Sen. Kay Bailey Hutchison (R-Texas)

Republicans in the Senate are falling in line behind their colleagues in the House in voting to repeal the Federal Communications Commission’s anemic Net Neutrality rules.

Virtually every Republican in the Senate is expected to vote in support of a resolution introduced by outgoing Sen. Kay Bailey Hutchison (R-Tex.) that would strip the FCC of its authority to impose the new rules, which would prohibit Internet Service Providers from interfering in the free flow of Internet content across their networks.  Nearly every Democrat in the Senate is expected to oppose the Republican-backed measure in a vote expected later today.

Republicans serving at the FCC and in Congress claim the federal agency has no congressional mandate to oversee the Internet.  The agency itself under Chairman Julius Genachowski has refused to fully enable its authority by reclassifying the Internet as a telecommunications service.  Because the agency’s role to oversee the conduct of the country’s service providers is at issue, it has left the FCC in a grey area, with its authority challenged both politically and in the courts.

Sen. Jim DeMint (R-S.C.) claims Net Neutrality rules are completely unnecessary because providers have already promised they will not tamper with traffic and, in his words, “This is a another big government solution in search of a problem.”

Hutchison said enforcement of Net Neutrality would stall broadband Internet development.

“It will increase costs and freeze many of the innovations that have already occurred under our open Internet system,” she said in a statement.

Democrats like Sen. Maria Cantwell from Washington State think otherwise.

Cantwell pointed to Comcast’s secretive effort in 2007 to throttle the speeds of peer-to-peer file sharing traffic.  Comcast initially denied it was interfering with torrent traffic, until eventually admitting it was.  The FCC sought to fine Comcast for the practice, but the cable giant sued the FCC and won in federal court.  The judge in the case ruled the FCC didn’t appear to have the authority to regulate Internet traffic or impose the associated fine.

Cantwell believes sensible Net Neutrality policies will prevent further instances of provider interference.

“These providers think if [they] can control the pipe [they] can also control the flow,” Cantwell said. “Why allow telcos to run wild on the Internet charging consumers anything they want based on the fact that they have control of the switch?”

Reporters questioned Senate Commerce Chairman Jay Rockefeller about Net Neutrality, noting the measure opposing FCC involvement won support from several House Democrats.

Rockefeller pointed to the universal support for the anti-Net Neutrality measure on the Republican side as evidence this has become a partisan political issue.  Rockefeller hopes his Democratic colleagues in the Senate will see it the same way.

“There’s still 53 of us [Democrats], and if we stay together we’ll win,” Rockefeller said. “I think we’re going to prevail.”

Should the measure pass, President Barack Obama indicated he will veto it.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/C-SPAN Net Neutrality 11-9-11.flv[/flv]

C-SPAN talks with National Journal reporter Josh Smith about Net Neutrality’s prospects and the background issues surrounding Net Neutrality.  (3 minutes)

Ford, Jr.: Making his former public service pay-off with dollar-a-holler advocacy on behalf of Big Telecom.

Former U.S. Senator John Sununu and former U.S. Congressman Harold Ford, Jr., share several things in common:

1. Voters tossed them out of their elected offices (or refused to elect them to higher ones) for poorly representing their interests;
2. Both are honorary co-chairs of Broadband for America, the country’s largest Big Telecom-industry-funded astroturf effort;
3. They don’t understand the concept of content provider traffic-hosting, and the traffic expenses they already pay.

Both jointly penned a letter in the San Jose Mercury News accusing Netflix of enjoying undeserved streaming profits, “subsidized” by large cable and phone companies that deliver broadband Internet service to paying customers:

Netflix’s current pricing model allows unlimited downloads for $7.99 per month. Netflix saves, with every download, approximately 40 cents that would otherwise be paid to the U.S. Postal Service. If the average customer downloads 10 movies and TV shows a month, Netflix will save $4 a month for each of its 23 million customers.

Obviously these massive transmissions over the Internet are not really free. Someone is paying for them. That “someone” is the millions of broadband subscribers, whether or not they are Netflix customers.

How is that fair?

Netflix argues that the marginal cost to the network providers of streaming a half-hour TV show to a residential customer is “one penny.” This ignores the hundreds of billions of dollars in sunken network investments needed to create that one-penny marginal cost efficiency at the customer’s end.

[…] It hardly seems fair to make users of these services pay more in order to subsidize Netflix’s costs of delivering their videos online.

This call for a fairer pricing model and a more realistic long-term investment strategy has bipartisan support. In 2010, the FCC said government policy should not discourage “broadband providers from asking subscribers who use the network less to pay less, and subscribers who use the network more to pay more.”

Neither former elected official comes to the debate with any direct experience as a telecommunications specialist, but since when does that matter.  They know how to deliver talking points-on-demand.

Sununu: New Netflix Math

Netflix, like every content producer on the Internet, pays hosting and content delivery fees to place their content online.  Netflix hires a content delivery network to regionally distribute its video streaming to ensure the best, and most efficient route to ensure an uninterrupted viewing experience.  While Netflix’s incremental costs may seem low, they still amount to millions of dollars annually in transport costs.  And the online video streamer already pays extra additional fees to some of the largest broadband providers in the country, including Comcast.

The other factor Ford and Sununu ignore is the bill at the other end — the inflated cost for broadband service consumers already pay.  For $40+ per month, consumers pay for service precisely to obtain the content of their choosing, and millions choose Netflix.  That monthly broadband fee, far in excess of the actual cost to provide the service, more than compensates providers for the “network investments” that are now declining at a rapid rate, even as broadband bills keep rising.

No doubt part of your broadband bill goes to pay for industry astroturf operations like Broadband for America, which doesn’t represent a single consumer, even though you are paying for it.  Of course, the marginal cost to hire industry lobbyists and their former legislative friends who today represent their interests (not yours), is pretty low on a per subscriber basis.  It hardly seems fair to us that subscribers should be footing the bill for groups like Broadband for America, who regularly advocate against consumers’ best interests.

If providers are looking for more money to improve their networks, perhaps they can start by cutting off Broadband for America, an industry mouthpiece that cannot even get its core arguments anywhere near actual facts.

At least 41 percent of West Virginian economic development professionals responding in a new survey rate their area’s existing broadband service as “not very good,” a result that could have profound implications for high tech economic development in the state because of poor quality business broadband service.

Some of the results of the survey, conducted by Internet Service Provider Citynet:

• 77% said government involvement in steering broadband policy was “very important.”
• 78% believe modern, reasonably priced broadband Internet infrastructure is “extremely important” or “very important” in competing against other locations for jobs.
• On a 10-point scale, broadband Internet infrastructure (8.56) rates as slightly more important than road improvements (8.26) and water infrastructure (8.26).

“Seventy-eight percent of respondents say it has been their experience that businesses considering locating in their areas place high priority on access to affordable, high-speed Internet when evaluating site selections,” said Jim Martin, president and chief executive officer of Citynet. “And 66 percent say cost and capacity of broadband service are factors more than half of the time when discussing new business prospects.”

Some participants in the survey said they are losing business prospects in part due to the lack of broadband capacity, its speed or cost. Most of the professionals said they were “very familiar” or “somewhat familiar” with broadband expansion programs, such as middle-mile infrastructure, being implemented in adjoining states.

In West Virginia, most broadband expansion is being done by “last-mile” service provider Frontier Communications, which took over most of the state’s landlines from Verizon.  For most homes and businesses outside of areas where cable companies compete, Frontier provides DSL broadband service ranging from 1-3Mbps in smaller communities, perhaps 7Mbps or slightly better in larger cities.

West Virginia has proved to be one of the least impressive states for broadband owing to its terrain and large number of rural communities, providing few incentives for robust competition.  That has meant slow speed service at high prices.

Survey respondents were less than impressed:

• “I have a project pending [and] will probably lose it based on costs of broadband.”
• “The lack of high speed service in the rural areas totally extinguishes the possibility of new small business start-ups.”
• “Prospects don’t look here because of the lack of high speed, affordable, reliable broadband…. Current speeds of up to 3 mb while may be suitable for residential use are not suitable for business.”
• “Not only do too many areas still not have broadband, but too many places where people live do not have it and that affects the quality of life issue when attracting a prospect to live, work and play in WV.”
• “We were looking at a possible location of a data center and the lack of affordable, large capacity broadband was a deciding factor in them not locating in WV.”
• “We need the middle-mile and trunk-line services in West Virginia to remain competitive for many of today’s industries. What good is it if we get high-speed to every place in West Virginia, when we can only reach each other and do not have the facilities to get out of the state and into the major lines?”
• “[We] lost a company that looked at an existing building located in an area that doesn’t have high-speed access. They ended up locating in another area.”
• “You are not in the game without it.”
• “What are we waiting for?”

Citynet has a dog in this fight.  Martin has tangled with Frontier Communications in the past year over broadband stimulus funding and where taxpayer dollars are being spent in the state.  While Frontier has touted “fiber projects” in West Virginia, those are primarily directed at increasing capacity for Frontier’s middle-mile network between its telephone exchanges, in hopes of expanding DSL further out into rural areas.  The company is also trying to address congestion issues that have grown since buying out Verizon’s landline-based broadband business.

Martin has criticized state officials for supporting Frontier’s efforts because the company will end up owning and controlling the network built, in part, from taxpayer dollars.

Stop the Cap! hears regularly from ordinary consumers in the state who are dissatisfied with their broadband choices, especially when they come from just a single provider — Frontier.  Slow speeds, poor service, and repeated service outages have been documented here and by the state’s local media.  Some outages are attributable to Verizon’s poor quality infrastructure (now owned by Frontier), others to Frontier’s unwillingness to replace that infrastructure — instead choosing to repair it, even if further outages occur later.

Rep. Marilyn Avila (R-Time Warner Cable)

Rep. Marilyn Avila (R-Time Warner Cable) is coming under increasing scrutiny across North Carolina as her cable lobbyist-written, anti-community broadband bill — H.129 — faces negative reviews in the media across the state.

Avila’s bill would set conditions under which community-owned broadband networks could operate, while specifically exempting existing cable and phone companies.  Most observers on the ground predict Avila’s bill would kill any further expansion of public broadband networks in the state and tie the hands of those already in operation, which would inevitably drive them out of business.  Avila’s bill, ghost-written by the state’s cable companies, even has the prescience to allow the fiber systems to be sold off to cable and phone companies at fire-sale prices for as little as pennies on the dollar, without a public vote.

Last week, the state legislature’s Finance Committee put Avila’s bill on a temporary hold “to allow public input” on the bill, but also to permit scrambling by lobbyists to deal with several surprise amendments that attempt to exempt existing community networks.

That time-out has given the press a chance to examine the proposed legislation and its impact on North Carolina’s efforts to improve its mediocre broadband rankings, now 41st in the country.  More than a few in the media do not like what they see in H.129.

The Associated Press notes the state legislature was finally allowing the public to weigh in on a matter that directly impacts their Internet experience:

North Carolina lawmakers aiming to stop cities from building their own broadband networks decided Thursday to allow public comments the next time they consider the latest effort by telecom companies to keep local governments out of the business.

The House Finance Committee will hear from the public next Wednesday as it reviews legislation that would sharply restrict the chances for municipalities to step in when cable and phone companies decide not to build high-speed Internet systems in lightly populated areas. Opponents say telecom companies aren’t extending super-fast Internet at reasonable prices, and that keeps smaller communities behind in the wired world of commerce.

“They don’t want to provide these services in a lot of areas because it’s expensive, and they don’t want municipalities to offer these services. That’s an unlevel playing field for our citizens,” said Rep. Deborah Ross, D-Wake.

Legislation unveiled Thursday was changed to ease the rules for communities in which at least half the households have no access to high-speed Internet except through a satellite provider. Another change ensures the new rules don’t affect the municipal networks already established in Wilson, Salisbury, Morganton and Iredell County, which have borrowed to build their systems.

Cable and phone companies have been urging the General Assembly to restrict municipal broadband services since a 2005 state appeals court ruling upheld the right of towns and cities to offer their residents broadband. Companies argue that local governments have an unfair advantage because they don’t have to pay taxes and can subsidize their rates by shifting profits from their electricity or gas customers, undercutting the corporate competitors.

Except community broadband providers in North Carolina are not doing any of those things.

In fact, smaller providers start at a competitive disadvantage because they cannot enjoy the savings larger providers get from their extensive buying power — winning lower costs on everything from programming to equipment and services.

Community providers are not winning most of their customers from “underpricing” their service — they are earning them by delivering better service, which was precisely the point.

The original argument communities like Wilson and Salisbury had with state cable and phone companies was with the quality and level of service offered in their communities.  They solved the problem themselves with the development of fiber optic service that provides ultra-fast broadband connections that residents and small businesses simply could not get from other providers.

Some lawmakers believe community networks get in the way of cable jobs and phone company investment, and they want to “clear the playing field for business.”  But for many communities in the state, the playing field is empty and will remain so indefinitely.

Broadband: Utility or Convenience

For some lawmakers, the debate is both generational and philosophical.  Ruth Samuelson (R-Mecklenburg), told the AP she doesn’t believe providing broadband is a core part of government.

Among the older population who have not grown up with the Internet, broadband can be seen more as a luxury and less of a utility.  A few generations earlier, a similar debate erupted over telephone and electric service, which faced identical controversy in regions underserved by private utilities.

A reminder of these earlier challenges was part of the Winston-Salem Journal’s argument against H.129’s adoption:

“The broadband battle is not being waged in the heavily populated portions of the state such as the Triad. Here, the for-profit companies moved in a long time ago. They can make a very nice profit here because the population density is adequate to provide a good return on the infrastructure needed for high-speed Internet service.

“Over the past decade, however, North Carolina’s smaller municipalities, such as Wilson, Salisbury and Morganton, have built their own systems because their leaders recognized that broadband Internet is now an essential utility, just as electricity and natural gas are. The Internet-service providers did not step up to provide that essential service, so the municipalities did. In doing so, the cities followed a path they took nearly a century ago when the biggest electrical power companies did not provide service to these areas.”

North Carolina blogger-activist Mark Turner wrote in the News & Observer broadband has the capacity to transform North Carolina’s economic future in much the same way power and phone service did a century earlier:

While farm life has never been easy, at one time it was significantly harder. In the mid-1930s, over 97 percent of North Carolina farms had no electricity, many because private electric companies couldn’t make enough money from them to justify running the lines.

Aware of the transformational effect of electrification and recognizing the need to do something, visionary North Carolina leaders created rural electric cooperatives, beating passage of FDR’s Rural Electrification Act by one month. Through the state’s granting local communities the power to provide for their own needs where others would not, over 98 percent of farms had electricity by 1963, and our state has prospered.

The Internet is no less transformational than electricity. Through this world-changing technology, lives are being shared, distance learning taking place and innovative new businesses springing up. Sadly just as in the days before electrification, many North Carolina communities (particularly rural ones) are being left behind, stuck in the Internet slow lane.

The Journal argues Internet Service Providers essentially want to keep these communities in the slow lane, with a powerful cartel that doesn’t deliver service, and does not want cities to provide it either.  The cable and phone companies can’t have it both ways, the paper says. “They can’t delay bringing high-speed service to North Carolina communities but then turn around and lobby the legislature to deny local governments the authority to establish municipal service if their residents want it,” the paper editorializes.

“The private providers are trying to make a big-government argument here, one that includes clichés about unfairness and Big Brother. But that is not the case. In this situation, residents and businesses are tired of waiting for Internet-service providers to arrive, so they’ve exercised their democratic rights to seek an alternative solution through their local governments.

“Had the private companies tried to make their argument 15 years ago, they might have deserved some sympathy. But not in 2011. The Internet and high-speed access to it have now been available in North Carolina homes for well more than a decade.

“They ignored a market, and local governments stepped in to provide a critical service. The legislature should kill this bill.”

Mark Turner in the News & Observer argues nothing about H.129 is really an ideological right or left-wing debate.  He reminds readers the Internet itself was a government invention delivered through public rights-of-way established by local and state government, or over airwaves that are literally owned by the public.

“Like the electric lines that were once strung by hand to all corners of our state, our cities should retain the right to bring Internet service to their communities – especially where the private providers will not,” Turner wrote.

The Rural-Urban Disconnect: Choices in Raleigh, Sneaking Onto Wi-Fi in Spruce Pine

Spruce Pine, N.C., where one of the most popular hangouts in town is a parking lot where Wi-Fi signals deliver the only Internet service some residents can get.

The Journal points out North Carolina’s broadband debate is taking place in the state capital – Raleigh, a city much like the Triad region, served by both cable and phone companies.  Against that backdrop, legislators may assume ubiquitous urban and suburban broadband leaves local governments with few excuses for getting into the business in the first place — an argument the cable lobby is using to its advantage with some legislators.  But as soon as one ventures off Interstates 40, 77, or 95 — it does not take too long to find oneself in a broadband backwater.

“Here in Spruce Pine, broadband is a fabled, magical thing we read about, but don’t have — a big reason why my 17 year old son cannot wait to move out of here,” shares Stop the Cap! reader Morgan.  “Everything you see on television shows with people using the Internet for practically everything just does not happen here.”

Morgan shares one of the community’s broadband secrets: local hotels and other business establishments have parking lots filled with cars with people still in them sneaking online.

“They are hopping on board business and motel Wi-Fi connections to pay their bills, apply for jobs, or just complete homework assignments that require an Internet connection,” Morgan shares.  “Some businesses have locked down their Wi-Fi with passwords to stop the traffic, so there is an active underground trade of passwords of different wireless connections around the area.”

Morgan called the phone company wondering when DSL service might reach her house.

“Never, came the eventual reply — and the guy was laughing about it,” Morgan says.  “He told me if I want something better, I should probably move.”

“What burns me up is these state legislators on the other end of the state are spending their time and energy defending the companies in the broadband shortage business.  If they spent half as much time working for better broadband in western North Carolina, we would not be in this position today,” Morgan writes.  “I mean we’re at the point where people take Internet access for granted in this society and they treat places like Spruce Pine as an escape from that technology ‘to get away from it all,’ all while we live in that world perpetually.”

Morgan is hardly alone living a life without broadband.  In communities from Mars Hill to Marshall, large sections of the state simply go without.  Avila’s bill does nothing to help — it actually hurts.

The Public-Private Partnership: A Solution for North Carolina’s Unserved?

In some areas of the state, public-private partnerships (PPP’s) — also rejected in Avila’s bill — are making a difference getting broadband into rural North Carolina, reports Craig Settles, a broadband activist.

“Last year, North Carolina broadband advocates began formulating policy recommendations to make PPPs something of a standard in business models for communities that want better broadband,” Settles writes in a piece for Government Technology. “When legislation was introduced earlier this year that would effectively end further development of municipal networks in the state, this seemed like the right time to promote PPPs. Unfortunately the legislators pushing the bill effectively shut out these muni-network proponents from offering a compromise in separate negotiations.”

PPPs over some creative solutions to rural broadband challenges — especially in addressing return-on-investment concerns that keep private providers from building out networks to reach rural populations.  A community or non-profit collaborative finances and builds the infrastructure to supply the service with a much longer payback period.  While many commercial companies want a return within five years, co-ops have been comfortable paying off infrastructure projects over 10, 20, or even 25 years.  Then, the private company can hop on board the constructed network at a wholesale price that helps pay off construction costs, and allows the provider to market its services and run its own business.  The only requirement, and the one some private companies hate, is that the network is operated in the public interest and good, meaning -any- competitor can compete over the same facilities.

A successful public-private partnership in western New York could be a model to help rural North Carolina get broadband.

In the Finger Lakes Region of western New York, a hallmark PPP project has brought Ontario County a fiber network that can deliver faster broadband than anything available in nearby Rochester.  And it has the support of TW Telecom, Verizon, Frontier Communications and other companies who can use it as part of their business plans.

“This is a winning scenario,” said Ed Hemminger, CIO of Ontario County, N.Y., and CEO of Axcess Ontario, the county’s 180-mile fiber network project. “It’s the only way some communities may be able to get fiber broadband. They can finance the buildout with bond financing with a 25-year payback term. If a muni is going to partner in this manner, be extremely cautious and ensure that it’s a true open access model that not only benefits providers in the area, but also allows others to come in and compete.”

“The beauty of this scenario is that it enables private-sector companies to overcome one of their biggest hurdles to deploying networks in rural and low-income areas: the cost of laying fiber or building wireless infrastructure,” Settles writes. “Municipalities, if they’re able to swing the financing, can take up to 25 years to pay off the debt. Providers, on the other hand, have to make their money back in three to five years.”

Rebuilding America’s Economy: Investing in Infrastructure

Providing suitable broadband infrastructure is increasingly important in small cities that are afterthoughts for many cable and telephone company providers.  For Wilson, N.C.,  creating the infrastructure of a 21st century broadband network is part of an investment to attract future jobs for a city reinventing itself.

“The city council realized that it would be a very competitive world to attract and retain the best jobs in the future,” Grant Goings, Wilson city manager told The Sun News. “Well, you can’t talk about jobs without talking about the infrastructure that brings them and keeps them. Short and simple advanced broadband is critical infrastructure.”

The Sun News reports on the state’s broadband controversies from the epicenter — Wilson is the first city in the state to deliver a fiber optic-based broadband network that beats all the others on speed.

This year, Wilson signed on its first 100 megabits per second residential customers and is the first to have residents using the highest speeds available in North Carolina, said Brian Bowman, Wilson public affairs manager.

For Wilson and other communities building out better broadband networks, using fiber optics was a natural decision because of its capacity and future ease of upgrades. The cable industry has long argued broadband is a constantly-changing business and cities have a poor track record of keeping up, but Wilson’s GreenLight service has turned the tables on that argument, leaving Time Warner Cable — the state’s largest operator — well behind the municipal provider cable interests predicted would be a failure.

Wally Bowen, founder and executive director of the nonprofit Mountain Area Information Network (MAIN), which provides broadband services in and around Asheville, says this year’s anti-broadband bill, like the others, leaves cities vulnerable to political posturing and special interest legislation. He’s tried to outmaneuver legislators who work for the interests of Time Warner and CenturyLink by building non-profit or co-op ownership into the infrastructure, if only to protect networks from being forced to play defense year after year as private companies try to pick them off in the state legislature.

“Government-owned infrastructure creates political vulnerabilities given how incumbents are behaving,” Bowen said. “Our nonprofits are comprised of representatives from private-sector companies, private colleges, hospitals and so forth, in addition to local government. So there are limited legal grounds for attacking the nonprofit via laws passed in the legislature.” Some incumbent Internet service providers still will try these tactics anyway, but the makeup of these nonprofits can give them a stronger position from which to defend themselves.”

For many voters in the state, watching certain legislators toil on behalf of billion-dollar phone and cable companies while ignoring North Carolina’s broadband problems should bring consequences.

“My friends and I continue to watch these events with interest and will vote against those legislators who obviously would feel more comfortable working inside Time Warner Cable’s headquarters, because they are effectively on their payroll already,” Morgan says.

AT&T's Fairy Tales of Broadband Congestion

Just a few days after Broadband Reports broke the news AT&T was imposing an Internet Overcharging scheme on its broadband customers, evidence continues to arrive illustrating the company’s planned usage limits are more about protecting their U-verse video business than actually controlling “heavy users.”

Dave Burstein, a well-known industry analyst who has tracked the broadband universe for years was so miffed about the nonsense he was reading in the Wall Street Journal, he picked up the phone and called the AT&T spokesperson who claimed the company was overburdened by heavy users:

Mark Siegal, AT&T’s top flack, hung up the phone on me when I said his comment to the Wall Street Journal was apparently a lie. It’s prohibitively unlikely their DSL cap “is to ensure the quality of the customer experience” necessary to solve “congestion in certain points of the network and interfering with other people’s access.” I’m certain that far less than 1% of the time do AT&T DSL customers have any impact from congestion. I’m pretty confident it’s less than 1/10th of 1% and probably less than 1/100th of 1%. My sources that wireline congestion on AT&T is minimal include statements from two CTOs of the company. Cheng, now a veteran in D.C., knew the comment was misleading at best. A mantra in D.C. is “wireline may not have congestion but wireless is different.” It was Sunday and perhaps hard to factcheck, but he’ll easily confirm the problem on Monday.

AT&T has long maintained they have a more robust network and cable is the one with “bandwidth hog” problems. But Comcast’s cap was 60% higher than AT&T and Comcast has said they will raise it. AT&T has gone 13 years without caps on their DSL network because they said they didn’t need them. Traffic growth is actually down slightly (Cisco, Odlyzko) so there’s only one reason to impose caps now: their video service, U-Verse, has become a $5B business. They don’t want people to be able to cut the cord and watch all their video over the net. 150 gigabytes is 40-80 hours of U-Verse quality TV, far less than the average U-Verse user watches.

In fact, AT&T is one of America’s largest Internet Service Providers, and maintains an important role in America’s Internet backbone.  As one of the largest providers, AT&T doesn’t worry about broadband traffic like a small wireless ISP does.  Its broadband pipes from the middle-mile to their nationwide network offers near limitless capacity thanks to fiber optic technology.  In fact, AT&T’s theoretical “bottlenecks” occur in the “last mile” of the network, from the phone company’s central switching offices or its interface between a fiber connection and the plain old copper wires that work their way into your home or business.

But first, a word about costs.

Dave Burstein

We have new evidence from both Burstein and the Internet Overcharging drama unfolding in Canada that providers literally pay pennies per gigabyte of traffic.  In fact, the broadband traffic customers generate represents only 2%-5% of what we pay for broadband in both countries.  Burstein uses some of Craig Moffett’s prolific comments in the media against his own argument for Internet Overcharging.  Moffett, a Wall Street analyst, is not alone when he reports broadband margins are as high as 90%, according to official company filings.  John Hodulik from UBS joins him.

Burstein gives providers’ argued need for increased investment to keep up with demand the benefit of the doubt and is willing to suggest profit margins at a reduced 75%.  In either case, running a large broadband network is a veritable license to print money in North America.  The costs to provide the service keep dropping, and providers keep on raising prices.

Burstein was generous with Comcast when he called their 250GB usage limit imposed in 2008 “fair.”  But as Stop the Cap! has argued, Comcast — like other Internet Overchargers — has not grown the cap over time, even as their costs decline.  In fact, customers are probably lucky the country’s largest cable operator hasn’t reduced it, as providers in Canada have done repeatedly. Burstein calls on Comcast to honor their promise and raise their cap.

Burstein also notes the rest of the world enjoys lower prices, more competition, and often faster service — with providers across the board still enjoying considerable profits.

But why not here?

America’s broadband market is a monopoly or duopoly in virtually every American city.  One cable operator and one telephone company deliver service to the vast majority of American broadband users.  Wireless providers are largely owned by legacy phone companies and strictly limit usage.  Without significant competition, providers can raise prices at will and milk profits to sustain their balance sheets even as other business divisions suffer from a downturned economy or shifting cultural changes.  The “landline” is rapidly becoming a thing of the past, and cable television provided by cable and phone companies could face cord cutting from consumers watching their favorite shows over their broadband connections.

Broadband service carries up to a 90 percent profit margin

Burstein tracks the business model:

15 gigabytes/month: The average (mean) user in the U.S., per Cisco’s respected VNI survey and numerous comments from the major companies.

Going Down: Bandwidth usage growth per customer. The rate has been about 30% per year, with the rate slightly falling the last few years. The growth in average usage is actually going down slightly, per Cisco VNI and the MINTS data of Professor Andrew Odlyzko.

Going Down: Capital investment required. In 2009, AT&T cut U-Verse by 1/3rd. In 2010, Verizon cut FiOS by 2/3rds. John Stankey of AT&T has said they will cut U-Verse much further after this year. Fran Shammo of Verizon says “Wireline will continue to come down year over year.” Cablecos have been dropping capex as a % of sales and often in absolute dollars. According to a recent survey by Heavy Reading, 70% of the cable networks have been upgraded to DOCSIS 3.0 already. There’s no significant capital spending beyond that at least until mid-decade. The Columbia University CITI report to the broadband plan aggregated analysts forecast and predicted a drop in overall capital spending on broadband, particularly in wireline. The primary capital spending for wired broadband is behind us, with few significant network buildouts in the next five years or longer.

Going Up: Profit Margins. Prices for broadband have generally been going up in the U.S. since 2007 while costs drop. Comcast, Time Warner, Verizon and most others have raised their broadband prices and ARPU. They also have (modestly) raised the prices of triple play including broadband, according to Dave Barden of Bank of America. Capex is dropping pretty dramatically while other operating costs are also falling. Customer support costs have gone down as few new customers (who need more support) are added. Modems and other gear continue dropping in price. Costs down, prices up = higher profits. Both Stankey and Shammo pointed to improved margins.

AT&T DSL (left) vs. AT&T U-verse (right): Hunting season on customers of both is now open.

AT&T argues their usage caps are less about the money and more about dealing with network congestion.  But does that play out?

AT&T has a convenient argument to use, which several journalists have come to believe gives the company a track record of being victimized by “heavy users.”  Namely, their network congestion brought about by the flood of iPhone users on AT&T Mobility’s cellular network.  Even if a reporter does not understand the profound differences between a wired and wireless broadband network, they have heard about AT&T’s problems coping with their wireless traffic.

In short, the company underestimated demand from its exclusive deal with Apple for the wildly popular phone, and refused to invest adequately to mitigate overcongested cities.  Instead, it spent millions lobbying for permission to “manage” the traffic with artificially-slowed speeds, usage limits, confiscatory overlimit penalties, and even some equipment to offload wireless users onto home broadband connections (for which AT&T still deducts airtime and data usage from your wireless allowance.)  Robust Wi-Fi also tries to drive customers off of AT&T’s inadequate 3G network.

For home broadband users who will be affected by AT&T’s Internet Overcharging scheme, let’s break them into two separate categories: DSL customers who face a 150GB cap and U-verse customers who will get a 250GB allowance.

AT&T DSL is a legacy product dependent on traditional copper wire phone lines.  Available in many areas unserved by U-verse, this technology typically provides up to 6Mbps service — often slower, sometimes higher.  The distance between the phone company office and one’s home usually determines what speeds customers receive.  In rural areas, 1-3Mbps is often typical.  In some urban areas, higher speeds are sometimes possible.  DSL is not a “shared” technology like cable broadband.  Each DSL customer has their own line between their home and central office (or remote repeater).  From there, a connection from the central office to AT&T’s backbone is made over a middle mile network.

AT&T U-verse VRADs (a/k/a 'lawn refrigerators') in Houston, Tex. (Courtesy: Swapdisk)

But AT&T’s DSL customers are already constrained by the reduced speeds DSL provides them.  It is unlikely a customer with 3Mbps DSL service is going to present much of a traffic challenge to a multi-billion dollar company unless they purposely under-invest in network upgrades.

Where congestion does exist, it occurs at the central office — usually because the company inadequately provisioned a sufficiently large data pipe to handle the traffic.  Since these circuits are increasingly fiber-based, congestion issues disappear when AT&T uses technology from this century instead of the last.

AT&T argues heavy users are overburdening their DSL lines, but their prescription makes no sense.  The company says, despite the alleged traffic jam, it is more than willing to sell users additional capacity for $10 per 50GB increment.  If AT&T’s aim was to cut congestion, they would be unwilling to sell additional capacity they don’t have to customers who need it.

A usage cap on AT&T’s new U-verse platform makes even less sense and opens a political minefield.

When one pushes away the promotional and marketing glitz AT&T provides when pitching U-verse, you are left looking at just one thing — a high speed broadband connection.  AT&T’s entire platform of television, phone, and broadband all resides on that single, super-speed broadband pipeline.

AT&T has built this super fast pipe with a combination of fiber optic cables and copper phone wires.  It uses fiber, which doesn’t degrade with distance the way copper wire connections do, to reduce the amount of copper phone wiring between your home and AT&T.  With this “fiber to the neighborhood” approach, AT&T can create a robust pipeline which can accommodate multiple television channels, a phone line, and your broadband connection all running concurrently.

AT&T only seeks to limit one part of that connection, however: the broadband service you could theoretically use to bypass AT&T’s television and phone service in favor of another provider.  It’s the same platform — only the services are different.

AT&T claims network congestion is a problem for U-verse as well, which is a controversial claim to make considering AT&T designed U-verse with excess capacity that goes unused to this day.

What does AT&T’s U-verse network look like?

AT&T’s regional offices maintain watch over their U-verse network of TV, Internet, and phone services.  This portion of the network is entirely fiber-based.  From there, fiber extends to individual central offices, part of the company’s middle-mile network.  AT&T’s fiber journey typically ends at large metal cabinets strategically placed in different neighborhoods.  These “Video Ready Access Devices” (VRADs) are probably familiar to you if you live in an AT&T area.  Sometimes derided as “lawn refrigerators,” the huge metal cabinets contain the interface between the fiber optic network and the copper wire telephone lines running to your home.

It’s this “choke point” AT&T tries to claim as a point of congestion.  If enough customers use their connection at the same time, it can “overburden” the network.  But can it, really?

Early adopters of U-verse pestered AT&T engineers about the network as it was constructed and learned a lot about it.

Phil Karn has been a U-verse customer since November 2009 and has become an expert on how his U-verse service works, and importantly how it holds back a considerable amount of available bandwidth.

An AT&T engineer “tried to tell me that the network equipment was like the engine in a sports car. You don’t want to drive it at the red line all the time because that will wear it out. I don’t know if he was told to use that analogy or if he came up with it on his own, but needless to say it’s a pretty silly one. And completely inapplicable,” Karn shares on his website.

He then claimed, rather weakly, that backhaul capacity considerations from the VRAD limit how much can be offered to each individual subscriber. This argument might even have begun to hold water except for the numbers he then provided. The VRADs, he said, are connected by 10 gigabit Ethernet over fiber, and each VRAD serves upwards of 200 homes. Let’s see…10 gigabits over 200 homes is 50 megabits per home. My [U-Verse] link runs at 32.2Mbps.

The whole point is that it doesn’t really matter how fast or slow the backhaul from the VRAD may be. With modern Internet routers and priority [Quality of Service] mechanisms, there is no reason to force capacity to remain idle when a user could be using it. Not unless, of course, you’re trying to maintain the public impression that broadband capacity is really scarce and expensive.

Karn

In fact, because few Internet users fully drive their broadband connections on a continuous basis, it can be argued that continuous video streams delivered to television sets left on in the homes of U-verse customers for hours at a time present a bigger “congestion” problem for AT&T, at least at this point in their network.  But the company has no plans to limit television viewing — only their broadband Internet service.

U-verse is AT&T’s answer to slow speed DSL, and part of how the company intends to stay relevant as landline customers depart.  But the company’s business plan depends on a certain percentage of customers subscribing to their pricey television service.  Should AT&T’s broadband customers decide to stop paying for television service, watching everything online instead, that threatens a $5 billion dollar business.

Burstein predicted this scenario when he discussed it with former FCC Chairman Kevin Martin:

“In 2005, Kevin Martin discussed with me the issue of what he would do if AT&T favored U-verse. I believe he felt he would have to act, but at that point hoped competition would prevent him from facing that decision. Now AT&T’s multi-million dollar über-lobbyist Jim Cicconi has presumably told them [current FCC Chairman] Julius Genachowski is sufficiently under control he won’t do anything about this.”

In the end, many of AT&T’s arguments simply are incoherent.  If only a small handful of AT&T customers are creating such a dilemma for the company it has to inconvenience every customer with a usage limit, AT&T has a much larger problem to contend with.  Furthermore, the company’s existing acceptable use policy already includes provisions for dealing with users that create problems on their network, all without bothering everyone else.