Comcast last week told Wall Street three important facts:

1. They have plenty of capacity to handle increasing broadband traffic and can deliver faster speeds;
2. They are reducing the amount of money they invest in broadband;
3. They are still moving forward on usage caps and usage billing experiments.

Comcast CEO Brian Roberts told investors the company was well positioned to handle increasing broadband traffic and monetize its usage.

Wall Street liked what it heard. Valuentum Securities Inc., called themselves “big fans of Comcast’s cash flow generation.”

“We’re big fans of the firm’s Video and High-Speed Internet businesses because both are either monopolies or duopolies in their respective markets,” Valuentum concludes. “Further, we believe that both services have become so sticky and important to consumers that Comcast will be able to effectively raise prices year after year without seeing too much volume-related weakness.”

An other way to raise prices is to cap broadband usage and charge customers extra for exceeding their allowance, a plan Comcast has begun testing.

“As you know we announced two different flavors of plans,” Roberts said. “One was capacity linked with the tier that subs are buying and [the other] was just being able to buy blocks of capacity.”

Roberts is referring to Comcast’s pricing experiments now being rolled out in markets like Nashville. The tests will determine whether customers will pay higher prices for different tiers of broadband based on variable speed and usage allowances or whether a flat cap with an overlimit fee is the better way to go.

Roberts

“[Hard] caps are gone,” Roberts said. “We raised the amount people could consume to 300 gigabytes as a base limit. We have not announced the markets for the roll outs yet but I would expect something shortly.”

Comcast used to have a 250GB hard cap which, if exceeded, could result in termination of a customer’s account. Now the company is pondering whether a consistent 300GB cap with an overlimit fee is a better choice.

But Roberts also acknowledged Comcast has plenty of capacity and flexibility to adjust its broadband offerings to compete.

“[…] We have a great network that has tremendous flexibility and capacity to offer more speeds than we offer today and we’re constantly hoping that new applications and needs develop,” Roberts said in response to a question regarding potential competition with Google Fiber.

Comcast added 156,000 new high speed data customers, an 8% increase, over the last quarter. At the same time, the company lost 176,000 video subscribers.

The importance of Comcast’s broadband service was underlined by the fact broadband revenue was the largest contributor to cable revenue growth in the second quarter, with revenue increasing 9%. Comcast attributes that to rate increases, a growing number of new broadband customers, and the 27% of current subscribers upgrading to higher speed services.

Comcast does not and will not have to spend a growing amount of its capital on its broadband service. Comcast cut spending on its network by 5% in the second quarter to $1.1 billion. That represents 11.4 percent of cable revenue earned by Comcast. So far this year, capital expenditures have dropped 2.4% to $2.2 billion — 11.2% of its total revenue.

These days, much of Comcast’s capital expenses support the company’s expansion into business services. The company also expects considerable reductions in spending from completion of its transition to digital — freeing up capacity on existing cable systems instead of spending money to upgrade them. For the full year, including its business services expansion, Comcast expects spending on its own network to be flat.

Comcast’s new X1 platform (Image courtesy: BWOne)

In other Comcast developments of note:

• In June Comcast rolled out its new X1 cloud based set top platform in Boston and is currently launching X1 in Atlanta. Comcast is marketing the upgraded platform first to HD Triple Play customers, who can upgrade for a one-time installation fee. The company plans to roll out the new upgraded platform in five major markets by the end of this year, with a greater expansion in 2013;
• Comcast has increased broadband speeds, particularly in competitive markets, for no additional charge;
• Streampix now offers twice as many titles as the product offered at launch in February;
• Comcast has rolled out its marketing partnership with Verizon Wireless to 22 markets nationwide;
• The company’s ongoing rebranding under the Xfinity name now has a new catchphrase: Xfinity — The Future of Awesome;
• Nearly 75% of Comcast’s customers now take at least two products and almost 40% are signed up for the company’s triple play package;
• Comcast has saved more than $8 million by reducing the number of occasions the company will send technicians to customer homes. The cable company is heavily promoting self-install kits, which has brought a 65% increase  in the number of customers who install Comcast equipment and services themselves.

An Australian Internet Service Provider that caps customer usage and charges extra if you want to exceed your allowance has taken to the company’s blog to argue that usage caps are fair, even as their customers start departing for competitors offering unlimited service.

iiNet chief technology officer John Lindsay defends the company’s usage-based billing scheme, which charges more than $30 a month for DSL service with a 20GB usage cap.

“Service providers in favour of a two-speed Internet argue that there is limited capacity on the Internet and that those using the most bandwidth by delivering rich content or transferring large files should pay more,” wrote Lindsay. “In Australia, we have a different business model for the Internet. ISPs operate on a pay-as-you-go model, which also shapes the consumer market. Here, consumers can choose a plan with upload and download quotas to fit their usage and pay according to their needs – the more you use, the more you pay.”

Lindsay

Unfortunately for Lindsay, an increasing number of Australians don’t agree and are switching to providers like TPG and Dodo, which have become enormously popular selling flat rate, unlimited broadband service.

Lindsay warns that if Australia adopts the flat rate service model popular in the United States, a Net Neutrality debate will be sparked as customers discover ISPs are unable to handle the traffic and start prioritizing their own content.

“Operating a quota based business model ensures we’re not responsible for policing activity online – our customers pay a fair price for the services they receive and we can focus on more important issues than where their traffic is coming from,” Lindsay argues. “While US providers argue about a two-tier system, our priority is to provide awesome customer service and ensure our customers enjoy a seamless experience online, whatever it is their Internet connection means to them.”

Of course, Lindsay’s characterization of the American broadband landscape is fact-challenged, because most broadband providers have plenty of capacity to deliver content. Some simply want to earn a new revenue stream from content producers for managing that traffic, even though paying customers already compensate them for that service.

Australia’s data caps have traditionally been onerous because of the higher costs and limited capacity of underseas cables that handle traffic inside and out of the Pacific Basin. But Australians have complained about the low caps for years — so loudly that the Australian government has made construction of a super-capacity fiber to the home network a national priority for the country as international capacity also increases.

Customers were not fooled by Lindsay’s rhetoric.

“This is nonsense,” wrote Lachlan Hunt. “Australia’s model of capped usage limits with higher prices for higher caps, and of ISPs including yourself offering free zones where such data doesn’t count towards the monthly quota is exactly the problem that Net Neutrality advocates aim to deal with. It treats data from companies who choose to partner with you to get their content in the free zone as privileged compared with everyone else, and similarly with other ISPs.”

Hunt complains iiNet’s caps were “ridiculously low” and interfered with his career in the web development industry. Today he lives and works in Europe, where usage caps are increasingly a thing of the past.

“I’m really hoping that you will eventually wake up and realize that usage caps go together with Non-Neutral internet, and with the introduction of the [national fiber to the home network], which brings both higher speeds and capacities, you should be able to lower prices, abolish usage caps and offer a fair model with pricing tiers based on the chosen speeds.”

Stop the Cap! also addressed Lindsay:

[…] We have learned dealing with this issue for several years that ISPs are terrified of their own argument if carried to its fullest extension. If iiNet wants customers to fairly pay for only what they use, they should be billing them on exactly that basis. A flat charge per gigabyte — no allowances/quotas, no penalty overage fees or speed throttles, no wasted, unused quota at the end of the month.

But they don’t dare. If you charged $1/GB (still a crime-gouge compared to the wholesale price), those customers currently paying $30 for up to 20GB service might suddenly be paying $5-15 instead.

[…] If you asked your customers whether they prefer unlimited service or your current cap system, most will clamor for unlimited, even if it costs them a bit more, just for the peace of mind of never facing overage charges or speed throttles.

This argument has never been about capacity. It’s about what it always is about: money.

Wireless Internet Service Providers (WISPs) are incensed about efforts by CenturyLink to win waivers from the Federal Communications Commission’s Connect America rural broadband funding program that could leave WISPs facing new competition from CenturyLink made possible by surcharges paid by phone customers nationwide.

At issue is a filing from CenturyLink before the FCC that would allow the phone company to “change the rules,” according to critics. One of CenturyLink’s most prominent arguments is that WISPs have data caps that inconvenience customers. But CenturyLink buries the fact it has usage caps of its own in a footnote.

“The waiver application we filed … would allow CenturyLink to spend tens of millions of dollars to bring more broadband services to more rural and high-cost customers who do not have reasonable access to broadband service today,” CenturyLink said in a media release. “These funds would be provided by the FCC’s Connect America Fund, as well as additional investment dollars would be provided by CenturyLink. If the waiver application is approved, CenturyLink will build needed broadband services to thousands of homes in Arizona, Colorado, Washington, Oregon and several other states.”

CenturyLink claims WISPs charge considerably more for service, suffer from line-of-sight restrictions which could leave many rural customers without service, have limited spectrum which keeps broadband speeds to a bare minimum and often forces customers to endure stringent data usage caps.

The waiver request would allow CenturyLink to receive and use federal Connect America funds to deploy its DSL service to rural customers already served by WISPs if two conditions are met:

• The state where CenturyLink would spend the money has not independently verified the coverage area of the wireless ISP and objective data opens the door to an argument that a WISP cannot adequately service areas where they claim coverage;
• The WISP imposes unusually high prices ($720/yr or more) or severe usage caps (25GB per month or less).

Chuck Siefert, CEO of the Montana Internet Corporation (MIC), a WISP, argues CenturyLink has no case, and is attempting to modify the rules to accomplish its own objectives rather than adhering to the original goals of the program — to deliver broadband to the rural unserved:

CenturyLink is simply raising an old protest in a new venue. Having been designated as eligible for almost ninety million dollars of the Connect America Program (CAP), it wishes to have the opportunity to use more than a third of that as it chooses, rather than as the Commission designated after input and analysis from all parties. The Rubicon has been crossed with respect to this issue: unserved areas are those that are not served by fixed wireless providers.  Regardless of CenturyLink’s opinion of the quality of service provided, these areas have been deemed served by the Commission and CAP incremental support may not be used to build out broadband in these areas. CenturyLink is certainly capable of using other funding to build out in these areas; the Commission has not precluded that.

CenturyLink’s complaints that WISPs often come with data usage caps is ironic because CenturyLink is now imposing usage caps on its own broadband service. CenturyLink argues data caps expose the limitations inherent in wireless broadband in their filing with the FCC:

Satellite broadband also often comes encumbered with restrictive data caps. The same is true of many of the WISPs subject to this waiver request. They impose on their users highly restrictive data caps of less than 25 GB per month. Indeed, two of the WISPs impose a cap of just 5 GB per month.

It is no surprise that these WISPs would impose such unusually low caps; like satellite providers, they must ration out their highly constrained capacity among the various end users who compete for it. WISP broadband capacity—unlike the customer-specific links in DSL-based broadband—is shared by all customers within a given wireless cell or sector.

This means that the more customers a WISP persuades to sign up, the worse the average service quality gets for all customers unless the WISP sharply limits how much customers may consume.

That imperative may be an unavoidable consequence of the WISPs’ technology, but it further underscores the need to give the affected consumers a robust broadband alternative.

Siefert claims CenturyLink’s assertions about the quality of its DSL service, pricing, and performance simply fall short of the truth, and MIC does better by its customers.

Pricing

CenturyLink charges a $134.89 non-recurring charge plus $29.99/mo for “up to 1.5Mbps” DSL service, plus “up to” $99.95 for professional installation. CenturyLink’s DSL modem costs $99 and has a one-year warranty.

Siefert claims MIC charges $30/mo for “bursting speeds up to 10Mbps” and $250 for technician installation, but the company offers regular installation promotions that cost $99. MIC warrants its equipment for the life of the service and charges no fee for service calls as long as the customer is current on their bill.

But Stop the Cap! found speeds and pricing less advantageous than Siefert might have the FCC believe. For instance, MIC’s $30 tier only guarantees 384kbps with speed “bursts” up to 10Mbps. Getting committed 2Mbps service runs $55 a month with the same “bursting” speed of 10Mbps. We also found CenturyLink willing to negotiate installation charges, and the company frequently discounts or even waives them if a customer signs up for a multi-service package.

Data Caps

CenturyLink now imposes a 150GB usage cap on customers with 1.5Mbps service or slower, 250GB for customers at higher speeds.

MIC claims it does not even monitor individual customer usage. Siefert says data use limitations are found in the terms and conditions of its service and are imposed only when a customer creates a problem for other users on the network.

“Rather than strictly applying data caps, MIC’s policy is to contact its customers and explain the impact their usage has on other customers,” Siefert explains. “As a small provider in a local community, MIC is able to do this in a way that a carrier like CenturyLink cannot. CenturyLink’s representations regarding transfer caps imply that WISPs arbitrarily and automatically shut a customer down once the cap is reached. This assertion is not based on evidence and is not an accurate statement of MIC’s approach to the caps. CenturyLink’s argument that WISPs operate like satellite and therefore WISPs service areas should be categorized as unserved areas based on how transfer caps are used fails.”

Stop the Cap! found different information on MIC’s website, however, including a 20GB monthly data cap and a $15/GB overage charge. Siefert’s submission to the FCC may suggest the published cap is a guideline more than a rule.

Performance

CenturyLink still uses T1-level circuits (1.5Mbps) to connect at least some of their remote D-SLAMs, according to Siefert, which helps the phone company extend DSL service to homes and businesses far away from the company’s central office. The net result is that customers fight for the bandwidth on an insufficient backhaul, which dramatically reduces speeds during peak usage times. In Helena, Montana CenturyLink “daisy-chains” D-SLAMs to support customers over a single T3 line, creating latency problems, packet loss, and further reductions in speed and performance.

MIC is capable of providing a total of 252Mbps per distribution site. The incoming next generation of wireless technology will increase that to 1.4Gbps. Additional distribution sites can divide the traffic load similar to how new cell towers can reduce demand on other nearby towers.

Speeds

CenturyLink sells speeds “up to” a certain level without guaranteeing customers will actually get the speed they are paying to receive. Siefert says CenturyLink customers in Montana currently can manage up to 7Mbps in some areas.

MIC says it can commit to its customers they can receive 10-40Mbps (and 80Mbps by the end of 2012) over its wireless network.

Independent Netindex.com suggests MIC does offers faster service on average than CenturyLink provides in Montana:

• Montana (statewide average): MIC 5.04Mbps vs. CenturyLink 3.8Mbps
• Helena: MIC 5.08Mbps vs. CenturyLink 2.73Mbps

The Wireless Internet Service Provider Association says their members are not eligible for federal Connect America subsidies, and most wireless providers are privately financed operations built with the support of their rural customers.

Said Richard Harnish, WISPA’s executive director, “We find it hard to believe that a company like CenturyLink that gets millions of dollars in federal support now wants more free money to overbuild unsubsidized rural broadband networks that WISPs already successfully operate. To do this, CenturyLink has attempted to discredit the taxpayer-funded National Broadband Map and invent its own standards in an effort to show that they should receive more than $30 million in additional subsidies.  Our strong opposition reflects WISPA’s view that CenturyLink’s arguments are factually and technically flawed.  We thank the other associations, state agencies and WISPs that support our views.”

Four of the nation’s largest phone companies — two former Baby Bells, two independents — have very different ideas about solving the rural broadband problem in the country. Which company serves your area could make all the difference between having basic DSL service or nothing at all.

Some blame Wall Street for the problem, others criticize the leadership at companies that only see dollars, not solutions. Some attack the federal government for interfering in the natural order of the private market, and some even hold rural residents at fault for expecting too much while choosing to live out in the country.

This four-part series will examine the attitudes of the four largest phone companies you may be doing business with in your small town.

AT&T’s real priorities are to satisfy Wall Street demands for regular revenue growth. Rural wired broadband just cannot compete with the margins the company earns on its enormously profitable wireless and ARPU-raising U-verse services. (Graphic adapted from original work of Mark Fiore)

Today: AT&T — More Rural Broadband? Don’t Call Us, We’ll Call You

AT&T CEO Randall Stephenson earlier this year declared expansion of its U-verse fiber to the neighborhood service “largely complete,” despite the fact almost half of AT&T’s customers only have access to much slower DSL service, or cannot receive any broadband service at all.

For those living in AT&T’s service areas, which include a large portion of the midwest, southern states east of the Mississippi, Connecticut, and parts of California and Texas, Stephenson has not inspired confidence the company is rethinking what is possible in rural broadband.

“We have been apprehensive on moving, doing anything on rural access lines because the issue here is, do you have a broadband product for rural America?,” Stephenson told investors earlier this year. “And we’ve all been trying to find a broadband solution that was economically viable to get out to rural America and we’re not finding one to be quite candid.”

AT&T’s lack of confidence this year is in contrast with their bombastic rural broadband lobbying campaign of 2011, launched as part of an effort to win approval for its aborted merger with T-Mobile USA. The company sent slick talking points promoting the deal to community groups it supported with contributions, politicians it bought with contributions, and astroturf efforts it bankrolled with contributions.

The result was declarations like this from former Rep. Rick Boucher (D-Va.), who swept through Washington’s revolving door and came out on the other side working for AT&T-backed lobbyist-law firm Sidley Austin and serving as an “honorary chairman” of the industry-backed Internet Innovation Alliance:

Thousands of the smallest communities outside of urban areas either lack broadband service or have just one option that can be pricey for a relatively low connection speed, inadequate for modern business demands. The joining of AT&T’s and T-Mobile’s wireless spectrum will largely fill the gap and bring robust Internet connectivity to rural localities where wired infrastructure is cost prohibitive.

With the merger now nothing more than a bad memory, Stephenson’s interest in the innovation of Internet access quickly faded.

Last week, AT&T customers learned the company isn’t even interested in taking free money from the federal government and ratepayers to do better. Offered access to $115 million in broadband subsidies from the reform of the Universal Service Fund (USF), AT&T officials shrugged their shoulders and indicated they were not interested because they are not yet “ready” to participate.

Quinn

“AT&T is in the midst of evaluating its options for further rural broadband deployment,” said Robert Quinn, AT&T’s senior vice president of regulatory affairs wrote in a letter to the commission. “As our chairman stated last month, we are optimistic about AT&T’s ability to get more broadband into rural areas, particularly as the technology continues to advance. However, until AT&T finalizes that strategy, it cannot commit to participating in the incremental support program. ”

For communities like Orangeburg, S.C., that answer is not good enough. The community received an $18.65 million federal grant of broadband stimulus funds to develop high-speed broadband in an area where only 20-40 percent of residents have Internet service today. AT&T is the dominant phone company and offered the same non-committal response to Orangeburg’s pleas for better service that the  company gives to customers elsewhere.

While AT&T reports it is not yet ready to do better in rural South Carolina, it is very motivated to make sure nobody else does either, funding a massive lobbying effort in coordination with its friends at the American Legislative Exchange Council (ALEC) to pass a virtual ban on community broadband development across South Carolina.

Christopher Mitchell at Community Broadband Networks calls it “monetizing scarcity.” Orangeburg officials call it a big headache and are working around AT&T, frustrated with the phone company’s disinterest while it also helps build barriers to impede the community’s efforts to build its own network.

“If some of these other providers had a desire to serve these rural areas, they would have already been doing it,” said county administrator Bill Clark. “We are entering the broadband business because third-party providers are reluctant to provide the service.”

AT&T’s reluctance to accept USF money may have a lot to do with the company’s focus on its wireless network which is seen as a much more lucrative investment. Profit margins for barely-competitive wireless service remain sky high, and are growing higher as AT&T raises prices and the industry works to cut costs.

Even the company’s urban-focused U-verse network delivers opportunities for greater revenues from AT&T customers likely to buy additional services. Investing in DSL just does not pull in the same level of profits, and companies like AT&T will remain reluctant to expand rural broadband unless the government delivers a much larger government subsidy, according to Benjamin Lennett, a policy director at the New America Foundation.

“It underscores how flawed it is to rely on private companies to serve these rural areas where their margins are not going to be that high,” Lennett said.

Unfortunately for communities trying to work around AT&T’s roadblock, the company has made sure towns and villages building their own networks soon discover that road remains closed in more than dozen states thanks to  AT&T with the help from corporate groups like ALEC, who feed willing legislators bills often drafted by the corporations they are designed to protect.

Mr. Greedy has just landed in Nashville and wants another $10 from Comcast customers who blow through their allowance.

Comcast’s temporary withdrawal of its 250GB usage cap did not last long. Although the company rescinded its usage limit in May to consider new options on how to handle “heavy users,” it hinted caps might be back, sometimes accompanied by automatic overlimit fees for customers who exceed their allowance.

Broadband Reports has learned Comcast plans to introduce a new 300GB usage cap on its customers in Nashville with an overlimit fee of $10 for each 50GB a customer runs over their limit.

Comcast customers in Nashville were told in an e-mail message from the company the new usage cap and overlimit fee represented “an evolution” for Comcast’s broadband service.

From Comcast’s website in Nashville:

When you exceed 300 GB of data usage, you will receive an email, an in-browser notice and an additional 50 GB will be automatically allocated. In order for customers to get accustomed to the new data usage management plan, we will be implementing a courtesy period. That means you will not be billed for the first three times you exceed the monthly 300 GB allowance during a 12-month period. Should you exceed the monthly allowance after the courtesy period expires, you will automatically be charged $10 each time we need to provide you with an additional 50 GB of data for usage beyond your plan.

How generous of them.

Customers traveling southeast from the city down Interstate 24 can be in Chattanooga in several hours and experience EPB Fiber — a community broadband provider that provides speeds up to 1,000Mbps and does not have usage caps, nor a “need” to charge customers another $10 whether they exceed their usage cap by 1 or 49 gigabytes.

Comcast’s newest Internet Overcharging scheme takes effect Aug. 1, and currently applies only to Nashville customers. Those who want to give Comcast a piece of their mind about the subject of usage caps can share their feelings by calling Comcast Customer Security Assurance at 1-877-807-6581 to speak with a service representative. Let them know you want no part of Comcast’s unnecessary usage caps and overlimit fees. If EPB and Google Fiber can offer unlimited broadband without any problems, so can Comcast. Let them know how you feel.