Marcel Boyer

Marcel Boyer penned an opinion piece for Canada’s Financial Post this week attacking the virtues of Net Neutrality as short-sighted and potentially devastating to the Internet if codified into law.

Boyer, in a piece called “Don’t Throttle the Net,” advocates precisely that, applauding broadband providers for traffic shaping, which artificially slows non-preferred Internet traffic delivered over broadband networks.

There are many facets to the net-neutrality issue, including pricing and broadband allocation, which are central. Proponents of net-neutrality call for government intervention and regulation to prevent broadband providers from prioritizing or interfering with the data that flows in their networks. On the other hand, broadband providers are arguing that even though they continue to invest in their networks, their customers would still be affected by congestion during peak periods in the absence of traffic management measures. Other large networks face the same type of issues. New applications (video streaming and VoIP, among others) require a high quality of service assurance, making a more reliable network necessary.

Boyer delivers the usual talking points about bandwidth pricing and competition that Stop the Cap! readers are all too familiar with:

Making it illegal for broadband companies to offer a diversity of choices would destroy incentives to invest continually in improved Internet bandwidth, quality and security. Net-neutrality legislation would unnecessarily regulate a free and competitive market when there is no real evidence of consumer harm.

Let network owners and operators as well as service providers differentiate their offerings and price them the way they choose. Customers would benefit from more diversified offers by selecting the ones best suited to their needs. In such a competitive context, network operators and service providers would routinely aim to satisfy demand for Internet services most effectively while simultaneously aiming to manage the growth in peak demand.

It is to the advantage of consumers to allow competing vendors to experiment with various price and service combinations. From this discovery process, a portfolio of winning offerings will emerge. As long as competition is present and sufficiently intense, and assuming the level of information available and provided to consumers enables them to make informed choices between the various offerings, regulation of price schemes is neither necessary nor desirable as it would stifle innovation and obscure the best offerings and pricing schemes.

From an economic point of view, policies that would restrict the ability of broadband providers to manage their networks are likely to do more harm than good. Regulation of prices and offerings, products and services, has generally resulted in higher costs and lower benefits, especially when competition is present. The complexity of market dynamics poses particular problems in emerging industries. Instead of adopting regulations that could induce unwanted harmful effects, it is preferable to mandate the Canadian Competition Bureau to investigate when there is evidence of abuse or unlawful actions from broadband providers.

The impetus for the opinion piece was this week’s news highlighting Canada’s rapid decline in standing among top industrial nations’ broadband services.  The original report specifically called out the impact of draconian usage caps and throttles which reduce usage, limit innovative high bandwidth services’ entry into the Canadian market or bypass it entirely, and the potential economic and competitive impact on Canada’s economy as a whole.

Boyer’s premise presupposes there is a healthy competitive marketplace for broadband in Canada, a conclusion ridiculed by many.  Most Canadian cities have two primary choices for broadband, a usage capping phone company or a usage capping cable company.  Smaller independent providers typically resell bandwidth obtained from Bell or other similar entities at wholesale rates.

Despite pricing more than $15 a month higher in Canada than in the United States, and healthy financial returns among most of Canada’s providers for their broadband divisions, the “continual investments” in bandwidth Boyer claims are hardly eye popping.  Incremental speed increases, usually accompanied by rate hikes, and the imposition of often paltry usage caps has artificially reduced consumption, which also reduces the need to improve infrastructure.  Indeed, while fiber optics deployment is becoming increasingly common in the United States, it is not nearly as common in Canada.

Canadians find little diversity in pricing and service levels in a marketplace that nearly always imposes limits on consumption, doesn’t provide robust access in rural communities, and typically delivers slower speeds than their counterparts in the United States are providing customers today.  East York (near Toronto) residents, for example, can obtain “blistering fast” 10Mbps service from Rogers for about $60US per month, limited to 95GB of consumption.  Overlimit fees are $1.50/additional GB.  Bell offers “speed of light” Internet access at “up to 16Mbps” for $82.95 a month (100GB usage cap – $1.00/additional GB, billed in increments of 100MB, $30 monthly maximum applies.)

Head across Lake Ontario south to Rochester, NY and Time Warner Cable provides “Turbo” service offering 15Mbps, currently without any usage cap, for $50.00 a month.  Verizon FiOS pricing provides 20Mbps service with no cap for $54.99 a month.

In the absence of significant competition, duopoly-style pricing usually results, and that’s precisely what has happened in Canada.  Allowing the “wild west — hands off” approach Boyer advocates merely guarantees more of the same.  Providers in the United States, already enjoying phenomenal returns, would love to adopt the Canadian approach.  They’ve already been increasing rates, decreasing investment in their network infrastructure as a percentage of revenue, and enjoying the benefits of reduced bandwidth expenses.  The only components left are usage caps and throttling broadband applications they don’t own, control, or partner with.  Experiments are being attempted on some of these fronts now.

The end result: even higher profits and locking broadband into a rationed, expensive, and slow backwater.

Boyer should know that wired broadband competition beyond the aforementioned duopolies in most Canadian markets comes only from independent ISPs typically reselling wholesale bandwidth (which is now also being capped) and a few independent providers who may wire limited areas in large cities.  There will never be a free market paradise in cable television – the traditional one company per city approach is well rooted throughout North America.  Wireless is even more heavily capped and expensive than wired service.  And telephone companies, outside of Verizon in the United States, are loathe to aggressively deploy fiber optics unless required by local market conditions.

Broadband throttling and capping, particularly to discourage online video consumption, comes aggressively when companies have a vested interest in preventing erosion of their traditional video programming business model.  Both Rogers and Bell are in the business of delivering television entertainment to Canadians.  Should a sufficient amount of that entertainment be available online, some consumers may dispense with the video package and rely exclusively on the Internet.

Speaking of vested interests,  the Financial Press had plenty of space to print Boyer’s article, and even concluded it by noting his title:

Marcel Boyer is vice-president and chief economist of the Montreal Economic Institute.

Apparently things got throttled at that point, because they forgot to include one additional affiliation Boyer holds: Bell Canada Professor of industrial economics at the Université de Montréal.  How ironic.

If you’re a broadband provider throwing a money party by charging top dollar for usage based Cap ‘n Tier rationing plans, why not spread some of that money around?  One company that wants a piece of the action is Highdeal, a German owned company that wants to sell providers the billing system to extract pay-per-byte-bucks from customer wallets.

Highdeal’s chief technology officer, Fergus O’Reilly talked to Telephony Online about how they’re going to market their products for usage based billing.

On moving beyond flat-rate broadband: Operators are realizing that the flat-rate model we had for broadband is no longer tenable. It’s hard to roll out [usage-based models] when subscribers don’t know how much a gigabyte is or what the term bandwidth means. Some [providers] have done better than others. In the Canadian market, for example, it’s getting to be accepted. Rogers has done a good job informing customers about their usage and charging them for overage with cap-and-overage-type schemes. In the US, it’s been a little more difficult. Time Warner Cable let slip that they were doing something and got negative press for it. It became difficult for them to roll that out — one step forward, two steps back. But overall throughout the market, pretty much everyone is equipping themselves with the policy management systems they need to measure and qualify bandwidth usage. The flat-rate model for broadband will change, and we will pay depending on usage, whether that’s measured in [quality of service], absolute bandwidth or a number of those factors.

The system that exists today (that is already very profitable) is always defined as ‘yesterday’ and something ‘we need to move beyond,’ while the highway robbery of overpriced tiers and overlimit fees is the ‘only tenable way forward.’  Not really, of course.  But this is an example of a company with a vested interest in that outcome — namely, a product/solution to sell that would not exist without these kinds of billing schemes.  They garner favor in industry circles by helping to throw the ball around, hopefully establishing the premise that usage based billing is conventional wisdom.

It’s tougher to sell cap-and-overage schemes. Unfortunately many of the charging systems operators have in place are relatively simplistic. And moving to these more sophisticated schemes — time-shifting and proposing a bandwidth boost — many times the blocking factor is, ‘Well, I don’t know how to do that.’ So we propose a very flexible charging system that makes that easy so you can have these dynamic business models that will make more sense for the consumer.

Actually, developing a billing system that pilfers the wallets of consumers, no matter how complex or simple, will not make any sense for customers.  What Highdeal proposes is a billing system that allows providers to rob customers in a sophisticated way, instead of the street mugging wallet extraction approach.  But whether it’s the Bernie Madoff system of billing, or the guy with the bat in the dark alley, consumers are still going to be victimized, and they’ll know it every time they get the bill.

Is Highdeal a raw deal entirely?  No.  Some of their models might actually represent some real world solutions to network congestion, particularly one that could communicate with bandwidth providers and software to schedule bandwidth intensive, but non-critical applications during off-peak usage times.  One such proposal would signal an online backup program to launch when network congestion is reported low by a provider.  Another model might allow consumers to pay more for faster connections to complete individual tasks.  Paying reasonable prices for reasonably faster speeds is not an issue for Stop the Cap!

But companies that buy into industry theories and claims in order to help score a sale have a considerable conflict of interest in being considered a credible source on what consumption and billing models are workable and which are not.

Cisco, a networking equipment and service provider, has announced a joint effort with Flash Networks to provide a new Intelligent Traffic Management “solution” to “maximize data revenues, network utilization, and subscriber satisfaction.”

The “solution” is being sold primarily to wireless bandwidth providers to help manage the “explosion of mobile data traffic” expected in the next five years.

“Our successful partnership with Flash Networks enables operators to meet the challenge of maximizing revenues while protecting network assets by providing tiered services that ensure fair bandwidth usage and protect the network from traffic congestion,” said Sergey Belonozhko, Area Sales Manager for SP at Cisco.

The Intelligent Traffic Management solution supports personalized data plans where service providers can notify subscribers when they are near usage quotas, provide a temporary bandwidth boost, offer data plan extension to support additional IP services, or enable subscribers to set personalized usage caps that can be updated in real-time based on personal financial limits. This same solution is used to both insert targeted advertising based on subscriber browsing patterns, and to block inappropriate content for safe browsing.

It is being touted by Cisco as a way for operators to implement service tiers to maximize revenue while at the same time reducing traffic load on networks, reducing the capital investments required to grow them with demand.  Customers end up with “gauges” and warnings to get them to reduce their usage, or give the operator an incentive to up-sell the customer to another tier of service (or make the customer purchase additional bandwidth.)

A nice tidy arrangement for all concerned, except the customer, of course.  Cisco has been one of the more active “exaflood” promoters, with their talking points even turning up on Australian breakfast television.  They promote the “Internet is over-flooded and will brownout” scare tactics to establish that premise in the minds of consumers, sell the “solution” to help manage the traffic growth, give operators the tools to help them raise prices, limit usage, and provide gauges to customers to get them to be paranoid about their usage, and then take their earnings to the bank.

Consumers get notification that their access has been capped, are told to recall the mainstream media stories about Internet congestion, and go along with the plan.

It’s part of the grand scheme for uninformed customers to simply accept higher prices and service quotas and limits, all while companies providing the bandwidth earn higher revenue than ever.

The nabobs of negativism, the panic-stricken shrieks about the Internet becoming full, the fear-mongering about broadband pipes becoming clogged because the kid down the street is running torrents again.  We’ve heard it all before, and as we’ve always said, technological advancement always seems to find a way to resolve the “crisis in bandwidth” before big businesses resolve it themselves by rationing, capping, or overcharging for access.

And so it has again.

AT&T, in association with Corning and NEC today smashed all prior records of fiber optic transmission capacity by successfully transmitting data at 114 Gigabits per second over a single strand of fiber for up to 580 kilometers over an optically amplified link.  The standard fiber optic cable AT&T used for the test contains 320 separate optical channels, meaning through the use of just a single optical cable, it is possible to sustain a transmission rate of 36480 Gigabits per second!

That exceeds by 25% the last record setting transmission rate test and effectively doubles the distance the cable can maintain data transmission rates without unacceptable loss.

AT&T announced the results as part of their technological solution for broadband growth — deploying 100 Gigabit networks across the country to accommodate growing demand for the Internet.

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Todd Spangler, who we seem to spar with on a semi-regular basis here, has another blog entry up expanding on his views of why Time Warner Cable’s metered pricing experiment failed.  Of course, completely missing from the list is the fact most customers do not want it.  That’s dangerous to say in a cable industry trade publication like Multichannel News, however.

Todd still thinks it’s all about how they did it, not the fact they did it in the first place that created what even he admits was a “category five” storm of backlash.

Clearly, the company’s idea — given that these were trials — was to have the flexibility to tweak pricing, adjust specific cap levels, etc., and not have these things set in stone. But the ad-hoc communications on the usage trials was perhaps the biggest reason this blew up.

The only “trial” here was on the customer, and the jury was stacked with Time Warner Cable executives who already found themselves innocent of extortionist pricing and market abuse.  The “tweak” most customers wanted was none at all.  What was set in stone, until the groundswell finally achieved temporary results, was that the caps were coming no matter what customers had to say.  Just ask people in Beaumont, Texas.

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