Brian Whitton, Verizon's Executive Director of Access Technologies

At least Verizon is honest about it.  As providers contemplate slapping customers with usage limits, overlimit fees, and other tiered pricing systems, they’ve typically said they’re justified because of the strain they claim heavy users place on their broadband networks.  One network that doesn’t face that problem is Verizon’s robust fiber optic FiOS network, which is on the way to upgrading from the ridiculously fast current speeds to the “next generation” of FiOS speed: delivering 10 Gbps downlink and 2.5 Gbps uplink, shared among 32 locations.  That makes the cable modem competition, which shares slower speeds among many more customers wilt at the prospect.  DSL instantly becomes the dial-up service of the decade in comparison.

Make no mistake, Verizon tells all who ask: Fiber to the Home is near-infinitely upgradeable for decades to come, simply by swapping out some hardware at each end of the pipe.

Yet Verizon began making noises about ending its all-you-can-eat broadband buffet this past September, when Verizon Chief Technology Officer Dick Lynch said Verizon was in favor of consumption-based billing, too.

But why should Verizon FiOS, often priced higher than the cable competition, opt for Internet Overcharging schemes when it has a network that is nowhere near capacity and will increase its speeds even further next year?

As GigaOm’s Stacey Higginbotham found out, the answer is – because they can:

Brian Whitton, executive director of access technologies at Verizon did acknowledge how valuable broadband has become—precious enough that people will pay for premium access to it, especially those using up a disproportionate amount of network assets. “Ultimately this is the fairest cost-recovery model, and with a tiering plan or a meter everyone is paying their fair shares to finance the network,” Whitton said. Unlike other ISPs, Verizon doesn’t view heavy bandwidth users as hogs, but it does view them as potentially high-end customers.

Yet Verizon already does charge users a fair share to finance their network, based on the speed tier that customer chooses.  Those high-end customers are already paying Verizon premium prices for the fastest available speeds on Verizon’s fiber optic system.  Verizon’s ability to recoup their investment becomes easier and easier as costs decline to construct the fiber optic systems that will protect Verizon’s viability for decades to come, unlike those traditional phone companies sticking with copper wire lines until the last customer out the door turns the lights out for good.  Verizon’s average revenue per subscriber has never been higher with its ability to market video programming, speeds that make most cable operators blush, and an infinitely more reliable telephone network, all on one bill.  That helps achieve subscriber loyalty, particularly when offering service that keeps customers happy.

Creating Internet Overcharging schemes for your broadband service simply to monetize consumption does not keep customers happy.  Verizon sees the cream rising to the top — charging broadband enthusiasts more while promising nothing for customers who use the service less.  With average consumption per broadband user rising, there’s going to be a lot more cream to skim, charging an increasing number of customers more money for the exact same level of service.

No consumption billing scheme to date has ever provided customers with a “fair share” system, because none of them result in no charge for no consumption or charge a flat fee per gigabyte.  Instead, customers are allocated a pre-determined allowance for usage, charged whether they use it or not.  If they exceed it, punishing overlimit fees are always the result, unless a provider takes another step towards monetizing broadband by inventing overpriced “insurance plans” to protect consumers from overage fees.  The cost of delivering that data is already built-in to the price of today’s broadband plans, and those costs continue to decline.

Higginbotham adds another factor in the equation: with insufficient competition, those “fair share” schemes can inflate prices and lower allowances at a whim, as most customers lack a wide variety of competitors to choose from, which could help keep the greed factor in check.

Most places have two providers that offer slightly different sets of services and plans, making it hard to compare prices. I don’t mind paying more for a better network (I do so for my cell phone), but most consumers lack that option when it comes to wired access. Comcast—which competes against Verizon in about 12% of its footprint—is rolling out faster broadband to ensure that customers don’t leave the cable provider for Verizon’s fiber. But in other areas of the country, such as here in Austin, Tex., folks must choose between DSL (with some U-verse) and cable that hasn’t been upgraded to the faster DOCSIS 3.0 speeds.

Austin was one of the test markets for Time Warner Cable’s reviled “consumption billing experiment” this past April.  In other test cities, it’s more of the same.  In Rochester, New York broadband service is realistically available from two major players — Time Warner Cable and Frontier Communications.  The former has apparently passed over Rochester for DOCSIS 3 upgrades because the cable operator sees little need to upgrade service in an area whose only primary competitor believes DSL service is good enough, one that has stubbornly kept an Acceptable Use Policy defining an appropriate amount of usage at a piddly five gigabytes per month, and thinks fiber is for breakfast cereals, not for Flower City residents.

Verizon’s words help call out the fiction that some providers have used to peddle Internet Overcharging schemes on their customers.  It’s not about “fairness,” it’s not about “exafloods and Internet brownouts,” nor is it about “expanding networks.”  It’s about profit, pure and simple.  When you have a duopoly in place for broadband and almost no regulation governing that service, the sky is the limit for price increases and limits on usage.

[flv width=”480″ height=”284″]http://www.phillipdampier.com/video/Verizon Whitton On Telecom Delivery 2-25-09.flv[/flv]

Verizon’s Executive Director of Access Technologies Brian Whitton speaks about the future of telecommunication delivery technologies with Kimberlie Dykeman of Web2point0.tv at The Future of Television East conference in New York (February 25, 2009 – 11 minutes)

Regulating mobile broadband data usage on a constrained network has posed a challenge for mobile broadband providers that can’t always easily expand their networks to accommodate growing demand.  As mobile broadband providers work with the frequency allocations they have either been assigned or won through airwave auctions, simply adding more capacity by using additional frequencies isn’t always possible.  So most providers have increasingly turned to usage allowances to artificially control demand on their existing networks.

Who wins the next round of spectrum auctions sets us up for the mobile broadband chicken and egg scenario.  Providers cannot bid the enormous dollar amounts these auctions routinely command without revenue from customers craving access.  Customers aren’t about to commit paying even more for mobile broadband service that, in the United States, is almost universally limited to five gigabytes of consumption per month.  Finding ways to attract new customers who have been resistant to the current pricing of mobile broadband service could provide a source for additional revenue.

But as far as consumers are concerned, the current model of “usage allowances” combined with punishing overlimit penalties is extremely unpopular, and will keep many potential customers away.

Camiant, which helps create and manage traffic management solutions for broadband networks, today announced the findings of its latest study, “Rethinking Mobile Broadband Data Rate Plans.”  Although some of the study was no doubt designed to help sell the case for Camiant’s product line devoted to “intelligent” network management and quota systems, it provides important insight into the European mobile broadband market.

The conclusion: Europeans don’t like Internet Overcharging schemes either.

In fact, when the 263 survey respondents using plug-in mobile broadband modems in the UK, France, Germany, Italy, Spain and Sweden were asked about their preferences for various rate plans, the key finding was consumers don’t like ‘Cap + Overage’ style rate plans.  Among their concerns:

• 62% didn’t know what their usage cap was;
• 76% didn’t know how much data they actually used;
• 39% didn’t know what happened if they went over the usage cap;
• 45% were very/moderately concerned about exceeding the cap.

When presented with four alternative rate plan structures and asked their preference — “Cap + Overage” was least preferred by consumers.  ‘None of the above’ was not an option, so those surveyed chose the plan most acceptable under the parameters of the study.  The result showed almost half wanted unlimited service, and just over one-third wanted to pay less for a plan with an allowance, but one that wouldn’t empty their wallets if they happened to exceed the limit:

Many users were willing to pay additional fees beyond the base subscription for potential “extras”:

• 43% of all respondents would pay €5 in addition to base plan for unlimited usage of one specific application. Of those that were interested, 90% said it was important that they select the application.
• 45% of respondents interested in a service that might provide lower speed at some point said they would be willing to pay between €1 and €3 for on-demand higher speed “for a short duration (e.g. 1 hour).”

“It’s becoming very clear that network operators need to offer a wider range of package options to users of mobile data users,” said Graham Finnie, Chief Analyst at Heavy Reading. “This study provides strong evidence that end users are willing to consider a range of alternatives to conventional usage management schemes.”

Some similar studies and focus groups being conducted in the United States testing additional rate plan options, most of which carrying a lower usage cap and lower pricing.  Many of the private studies are including the dreaded ‘I wouldn’t buy any of these plans because they are all too expensive for what you get’ option to determine if consumers are simply going to continue turning their noses up at overpriced data plans.

Mobile broadband growth at the $60 for five gigabytes price level has been accepted by the on-the-go traveler or business person dreading hotel Internet connection fees, but have been difficult to sell to occasional users, residential customers, or those who consider the price out of line for the amount of access it includes.  Most of these types of customers rely on free or reduced price wi-fi instead.

With 49% of survey respondents looking for unlimited plan options at reasonable prices, and most of the rest looking for a lower price with some limitations, today’s American mobile broadband pricing platform charging high prices for highly limited service is the worst of both worlds for consumers.

New Zealand, along with Australia and Canada are often cited by broadband providers as examples of places where broadband usage limits are commonplace.  With dreams of Internet Overcharging schemes in their heads, Time Warner Cable, among several others, have routinely pointed to Internet service abroad to justify limiting your usage at home.

But providers always ignore the fact customers despise the limitations on their service, in several cases ranking it among the biggest problems they have with their Internet Service Provider.  Internet rationing plans that barely budge in broadband allowances are a major factor in broadband mediocrity, and government officials are increasingly taking notice.  In some countries, national broadband policies seek to expand infrastructure where private providers won’t.

In New Zealand, the push for better connectivity comes through expansion of the undersea fiber cables that connect the country with the rest of the online world.  In the south Pacific, it is that connectivity problem which directly impacts consumer pricing of broadband and bring limits on service.

Today, the only major connection New Zealand has with the world is through Southern Cross Cable Networks, which have cables stretching from Auckland in New Zealand to Sydney, Australia and between Auckland and Hawaii.

Now, a second company hopes to dramatically expand connectivity with an expanded capacity cable to be laid between Auckland and Sydney.  Kordia, a state-owned enterprise, which plans to run the 2,350km cable, says this expansion will dramatically lower broadband pricing for New Zealand and allow providers to vastly expand or discontinue broadband usage caps.

Kordia says the cable, costing between $112-149 million dollars US, will be operational by the end of 2011 if all goes according to plan.

“Our proposed cable will take the most direct, quickest and least expensive route for New Zealand customers.  OptiKor is a better proposition for New Zealand than any other cable project – we are the most direct route to Australia and through our partners, we can deliver New Zealand traffic all the way to the United States,” Kordia Chairman David Clarke says.

Prices are already dropping in New Zealand just from the threat of competition.  Southern Cross Cable slashed prices on its cable 75 percent in anticipation of Kordia’s future competition.  Kordia claims that price cutting is designed to help drag down the company’s efforts to obtain contracts with telecommunications companies in advance of construction.

Still, should the cable be laid, in addition to the prospect of ending aggravating usage caps, Kordia estimates New Zealanders will save almost $1.5 billion US on Internet access between now and 2020.

The Novatel USB760, branded for Verizon Wireless

Verizon Wireless today announced the introduction of a prepaid wireless broadband option for customers who don’t want to pay $60 for 5 gigabytes of usage, with a two year contract.  Prepaid Mobile Broadband will be available starting November 15th in Verizon Wireless stores, sold as a “starter pack,” for $129.99, which includes a Novatel USB760 modem and a brochure showing different pricing options for the service.

Both Verizon and Virgin Mobile’s prepaid broadband services use the same USB760 modem, but that’s where the comparison ends.

Verizon Wireless expects prepaid customers to pay premium pricing for the convenience of having wireless broadband access without a contract on Verizon’s expansive 3G network.  Customers have three options:

• Daily Access: $15/day for 75MB
• Weekly Access: $30/week for 250MB
• Monthly Access: $50/month for 500MB

Unused allowances expire at the end of each term.  Verizon includes a “usage chart” with low ball estimates of what customers can do on each respective prepaid plan:

Data Type             Daily         Weekly       Monthly

E-mail (1 text page)  25,600        85,300       170,000
Typical Web page         500         1,700         3,400
Low-resolution photos    150           500         1,000

Don’t even think about streaming video at these prices. Virgin Mobile’s prepaid wireless broadband service was expensive until Verizon Wireless came around. Virgin Mobile charges $10 for 100 MB for 10 days, $20 for 250 MB per month, $40 for 600 MB and $60 for 1 GB.  Cricket also sells a prepaid wireless broadband plan for $40 a month for up to 5GB of usage, but has dramatically less coverage.

These plans are typically designed for occasional use only.  Those with regular on-the-go wireless broadband needs will do better under a contract plan.

With all of the discussion about Net Neutrality recently, the mainstream media often has a difficult time absorbing what this concept means and ends up confusing it with Internet Overcharging schemes.  CNN is the latest to make the mistake — not once but twice in three days as Nicole Lapin and Tony Harris discuss how Net Neutrality policies will impact consumers.

Lapin suggests this week’s decision by the FCC to begin writing a formal Net Neutrality policy was a done deal, and that it would prevent Internet providers from charging higher prices for consumers who use their broadband accounts a lot.

Both statements are incorrect.

The FCC is only at the start of writing a formal Net Neutrality policy.  The basic tenets Chairman Julius Genachowski would like to see a part of a formal Net Neutrality rulemaking are on the table, but there is plenty of time between now and a final vote for telecommunications industry lobbyists to sweep several pages from Genachowski’s wish-list to the floor (and replace them with their own.)

Nothing in the proposed Net Neutrality policies would currently prohibit providers from moving to Internet Overcharging schemes like usage allowances, overlimit fees, and other pricing changes that are ultimately designed to reduce usage and extract higher pricing from consumers.

Rep. Eric Massa (D-NY) has a bill to put a stop the Internet Overcharging schemes that continues to need your support and advocacy with your member of Congress.  See the Take Action section for further details.

For the record:

Net Neutrality: A set of policies that prevents Internet providers from discriminating against certain broadband services or website content providers with speed throttles, blocks, or other impediments.  Providers would not be allowed to set up special premium traffic lanes with faster speed delivery of online web content for “preferred partners,” while leaving everyone else on a slower traffic lane.  It preserves the Internet we have today.

Internet Overcharging: Practices by broadband providers to limit usage of your broadband service and/or charge higher pricing based on arbitrary claims that consumers are “overusing” their unlimited broadband service.  These include usage caps or limits, usage allowances, consumption billing that includes usage allowances, overlimit fees/penalties for exceeding those limits, speed throttles that kick in when a user reaches their usage limit, and any accompanying services sold to consumers who think they might exceed their plan allowance (overlimit “insurance” policies, extra usage blocks sold at premium prices, etc.)

[flv width=”570″ height=”324″]http://www.phillipdampier.com/video/2009-10-21-CNN-FCC Net Neutrality.flv[/flv]

CNN’s Tony Harris talks with Nicole Lapin about Net Neutrality, and how the policy impacts small businesses that sell on the web.  (October 21 – 3 minutes)

Earlier today the two revisited the issue of Net Neutrality to explore the outcome of the FCC Net Neutrality decision:

[flv width=”570″ height=”324″]http://www.phillipdampier.com/video/2009-10-23-CNN-Net Neutrality Victory.flv[/flv]

CNN’s Tony Harris and Nicole Lapin discuss the “victory” for Net Neutrality proponents.  (October 23 – 2 minutes)