Netflix is coming to Canada.  Sort of.

Canadians will be able to sign up for Netflix’s on-demand video streaming service beginning this fall, but will Canadians be interested in using the unlimited service on their usage-limited broadband accounts?

Netflix is not planning on bringing its rental-by-mail service to Canada, instead relying exclusively on streaming its library on-demand over the Internet. Netflix currently licenses streaming rights for over 17,000 titles in its 100,000 plus library.  How many of those titles with be licensed for Canadian subscribers is not yet known, nor is an exact price for the service.  Netflix will launch for English-speaking Canadians at the outset, with French to come later.  This is the first time Netflix is making its service available outside of the United States.

But many Canadians are questioning the value of Netflix in their heavily-usage-limited country.  Most Canadian ISPs have either chosen or been forced to limit subscribers’ broadband usage.  Even ISPs that want to offer unlimited service find flat rate wholesale pricing nearly impossible to get because of Bell’s stranglehold on the market.  Cable providers like Rogers have implemented their own usage limits to boost revenue and keep costs down.

For Canadians living under an average usage cap of 40-60 gigabytes per month, adding streaming video will only eat their allowance that much faster.

“Netflix and the Canadian press covering this story have ignored the reality of bit-capped Canada,” writes Stop the Cap! reader Jeffrey from Calgary.  “I would be paying $75 a month for a broadband account and be limited in how I could use the service.  The CRTC (Canada’s equivalent of the Federal Communications Commission) has been in the providers’ pockets for years and this is why high bandwidth services bypass Canada or risk failure if offered here.”

Rogers, one of Canada's biggest cable companies, also happens to own one of the largest chains of video rental stores: Rogers Plus

Jeffrey believes Canada’s largest broadband providers, including Bell, Rogers, Shaw, Telus, and Vidéotron will never allow Netflix.ca to gain the kind of foothold it has in the United States.

“These companies all own or control Canada’s cable, IPTV, and satellite TV services, all of which are threatened by an American company like Netflix,” Jeffrey notes. “They’ve already got universal usage limits on their accounts, but these guys will also run to the CRTC and Canadian government to throw up roadblocks over everything from copyright and licensing issues to Canadian content rules and the initially ignored Québécois.”

Jeffrey believes more than anything else, Internet Overcharging schemes will serve their role in keeping would-be competitors under control.

“In Canada, we already had the debate about who gets to use our pipes for free,” he says. “Thanks to the CRTC, only the providers get to use them for free.  Everyone else pays a usage tax to them which fattens their bottom lines while stunting the growth of Canadian broadband.”

In Quebec, it’s much the same story.  Asperger notes Zip.ca, a Canadian rent-by-mail service, can get him 20 new DVD releases a month for around $25.  If he signed up for Netflix, anything beyond five DVD’s a month would put him over his limit forcing him to “pay and pay, and then pay some more.”  With Canadian ISP’s increasing their penalty rates for exceeding usage allowances, the overlimit fee could easily exceed the cost of just sticking with Zip.ca’s by-mail service.

Or, for many Quebecers, the next best alternative is Bibliothèque et Archives nationales du Québec, which offers an enormous collection of DVD’s that can be checked out for free.

Canadian press accounts of Netflix’s imminent entry into Canada have largely ignored the limits Canadian Internet providers impose on their subscribers, something readily noted by readers who comment on those stories.  Canadian consumers are well aware of their usage limits, and they avoid services that could expose them to even higher broadband bills.

Those who use their Internet service heavily, unaware of overlimit fees up to $5 per gigabyte, will be educated by bill shock when their next bill arrives in the mail.  After that, no more Netflix.ca for them.

Still, Netflix.ca will probably deliver a challenge to the already-stressed Canadian video rental market where Blockbuster and Rogers Plus duke it out for a dwindling number of renters.  Price cuts have not stopped the erosion of interest in DVD rentals, and Blockbuster is mired in more than $900 million in debt, trying to avoid bankruptcy.

The Canadian Radio-television Telecommunications Commission's support of industry-promoted Internet Overcharging schemes may limit Netflix's success in Canada.

If Netflix’s streaming library, mostly of titles two or more years old, is deemed sufficient by many Canadians, it could also cause a wave of cancellations of premium movie channels and other cable services.

The Ottawa Citizen reports some analysts believe Netflix.ca will cause an earthquake in the Canadian entertainment marketplace.

Carmi Levy, an independent technology analyst based in London, Ont., believes Canadians can expect a major entertainment industry shakeup this fall.

Levy says Netflix will sound the death knell for movie-rental services such as Blockbuster and Rogers Video and will force a pricing war among traditional cable and satellite TV providers who will be forced to scramble to keep customers.

“Netflix is not some Johnny-Come-Lately to the market. Even though they are new to Canada, they have been so successful in the U.S. that only a Canadian living underneath a rock wouldn’t be aware of their brand,” Levy said. “It’s the most seismic change to the content distribution system landscape that we have seen. It forces the incumbents to change their business model.”

Levy said the arrival of Netflix will allow casual TV watchers to cut their satellite and cable TV bills in favour of Netflix’s all-you-can-eat monthly offering. He said the $9 U.S. a month charged by the company was carefully thought out and he expects to see a similar price on the service later this year.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/CBC News Netflix Comes to Canada 7-19-10.flv[/flv]

CBC News discussed the introduction of Netflix Canada and how it will work with Netflix vice president Steve Swasey.  (5 minutes)

[flv width=”512″ height=”388″]http://www.phillipdampier.com/video/CTV News Netflix Canada 7-19-10.flv[/flv]

CTV News and its Business News Network ran four reports on the impact usage caps might have on the service, what kinds of titles will be available, and what it means for Canada’s entertainment businesses.  (12 minutes)

The classic one-two punch of Internet Overcharging is to limit your broadband usage -and- throttle speeds downwards.  AT&T wireless customers in several major cities across the United States are experiencing that for themselves over the long holiday weekend, reporting upload speeds have been throttled down to 100kbps or less (one-tenth of the speed most customers enjoyed as late as last week).

Speedtest.net has shown AT&T network throttling in many parts of Baltimore, Boston, Cincinnati, Cleveland, Columbus, Denver, Des Moines, Detroit, Fairfax, Houston, Kansas City, Las Vegas, New York, Orlando, Phoenix, St. Paul,  Salt Lake City, and Washington, D.C.

The speeds are so noticeably slow, it has become a national story as irate customers find their wireless broadband service first usage capped at just 2GB per month, and now upload speed throttled to the point of unusability.  AT&T promised a statement explaining the issue, but one has not yet been forthcoming.  Some speculated the throttles were designed to reduce congestion on AT&T’s network over the holiday, while others suspect a technical fault.

Reducing your wireless speed reduces the impact on AT&T’s backhaul network, which in turn reduces congestion and the number of dropped wireless calls.

The introduction of speed throttles for “heavy users” is a favorite in countries where overcharging schemes predominate.  Most permit a preset amount of traffic to pass at normal speeds, but once customers exceed an arbitrary allowance, a temporary speed throttle gets applied to dramatically reduce speeds and discourage further use.  Some limit customers to a selected amount of traffic per day, others per month.  Once the window expires, the throttle is automatically removed.

While there is no indication AT&T is applying such a throttle at this point, the company has strongly opposed efforts to ban such schemes.  AT&T has a history of antagonizing its wireless customers with poor network performance, and has been judged the least favorite provider by Consumer Reports.

Mark Lowenstein was a vice president of strategy at Verizon Wireless, where helped set pricing for the carrier.

The key to turning America into a haven for Internet Overcharging schemes is Re-educating customers to accept that unlimited ‘isn’t fair,’ especially in wireless mobile broadband.

Mark Lowenstein, an industry analyst and commentator, has given his prescription to Internet providers just itching to slap usage limits and overlimit fees on consumers enjoying unlimited broadband service:  you have to Re-educate consumers to accept Internet Overcharging schemes as a “positive” rather than a “punitive” development.

Fierce Wireless, where Lowenstein’s ideas were published, left out the fact he was also a senior executive at Verizon Wireless.

Despite the billions in profits earned from today’s broadband marketplace, some in the industry want to banish “unlimited” from subscribers’ lexicons.  Sure it’s true that many companies’ investments in broadband expansion and upgrades have actually declined in the last few years, right along with the costs to provide the service.  But in a world where revenues in other parts of the business are drying up, someone has to make up the difference — you.

For AT&T, the decision was easy.  If you want the raging-popular iPhone, you’re going to need a two-year service contract and a data plan limited to 2 GB of usage per month.  Exceed that at your financial peril (or use a Wi-Fi hotspot and stay off our 3G network).  Don’t like it?  Too bad for you.  Where else will you find a subsidized iPhone?

Now that AT&T has thrown down the smartphone cap gauntlet, Lowenstein is ready to offer carriers advice on how to make their abusive pricing schemes go down better with consumers.  He wants everyone to take a crash course in computer science. Grandparents everywhere will come to understand the meaning of megabyte and get into the habit of contemplating how many of those will be eaten from usage allowances everytime they use their phones.

A key part of the transition to usage-based pricing is going to be educating users and the app development community about what a “megabyte” is, as well as developing more advanced tools and the right early warning systems to ensure wireless operators don’t end up testifying before Congress for Bill Shock, Part 2. U.S. consumers are accustomed to flat-rate pricing in all other aspects of their connected life: landline phone, wireless voice (increasingly), cable, broadband and so on.

Lowenstein considers AT&T Usage Estimator to be “nifty,” missing the irony of his own declaration that AT&T’s nasty cap means “moderate usage of anything multimedia gets you to 2 GB pretty fast.”  AT&T, he notes, also helpfully notifies customers they are about to bust through AT&T’s subjective definition of an appropriate usage allowance.

He concedes there are some “gray areas” — mere minutiae in AT&T’s greater scheme for fatter profits:

• New generation multitasking smartphones can run apps and other bandwidth-consuming features in the background, sometimes simultaneously, leading to exponential increases in data usage;
• The model of the “constant connection” means apps in the background exchanging data over the mobile network 24/7 could consume plenty of data, or perhaps not.  Few know for sure;
• Consumers are forced to pay for spam, advertising, unwanted file transfers and attachments, and other data not specifically requested;
• Family plan users now need to track something else on AT&T’s website — how much data their kids are using.  Remember the wars over cell phone voice calling plan overages and text messaging?  Wait.

In Lowenstein’s world-view, this all represents opportunity.

Among his suggestions:

1. Add special ratings to apps that are highly consumptive of content.
2. Provide notification before certain content downloads or heavy usage apps.
3. Provide a view into other family plan users.
4. Provide the option for sponsored content and value exchange.

That last one may prove to be the most controversial at all.  It assumes the Kindle model — where the content producer builds in the price of network consumption.  That would make AT&T’s day — forcing content producers to cough up money to deliver content over the same network AT&T already charges customers to access.  Who would turn down being paid twice for the same thing?  Lowenstein’s model allows for advertisers to defray part of the costs:

An advertiser or sponsor could pick up some of the network cost. Or the content publisher could bundle the price of data into the app. Users are comfortable with the “choice” model in the TV world: view it for free on broadcast or Hulu, with commercials; pay a monthly fee for the DVR service and skip the ads; or pay a premium to view that content on-demand, commercial-free.

That suggestion benefits AT&T enormously, but does nothing for content producers who can’t even sustain themselves with advertising.  Lowenstein suggests they should now seek out advertisers to remunerate AT&T?  The implications of wireless carriers deciding who gets the usage-cap-exempt content deal and who doesn’t opens a whole new Pandora’s Box.  It effectively allows a handful of companies to pick the winners and losers in the mobile broadband marketplace.  After all, if AT&T offered free videos on its own video portal but didn’t exempt other websites with the same video content, guess where users will choose to watch.

Lowenstein believes taking these kinds of steps will somehow insulate the wireless industry from charges it’s barely competitive, restricts too much, and charges even more.  Yet usage limits like AT&T’s, coming even as carriers enrich themselves with gotcha add-on plans and extra fees will speak far louder than AT&T providing customers a guide on how to be abused by the wireless carrier just a little less.

I also think how usage-based pricing is handled in wireless will be closely watched in the wired broadband world. Consumers have become accustomed to flat-rate pricing for unlimited data from their broadband provider. But with the exponential growth of video consumption, and the notion of more TV and movie programming being downloaded from or streamed via the Internet, usage-based pricing for certain types of content or highly consumptive customers might be coming to a broadband neighborhood near you.

The “unlimited” ride might be coming to an end, but there’s an opportunity to implement it in a positive, rather than a punitive, manner.

In spite of Lowenstein’s love of telecom industry talking points (hardly a surprise considering he works for that industry), his notions that consumers will accept increasing broadband bills even as the level of service provided is reduced makes him not only wrong, but hopelessly out of touch.

AT&T offers up the common practice of boasting about how much you can do with a usage-limited account, based on the thousands of e-mails you'll never send, the 500 pictures you'll never take, or the one minute YouTube clips you'll never watch. Notice they never seem to include figures for streaming multimedia applications like music, movies, and TV shows or playing more bandwidth-intensive games. To do so would only upset customers further.

AT&T claims that 98 percent of its customers will save money under its new lower-priced usage-limited data plans, but an analyst predicts those savings will vanish for half of AT&T’s customers by 2013, exposing them to steep overlimit penalties.

Independent analyst Chetan Sharma crunched the numbers:

The average customer will consume more than 2 gigabytes of data a month within three years, up from 150 megabytes in 2009. Though AT&T could change its rates in the future, the cost of such data use at current rates is $35 a month. That would make it more costly than the $30 AT&T previously charged for unlimited data use.

“The devices are getting much, much better so the opportunities to multitask are more attractive,” said Sharma, who has written five books on mobile technologies and consulted for companies such as Motorola Inc. and Qualcomm Inc.

It’s not only heavy data users who may be affected, Sharma said. By year’s end, the average AT&T customer will have doubled their data consumption from 2009 to 320 megabytes, according to his estimates. Only 35 percent of AT&T’s smartphone customers use 200 megabytes of data or more, the company said.

Sharma’s forecast that half of AT&T’s smartphone customers will use more than 2 gigabytes of data is “not unreasonable,” said Christopher King, a Stifel Nicolaus & Co. analyst in Baltimore, though he said it’s difficult to predict such trends because they depend on the introduction of new phones, applications and wireless technologies.

AT&T’s new Internet Overcharging scheme has built-in profits as customers increasingly bump into the subjective limits the company imposes on its wireless customers.  Many customers have complained the 200 megabyte plan is too small to accommodate anyone but the most casual data user, while others find 2 GB too small to make video viewing more than an occasional treat.  Customers who exceed either limit face higher bills:

• Customers exceeding 200 MB in a monthly billing cycle face a $15 overlimit penalty, which nets them another 200 megabytes of service;
• Users who exceed the 2-gigabyte level will be forced to pay an additional $10 per month for an additional 1 gigabyte of service.

Even King believes AT&T’s limits are too low.

“There’s no way that AT&T is going to maintain their tiered pricing as they do today,” he said. “They’ll have to raise the caps on data usage.”

An Associated Press report gave credit to Stop the Cap! for getting first official word that AT&T ended its Internet Overcharging experiment in Beaumont, Texas and Reno, Nevada.

Stop the Cap! reader Scott Eslinger managed to get an AT&T customer service representative to read aloud a confidential memo distributed by the company terminating the experiment effective April 1st.  Because AT&T never disclosed the end of the experiment to impacted customers, the coverage by the wire service should help spread the word to residents that the rationing is over:

The phone company confirmed Tuesday that it is no longer holding DSL subscribers in Reno, Nev., and Beaumont, Texas, to data consumption limits and charging them extra if they go over.

With AT&T’s retreat, no major Internet service provider is championing the idea of charging subscribers for their data usage. Time Warner Cable Inc. was a major proponent of the idea and also conducted a trial in Beaumont, but backed away last summer after its plan to expand metered billing to other cities met fierce resistance from consumers and legislators.

AT&T’s trial started in November 2008 in Reno, and was later extended to Beaumont. It ended on April 1 this year, said AT&T spokeswoman Dawn Benton.

“We’re reviewing data from the trial, and this feedback will guide us as we evaluate our next steps,” Benton said.

AT&T should carefully review feedback from customers who despise usage limits and overlimit fees.  Studies show the overwhelming majority of customers do not like their broadband usage artificially limited with arbitrary allowances and overlimit fees, and customers will dump providers who ignore their wishes.

AT&T’s experiment never saved consumers a penny — the company simply slapped allowances as low as 20 GB per month on existing speed-based tiers.  Customers already face practical usage limits from Internet providers.  Those purchasing slower speed tiers are usage limited by those speeds.  Those who pay for higher priced, faster tiers benefit from naturally greater allowances those speeds provide.  Adding a new layer of limits only discourages customers from using the service they already pay good money to receive.  Besides, as profits explode in the broadband sector, the costs (and investment) to provide the service have declined, wiping out the justification for these schemes.

Stop the Cap! opposes all of these Internet Overcharging schemes.  While many providers seek to demagogue some broadband users as “data hogs” or “pirates,” the fact is today’s “heavy user” is tomorrow’s average consumer.  High speed broadband has the potential to revolutionize education, health care, private business, and entertainment, but not if a handful of major providers decide to end innovation by rationing the service to its customers.