Phillip Dampier

In response to one of our pieces today about AT&T, I replied to a reader’s question about why providers are not subject to oversight when it comes to their traffic meters.  The answer is, providers want all of the benefits their monopoly/duopoly status deliver, with none of the oversight and regulation that is supposed to come along with the deal.

When I am asked by reporters if our group would support the concept of usage-based billing if prices were lower, I know some education is in order before answering.

Frankly, what providers define as “usage-based billing” isn’t really usage-based at all.  It’s simply a double-tiered pricing scheme.  Consumers already pay for broadband service based on speed, which informally includes a usage limit of sorts — your maximum amount of consumption is governed by the speed of the connection you purchase.  Not satisfied with the enormous profits already earned selling broadband that way, some companies want to monetize Internet use by inserting usage limits or inserting a new tier of service based on usage allowances, which generally increase with higher-priced levels of service.

When broadband providers attempt to use the argument consumers already pay for usage of essential services like water, gas, and electricity, they are trying to conflate broadband traffic much the same way.  But apart from the fact broadband carries no generation costs and represents a limitless resource, the “fairness” argument falls apart when you consider the provider is effectively double-charging customers by implementing a use-based pricing scheme on top of a speed-based pricing model.

The equivalent would be charging you today’s prices for gas, electric, or water service, but then adding a surcharge or tax based on how fast or when you are using the service. Here’s the kicker: they are not lowering the price of their speed-based tiers, they are simply layering a use tax on top.  In short, it extra-bills customers for what they already paid for.

A true usage-based billing scheme would carry a monthly minimum charge for infrastructure costs (maintenance of the delivery system, meter measurements, etc.) and a traffic cost.  In a regulated utility environment, most providers are required to sell service at a price verified by regulators to cover costs and a small profit.  No gouging.  No provider dares sell service under these terms because it would dramatically slash the cost most consumers pay for the service.  Instead, they sell “usage tiers” that include arbitrary “allowances” that provide no rollover or discount for unused traffic.

Imagine what would happen if AT&T or Comcast sold broadband like electricity?

CartelCountry Broadband & TV

From coast to coast, we put the cartel in cable!

• Monthly Minimum Charge: $9.95
• Broadband traffic delivery $0.05/GB
• Amount consumed 20GB = $1.00

• Payment Due: $10.95

Thank you for your prior payment of $9.95. We hope you enjoyed your vacation. No broadband traffic consumed equals no broadband traffic charges.

That is why there is no such thing as true usage-based billing. Providers wouldn’t dare because they would lose the enormous income they earn from those “98 percent” of “light users” they keep suggesting are in the majority.

Even “heavy users” probably would not object to this kind of pricing. A 500GB per month user would pay $34.95 at these prices, and providers would STILL be making a profit.

BitTorrent, the company behind the popular file sharing protocol routinely blamed by providers for overburdening broadband networks and by Hollywood for distributing pirated content, took a tentative step today to oppose Internet Overcharging schemes.

Eric Klinker, CEO wrote a guest piece for GigaOM calling out AT&T for its announced 150-250GB usage caps:

While the trend toward metered bandwidth is not inherently pro-consumer, ISPs have staked out a singular public rationale: data caps are necessary to limit the consumption of “bandwidth hogs” in order to protect the network experience for everyone else. Such concepts are simplistic and easy to imagine. They are also completely wrong.

And with that, Klinker stumbled into a public relations and marketing effort defending the company’s culpability for increasing broadband traffic, and proposing a resolution for their ‘part of the problem’:

Since any data traffic that doesn’t induce congestion on a fixed cost network is essentially free; applications can voluntarily play a role in traffic prioritization. And since BitTorrent is a high percentage of global Internet traffic, we have a responsibility to be a part of the solution.

This was the primary motivator around our release of a new protocol a year ago, called µTP. The protocol essentially senses congestion and self-regulates to avoid contributing to Internet traffic jams.

Because µTP can never induce network congestion, it doesn’t contribute to an ISP’s cost. An ISP still has regular network maintenance expenses, but remember, with a fixed-cost network, traffic only becomes an economic burden if it contributes to congestion and forces the need for expansion.

As a result, µTP is exceedingly friendly to ISPs and their business model. µTP is open-source, and we invite application and cloud services providers to work with us directly or in the IETF’s LEDBAT working group in the ongoing innovation and usage.

Klinker

Some providers and their allied interest groups have disputed the diminished impact Klinker cites as a benefit of µTP, but in provider-world, the BitTorrent “problem” is rapidly becoming yesterday’s news anyway — online video is the new boogeyman.  NPD Research just released numbers showing peer-to-peer use has dropped from 16 percent of all U.S. Internet users to 9 percent over the last three years.

After making a spirited sales pitch for what he hopes will represent peer-to-peer 2.0, Klinker surrenders on behalf of everyone else, arguing the solution to America’s ‘broadband crisis’ is speed throttles during peak usage periods, and time of day pricing.  Klinker suggests broadband users might need to plan their “on-demand” viewing well ahead, or face the kind of “congestion pricing” Londoners face if they attempt a journey by car into the city center at high noon.  Klinker suggests Netflix customers should pre-schedule downloads of their movies the night before watching them, or else pay a fee for instant gratification.

That assumes, of course, you know what you want to watch the day before you do, that you can download Netflix content (you cannot), and that you didn’t remember you could accomplish the same thing if Netflix shipped the DVD out to you by U.S. Mail.

Are broadband rationing coupons far behind?

Klinker’s willingness to submit his own company’s peer to peer technology to provider speed throttles is likely to earn him a dressing down by investors wondering what the future holds for a protocol that can be dosed with Xanax at provider will.  Handing over the power to make your file sharing technology painfully slow and frustrating is likely not going to win new converts, either.

Before willing to subject everyone to solutions for broadband providers’ scary predictions of a broadband exaflood, would it not be better to actually obtain verifiable evidence there is a congestion issue in the first place?

Mossberg

Walt Mossberg, a columnist for the Wall Street Journal, delivered some stinging remarks about how large telecom and media companies deliver broadband services and programming to North Americans.

“We really suck at broadband,” Mossberg complained during opening remarks at Beet.TV’s first executive summit held at the Embassy of Finland in Washington.  “We have terrible, terrible broadband.”

“The typical consumer either has been lured into broadband by a DSL service that in Finland would not count as broadband — 768kbps is not broadband,” Mossberg said.  “If [the government] adopted a regulation not allowing Verizon to call that crap broadband, it would help.”

Mossberg added that cable modem service in the US and Canada is so slow, it is the object of pity and pathos in countries like Japan and Korea, and we’re overcharged for it.

[flv width=”480″ height=”388″]http://www.phillipdampier.com/video/Verizon Should Stop Calling DSL Broadband 2-17-11.flv[/flv]

Mossberg’s comments come as part of a discussion about the online video revolution, which he says is being hampered by copyright controls, outdated advertising models, and broadband providers delivering sub-standard service.  (8 minutes)

The Canadian Radio-television and Telecommunications Commission

Thanks to quick work from the Canadian Radio-television and Telecommunications Commission (CRTC), Canadian broadband providers have wasted no time announcing new usage limits and penalties for those who exceed them.

The principal culprit for the Internet Overcharging: Bell (Canada), the nation’s largest telecommunications company.

Bell’s newly won right to charge wholesale customers usage-based billing rates has caused a collective groan from independent providers from Vancouver to Charlottetown. Primus, the second-largest alternative communications company in Canada, threw up its hands and announced it was going to pass Bell’s costs along to their customers.  Some other providers have already raised rates, shocking customers who received December bills with $100 in overlimit penalties.

“It’s an economic disincentive for Internet use,” said Matt Stein, vice-president of network services for Primus. “It’s not meant to recover costs. In fact these charges that Bell has levied are many, many, many times what it costs to actually deliver it.”

That is a hallmark example of what happens under Internet Overcharging schemes like “usage-based pricing,” usage caps, or other limited use plans.  Customers don’t pay for their actual broadband use — they overpay, especially when stiff penalties are imposed when they exceed their usage allowance.

“Canada’s broadband market is a racket, period,” says our reader Andy, who lives near Petawawa, in northern Ontario.  “If you are in a major city in the south, you can choose Bell or one of their lackeys or the cable company, which almost always means Shaw or Rogers in English-speaking Canada.”

Andy doesn’t have access to cable, so his broadband comes courtesy of DSL from the phone company.  He counts himself lucky he has that, even though it only delivers around 512kbps and is down at least once a week, especially when the weather is bad.  Other communities have no broadband at all, and some areas are so desperate for access, they have provided financial incentives to attract a provider to town.  It rarely succeeds.  Zeropaid reports a handful on unscrupulous would-be providers have taken the incentives and left town with no broadband service to show for it.

“These guys only want the easy customers and they’ve got them in Toronto or Ottawa,” Andy says. “The rest of us can live with dial-up.”

The Canadian government occasionally launches highly publicized demonstration projects to deliver rural broadband in northern Canada, often over wireless, something Andy scoffs at.

“When the TV cameras are shut off and [Prime Minister] Stephen Harper’s political bandwagon goes home, the networks last for about a month until something goes wrong and the whole thing shuts down, sometimes for weeks before someone repairs it,” Andy says.

There oughta be a law.

Katz

In fact Canada, a country with a reputation for keeping a regulatory eye on essential services, has an agency that is supposed to protect consumers and monitor telecommunications services. Unfortunately for Canadians, it was that agency that gave Bell the go-ahead to kill unlimited, flat rate broadband — the service that has kept most independent service providers in business.

Critics charge the Commission has been acting more like a Big Telecom industry trade group than an independent oversight body, and many independent providers openly wonder how long they’ll survive with Bell’s predatory pricing.

Reviewing who serves on the Commission may provide some answers about why they seem to be closely aligned with Canada’s largest telecom companies.  Many of the commissioners used to work for the very companies they are now asked to regulate, and some are likely to return to them after their stint at the CRTC.  The agency’s supposedly independent commissioners know if they want future employment in the telecommunications industry, it’s best not to antagonize your next boss.

Take Commissioner Leonard Katz.  He joined the CRTC in 2005 and was appointed vice chairman of telecommunications in 2007.  For 30 years before joining the Commission, Katz was employed by Canada’s largest telecom firm, moving up through Bell’s management ranks from 1974-1985.  His last big job at Bell was as the assistant director of Bell’s regulatory lobbying department, where he spent his energy and time dealing with federal politicians and the CRTC.  Katz also loves Canada’s wireless industry, dominated by Rogers Communications.  He was founder and chairman of the Cellular Telecommunications Industry Association Clearinghouse for wireless carriers.

Arpin

Or there was Michel Arpin, a consummate former insider at some of Canada’s largest corporately-owned broadcast station groups like Astral Broadcasting, Mutual Broadcasting, and Radiomutuel.  He also had a side relationship with Telus, a western Canadian telecom company that also belongs to the Canadian Association of Broadcasters (CAB).  Arpin served CAB as vice-chair and chair. Arpin, the corporate media man, also served as the vice-chairman of the CRTC’s broadcast division until late last year.

Other examples:

• Rita Cugini — A regional commissioner for the province of Ontario, her professional background has been working for some of the province’s biggest media interests, including Alliance Atlantis, Telelatino, and CFMT/OMNI.  She also is integrally involved with the Canadian Association of Broadcasters, which bends the ears of regulators regularly on a variety of matters;
• Tim Denton — About as close to the broadband industry as you can get, Denton’s role as a commissioner began in 2008, but his money was made working for the broadband industry, including the Canadian Association of Internet Providers, which lobbies for big broadband provider interests.
• Candice Molnar — Serves today as regional commissioner for Manitoba and Saskatchewan, but she knows most of the prairie provinces’ movers and shakers by name, having spent more than 20 years at SaskTel, Saskatchewan’s biggest phone company.  She helped guide SaskTel from provincial to federal regulation when she worked there and her voting record shows her heart is still with her former employer.

Cugini

With a Commission stacked against ordinary Canadian consumers, it’s no wonder Internet Overcharging schemes and stifled broadband competition rule the day in Canada.

“Rural Canada always pays the biggest price,” says Andy.  “If it didn’t happen in Toronto or Ottawa, it didn’t happen at all.”

Andy complains Canadian broadband will never improve with Internet Overcharging schemes in place.

“They complain about your usage and say if they can restrict it, they can improve service to more people; well, where is my better service?” Andy asks.

“At least I don’t have to worry about their usage allowances… yet,” Andy says. “Even if I left my connection running continuously, at these speeds I doubt I could do much damage.”

In a welcome turn of events, the League of United Latin American Citizens (LULAC), which has routinely turned up as a member of Big Telecom-backed astroturf campaigns and takes money from AT&T, has come together with Latinos for Internet Freedom to issue a joint statement calling on the Federal Communications Commission to adopt equal Net Neutrality policies for wired and wireless broadband services.

“Although we disagree on some of the components of the proposed network neutrality regulations, there is one point on which we are in lock step: the FCC’s network neutrality rules must apply equally to wireline and wireless internet access.  Of course we understand that what is ‘reasonable network management’ may be slightly different over different types of connections.  Cost is the primary barrier to broadband adoption, and Latinos are turning to their mobile phones as their only onramp to the internet.  We are committed to finding ways to lower broadband costs by increasing competition through wireless access and other means.  It is therefore essential that the FCC ensures that users of wireless and wireline services are protected by its openness rules.”

Of course, broadband providers’ demands for deregulation and unified opposition to Net Neutrality have never delivered and will never provide cheaper Internet service to anyone.  In fact, the court ruling that eliminated the FCC’s authority over broadband gave providers nearly a year of a wide open marketplace, yet many providers are now sending out notices they are -increasing- broadband prices for subscribers.  Net Neutrality has never been enforced against wireless networks either, and as a result most either usage cap, throttle, or charge enormous overlimit fees for users deemed to be “using too much.”

Increased competition can bring lower prices, but only if it extends well beyond today’s duopoly.  In areas where one provider is likely to maintain a de facto monopoly, effective oversight is required to ensure consumers receive adequate service at fair prices.

Still, it is a surprising and welcome change to see LULAC recognizing the true nature of broadband access for many economically-challenged Americans, especially in minority communities where unemployment continues to be catastrophic.  Some consumers are finding prepaid wireless broadband service to be one way onto the Internet, yet Big Telecom has sought to keep those networks exempt from any Net Neutrality consumer protections.  That cannot be allowed to happen.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Verizon vs. Latinos for Internet Freedom.flv[/flv]

Watch these two competing spots from Verizon and the Latinos for Internet Freedom.  One is self-serving and a tad condescending, the other calls for a free and open Internet where individuals get a level playing field to tell their own stories and live their own lives without fear or special favor.  (2 minutes)