HP's Snowjob: The company that brought you the $70 ink cartridge supports an end to flat rate Internet service to "save" you money.

HP’s Joe Weinman argues consumers are behind the drive to abandon flat rate, “all you can eat” broadband pricing.

Weinman, whose company sells products and services to some of America’s largest broadband providers, has taken up their position that flat-rate Internet service is bad for you, claiming many are paying too much for Internet service they use too little.

In an essay posted on GigaOM, Weinman brings back the all-y0u-can-eat buffet metaphor:

For the record, I like unlimited Internet access just as much as anyone else. However, such plans appear to be on their way out, and here’s why. As I’ve explored in ”The Market for Melons” (PDF), pay-per-use is not an evil plot by greedy robber barons, but a natural outcome of independent, rational consumer choice. Consider a town with an all-you-can-eat (flat rate) buffet and an a la carte (pay-per-use) restaurant. Smart shoppers on diets will save money by patronizing the a la carte restaurant, whereas heavy eaters will save money by visiting the buffet. As patrons switch, the average consumption of the buffet will increase, driving price increases for the luncheon special, causing even more users to switch to pay-per-use.

Bottom line: it is not the proprietors driving this dynamic, but the customers themselves acting out of pure, rational self-interest—light users, by deciding not to subsidize the heavy ones, foster the vitality of the pay-per-use model.

Unfortunately for Weinman, most American broadband customers don’t believe a word of this, and even he was forced to admit as much when he noted consumers “often prefer to overpay for flat-rate rather than save money but risk bill shock.”

Karl Bode at Broadband Reports wasn’t suckered for a moment either, noting:

[…]Cable industry lobbyists would like the public to believe that such a shift isn’t about making more money, it’s about helping the poor. Not only is the metered billing push absolutely about making money, it’s about artificially constricting the pipe to protect uncompetitive carriers and TV revenues from Internet video. But instead, there’s a very concerted effort afoot to portray this shift as necessary, inevitable, and even altruistic.

Most consumers prefer the simplicity of flat rate pricing, and understand that ISPs are perfectly profitable under the flat-rate pricing model. They also understand that this is a pipe dream forged by never-satisfied investors, and once implemented ends with ever soaring per gig fees and ever shrinking usage caps.

Weinman’s essay completely ignores the reality his preferred pricing model already delivers to those who live under it in Canada.  Canadian broadband rankings continue to decline as customers there pay higher prices for a lower level of service, with usage caps that actually decline when new competitive threats from online video emerge.

Just what the doctor ordered: HP's Rx for American Broadband

We had to take time out to respond directly to Weinman and his cheerleading friends (see the comments section), some who wrote comments below the piece and couldn’t be bothered to disclose they owe their day jobs to industry-backed dollar-a-holler groups that are committed to delivering on behalf of their provider benefactors:

When Big Telecom comes ringing with promises of savings from metered or capped broadband, hang up immediately.

These plans save almost nobody money and expose dramatic overlimit fees to consumers, creating the kind of bill shock wireless phone users endure.

The OPEC-like Internet price-fixing on offer from big players delivers broadband rationing and sky high prices, while retarding Internet innovations that providers don’t own or control.

Consumers are forced to double check their usage and think twice about everything they do online out of fear of being exposed to huge overlimit fees up to $10 a gigabyte for exceeding an arbitrary limit ranging from 5-250GB.

Americans already pay too much for Internet service and now the providers want more of your money. The rest of the world is moving AWAY from the pricing schemes Weinman would have us embrace. It’s such a serious issue in the South Pacific, the governments of Australia and New Zealand are working to address the problem themselves.

Providers are already earning BILLIONS in profits every quarter from their lucrative broadband businesses. Now the wallet biters are back for more, with the convenient side benefit that limiting consumption is a great way to prevent Internet-delivered TV from causing cord-cutting of cable TV packages.

As far as consumers are concerned, and Weinman admits as much, people are happy with today’s unlimited price models. When Big Telecom complains people are overpaying for broadband, wouldn’t their shareholders be telling them to shut up and take the money? There is more to this story.

Weinman defends the extortion proposition Big Telecom would visit on us: either give us limited use pricing or we’ll raise all of your prices.

But as consumers have already figured out, these providers never reduce prices for anyone. When was the last time your cable bill went down unless you dropped services?

Don’t be a sucker to Big Telecom’s “broadband shortage” or pricing myths. Broadband is not comparable to water, gas, or electric. The closest comparison (and the one they always leave out) is to telephone service, and as we’ve seen, that business is increasingly moving TOWARDS flat race, unlimited pricing.

Want to know what metered pricing does to the wallets of consumers? Just ask Time Warner Cable customers in Rochester, Greensboro, San Antonio, and Austin what they thought about the cable company’s “innovative” pricing experiment that tripled the price for the same level of broadband customers used to get for $50 a month. After the torches and pitchforks were raised over $150 a month broadband service, Time Warner backed down.

Either with or without metered pricing, the cable company raised its prices three times last year alone.

The industry’s meme that “usage-based pricing” in inevitable is only true if consumers allow it to happen.  The parade of Internet Overcharging advocates all share one thing in common — they earn a living from the providers that dream about these pricing schemes.  Always follow the money.  As we’ve exposed repeatedly, the vast majority of defenders of these kinds of pricing schemes are not consumers.  They are:

• The providers themselves;
• Wall Street banks, investors, and the business media catering to them;
• Non-profit groups receiving substantial contributions from providers;
• Industry-funded “think tanks” and research that can carry the industry’s public policy agenda, hoping the media that quotes them are too lazy to follow the money;
• Equipment and service vendors, unions, and other groups who depend on the business or jobs they get from providers.

The Federal Reserve comes to the rescue of Big Telecom

Credit crisis?  What credit crisis?  That’s for little people.

While “challenging economic times” and “a difficult business environment” were among the reasons cited by banks for raising consumer credit interest rates, closing accounts, and slashing credit lines, some of America’s largest corporations received special credit favors from the Federal Reserve — cheap and easy money with little collateral required.

Among the companies that feasted on $3.3 trillion dollars of bailout credit largess — Verizon Communications, which had its $1.5 billion in debt picked up by the Fed — easy credit accessed twice during a major credit crisis.

The Washington Post uncovered Verizon’s Federal Reserve “Platinum Card” while reviewing more than 21,000 recently released loan records, forced into the open by new financial regulatory legislation.

Most of Verizon’s credit came in the form of covering the company’s “short term paper” — temporary debt taken on to fund daily business activities.  Although the Federal Reserve got the loan money back, the fact only major corporations, Wall Street banks, and other inside players got access burns many Americans, especially small business owners forced into hardship or out of business when their credit lines dried up at the height of the credit crisis.

While banks like Advanta, popular with small businesses, shut down all of its credit operations and raised interest rates to 30 percent or more on current balances, large companies like Verizon never had a thing to worry about thanks to the federal government.

“The American people are finally learning the incredible and jaw-dropping details of the Fed’s multitrillion-dollar bailout of Wall Street and corporate America,” said Sen. Bernard Sanders (I-Vt.), a longtime Fed critic whose provision in the Wall Street regulatory overhaul required the new disclosures. “Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations. As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions.”

Verizon spokesman Robert A. Varettoni said that it was “an extraordinary time,” adding that there was no credit available otherwise at the time.

Ordinary Americans already knew that, of course.  But they didn’t get the same kind of help companies like Verizon received.

As far as Sanders is concerned, banks and large American corporations did splendidly during The Great Recession — some like Goldman Sachs are paying record-busting bonuses for the second year running — all thanks to the special favors given by the federal government during the last months of the Bush Administration.

Sanders told the Post the federal government could have made demands on those accessing easy credit to help ordinary Americans, such as requirements to lend to small businesses, modify mortgages of homeowners, or agree to hire more workers.

“We bailed these guys out, but the requirements placed upon them had very little positive impact on the needs of ordinary Americans,” Sanders said.

Phillip "Of course you know this means war" Dampier

Sizing up the big winners from FCC Chairman Julius Genachowski’s latest Net Neutrality proposals is as simple as putting those praising Genachowski in column “A” and those outraged by downsized consumer protections into column “B.”  It comes as no surprise Big Telecom, the employees whose jobs depend on those companies, their trade associations and lobbyists are all living it up on the “A” side while consumers and public interest groups sit in the dark in column “B.”

Among the high-five club is Kyle McSlarrow, the outgoing head of the National Cable and Telecommunications Association, the cable industry’s top lobbying enterprise.

On the NCTA’s blog, an indication of your broadband future has been placed front and center — a meter.  Perhaps putting a coin slot on your cable modem or a credit card reader on the side of your monitor would be a bit too brazen, even for this industry.

McSlarrow, among others, heaped bountiful praise on the FCC chairman for his ‘enlightened’ views on Net Neutrality.  That hardly a surprise considering Genachowski has opened his phone line, and apparently his heart, to industry propaganda and arguments.

Genachowski’s remarks about usage-based pricing, in particular, were a breath of fresh air to Wall Street and providers clamoring to dispense with unlimited broadband service for consumers to increase profits:

Our work has also demonstrated the importance of business innovation to promote network investment and efficient use of networks, including measures to match price to cost such as usage-based pricing.

“This approach reflects a responsible and considered view of a fast-moving and highly dynamic marketplace but it doesn’t assume that there is any one ‘correct’ answer,” McSlarrow wrote.

It’s also a view consumers strongly disagree with, but those opinions are off the FCC’s radar.  Consumers don’t have the chairman’s direct phone number.  If they did, they could argue the fact “matching price to cost” would mean a dramatic reduction in pricing for today’s unlimited broadband account.  Instead, we have a lobbying effort to end “unlimited” entirely, backed by manufactured studies funded by providers expecting pre-determined conclusions.  Too bad the FCC doesn’t read provider financial reports.

Writes McSlarrow:

Some consumers don’t see the need to go online.  Others are constrained by cost.  Still others want to use the service they have in cutting-edge ways.  And the ability to pigeonhole companies and their business plans as being one thing or another is breaking down, particularly in an environment where Internet applications, content, and services change the way we behave as consumers, provide new opportunities for providers and consumers and alter how we all interact with both traditional and new devices and features.

The key point is that that we need to focus on what best serves consumers.  With all this change, it is necessary to have the flexibility to test new business models – and perhaps new pricing plans – in order to see if they make sense.

A usage-based pricing model, for instance, might help spur adoption by price-sensitive consumers at the lower end of the socioeconomic ladder.  As Sanford Bernstein analyst Craig Moffett noted in a report issued yesterday, “{u}sage-based pricing for broadband would have profound implications.  At the low end, it would allow cable operators to introduce lower priced tiers that could boost penetration and help in efforts to serve lower income consumers.”

McSlarrow

Evidently, to chase the small percentage of Americans who either don’t have an interest in going online, or think it costs too much, the NCTA wants those already online to face Internet Overcharging schemes ranging from usage caps to metered billing.  Is it flexible for consumers who face the end of broadband pricing as they’ve lived with for more than a decade or is it flexible for providers who can run to the bank with the higher profits rationed broadband delivers?

McSlarrow quotes Moffett’s quest for higher profits for his clients — Wall Street investment banks, but ignores the implications Moffett himself admits — consumer rebellions, self-rationing of usage, a stifling of online innovation from independent companies not connected with providers, and higher prices.

American providers look north for an example of Big Telecom’s pot ‘o gold — Canadian ISPs that have managed to wreak havoc on the country’s broadband rankings, forcing consumers to live with higher prices and, in some cases, declining usage allowances.  Canada’s broadband innovation graveyard is an object lesson for Americans: usage-based pricing doesn’t deliver savings to anyone except the most casual users living under constrained speeds and paltry allowances as low a 1GB per month.  For everyone else, broadband prices are higher, speeds are slower, and usage allowances deliver stinging penalties for those who dare to exceed them.  What do Canadian providers do with all of the money they earn?  A good sum of it goes towards acquiring their competitors, further reducing an already-poor competitive marketplace.

As one Ontario reader of Broadband Reports noted, “our largest cable company has the money to buy three professional sports teams but not enough to roll out DOCSIS 3 [to all of its customers.]  Our largest phone company, Bell, has the money to buy half the news stations in Canada, but cannot seem to get users off of 3Mbps DSL service.  The whole system is a scam.”

While the rest of the world is decidedly moving away from limited-use broadband, American providers have sold Genachowski that rationing the Internet is “innovation.”

Of course, you and I know real innovation means investing some of the enormous profits providers earn back into their networks to keep up with growing demand.  Providers can innovate all they like to attract price sensitive customers, so long as current unlimited plans remain available and affordable.  But as AT&T illustrated earlier this year, the first thing off the menu is “unlimited,” replaced with overpriced and inadequate wireless data plans that only further alienate their customers.

AT&T should take a lesson… from AT&T.  While it gouges its customers on the wireless side, the company has managed to solve the affordability question all by itself, without resorting to wallet-biting.  It dramatically reduced prices on its DSL services — now just $14.95 a month for its customers, which includes a free gateway and modem.  That sure sounds like a solution for budget-conscious customers and delivered all without antagonizing those who want to keep their current unlimited service plans.

AT&T seems to have managed to solve the affordability question without overcharging their customers.

Cable companies deliver their own budget broadband plans, but it comes as no surprise they barely market them, fearing their premium-paying customers could downgrade their service.

In short, Internet Overcharging is a solution chasing a problem that simply does not exist in a responsible broadband marketplace.

McSlarrow says he’s not arguing for or against any particular model.  All he is really confident about is that the marketplace is changing and that “companies will have to adapt to that change.”

But as is too often the case, McSlarrow, his industry friends and colleagues, and Chairman Genachowski have forgotten it’s ultimately consumers who have to adapt to change, and we promise it means all-out war if providers tamper with unlimited broadband service.

When the FCC delivers for Big Telecom's agenda, stocks soar. Comcast shares exploded on news the company could largely do as it pleases with its broadband service. (CNBC)

Comcast’s stock price soared today as Wall Street was cheered by news America’s largest cable operator would likely face little regulatory restraint from consumer protection policies designed to keep broadband providers from meddling with Internet traffic.  But investors were also excited by the green light signaled by Federal Communications Commission chairman Julius Genachowski that launching Internet Overcharging schemes like “usage-based” billing, speed throttles and hard usage caps on broadband consumers was also acceptable marketplace behavior.

Craig Moffett, a Wall Street analyst with Sanford Bernstein said Genachowski’s remarks left the marketplace with little doubt it can get away with price increases and new limits on broadband consumption.

“The FCC here is expressly acknowledging the need to ration broadband, and that’s a really big deal,” said Moffett, appearing on CNBC this afternoon.  “I think you are going to start to see usage-based pricing plans from the broadband providers pretty quickly.”

Moffett also acknowledged his firm’s own research showing consumers despise such pricing schemes and admits the impact on America’s broadband landscape is likely to include a dramatic shift in how customers use their Internet accounts.

“When customers think they are going to be charged when they click on that link and watch a movie, they are going to be inclined to watch fewer movies,” Moffett said.  “You can’t expect linear progression of online video because there are going to be feedback loops like usage-based pricing that are going to limit usage.”

Moffett says cable operators are benefiting from Chairman Genachowski’s new approach because it opens the door to repricing wired broadband accounts to limit broadband consumption.  Since most analysts guessed regulators would allow usage-based pricing to remain on wireless broadband, the unexpected green light for similar rationing plans on cable broadband, DSL, and other wired services was welcome news, at least for providers and Wall Street.

Consumers that don’t deliver a resounding negative response to elected officials, the FCC, and the White House better start thinking twice about clicking that YouTube video, because that few minutes could cost plenty if providers slap higher prices and limits on broadband service in the coming year.

[flv]http://www.phillipdampier.com/video/CNBC The Fight for Your Right to Surf the Web 12-1-10.flv[/flv]

A Wall Street telecom analyst predicts the end of unlimited home broadband accounts is going to come quickly, now that the FCC has capitulated on Net Neutrality policies.  (3 minutes)

Mona Shaw - The "Comcast Hammer Lady"

Up to 60 percent of callers to America’s big telecom companies experience rage when their calls go unanswered, their problems go unresolved, or they literally cannot get past the language barrier of today’s outsourced customer service agents working half a world away.

Cable and phone companies are among the worst at delivering quality customer service, with Comcast in particular causing enough frustration to bring a Virginia woman into a local Comcast office armed with a hammer, smashing company computers to get attention.

Only credit card companies have a worse reputation.

[flv width=”352″ height=”308″]http://www.phillipdampier.com/video/Peggy Ads.flv[/flv]

A compilation of six different “Peggy” Ads from Discover Card lampoon poor customer service among many credit card companies (2 minutes)

Unconscious Comcast employee

“When we call, what we want is ‘yes’ — that’s it,” says Emily Yellin, author of the book Your Call Is (not that) Important to Us, chronicling corporate America’s quest for cheaper customer service, usually alienating customers along the way.

Too often, American hear “no” or nothing at all, thanks to customer service representatives that lack the authority to solve problems or simply don’t care.

For many years, customers either took it or left.  But the Internet has changed everything, allowing customers to take their complaints to a wider audience, often embarrassing bad acting companies and creating tremendous damage to corporate reputations along the way.

An infamous example was the case of the Comcast employee who literally fell asleep waiting more than an hour to talk to co-workers about a customer’s problem.  A video of the sleeping worker became an online sensation.

Women like Mona Shaw, dubbed the Comcast Hammer Lady, also come away as folk heroes when customers can relate to the level of frustration she experienced from a company that only cared if she was a few days late paying her cable bill.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CBS News Combating Poor Customer Service 11-14-10.flv[/flv]