(Courtesy: Lab squad)

The broadband stimulus package advocated by the Obama Administration may become a feeding frenzy for waste, fraud, and abuse.  That’s the attitude of several public interest groups concerned about how public tax dollars are being used to study, map, construct, and deploy broadband networks to reach the underserved, and those without any broadband service at all.

Now the story has drawn the attention of the Associated Press’ technology reporter Peter Svensson, who along with Joelle Tessler, have written a piece exploring just where American taxpayer dollars are going on broadband mapping.

The $787 billion stimulus bill championed by the Obama administration set aside up to $350 million to create a national broadband map that could guide policies aimed at expanding high-speed Internet access. That $350 million tag struck some people in the telecommunications industry as excessive, compared with existing, smaller efforts. The map won’t even be done in time to help decide where to spend much of the $7.2 billion in stimulus money earmarked for broadband programs.

Svensson and Tessler talked to a variety of industry experts, as well as companies that often find themselves at a major disadvantage when trying to bid for mapping funds and discover the lowest bid for the best work isn’t always the determining factor.

The consensus is that the government is at risk for overspending up to 90% of the money set aside for mapping, and has vastly overestimated the actual costs:

Rory Altman, director at telecommunications consulting firm Altman Vilandrie & Co., which has helped clients map broadband availability in some areas, said $350 million was a “ridiculous” amount of money to spend on a national broadband map.

Even $100 million might be high. The firm could create a national broadband map for $3.5 million, and “would gladly do it for $35 million,” Altman said.

More concerning is the fact that some of the interests that have successfully won mapping contracts are infested with self-interested telecommunications company executives who have a vested interest in steering the findings of the mapping projects, as well as defending common industry practices of withholding data for “customer privacy” and “competitive” reasons.  Allowing the telecommunications industry to provide the raw data (considerably redacted), a practice defended by telecommunications executives sitting on the boards of some mapping firms winning bids, is a recipe for the production of industry-favorable maps.

Public Knowledge, a public interest group, has been particularly critical of broadband mapping strategies, essential to measuring the current availability and very definition of what is broadband service in the United States.  Art Brodsky, communications director of the group, has reported extensively on the issue for months.

Art Brodsky, for Public Knowledge:

It would be a shame if the stimulus mapping/grant program and the broadband plan were considered in isolation, because they are, together, pieces of the same puzzle. Certainly the telephone and cable industries are considering them together, and using the leverage on one to influence the other to reach the inevitable conclusion that no new broadband policies are needed and that everything will be just fine if we leave the companies in control. Ignore our slumping world rankings for broadband. Ignore the lack of choice. Let’s try to connect the dots into a long silver thread.

The first dot is broadband mapping. If the maps show there is no problem with broadband coverage, then there should be no need for legislation, regulation or any other policies that would immediately be branded a “solution in search of a problem” by the telecom industries. Connected Nation plays a key role here, because their maps will be constructed in at least a dozen states, perhaps more, under the broadband stimulus plan.

Unfortunately, the way the stimulus mapping program is going, that piece is falling nicely into place. By agreeing to the telephone and cable industry’s request – some might say caving into the industry’s demand – that broadband speeds not be reported, the National Telecommunications and Information Administration (NTIA) opened the door for all kinds of mischief. In public comments, NTIA officials said such an agreement was necessary to gain the cooperation of the telephone and cable companies. That’s one way to look at it. Another way is that by requiring the carriers to report broadband speeds – even if their reports were inaccurate – at least there would be something on the record that could be corrected, criticized or cited. Without speed data, the value of the program diminishes. Even under the old rules, all the carriers had to show was “advertised” speeds, so the carriers started advertising. The speeds agreed to by NTIA as “broadband” in the first place are relatively slow anyway.

Mark Seifert, oversees the broadband grant and mapping programs at the NTIA defends the spending proposals by the federal government.  Seifert told the AP that since much of the data will come from the providers’ themselves, NTIA plans to “independently verify” the veracity of the data it receives, which he claims could include door-to-door verification with individual residents and other unspecified verification procedures.

Meanwhile, critics of some of the industry-connected broadband mapping efforts say the groundwork may be laid for future challenges by the nation’s largest broadband providers (large telephone and cable companies) who almost uniformly avoided participating in the first round of stimulus grant applications.

Michael Tattersall, founder of the mapping company Stratsoft is concerned.  He told Public Knowledge incomplete or false map data could be used by providers to have other groups’ stimulus applications thrown out.

If the maps show there is more coverage in rural areas than there actually is, then Tattersall said, the “smaller, in-state broadband providers that are applying for funds that will be directly affected by the quality and integrity of state-commissioned broadband maps.” There could be challenges by the larger carriers, which didn’t apply for stimulus funds, to broadband grants from smaller rural, municipal or neighborhood based on already existing Connected Nation maps.

Disqualified applications based on discredited map data could throw the entire stimulus program into doubt, allowing telecommunications lobbyists for the big providers to argue the stimulus program is a failure and needs to be started over, with recommendations those large providers get the bulk of the money.

Indeed, several providers are already concerned with the prospect that stimulus funds could be used to bring competition to their areas — start-ups and projects funded by government money that could eventually directly compete against their existing offerings, designated as too slow or backwards for 21st century broadband.

With providers already trying to downplay expectations for what defines fast, robust broadband, it leaves incumbent providers keeping their communities in a perpetual slow lane in a much better position not to stick out like a sore thumb.  Brodsky again:

In addition to using the maps, telecom carriers are also trying to freeze the idea of advancing broadband into what exists today.

AT&T led the charge on this, in a remarkable filing that would, in essence, freeze broadband where it is now because that’s what the stimulus law directs the FCC to do when it formulates a broadband plan. AT&T said, “In other words, the definition of broadband must comprise services that can practicably be deployed in unserved and underserved areas—and must comprise services that today’s unserved Americans can and will actually adopt.”

Just like FairPoint Communications, the Towering Inferno of phone companies haunting New England, Frontier Communications is making a whole lot of promises to state regulators and consumers, if they’ll only support the deal to transfer ownership of phone service from Verizon to them.

This time, Frontier is issuing a self-serving press release touting their investment of some $4 million dollars in its broadband networks in Charles Town and Princeton, West Virginia.  But the best part was the claim the upgrades would “offer customers fast broadband speeds and near-unlimited bandwidth capacity.”

In Princeton, 44 miles of fiber-optic cable will connect all Frontier High-Speed Internet (HSI) equipment to the exchange`s main switch, and 37 additional miles of fiber cable are being installed in the Charles Town exchange. These upgrades will allow Residential HSI speeds of up to 6 Meg and Business HSI speeds of up to 12 Meg. The upgrades will allow provisioning of Metro Ethernet service of up to 100 Meg, resulting in very high data speeds for private networks among multiple business locations.

These upgrades are all well and good, and are perhaps more than urban-focused Verizon was willing to do in the state, but before West Virginians get too excited by the words “fiber cable” and “near-unlimited bandwidth capacity,” it might be wise to consider the implications of transferring an entire state’s telephone business to a company that still insists on defining an “appropriate amount of usage” on that near-unlimited network at a piddly 5GB per month.

The company also promoted their “computer giveaway” program:

Recognizing that the lack of a personal computer is a barrier for many families, since 2006 Frontier has provided more than 10,000 free computers to qualifying customers in West Virginia. A large percentage of the computers went to first time computer households, who also benefited from free on-site installation.

To the uninitiated, that may suggest a benevolent phone company handing out free computers to the needy with no strings attached.  In fact, this was a Frontier customer acquisition promotion.  Customers signing up for a bundle of telephone and broadband and/or satellite service could qualify for a free basic Dell Netbook (valued at under $400), if they are in good standing with the company, agree to a “price protection agreement” holding them to the company for two years (or facing a nasty early termination fee running several hundred dollars), and also pay a handling fee:

Customer pays handling charges and taxes totaling $45. Customers must subscribe to a new package of Frontier residential local service with features, Unlimited Nationwide or Statewide Long Distance voice-calling and qualifying High-Speed Internet service. Requires a two-year Price Protection Plan on Frontier services (excludes satellite TV) with a $300 early termination fee. Offer available while supplies last. Frontier reserves the right to substitute a comparable Mini Laptop. Other offers available for existing High-Speed Internet customers. Applicable taxes and surcharges apply. Electronic or other written contract signature for Frontier services is required. Some Frontier services are subject to availability. Installation charges may apply. Unlimited U.S. Long Distance minutes are for residential voice usage and exclude 900, international, directory assistance and dial-up Internet calls.

For a whole lot of West Virginia, broadband service means one thing – DSL from the phone company.  Satellite broadband is costly, capped, and has terrible customer satisfaction ratings.  Cable television is a dream for significant parts of the mountainous state.  Do West Virginians want to risk their broadband future on a company that insists on an Acceptable Use Policy with a 5GB usage limit in it?

Residents of Rochester, New York know Frontier Communications all too well.  They’ve been our local telephone company since being absorbed by Citizens Communications after the colossal downfall of Global Crossing, which took ownership of the formerly independent Rochester Telephone Corporation.

Don’t let dreams of fiber dance too much in your head.  Frontier routinely installs fiber, but only between their central offices and remote equipment that helps reduce the distance between telephone switch equipment and the copper wiring out on the telephone poles.  It does help provide the potential of speed increases for DSL service by reducing the length of copper wire DSL travels on, but by no means should imply West Virginia will see fiber to the home in their near future.

If Frontier Communications lacks the means and the will to wire New York’s second largest economy and third largest metropolitan area with more than 1,000,000 residents with fiber to the home, don’t think for a moment they’re going to be any hurry to light up the state of West Virginia.

Indeed, for many residents of the Flower City, the bloom is well off Frontier’s rose, trapping this community in a broadband backwater with a telephone company unwilling and/or unable to provide the kind of 21st century broadband service that is presently being provided in several other upstate cities as Verizon installs its FiOS fiber network.  For Rochester, and for too many other cities, the broadband superhighway from the phone company has little more than tumbleweeds blowing across.

This site was founded last year when Frontier introduced its 5GB usage cap, and we coordinated a consumer response which forced the company to pull back from its enforcement.  But the threat still looms over the heads of their customers from coast to coast as long as it remains a part of their Acceptable Use Policy.

The time has come for Frontier to banish the 5GB language from its Acceptable Use Policy once and for all and stop toying with Internet Overcharging schemes altogether, especially as it seeks to bring the threat of those schemes to millions of Americans that may find their only realistic broadband option coming from this provider.  Otherwise, it’s time for consumers to get on the phones and tell their elected officials and public utility commissions how they feel about getting broadband service from a phone company that tells them:

Frontier may suspend, terminate or apply additional charges to the Service if such usage exceeds a reasonable amount of usage. A reasonable amount of usage is defined as 5GB combined upload and download consumption during the course of a 30-day billing period. The Company has made no decision about potential charges for monthly usage in excess of 5GB.

Back in the mid-1980s, I first got involved in the fight against the cable television industry’s consumer abuses.  Cable had gotten cocky, and began to use their monopoly position to extract ever-increasing amounts of money from consumers, providing lousy service and engaged in anti-competitive abuse all over the marketplace.  Back then, competition for the overwhelming majority of consumers came from just one place – giant 10-12 foot satellite dishes.  These were the days before Direct Broadcast Satellite providers like Echostar/DISH and DirecTV (and PrimeStar, the cable industry’s own satellite provider that claimed to ‘compete’ with cable) provided competition to cable.

In the mid and late 1980s, your choice was a giant TVRO (TV-Receive-Only) satellite dish in the backyard or you hooked up to cable.  A tiny handful of communities had wireless cable, a service that was supposed to compete with cable but was seriously limited in channel capacity (in many communities, wireless cable ended up providing access to ‘adult’ content that cable wouldn’t carry as their biggest selling point) and quickly faded from view by the mid 1990s.

The abusive practices were all over the place back then:

• Cozy arrangements between cable companies and local governments resulting in outright bans of satellite dishes for aesthetic reasons, using zoning laws either prohibiting their installation or requiring landscaping to hide them from view (to the neighbors and to the satellites they were trying to receive, making them useless), or requiring expensive permit fees;
• A rush to scramble/encode satellite signals and then require consumers to purchase, outright, a costly descrambler from General Instruments called the VideoCipher II for $399 (or have it incorporated within a satellite receiver that typically cost $800-1000 and was available only for purchase), only to be replaced a few years later by the VideoCipher II+ (which consumers were also forced to purchase).
• Cable companies, which had ownership interests in most cable networks (which was nearly a pre-condition for getting your network on cable systems), often had exclusive rights to sell that programming, and frequently provided it “only on cable” or to satellite customers who could not subscribe to cable.  Some networks refused to sell to competitors, including dish owners, at any price.
• Anti competitive pricing was by far the biggest problem.  Prices for programming packages encrypted on satellite were sold to consumer dish owners in small or large bundles at pricing comparable or above what cable subscribers paid, despite the fact all of the costs to provide, install, and service reception equipment were borne by consumers.  No cable TV company overhead, no infrastructure or staffing and support costs, yet satellite dish owners were expected to pay the same high costs that cable subscribers paid, and also purchase their own equipment.  That was quite an investment: a 12 foot dish, satellite reception equipment, decoder, and installation routinely ran well over a thousand dollars, depending on the equipment and installation complexity, and that was before programming costs were factored in.

Rural consumers really got the short end of the cable stick, not able to buy cable even if they wanted to, and forced to spend big money, upfront, just to get satellite TV.

That inspired the consumer groundswell of support for legislation to stop the abuses, which overrode a White House veto by President George H.W. Bush.  Among other things, the Cable Act of 1992 put a stop to exclusive programming contracts which denied competitor access to cable networks.

Without that legislation, there would be no DirecTV or DISH today.

Now the cable industry is back, high-fiving over their victory to have the 30% ownership cap dispensed with, and are now taking on the next provision of the 1992 Cable Act they don’t like — the ban on exclusive programming contracts.

That’s right, it’s Back to the Future as Comcast and Cablevision take their legal business to the same friendly DC Court of Appeals that savaged the 30% cap, now seeking an immediate repeal of the exclusivity ban as well.

Oral arguments start September 22nd.

Most amusing of all is the argument made by Comcast and Cablevision, who claim despite the time and attention they are spending on overturning the law, not to mention the legal expense, the practical effect of an end to exclusivity bans would be… absolutely nothing.

“Widespread withholding is now implausible,” said the attorneys in the filing. “[T]here are proportionally fewer services to withhold. The limited withholding that may still occur will not threaten competition: most vertically integrated services have closely similar substitutes, and, when competitive MVPDs [multichannel video programming distributors] have sunk massive investments, withholding can no longer cause market exit.”

That’s right.  Big cable companies throw money away on attorneys who will presumably fight this case and the inevitable appeals for the next few years for no practical change whatsoever in the current competitive landscape.  The believe people will accept that an industry that had to be forced by regulation to compete on a level playing field will continue to respect that playing field once they plow it up.

Just trust us.  We’re your cable company.  You love us.

So it could be “nothing” as they suggest, or it could be a defensive response to challenges of their business plans from telephone company TV and online video competition.  Would you subscribe to a competitor that didn’t offer the networks you wanted to see because they were “exclusively” available only from the cable company?

Be it usage caps, consumption billing, exclusive contracts, “price protection agreements” that hold customers in place for 12-24 months (or longer), the war to keep consumers from choosing when, where, and how they access content is becoming fully engaged.

<

p style=”text-align: center;”>

Satellite television in the mid-1980s was highlighted by Granada Television

Argentina's largest cable operator wants to get even larger

The Argentine government recognizes market concentration when it sees it, and has overturned a decision by the Argentine Supreme Court to approve the merger of two giant cable conglomerates in Argentina — Cablevisión and Multichannel, both owned by Grupo Clarín.  Combined, they would control more than half of the nation’s cable television marketplace.  The decision to block the merger, announced by Federal Broadcasting Committee Chairman Gabriel Mariotto  in testimony before the Argentine Congress, came out of concerns that a combined company would abuse its market position.  But Mariotto also expressed concern that the single company would have a stranglehold over soccer coverage, something Argentina’s citizens could never accept.

Mariotto said Argentina’s new media law to combat market concentration would  “do away with the status of dominant market position.”

“With the control these two companies would have over popular television programming like football, which would likely only be available on their cable systems, competitors could never get off the ground,” argued Mariotto.

Gabriel Mariotto, Chairman of the Federal Broadcasting Committee - Argentina

Cablevisión executives immediately condemned the decision by the government of President Cristina Fernandez de Kirchner, and questioned why the transaction, approved by the former government run by President Kirchner’s husband, Nestor, was now suddenly off the table.

“Cablevisión is at 47% market share nationally, far from the telephone companies as they reach over 95%,” according to Cablevisión officials.

Cablevisión’s statement added: “It is very striking that Chairman Mariotto made the decision without ever notifying Cablevisión of the reasons, and never gave the company a chance to respond.  Cablevisión strictly complies with all Argentine laws, in regards to our franchise agreements, programming contracts and corporate governance.”

The company accused Mariotto of playing politics, accusing him of “misleading” lawmakers and the public, and grandstanding through his very visible public announcement.

Ironically, Argentina’s challenge of big cable operator mergers comes just one week after a federal judge in Washington threw out an FCC-mandated maximum limit of 30% market control for America’s cable operators.  A legal challenge, brought by Comcast, resulted in the cap being tossed.  Comcast, the nation’s largest cable operator, is already nearing the former 30% limit and is now free to exceed it with additional mergers and acquisitions.

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

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

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

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

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

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

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

And Now the Rest of the Story

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Solutions do include:

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

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

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

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

But Hassett and Shapiro still try:

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

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

U.S. Internet Industry Association

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

That’s not broadband I can believe in.