his credit balance. He learned about his debt to Comcast when he called the company in August wondering where his refund was.

Once he discovered Comcast’s problem, Himmelstein says he returned the modem. Comcast promised to remove the unreturned equipment charge and assured him the matter was now resolved.

But Himmelstein ultimately never received his $123.19 refund. Instead, Comcast transferred his “past due” account to Credit Protection Association, which reported Himmelstein delinquent to the country’s three largest credit-reporting agencies.

That was bad timing. Himmelstein discovered Comcast’s hit on his credit in the spring of 2011, just as he was refinancing his mortgage. The mortgage lender insisted he pay an additional point in interest — $26,000 — because of the delinquent item.

Boasberg

Himmelstein filed a breach of contract claim and negligence against Comcast in D.C. federal court. Also named is Credit Protection Association, charged with negligence and violation of the Fair Credit Reporting Act. Himmelstein wants both companies to cover the $26,000 paid to the mortgage company, all attorney fees, and the $123.19 remaining credit balance Comcast still has not refunded.

In October, Comcast moved to dismiss all charges, and District Judge James Boasberg last week agreed to throw out claims of constructive fraud and “bad faith” breach of contract, but left the central claim of negligence stand. The case will either now proceed in court or Comcast and the collection agency will offer to settle.

Consumers canceling service should always insist on a printed receipt whenever company equipment in returned, and that receipt should be kept safe for at least six months in case of discrepancies. If an expected refund does not materialize or if a dispute arises, always write down the name of the representative spoken to on the phone or in person. Most cable companies do not refer past due accounts for outside collection activity until they are 90-120 days past due. If a collection company contacts you, demand written verification of the debt, which will force them to produce proof of the amount owed.

Lingering billing disputes should be referred to executive level customer service. Most cable operators have these specialized customer service representatives available to address red tape and special circumstances. Calling the company’s corporate office and asking to speak to the CEO will almost always get transferred to executive level customer service. Filing a complaint with the Better Business Bureau will also be answered by an executive level representative. In the case of Comcast, e-mailing [email protected] may also prove worthwhile.

New York City Mayor Michael Bloomberg has called Verizon’s notification that phone service in lower Manhattan will not be back to normal until late next spring “unacceptable.”

Hurricane Sandy’s storm surge ruined at least 95 percent of Verizon Communications’ landline network in the lower half of Manhattan leaving numerous businesses without phone service with little hope service will be restored this year.

“Their schedule right now says that lower Manhattan is not going to be back up until May,” Bloomberg said in a recent speech.

The mayor is upset with Verizon’s timetable because a number of major buildings in the area cannot be reoccupied by business tenants until telephone service is restored, and Verizon is facing questions about why it will take a half-year to get phone service back up and running to everyone that wants it.

When local cable news channel NY1 asked Verizon how many customers were still without service, a spokesman told the reporter it did not know, adding some customers have priorities more pressing than phone service.

Verizon has chosen not to replace much of the damaged copper infrastructure and plans to invest in more reliable fiber optics in its ongoing effort to meet its FiOS rollout obligations in New York City, but that does not satisfy many business owners who cannot process credit card transactions or, in some cases, run their businesses as long as phone lines remain out of service.

This week a coalition of interest groups petitioned New York’s Public Service Commission asking them to impose new requirements on the state’s utility companies to develop comprehensive emergency response plans that acknowledge climate change and the extreme weather events that accompany it.

The petition was filed by the Columbia Law School Center for Climate Change Law, Natural Resources Defense Council, New York League of Conservation Voters, Pace Energy and Climate Law Center of Pace Law School, Municipal Art Society of New York, Earthjustice, Environmental Advocates of New York, and Riverkeeper.

The petition notes in the past two years alone, New York City has been hit by two of the largest hurricanes in history (Irene and Sandy).

The group’s observations are shared by some of the state’s highest elected officials.

“In just 14 months, two hurricanes have forced [New York City] to evacuate neighborhoods — something our city government had never done before,” New York City Mayor Bloomberg wrote in an editorial for Bloomberg View. “If this is a trend, it is simply not sustainable.”

New York Governor Andrew Cuomo echoed Bloomberg’s concerns:

Extreme weather is a reality. It is a reality that we are vulnerable. And if we’re going to do our job as elected officials, we’re going to need to think about how to redesign, or as we go forward, make the modifications necessary so we don’t incur this type of damage…. For us to sit here today and say this is a once-in-a-generation and it’s not going to happen again, I think would be short-sighted…. I think we need to anticipate more of these extreme weather type situations in the future and we have to take that into consideration in reforming, modifying, our infrastructure.

The coalition claims current utility policies are designed for short-term disaster response procedures, which they call inadequate.

Most utility companies develop plans based on historic weather patterns the environmental groups argue cannot take into account the more extreme weather patterns afflicting the state. The PSC can mandate utilities do more.

New York’s utility infrastructure is also deemed outdated, with much of it exposed above-ground, vulnerable to storm damage. The state also lacks more advanced technology including smart electricity grids, telecommunications fiber rings that can reroute around cable cuts, and reinforcement of vulnerably placed generator plants, telephone switches, and utility substations.

Despite the criticism, Verizon CEO Lowell McAdam remained upbeat about Verizon’s performance, particularly noting strong growth in wireless.

In the third quarter when Sandy struck, Verizon picked up 1.54 million more contract customers, exceeding the 901,000 estimate predicted by analysts polled by Bloomberg News. The wireless profit margin at Verizon also reached a new milestone – 50 percent, up from 49 percent in the second quarter.

[flv width=”534″ height=”320″]http://www.phillipdampier.com/video/NY1 Bloomberg Criticizes Verizon For Slow Recovery Of Service 12-6-12.mp4[/flv]

NY1 reports business customers in lower Manhattan are not too pleased waiting for Verizon to repair their landlines.  (2 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Verizon Restoration of Verizon’s Lower Manhattan Cable Vault 11-12.flv[/flv]

Verizon produced this video showing off its own restoration efforts in a downtown Manhattan cable vault.  (3 minutes)

Enjoy arrest and deportation.

If Time Warner Cable was hoping to attract new customers, allowing employees to arrange for their arrest and deportation is probably not the best way to accomplish that.

But that is precisely what happened to a Burlington, N.C., mom who tried to order cable service for her daughter with a fake Social Security number. An off-duty local police officer working part time as a security guard in the cable office overheard the conversation and arranged for the woman’s arrest.

Now 27-year old Lorena Yanez-Mata faces deportation to Mexico because she is in the United States illegally.

Yanez-Mata tried to use her individual taxpayer identification number to order cable service. The cable company rejected that, insisting on a Social Security number. So she arrived at the cable store with a counterfeit card with a random nine digit number.

When the security officer overheard the conversation, Time Warner Cable says he acted on his own initiative to contact local police, who arrested Yanez-Mata as soon as she left.

Yanez-Mata was charged with obtaining property by false pretense because of the phony Social Security number. But her prospects are likely to be more serious when she arrives in a Charlotte immigration court for possible deportation.

Time Warner Cable tried to distance itself from the debacle, claiming it is against their policy to share personal information with law enforcement and the security officer was not following any company procedure or direction. The cable company has no interest in bringing charges against the woman.

The company did not explain what would happen to the security officer who apparently disregarded the cable company’s policies when he choose to share potentially confidential, personal information with authorities. Nor did the company say whether it planned to issue new directives to avoid similar situations in the future.

Although Triad area residents and the local media used the incident to debate the issue of illegal immigration, another question remains: should an off-duty police officer working as a security guard act on private information he overhears and initiate a police investigation contrary to the interests of his employer?

[flv width=”604″ height=”424″]http://www.phillipdampier.com/video/WFMY Greensboro Burlington Mom Faces Deportation After Trying To Get Time Warner Cable 12-12-12.flv[/flv]

WFMY-TV in Greensboro used the story of the Burlington mom to address the larger issue of why people illegally immigrate to the United States. We are wondering how Time Warner plans to handle employees sharing customer information with the authorities. (2 minutes)