Phillip “They Want to Save You Money By Charging You More” Dampier

The pro-Internet Overcharging forces’ meme of “pay for what you use” sounds good in theory, but no broadband provider in the country would dare switch to a true consumption-based billing system for broadband, because it would destroy predictable profits for a service large cable and phone companies hope you cannot live without.

Twenty years ago, the cable industry could raise rates on television packages with almost no fear consumers would cancel service. When I produced a weekly radio show about the cable and satellite television industry, cable companies candidly told me they expected vocal backlashes from customers every time a rate increase notice was mailed out, but only a handful would actually follow through on threats to cut the cord. Now that competition for your video dollar is at an all-time-high, providers are shocked (and some remain in denial) that customers are actually following through on their threats to cut the cord. Goodbye Comcast, Hello Netflix!

Some Wall Street analysts have begun warning their investor clients that the days of guaranteed revenue growth from video subscribers are over, risking profits as customers start to depart when the bill gets too high. Cable companies have always increased rates faster than the rate of inflation, and investors have grown to expect those reliable profits, so the pressure to make up the difference elsewhere has never been higher.

With broadband, cable and phone companies may have found a new way to bring back the Money Party, and ride the wave of broadband usage to the stratosphere, earning money at rates never thought possible from cable-TV. The ticket to OPEC-like rivers of black gold? Usage-based billing.

Since the early days of broadband, most Americans have enjoyed flat rate access through a cable or phone company at prices that remained remarkably stable for a decade — usually around $40 a month for standard speed service.

In the last five years, as cord-cutting has grown beyond a phenomena limited to Luddites and satellite dish owners, the cable industry has responded. As they learned customers’ love of broadband has now made the service indispensable in most American homes, providers have been jacking up the price.

Time Warner Cable, for example, has increased prices for broadband annually for the last three years, especially for customers who do not subscribe to any other services.

Customers dissatisfaction with rate hikes has not led to broadband cord cutting, and in fact might prove useful on quarterly financial reports -and- for advocating changes in the way broadband service is priced:

1. Enhance revenue and profits, replacing lost ground from departing video customers and the slowing growth of new customers signing up for video and phone services (and keeping average revenue per user ((ARPU)) on the increase);
2. Using higher prices to provoke an argument about changing the way broadband service is sold.

Pouring over quarterly financial reports from most major providers shows remarkable consistency:

• The costs to provide broadband service are declining, even with broadband usage growth;
• Revenue and profits enjoy a healthy growth curve, especially as increased prices on existing customers make up for fewer new customer additions;
• Earnings from broadband are now so important, a cable company like Time Warner Cable now refers to itself as a broadband company. It is not alone.

Still, it is not enough. As usage continues to grow in the current monopoly/duopoly market, providers are drooling with anticipation over the possibility of scrapping the concept of “flat rate” broadband, which limits the endless ARPU growth Wall Street demands. If a company charges a fixed rate for a service, it cannot grow revenue from that service unless it increases the price, sells more expensive tiers of service, or innovates new products and services to sell.

Providers have enjoyed moderate success selling customers more expensive, faster service, also on a flat rate basis. But that still leaves money on the table, according to Wall Street-based “usage billing” advocates like Craig Moffett, who see major ARPU growth charging customers more and more money for service as their usage grows.

Moffett has a few accidental allies in the blogger world who seem to share his belief in “usage-based” billing. Lou Mazzucchelli, reading the recent New York Times piece on Time Warner’s gradual move towards usage pricing, frames his support for consumption billing around the issue of affordability. In his view, usage pricing is better for consumers and the industry:

It costs real money to upgrade networks to keep pace with this demand, and those costs are ultimately borne by the subscriber. So in the US, we have carriers trying to raise their rates to offset increases in capital and operating expenses to the point where consumers are beginning to push back, and the shoving has come to the attention of the Federal Communications Commission, which has raised the possibility of treating Internet network providers as common communications carriers subject to regulation.

I believe that flat-rate pricing is a major source of problems for network carriers and consumers. In the carrier world, the economics are known but ignored because marketers believe that flat rates are the only plans consumers will accept. But in the consumer world, flat rates are rising to incomprehensible levels for indecipherable reasons, with little recourse except disconnection. Consumer dissatisfaction is rising, in part because consumers feel they have no control over the price they have to pay. This is driven by their sense of pricing inequity that is hard to visualize but comes from implicit subsidies in the current environment. The irony is that pay-per-use pricing solves the problem for carriers and consumers.

Mazzucchelli reposted his blog piece originally written in 2010 for the benefit of Times readers. Two years ago, he measured his usage at 11GB a month. His provider Verizon Communications was charging him $64.99 a month for 25Mbps service, which identifies him as a FiOS fiber to the home customer.  Mazzucchelli argues the effective price he was paying for Internet access was $5.85 for each of the 11GB he consumed, which seemed steep at the time. (Not anymore, if you look at wireless company penalty rates which range from $10-15/GB or more.)

Mazzucchelli theorized that if he paid on a per-packet basis, instead of flat rate service based on Internet speed, he could pay something like $0.0000025 per packet, which would result in a bill of $31.91 for his 11GB instead of $65. For him, that’s money saved with usage billing.

On its face, it might seem to make sense, especially for light users who could pay less under a true usage-based pricing scenario like the one he proposes.

Verizon Communications is earning more average revenue per customer than ever with its fiber to the home network. That’s about the only bright spot Wall Street recognizes from Verizon’s fiber network, which some analysts deride as “too expensive.”

Unfortunately for Mazzucchelli, and others who claim usage-based pricing will prove a money-saver, the broadband industry has some bad news for you. Usage pricing simply cannot be allowed to save you, and other current customers money. Why? Because Wall Street will never tolerate pricing that threatens the all-important ARPU. In the monopoly/duopoly home broadband marketplace most Americans endure, it would be the equivalent of unilaterally disarming in the war for revenue and profits.

That is why broadband providers will never adopt a true usage-based billing system for customers. It would cannibalize earnings for a service that already enjoys massive markups above true cost. In 2009, Comcast was spending under $10 a month to sell broadband service priced above $40.

Mazzucchelli

Instead, providers design “usage-based” billing around rates comparable to today’s flat rate pricing, only they slap arbitrary maximum usage allowances on each tier of service, above which consumers pay an overlimit fee penalty. That would leave Mazzucchelli choosing a lower speed, lower usage allowance plan to maximize his savings, if his use of the Internet didn’t grow much. On a typical light use plan suitable for his usage, he would subscribe to 1-3Mbps service with a 10GB allowance, and pay the overlimit fee for one extra gigabyte if he wanted to maximize his broadband dollar.

But his usage experience would be dramatically different, both because he would be encouraged to use less, fearing he might exceed his usage allowance, and he would be “enjoying” the Internet at vastly slower speeds. If Mazzucchelli went with higher speed service, he would still pay prices comparable for flat rate service, and receive a usage allowance he personally would find unnecessarily large. The result for him would be little to no savings and a usage allowance he did not need.

Mazzucchelli’s usage pattern is probably different today than it was in 2010. Is he still using 11GB a month? If he uses double the amount he did two years ago, under his own pricing formula, the savings he sought would now be virtually wiped out, with a broadband bill for 22GB of consumption running $63.82. By the following year, usage-based pricing would cost even more than Verizon’s unlimited pricing, as average use of the Internet continues to grow.

That helps the broadband industry plenty but does nothing for consumers. Mazzucchelli might be surprised to learn that the “real money to upgrade networks to keep pace with this demand,” is actually more than covered under today’s profit margins for flat-rate broadband. In fact, if he examines financial reports over the last five years and the statements company executives make to shareholders, virtually all of them speak in terms of reducing capital investments and the declining costs to deliver broadband, even as usage grows.

Verizon’s fiber network, while expensive to construct, is already earning the company enormous boosts in ARPU over traditional copper wire phone service. While Wall Street howled about short term capital costs to construct the network, then-CEO Ivan Seidenberg said fiber optics was the vehicle that will drive Verizon earnings for decades selling new products and services that its old network could never deliver.

Still, is Mazzucchelli paying too much for his broadband at both 2010 and 2012 prices? Yes he is. But that is not a function of the cost to deliver broadband service. It is the result of a barely competitive marketplace that has an absence of price-moderating competitors. Usage-based pricing in today’s broadband market assures lower costs for providers by retarding usage. It also brings even higher profits from bigger broadband bills as Internet usage grows, with no real relationship to the actual costs to provide the service. It also protects companies from video package cord-cutting, as customers will find online viewing prohibitively expensive.

One need only look at pricing abroad to see how much Americans are gouged for Internet service. Unlimited high speed Internet is available in a growing number of countries for $20-40 a month.

Usage-based billing is a dead end that might deliver temporary savings now, but considerably higher broadband bills soon after. It is not too late to turn the car around and join us in the fight to keep unlimited broadband, enhance competition, and win the lower prices users like Mazzucchelli crave.

Big cable and phone companies can thank 2011’s Hurricane Irene for keeping them from scoring #1 on the American Customer Satisfaction Index’s top most disliked companies in America. Those choice spots were reserved for utility companies on Long Island and in Connecticut.

But even the rain-soaker that left millions without power for weeks couldn’t keep America’s perennial hatred of cable and phone companies from the top 15 list:

#3 Charter Communications – The “Don’t Care-Bears” of Cable

America’s worst cable company delivers downright shoddy customer service and dodgy billing practices a loan shark would not dare try. The company has been flopping around like a beached whale since exiting its “stiff our creditors good with a quick trip to bankruptcy court,” and is now back to stiffing their customers instead:

“The sales rep originally promised us a $42.95 a month for services, with an introductory price of $24.95 for the first 3 months (a savings of $18 a month). After the introductory period ended, the company started charging me $56.95, when I finally caught on that they were charging me $14 more per month than what is said on the Work Order (could provide at anytime for proof), he never once mentioned that there will be a $10 more per month, and now the company says if you have no other cable service with us (Charter Communications), you are to be charged $10 more per month!!”

#4 Comcast – Hey, It Could Be Worse — At Least We’re Not Charter!

Comcast had a bad year with faulty e-mail, failing equipment, and more excuses than CVS has pills. Unprofessional contract installers also have problems keeping their hands to themselves. The largest cable operator in the country has also been known to empty checking accounts when they want their money, and there are horror stories about installers leaving wires, clips, and nails scattered on front lawns, quickly becoming projectiles when the mower runs over them.

Their cable service shampoos in mediocrity scoring 61 out of 100 and the “digital phone” service they run is the conditioning rinse, doing slightly better with a score of 67.

#6 Time Warner Cable – Always Listening to Customers, and Then Ignoring Them

Rated 63/100, Time Warner Cable managed a four point improvement over last year, which will be promptly erased if they keep experimenting with Internet Overcharging schemes.

Derided for “third world” customer service worthy of a despotic backwater dictatorship, slow Internet speeds, endless outages, and gouging rates, the ACSI has few nice things to report about America’s second largest cable conglomerate.

One customer vented, “TWC has destroyed my business and doesn’t give a damn: I first complained five weeks ago about outages and miserable upload speeds. I need to send large files to clients. I’ve had two technicians visit, who both found it was in the neighborhood. Today, I found the situation has not changed and am told there’s no further work order.”

Customers also complain about being stuck with Time Warner because there are no competing services in the area.

That being said, we’d rather have Time Warner Cable than AT&T or Comcast, and our personal customer service experience in western New York has been excellent for us, so it depends on where you live (and what competition they have in your area.)

#7 Cox Communications – Beam Me Up, Scotty!

Now we know where Time Warner’s four extra points came from — at the expense of Cox Cable, which is down by that same amount turning in a truly pathetic score of 63 out of 100.

Time Warner Cable occasionally threatens to buy out Cox, at least if industry rumors prove true, which might actually be an improvement.

Cox’s problem is time-honored for the cable industry — it gouges customers with outrageous rate increases the oil and gas industry don’t have the stomach to attempt.

Customers complain Cox is the High Priestess of Bait & Switch, signing customers up on one promotion and then shifting them to another, pretending the original offer was a figment of someone’s imagination. One customer:

 “I setup 2yr service w/Cox —1st yr @ $29.99, 2nd @ $49.99. Now after 6mon they changed it to 1st 6mon @ $29.99, 2nd 6mon @ $49.99, and 1 year @ 79.99.”

#11 CenturyLink – (Last)CenturyLink — America’s Worst Phone Company (Hey Frontier, You Get a Pass This Time)

CenturyLink, you must be so proud of your 66/100 score. In fact, add one more “6” and you’ll convince customers who already suspect you are the devil’s phone company.

“They lie about everything and do nothing,” one customer told ACSI. “I have been having issues with my Internet for a year and they have yet to help.” Another customer wrote that they’ve “had issues with CenturyLink employees flat out lying to [me] about the bill.”

Billing issues are most likely to be cited by complaining customers along with customer service representatives having less knowledge about the company’s products than customers do.

That being said, at least they don’t have the Frontier employee who insisted on telling us about the company’s wireless “wee-fee” network.  She admitted she had no idea it was “Wi-Fi.”

#14 DirectTV – Hey, We’re Looking Pretty Good Compared to the Other Guys

The satellite company managed 68/100, and the biggest problem they still have is misleading contracts and promotions that leave customers out of pocket for hundreds of dollars for deals that go un-honored and rebates that never arrive.

Discounts seem “luck of the draw” among customer service representatives:

“DirectTV raised the price for 30% after one year and said that they told me about this verbally, which is not true. My agreed price with Saha on the phone, a DirecTV employee, was $56.99 including two receivers and one HD/DVR receiver. DirecTV overcharged me on my first bill. When I complained, they said they forgot to give me my 30% discount. So over the next six months, they kept revising my bill but never got it right.”

Time Warner Cable has a usage meter up for some customers.

Time Warner Cable has reintroduced usage-limited broadband plans in Austin, Tex., three years after shelving an earlier market test that drew protests from local residents and civic leaders.

Time Warner Cable is offering three tiers of what it calls “Internet Essentials,” each offering different speeds of service, all with a 5GB usage allowance for a $5 monthly discount.

“It’s clear that one-size-fits-all pricing is not working for many consumers, particularly in a challenging economy,” regional vice president of operations in Texas Gordon Harp said. “We believe the choice and flexibility of Essentials will enhance value for lighter users, help us retain existing customers in a competitive marketplace and attract new customers to our superior Internet experience.”

But Stop the Cap! disagrees, noting the three variations of Internet Essentials all offer a tiny discount and come with a ridiculously low usage allowance.

With usage overlimit fees of $1/GB, currently limited to a maximum of $25, customers are playing Russian Roulette with their wallets. Just exceeding the allowance by 5GB a month eliminates any prospects of savings, and going beyond that will actually cost customers more than what they would have paid for unlimited Internet.

The company has added a usage tracker for Texas customers qualified to get the plan. It can be found under the My Services section of Time Warner Cable’s website.

Customers in Texas can choose from Grande Communications, AT&T or Verizon if they want to say goodbye to Time Warner’s endless interest in Internet Overcharging.  Image courtesy: Jacobson

Stop the Cap! recommends consumers strongly reject these plans. If customers are looking for a better deal on broadband, it is wiser to call Time Warner and threaten to take your broadband business to the competition. The savings that will result on a retention plan are sure to be better than the Internet Essentials discount, and no one will have to think twice about how they use their broadband account. Customers on an extremely tight budget can also downgrade to a slower speed plan that offers unlimited access, essential in any home with multiple broadband users.

Time Warner Cable does not help their position by significantly distorting the truth about their last experiment trying to limit customer broadband usage. In 2009, the company proposed changing the price for unlimited broadband to an enormous $150 a month. Customers protested in front of the company’s offices in several cities. Despite that, and the intense negative media coverage the company endured, Time Warner still believes its customers are itching to have their broadband usage limited:

Previous Experience with Usage-based Pricing

Time Warner Cable began testing usage-based pricing in 2009. Although many customers were interested in the plan, many others were not and we decided to not proceed with implementation of the plan. Over the past few years, we consulted with our customers and other interested parties to ensure that community needs are being met and in late 2011 we began testing meters which will calculate Internet usage.

We’d be interested to know what customers in the Austin area were consulted about the desire for usage-limited plans. Nobody consulted us either. We can imagine the “other interested parties” are actually Wall Street analysts and fellow industry insiders. We’re confident the overwhelming number of Time Warner Cable customers have no interest in seeing their unlimited use plans changed and company customer service representatives have told us there has been very little interest in the plans to date. For now, the company claims it won’t force people to take usage limited plans, but as we’ve seen in the wireless industry, yesterday’s promises are all too quickly forgotten.

With a usage meter now established, all it takes is an announcement Time Warner is doing away with unlimited broadband (or raising the price of it to the levels the company proposed in 2009), and customers are ripe for a broadband ripoff.

Time Warner Cable says it is “listening” to customers on its TWC Conversations website. We suggest you visit, click the tab marked Essentials Internet Plans, and let Time Warner Cable know you have no interest in these usage-limited plans and are prepared to go to war to keep affordable, unlimited Internet. With your voice, perhaps Time Warner Cable will finally realize that usage caps and consumption billing just don’t work for you or your family.

Sally Medina is a Sacramento mom grandfathered with her daughter on an unlimited data plan, or so she thought.

When daughter Leticia started getting text messages from Verizon alerting her she used half of her data allowance for the month, the Medina family learned for the first time Verizon had quietly switched them away from their unlimited data plan to one with just a 2GB usage allowance.

The family suspects the change was made when Leticia upgraded to a new phone back in January, and did not realize it until slowly growing data use finally triggered the first usage alert from Verizon.

Medina is angry because Verizon pulled the rug out from their agreement to allow the family to keep unlimited data.

“This was the agreement. We did our part. I think they should follow through on theirs,” Medina told CBS Sacramento consumer reporter Kurtis Ming. “They told her it was going to be unlimited so she didn’t question it.”

Too late to fix it now, came the reply from Verizon Wireless, who refused to switch the family back to unlimited data.

“Selling data consumption is incredibly lucrative, especially since data consumption is expected to rise. People are getting more hungry for it. And also people will start using more data as the network speeds improve,” CNET senior editor Jessica Dolcourt told the consumer reporter.

Dolcourt added carriers have a vested interest kicking customers off unlimited data as quickly as possible so they can start earning the additional revenue that comes with more expensive tiered data plans.

Verizon today launched its biggest change yet with its new “Share Everything” plan. Consumer groups like Free Press agree it does represent a big change. Verizon used to charge $29.99 a month for unlimited data. As of today, it charges $50 for 1GB on its newest plan.

The company says existing customers grandfathered on unlimited data plans can keep them, but only if they do not upgrade their phones or are willing to pay the unsubsidized upgrade price, which can run as high as $600. Either way, Verizon Wireless will get paid.

In light of the media attention on the company, the Medina family ultimately won what they wanted — an apology from Verizon and a return to unlimited data for daughter Leticia. But even she will not escape choosing a different plan if she wants a discounted phone in the future.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KOVR Sacramento Verizon Sneaks Away Unlimited Data 6-27-12.mp4[/flv]

KOVR in Sacramento reports Verizon Wireless snuck away an unlimited data plan that one local customer was promised she could keep.  (2 minutes)

Frontier has dealt with PaymentOne for years. This bill shows unauthorized cramming charges billed to a Frontier customer in the fall of 2010.

An Oregon man found himself facing $300 in early termination fees from Frontier Communications after the phone company first refused to intervene on his behalf and credit his account for unauthorized “phone cramming” charges.

Tim Curns was with Frontier since the 1990s, but not anymore.

“I pulled the plug,” Curns told KGW-TV after unsuccessfully trying to get Frontier to help remove an unauthorized charge from his land line phone bill.

Curns found a $14.95 charge on his bill from something called “PaymentOne.” When he called Frontier, they could not tell him what the charge was for and at first refused to credit him for the unauthorized charge. That is surprising because Frontier has been billing customers on behalf of PaymentOne for more than two years.

With Frontier uninterested in investigating the phone cramming incident, Curns was told he would be on his own trying to stop PaymentOne from billing his phone line every month.

Curns tried to tackle the problem himself, first calling PaymentOne and learning the company had enrolled his line for the service despite having the wrong mailing address on file. Frontier, upon learning that, eventually agreed to a one-time courtesy credit but could not promise additional charges would not be forthcoming the following month.

Engraged, Curns said if Frontier could not stop unauthorized charges, he could stop being their customer. At that point, the Frontier representative surprised Curns with news he was unknowingly committed to a two-year service contract, and he could cancel his service… if he paid around $300 in early termination fees.

That would leave PaymentOne with their money, Frontier enriched on an early termination fee the customer never knew he would owe, and little left in Curns’ wallet.

“My question to the phone company was, okay, if you make an adjustment on this bill for 14.95 what are you going to do to stop this from being a recurring charge,” Curns said, “and they said there’s nothing they can do, you have to call these people.”

So Curns called and said PaymentOne told him the name of that company is My Global 4-1-1, which is a front company for a firm called Doink Media LLC, which the Federal Trade Commission been chasing all over the country.

Kyle Kavas, Spokesperson for The Better Business Bureau said, “most of the time it’s just companies that are randomly picking out phone numbers and charging them. Those cramming charges are very dangerous because they come from companies that are usually scammers.”

KGW received this less-than-helpful statement from Frontier:

“Frontier takes customer concerns very seriously and always tries to make things right. Our normal policy on a ‘cramming’ issue, which is an unauthorized charge on a customer’s account, is to assist the customer in contacting the 3rd party company who added the charge. These 3rd party companies get a customer authorization from the customer although in some cases the customer doesn’t realize they’ve authorized the charge. An easy way to avoid these is to have a 3rd party block put on your account by calling Frontier Customer Service.”

Curns called Frontier and learned although the company does not currently charge a fee for third party charge-blocking, it might in the future.

What Frontier doesn’t admit is that it earns a piece of the action from every phone cramming charge found on a customer’s bill.

Curns ultimately decided to pull the plug on Frontier for good, paid a pro-rated early termination fee, and recommended other customers follow in his footsteps before unauthorized third party charges make their way to another phone bill.

For now, customers can call Frontier customer service and request all third party charges be blocked from your phone line. The service is free of charge, although there are no guarantees it will always remain that way. It would also be a good time to review your current account and learn if Frontier has put you on a contract plan with an early termination fee attached. If you did not authorize this, demand it be removed from your account at once. If you did authorize it, have Frontier note your account that you do not want it automatically renewed at the end of the term, a practice Frontier regularly engages in, and note your contract expiration date.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KGW Portland Frontier Cramming 6-26-12.mp4[/flv]

KGW-TV visits with Tim Curns to discuss Frontier’s “look the other way” attitude about phone cramming charges.  (2 minutes)