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The Tiresome Return of the “Gas & Electric” Analogy

It’s baaack.  Gary Kim, self-described member of MENSA, elected to link to our recent article about a customer in Austin having his Road Runner service cut so that he could drag out that we have heard before.  Mr. Kim, who has penned his views for a boatload of industry trade publications, as well as running a few of his own, has trotted out that old chestnut about not paying flat rate for gas, electric, and water.  Except he takes the analogy to the extreme “conservation” argument, as if the world of online video is leading us to a broadband global warming catastrophe.

Are you as smart as the industry guy?

Are you as smart as the industry guy?

Now I’m not a member of MENSA.  My experience with IQ tests was limited to those wooden pyramid puzzle things they used to put on your table at the Cracker Barrel.  But I’ll give this a shot anyway.

Lots of people get upset about bandwidth caps that strike me as extraordinarily generous. Does anybody think the planet or the economy would be better off, companies better able to improve service or people given incentives to “do the right thing” if electricity, gasoline, water, natural gas or heating oil were sold on an “all you can eat” basis.

Which bandwidth caps are extraordinarily generous?  The 5GB cap on your wireless phone plan (or the one Frontier considered but discarded in light of the competitive advantage it now seeks in one Time Warner test market), the 40GB power user tier Time Warner started out with, the 150GB limit AT&T is playing with, or the 250GB cap Comcast has today?  The caps are all over the lot, with each company swearing on a stack of press releases their cap is the one most justified and required if a company can survive the Irwin Allen-like Exaflood future.

Second question: What exactly is “the right thing?”  Bowing to the cable television industry’s business plan opposing a-la-carte video packages in order to enjoy the revenue that comes from all you can watch television?  Is it the wrong thing for people to make their own decisions about what they do with their Internet connection?  We’ve been down the road of why the Internet is not the same thing as oil, gas, or even water for that matter.  StoptheCap! reader Brion perhaps had the best debunking of this analogy:

I suggest a simple analog to demonstrate how bandwidth usage tiers is not in any way like your utilities.

Instead of thinking of bandwidth as being like water or gas, think of water or gas companies implementing what Time Warner proposes: cap your usage and give you a meter to monitor it. But that is only half the analogy.

First off, in the best case scenario you already provide your gas, electric, or water meter readings to your utility and they bill you based on consumption. But if you don’t then they either read the meter (attached to your house) directly or make an estimate based on past usage.

Secondly, utilities meter consumable resources: gas, water, electricity — all of which cost time, money and energy to generate. Bandwidth does not get “generated” or “produced” it simply exists at a specific level based on the network hardware Time Warner owns or leases. Bandwidth cannot be consumed in the sense gas can be consumed because when a user stops using bandwidth the amount they were using is once again available for someone else to use. So the real problem (if there is one) is one of simultaneous bandwidth usage.

One could liken this to a water main that’s 12″ in diameter and serving 20 houses on one street. The civil engineers that designed the water main system designed it to service 20 houses on that street. Now imagine the city building 20 or 30 extra houses on the same street without replacing the water main and then telling everyone they now have a “water cap” and if they go over that cap they must pay extra for their “heavy usage”.

Anyone in their right mind can see that the main is simply too small for the demand of 40 – 50 houses because it was built for 20 and it should be upgraded instead of trying to get everyone to reduce their usage or suffer poorer water pressure performance and extra charges.

Time Warner has oversold its bandwidth (the size of the pipe, not the amount of data) and it needs to upgrade its Internet connection, not downgrade the customer experience (while simultaneously charging them for the downgrade).

They’re trying to tell us that this potato is called an apple and for the vast majority of fruit-lovers they won’t notice a difference. Bandwidth is not the amount of data you send or receive, it’s the amount of data you can *possibly* send or receive *at one time*. They are completely different things!

Mr. Kim then suggests he doesn’t necessarily like his electricity or water rates, but he conserves because there is a penalty for unrestrained use.  Actually, there isn’t really a penalty at all.  Gas, electric, and water service are sold on a true metered basis.  There are no “bucket plans” for these services.  They are also utilities, and their rates are either regulated outright, or carefully monitored in the limited competition models some states have for these services.

Your water company bears the minimal cost of pumping a gallon of water from a body of water or aquifer.  It then resells that water at a per gallon rate marked up to cover all of the overhead and expenses it has, sets a little more aside just in case of a non-rainy day, and delivers it to you at a rational, non-gouging price.  If you don’t want to pay, you leave the faucet off.  On the Internet, the faucet drips… all the time.  The only way you are assured of not paying is to unplug your modem, never check your e-mail, and avoid websites with ads, because those are now now on your dime, especially when Time Warner marks up its wholesale cost by 1000% or more for that data.  It’s like getting a glass of water but handing half of it to the stranger walking by your house, who also wants you to pay him a dollar on top of that.

Time Warner is also, like many cable providers, hip deep in a conflict of interest on broadband consumption.  Cable has a vested interest in forcing you to “conserve” your connection, particularly by not using those services which directly compete with its business models.  Streaming video online offers the customer the possibility of foregoing a cable TV package altogether.  A Voice Over IP telephone provider on the Internet makes Time Warner’s Digital Phone product redundant.  A Netflix set-top box that streams movies and other video programming in competition with premium/pay per view channels represent just one more service that panics many in the upper floors at Time Warner Cable’s headquarters.

Consider the difference between wireless “unlimited” plans and other plans that simply offer more minutes or capacity than you actually use in a month. Is there really any practical difference–for most people–between “truly unlimited” and “more than I can use” plans?

unlimited-callingThank you for at least bringing up the telecommunications industry in this equation.  After all, telephone and wireless telecommunications services are a far better analogy than big oil and gas.  You yourself saw the writing on the wall for the long distance market in some of your essays several years back.  This was a business whose costs to deliver the service were plummeting, especially with the advent of Voice Over IP, and as those costs declined, so would prices, threatening the very business model for long distance in the United States.

Ironically, it was the very same cable companies that are whining about Exafloods and a crisis of costs who have contributed to the demise of “long distance.”  Time Warner, among others, are now pitching cheap unlimited calling plans to customers who will never pay for another long distance call.  In the wireless industry, price skirmishes have already broken out with carriers marketing true unlimited calling plans or calling circles which, for most people, mean no more airtime minute watching.

When I renew my Verizon Wireless contract this December, I will be handed a new phone and the option of a better plan with more minutes at or below the price I am paying now.  By that time, there is every likelihood Time Warner will be asking me to pay three times more ($150 a month) for precisely the same level of service I am receiving now for around $50 a month.  One of these companies is responding to the reality that bandwidth costs are declining, and are reducing rates and offering more.  The other is taking advantage of a very limited competitive market and wants to triple charges claiming they are on the edge of broadband bankruptcy — only they’re not when you read their financial reports.  Guess which is which.

I am also glad you are asking real people these questions, because companies like Time Warner certainly aren’t.  Any reader here can recite poll after poll.  The overwhelming majority of broadband customers, even those who are not defined “at the moment” as “abusers” of the network are content and satisfied paying one monthly fee for their service.  They don’t want your plan, the industry’s plan, buckets, limits, caps, overlimits, or whatever else the marketing people decide to call the equivalent of Internet rationing at top dollar pricing.

We are consumers.  We are customers.  We are not industry insiders and we don’t write for industry trade publications.  We don’t get a paycheck from this industry.  Indeed, this industry raises our bill year after year, delivers inconsistent messages about why we are now being asked to pay for “buckets of broadband,” yet still denies us the ability to choose the channels we want for our own video package, paying just for what we want.

We also are empowered and educated enough to use this incredible tool called the Internet to research the assertions some make and simply expect others to accept at face value.  We now read financial reports and statements.  We verify.  We also discover the language of the lobbyist, the marketers, the astroturfers, and the executive elements that are now attempting to sell consumers on their scheme to pay considerably more for the exact same thing, or less.  Then we compare that with the glowing results given to shareholders, and we see the chasm between the two messages.  We realize what we are being sold:  a soon-to-be-even-more-inflated bill of goods.

Frankly, you don’t have to be a genius to recognize that looking at a gas gauge, worrying about overlimit fees, and being stuck paying $100 more a month for broadband is not going to make anyone outside of this industry happy.

Caps are just buckets. As long as the buckets are capacious enough, the plans clear enough, the usage information available and the prices reasonable, buckets work. Bandwidth caps are just buckets.

The first time a consumer gets a bill from a company with a plan like Time Warner’s, they are going to kick the bucket.

Anyone who doesn’t recognize and admit the real potential of market abusive pricing and policies in a limited competitive marketplace isn’t being completely honest, especially when the players do not offer roughly equivalent levels of service.  If the future of broadband in this country is to be unregulated virtual duopolies, then perhaps consumers need to insist on common carrier status for those networks, allowing equal access to a variety of competing providers, with oversight to guarantee fair wholesale pricing and access.

Call to Action for Monroe County, NY Residents!: Call & E-Mail Town Supervisors NOW!

Phillip Dampier April 13, 2009 Events, Public Policy & Gov't, Talking Points 44 Comments

[Updated Tuesday 10:12am: Added city of Rochester, although I do not know if Mayor Duffy is invited to these gatherings.]

This Friday, there will be a closed meeting of the county’s supervisors, and Time Warner has been invited to come speak on the issue of usage caps and take questions.  The meeting is informal, and not open to the public, but that doesn’t mean you cannot make a direct influence on how this meeting transpires.

I have received direct input that many town and village officials are not hearing from constituents about Time Warner Internet Rationing, and are woefully under-informed about this issue.  Therefore, it is OUR responsibility to help inform, educate, and directly lobby them with our firm opposition to usage caps of any kind, and the complete lack of proven justification for their usage cap experiment, its tiers, and pricing.  Winter is over here in Rochester, but there is a real risk of a Time Warner Snowjob if we do not make it absolutely clear to each and every town that caps are absolutely, unequivocally, unacceptable in any amount.

To not protest means that locally elected officials will be at risk of believing the propaganda they are about to receive and assume it must be accurate because nobody is complaining.  That must change, and preferably before this Friday.

While local officials have no regulatory enforcement power to deny Time Warner the ability to launch their “experiment,” the more opposition on every level, the better.  And don’t you believe this won’t be an issue at franchise renewal time.

Simply put, we must fight this battle on every front at the same time.  So tomorrow morning, start the phone calls, e-mails, and faxes! Some towns, like Brighton, have already had their constituents ringing the phones at the town hall off the hook, and town officials are on board.  Those folks need to hear our thanks and support.  Other towns have not heard as much, and they need to.

Here are the points you need to raise:

  • Time Warner is conducting this experiment in the only upstate city not served by Verizon and their expanding FiOS (fiber to the home) network, which provides formidable broadband competition and a simple alternative for dissatisfied customers to head elsewhere.  They know here in Rochester, you really have nowhere else to go if you want uncapped cable modem-like service.
  • Frontier Communications, while being an honorable corporate citizen by promising not to cap their DSL service, cannot currently compete on the same level as Road Runner for consistency of speed, availability, and price unless a consumer signs a long term contract with a steep cancellation penalty.  If DSL isn’t even available to your home, tell them!
  • Time Warner has consistently refused to publicly release their raw data on which they base their “need” to impose usage caps, tiers, and overage charges.  We are asked to take their word for it.
  • Time Warner just increased rates in Rochester two months ago.  Let them know how much you are already paying, and ask how much more does this company need from us?
  • Ask them what other company would get away with raising the price for unlimited broadband service by 300% with no improvement in service, and only vague promises about a future upgrade.  How can any company ask a customer who wants the same level of service they enjoy today for $39.95, to pay $150 tomorrow?
  • Tell your supervisor their “experiment” is being imposed against your wishes, and that at no time do you want to participate.  Tell them you are concerned they may not understand that by this fall, the higher cost tiers and overage fees are hardly an “experiment” because you are going to be billed for them.
  • Tell them other cable operators like Cablevision do not impose ANY usage limits and don’t want to, because their current pricing is already profitable!  Comcast, the nation’s largest cable operator, charges every standard broadband customer the same price, and simply requests they do not exceed 250GB of usage per month, more than six times the amount Time Warner’s paltry standard service tier would offer.
  • Ask why should Time Warner impose tiers on the customers they claim aren’t even a problem?  Those with lower consumption are being asked to choose a plan that offers as little as 1GB of data, and then they face a $2 per gigabyte penalty for each additional gigabyte!
  • Tell them talking about sending tens of thousands of e-mails and looking at simple web pages is not the real issue.  Using online file backup programs, watching online video, making phone calls over the Internet, and the future services that are forthcoming in our high technology future are what’s at issue, and punitive usage caps retard those services and new businesses from ever getting off the ground, all while a virtual monopoly broadband provider rakes in fat profits.
  • Tell them Time Warner has a vested interest in protecting their core video business – selling you cable TV packages that, ironically, you have to take on an all you can eat basis, while they want to take away that currently affordable option for their broadband service, which now let’s you watch TV and radio programming that could reduce your need to keep your cable TV package.
  • Tell them you don’t want to have to watch a gas gauge and have Internet service rationed to you in small portions at high prices while Time Warner’s own SEC filings show their broadband division continues to grow in profits, all while the bandwidth costs for them are on the decline!  Where is the crisis?
  • Ask them, above all, to not simply accept the statements from interested company officials as fact.  Let them know you’d be happy to provide them with copies of challenges to their assertions, point by point, as well as industry observations which suggest the company is making a spectacle of itself, has tiers bordering on the “obscene,” and are so out of whack with the rest of the American broadband industry, the company has to try and compare its broadband rationing with foreign countries like Australia, Canada, and New Zealand.  Remind them this is Monroe County, New York, United States of America!
  • Finally, let them know that people affected by this include: financially stressed families with teenagers, small businesses run from the home, workers conducting company business from a home office, the large deaf community in our area that depends on broadband video phones to help communicate with friends, families, and business associates, and frankly, your own town’s ability to offer services like online video of town board meetings and functions.

Always be polite, persuasive, and professional in your communications. You need not raise every one of these issues – pick the few that are most important to you, but make it clear this issue is so important to you, your town official’s position on it will be a major factor for you in the next election.  Your choice of arguments should also consider the political environment in your town.  In some communities, you will be more effective when you stress the lack of competition and need for more players in this market, and that there is nothing wrong with pushing back against job-killing, innovation wrecking, unjustified capping experiments in our hurting economy. In others, reminding them of Rep. Eric Massa’s involvement in this issue and that there is a groundswell of consumer opposition visible in every form of local media and online.

This site is ready and willing to answer any question from any government official looking for additional information or resources on this topic.  And those answers won’t just be coming from me, but from independent news sources, researchers, and industry trade publications that do report on and explore capping alternatives.  This is an issue that will have a profound impact on this community.  In all my conversations with consumers, government officials, and businessmen, I’ve yet to find one that has been looking forward to their community being the “chosen ones” for this “test.”

Finally, simply ask, “who wants this?”  Outside of Time Warner executives talking to other Time Warner executives, practically nobody.  And just last fall, International Data Corporation asked the same question I did of 787 U.S. consumers.  And remember these results:

  • 81 percent do not like the idea of establishing a bandwidth cap and charging for use above the cap.
  • 51 percent would try to change service providers if their BSP imposed bandwidth caps.
  • 83 percent say that do not know what a gigabyte or have no idea how many gigabytes they use.
  • Even light users are opposed to the whole idea of bandwidth capping.
  • Only 5 percent said unequivocally that “those who use more should pay more.”

Gigaom, a respected online publisher double checked the results with their own poll.  Ninety-one percent of 1,159 voters said that they would switch to another ISP, while 6 percent said they would not switch.

What will consumers pay for?  Improved service today, not vague promises about tomorrow!  Instead of relying on punitive usage caps to finance the next generation of broadband systems, why not create new levels of premium tiers to appeal to the very heavy users Time Warner wants to pay for improvements?  How about faster tiers of service priced higher than the current standard service.  Time Warner themselves had success doing this with the introduction of its Turbo tier for an additional $10 a month.  How about SuperTurbo for $20 more a month?  ExtremeTurbo at $30 more a month?  Sit back and rake in the profits, but make everyone happy, from your lightest consuming customers to the heaviest of them all, who will happily pay for a better level of service today to make an even better and faster level of service available tomorrow.  Caps are for bottles, not for broadband, not in the United States of America.

Here is a comprehensive contact list.  Find your community in the list below and get busy. (Thanks so much to everyone who helped contribute to getting this list together so fast!)

… Continue Reading

This Week in Tech Covers the Road Runner Rationing Plan – Eight Minutes You Need to Hear

Phillip Dampier April 9, 2009 Editorial & Site News, Talking Points 8 Comments
This Week in Tech covers the Road Runner usage caps issue

This Week in Tech covers the Road Runner usage caps issue

Coming on the heels of yesterday’s report about the amazing inconsistency of responses coming from Time Warner customer service employees to our readers, here comes another one.  This Week in Tech [thanks to Steve Rea from Sound Bytes for pointing the way] covered the usage cap story this past weekend, and if you are new to this site and don’t understand what all the fuss is about, this is around eight minutes you need to hear to understand what is going on.  It covers the broadband industry model, the inconsistent messages the broadband industry is sending to consumers, and what one of the fundamental goals of broadband capping seeks to achieve: a reduction in risk to their primary video programming delivery business.  The more you watch online, the less you’ll think you need those bloated cable TV packages with all those channels you never watch.  A cap that makes watching video online an expensive proposition means you’ll think twice before watching another Hulu or Netflix movie on your computer.

I’d also like to share some of the behind-the-scenes contemplating I have been doing on this issue based on the evolving message coming from Time Warner on this issue.  I think the increasing reliance on their use of the words “experiment” and “test,” and the supposed willingness to “rethink” the level of the caps may be part of an effort to lay the groundwork for some sort of damage control announcement that the company is going to “double” or “triple” the caps in their upcoming “experiment.”  In thinking about how this industry has worked over the past two decades I have been keeping an eye on them, it would not be outside the realm of possibility for them to try and proclaim a “victory for consumers” by simply increasing the caps, but still imposing them anyway.

When you hear this podcast talking about Time Warner employees referring to some “internal memo” or “email” on this subject (and we’re always happy to receive our copy here at StoptheCap! should someone anonymously drop one our way), it would hardly be surprising if something akin to this wasn’t under consideration.

But I want to make everyone clear that a cap, of any kind, is honestly not a victory for anyone. It’s a Band-Aid.  And even assuming they tripled the proposed caps, where the maximum 40GB becomes 120GB, that still puts them below other competitors in this race to the bottom, and your bill is still going up, and now you have to watch a gas gauge every time you sit down in front of the computer.  And using their own claim that average subscribers are increasing their usage by 50% a year, we’ll be right back here on this issue soon enough as people start getting larger and larger cable bills for “going over.”

The only real victory here is a complete revocation of the “cap experiment.”  No caps.  If Time Warner wants to rake in additional revenue, why not consider creating new super-tiers that are priced higher, but also offer heavy users faster speeds, particularly for uploads.  There are plenty of heavy users of the net who already pony up an additional $10 a month for Road Runner Turbo, if only for increased upload speed.  I am among them.  In many markets, like Rochester, there is room to grow on the top end without imposing caps on anyone, and still collect additional money from subscribers who choose a better level of service.  Punitively punishing every customer from the very light to the very heavy user is nothing less than market abuse and an effort to extract even more dollars out of your customers.  The costs to upgrade their facilities to provide a level of service capable of easily growing with broadband demand is not nearly as expensive as they would lead you to believe.  We’ll get into the weeds on that issue shortly.

And it’s not just consumers saying caps are bad.  Other cable companies and those in the financial sector who track Time Warner are saying it too:

Pali Capital analyst Rich Greenfield, in a note to investors Wednesday, said asking consumers to keep checking their consumption “sounds tedious.”

“Let’s start with a simple premise: moving from an all-you can eat ‘buffet line’ for bandwidth usage via broadband to an a la carte system of paying for every gigabyte you eat is subscriber-unfriendly and will be confusing to the average broadband user,” he wrote, referencing the opposition by Massa and the Greensboro city council.

“In an increasingly competitive world, the age-old saying of ‘keep it simple stupid’ should not be overlooked,” Greenfield continued. “If competition exists, we suspect a provider offering broadband without caps or a simplified strategy toward broadband will gain meaningful market share, assuming TWC continues to move forward with its bandwidth-cap strategy.”

At last week’s Cable Show ’09, Jim Blackley, Cablevision Systems senior vice president of corporate engineering and technology, said on a panel discussion that bandwidth-usage caps are not in the MSO’s plans.

“We don’t want customers to think about byte caps so that’s not on our horizon,” he said. “We literally don’t want consumers to think about how they’re consuming high-speed services. It’s a pretty powerful drug and we want people to use more and more of it.”


p style=”text-align: left;”>Press the play button to listen (you must remain on this web page to hear the entire segment):

Tip for Rational Thinking #2: “Unless We Limit You To 5/40/150/250GB, We’ll Be Out Of Business?”

Phillip Dampier April 7, 2009 Broadband "Shortage", Talking Points 8 Comments

Talking Points

One of the grand mysteries of the entire “broadband can no longer be unlimited” argument is the incredible range of usage caps cable operators and telephone companies suggest are required to keep them from going the way of the U.S. auto industry.  Broadband providers doing capping will swear that their cap model is the only one that is “fair” and “protects consumers” and “allows us to make required upgrades.”  Once those arguments are recited in a unified chorus, corporate spokesfolks zig zag their way all over the place explaining why their 5/40/150/250GB cap is fairest of them all, while trying to ignore those providers who are quite happy and profitable with no cap at all.  The customer is the last person they ask, because they know the answer from most will be, “no cap at all.”

This bring several questions to the table:

  • Can you provide us with the raw data that illustrates there is a major problem with the current unlimited broadband model and that it cannot sustain profitability except with usage caps?
  • Can we obtain independent analysis of that data by a third party and/or put together a conference of business, public, and educational groups to consider new possibilities to deal with what is rapidly becoming a utility-type service?

The answers to those questions have been, by all major industry players, an emphatic “no.”  You are required to take their word there is a problem and their solution is the only one that works.  And, for that matter, take their word they have an infallible way to measure and bill for usage under a consumption based model.  You can independently verify your usage all you want, as long as you pay the bill they send you with their own usage measurement.

It’s not that we’ve been the only ones asking.  Broadband Reports has the same questions we do, and asked for the hard data to prove that flat-rate pricing is simply untenable going forward.  And here was their response:

“We’ve shared our analysis of our data. We’re not going to share raw data…just not going to happen.”

Okay then, I guess that settles that!

That provokes us to first ponder whether there actually -is- a crisis in the flat rate broadband industry at all?  A press release or a claim by a company official isn’t evidence of anything.

Assuming we will never get a satisfactory answer to that question, how about these:

  • Why can a company like Time Warner be unable to survive with flat rate pricing in Rochester, Austin, San Antonio, and Beaumont, but can deliver faster speeds with no cap in cities where they face strong competition from uncapped providers?
  • If the company was interested in an honest assessment of marketplace reaction to usage caps, why not test in communities with the most robust and challenging competition?
  • Why should customers not be deeply offended for being involuntarily turned into guinea pigs and be expected to pay more for a dramatically reduced level of service?
  • Why is the nation’s largest cable operator Comcast able to deliver service with a 250GB limit at their current pricing, Verizon FIOS is able to deliver a product line twice as fast as Time Warner with no usage cap at all, and the nation’s second largest cable operator Time Warner needs consumers choosing a meager 20GB tier to not only pay $10/month more than their current unlimited service, but also pay a penalty of $1 for every extra GB?

That old axiom about pricing what the market will bear comes to mind, particularly considering the fact Time Warner is only interested in “gathering facts” from cities where the competition is limited.

The fact the Internet of the last few years is becoming an increasing threat to the video side of the cable industry may also have something to do with it.  That will be the subject of an upcoming Talking Point.

Usage Caps on Selected Broadband Service Providers
Charter Cable – Cap starts at 150GB for “light user” plan, removed entirely for deluxe plan (60Mbps service) – Violators are asked to select higher tier service or face account suspension – No meter yet
Comcast Corporation – Residential accounts limited to 250GB usage per month – Violators face account suspension – Tracking meter provided
Time Warner Cable – Residential accounts limited to 5-40GB currently, Violators face $1 per GB overage fee – Tracking meter to be provided
Verizon FIOS – Residential accounts are unlimited.  No violation, no tracking meter required

NY Times Exposes Time Warner’s Rationing Plan as Profit Grab Scam

Phillip Dampier April 5, 2009 Broadband "Shortage", Talking Points 12 Comments

The New York Times (hat tip: Shawn808) just exposed the argument from cable companies like Time Warner, who argue for punitive rate hikes and Internet rationing plans, as little more than a naked profit grab in an insufficiently competitive marketplace.

Competition, or the lack of it, goes a long way to explaining why the fees are higher in the United States. There is less competition in the United States than in many other countries. Broadband already has the highest profit margins of any product cable companies offer. Like any profit-maximizing business would do, they set prices in relation to other providers and market demand rather than based on costs.

Pretty much the fastest consumer broadband in the world is the 160-megabit-per-second service offered by J:Com, the largest cable company in Japan. Here’s how much the company had to invest to upgrade its network to provide that speed: $20 per home passed.

The cable modem needed for that speed costs about $60, compared with about $30 for the current generation.

Meanwhile, Time Warner made dubious claims that it required a punitive rationing plan and rate hike to increase profits to “invest in technology to keep up with demand.”  Other cable operators are deploying DOCSIS 3.0, an upgrade to the current cable broadband delivery platform, as a normal cost of doing business.  The upgrade actually benefits cable operators in meeting demand and reducing neighborhood congestion, by “bonding” multiple channels of data together to “fatten the pipeline.”  Time Warner has dragged its feet on doing this upgrade, according to the Times.

Most systems can be upgraded for no more than about $100 per home, including a new modem. Moreover, the monthly cost of bandwidth to connect a home to the Internet is minimal, executives say.

Yet Time Warner’s rationing plan, announced last week, would dramatically increase the price of Road Runner service, in some cases by hundreds of dollars per month, well above the costs the company claims it must pay to upgrade its network.  Even more moderate users will be paying far above the amortized cost of the network upgrade, month after month, indefinitely.  Some other operators are not imposing Time Warner’s ludicrously low usage caps and demanding more money for them.  They just charge considerably more for faster service.

So what’s wrong with this picture in the United States? The cable companies, like Comcast and Cablevision, that are moving quickly to install the fast broadband technology, called Docsis 3, are charging as much as $140 a month for 50 Mbps service.

Let’s compare and contrast what is entirely profitable in Japan vs. what Time Warner whines they need to just eke by:

Liberty Global – 160Mbps unlimited access – $60 per month¹

NTT Communications – 100Mbps unlimited download/930GB upload cap per month + free phone line – $42 per month²

Time Warner – 10Mbps 40GB usage cap – $55 per month ($1 each additional gigabyte)³

¹New York Times April 3, 2009   ²Broadband Reports June 25, 2008  ³Rochester Democrat & Chronicle April 3, 2009


So why does Time Warner really need to ration your Internet service and punitively limit your use of the net? Michael T. Fries, the chief executive of Liberty Global is candid:

Fear. Other cable operators, he said, are concerned that not only will prices fall, but that the super-fast service will encourage customers to watch video on the Web and drop their cable service.

The industry is worried that by offering 100 Mbps, they are opening Pandora’s box, he said. Everyone will be able to get video on the Internet, and then competition will bring the price for the broadband down from $80 to $60 to $40.

Aren’t you worried that the prices will fall too? I asked.

“Maybe,” he said very slowly. “We’ll see how it happens. We want to keep it up there for now. It is a premium service.”

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