Charter Cable is upgrading its broadband service to deliver free speed upgrades, but with the company’s Internet Overcharging-usage cap scheme in place, some customers are not impressed.

“We plan to streamline Charter Internet options to: Lite, Express, Plus, and Ultra,” Charter social media rep “Eric” wrote on the Broadband Reports‘ Charter customer forum. “Current Max customers will be able to move to a different level of Internet Service.”

The company’s boosted speeds (prices vary in different markets):

• Charter Lite: 1Mbps/128kbps → Unknown ($19.99) 100GB limit
• Charter Express: 12/1Mbps → 15/3Mbps ($44.99) 100GB limit
• Charter Plus: 18/2Mbps → 30/4Mbps ($54.99) 250GB limit
• Charter Max: 25/3Mbps → Discontinued ($69.99) 250GB limit
• Charter Ultra: 60/5Mbps → 100/5Mbps ($99.99-109.99) 500GB limit

Charter has usage caps on all of its residential broadband service plans, but Stop the Cap! readers tell us they are not always enforced.  No overlimit fees are charged.  No announcements have been made about any changes to the existing usage limits.  Some Charter Max customers tell us they are using the speed upgrades an an excuse to downgrade to the cheaper Plus plan, which is faster and $15 less a month, with the same 250GB usage cap.  Customers who absolutely won’t tolerate a usage limit have to upgrade to commercial-grade service, which is considerably more expensive.  Lower speed plans run about $80 a month in many areas, but are unlimited.

“I’m glad to discover faster upload speeds, which I’ve waited for a long time, but I’d rather have no usage limits to worry about instead of faster speeds,” shares Stop the Cap! reader and Charter customer Paul McNeil.  “My problem with these faster speeds is that you can’t use them for too long.  Why buy a luxury race car you can only drive down the street?”

Light users who use the Internet primarily for e-mail or web page browsing rarely require more than the most budget-priced broadband package because high speeds do not deliver a significantly improved user experience.  But those who use the Internet for higher-bandwidth applications including video, downloading, certain online games, and file backup do benefit the most from high speed packages.  But when providers slap usage limits on them, the value erodes away.

“Why spend more for less?” asks McNeil. “Two years ago there were no limits and I honestly received more value from my Charter Internet service then over what I have to deal with now.”

Genachowski

The cable industry is expanding so-called “lifeline Internet service” to more households in an effort to combat what a government agency calls “a persistent digital divide.”

Next spring, Time Warner Cable, Cox, and Charter Communications will launch low-speed Internet service for $9.95 a month for two years.  The offers will echo Comcast’s Internet Essentials, which launched earlier this year as part of a deal with the government to win approval of the cable company’s merger with NBC-Universal.

The Federal Communications Commission calls the effort “Connect to Compete,” and suggests the public-private initiative will help rural Americans and low-income minorities get affordable Internet access. A study by the National Telecommunications and Information Administration found just 55% of black households and 57% of Hispanics currently subscribe to broadband.  More than 72% of Caucasian households and more than 81% of Asian homes use broadband by comparison.  The rural southern states of Mississippi (52%), Arkansas (52%) and Alabama (56%) have the lowest broadband penetration rates in the country.  In contrast, more than 80% of Utah residents have broadband in their homes.

“In this difficult economy, we need everyone to be working together on solutions,” FCC Chairman Julius Genachowski said. “Broadband is a key to economic and educational opportunity and these kinds of commitments to close the digital divide are powerful.”

But not every poverty-stricken American will qualify for the discount programs.

Cable operators are following Comcast’s lead, restricting access to families with at least one school age child enrolled in the free school lunch program.  Customers must not have existing broadband service during the last 90 days and customers with past due balances cannot sign up.  Don’t have children or fell behind on your cable bill?  No discount Internet for you.

Pilot programs will be launched by each operator in around a dozen cities total starting next spring, with plans to roll programs out nationally by the start of the 2012 school year.  Broadband speeds, usage limits, and other fees were not disclosed.  Comcast’s Internet Essentials operates at 1.5Mbps with upload speeds up to 384kbps.

Comcast’s program sells a netbook computer loaded with Windows 7 Starter Edition for around $150.  The $250 computers expected to be provided by Microsoft will include Windows 7 Home Premium operating system and Microsoft Office.  An additional vendor will sell refurbished computers to interested program participants for around $150.

The program will primarily reach urban residents who cannot afford current Internet service plans that are sold for $40-45 a month.  Rural residents are unlikely to benefit much because most cable operators do not deliver service in rural areas.

CenturyLink announced its own version of discounted DSL Internet in October to sell for $9.95 a month, but with numerous “gotcha” fees and surcharges.

One group unlikely to take advantage of the program: older householders, particularly those ages 65 and older, where just 45% have broadband at home.  The biggest reason the rest don’t?  They don’t believe they need the Internet at any cost.

While you plod along with 3Mbps DSL service, an increasing number of British broadband users can now buy speeds up to 100Mbps.  Those speeds come increasingly from the deployment of fiber optics by cable competitor Virgin Media, which now reaches over 20 million residents with fiber-fast service.

The latest regions to be enabled for 100Mbps service include Harborne in Birmingham, Lincoln, Seven Kings in Greater London and Solihull.  Virgin said it will complete the roll out of 100Mbps service across the entire Virgin network by the middle of next year.

Virgin has attacked some of its competitors for promising fast speeds but never delivering them.  Oversold ADSL service has been an issue for many British households who are promised speeds of 10Mbps or better, only to discover speeds slowing to a crawl during peak usage periods.  Virgin says its fiber network has a level of capacity unprecedented in the United Kingdom and it can actually deliver sustained speeds to its customers day or night.

Efforts by British Telecom to improve its network are progressing with a fiber-to-the-neighborhood expansion project to handle increasing demand.  BT’s fiber network ends at street-side cabinets, where traditional copper telephone wiring delivers broadband to individual homes.  But BT’s broadband speeds are faster than what North Americans can purchase from similar networks like AT&T U-verse and Bell’s Fibe.  Current top speeds of 40/10Mbps have been declared inadequate, so the British phone company is planning to double them by early next year.

Faster speeds are always welcomed by customers.  Virgin notes over half of their customers purchase speeds of 30Mbps or faster.  BT’s move to supply 80/20Mbps broadband to customers will help keep the phone company competitive.

“It will provide a further boost for local businesses and homeworkers as well as families and other people for whom the internet has become an essential part of their daily lives – whether it’s for leisure, education or business,” said Brendan Dick, director of BT Scotland.

Windstream disappointed Wall Street Friday when it reported a 16 percent income drop for the third quarter of the year, surprising investors who expected more from the Little Rock, Ark. phone company.

Windstream is attempting a makeover as it attempts to shed its image as a residential landline service provider for brighter prospects delivering business telecommunications services.  But shareholders weren’t impressed as company officials noted the company has increased spending on capital projects like data centers and wiring cell phone towers with fiber optics and the $840 million acquisition of Fairport, N.Y.-based PAETEC Holding Corporation.

Most of Windstream’s successes are tied to the company’s business products and services.  The company reported growth selling advanced Internet products to corporate customers, including virtual LAN services and dedicated Internet access.  A considerable amount of the company’s Internet revenue growth is coming from data center services such as webhosting and wireless backhaul circuits sold to cell phone providers.

Windstream’s residential customers can be split into two groups: traditional landline users who are increasingly disconnecting their service and those who are buying DSL service to accompany their existing phone line.  Windstream reported another 4.6% of their residential customers permanently disconnected service this year.  Windstream’s largely rural customer base has remained more loyal and the company added an additional 8,000 DSL customers during the quarter, a growth of 4.4%.  Windstream’s penetration rate for broadband among their landline customers is 65%.

Keeping broadband customers loyal to DSL requires regular service improvements to avoid customer poaching by cable competitors, and Windstream is attempting to keep up with a $40 million investment to improve broadband speeds, including the introduction of advanced VDSL service in selected areas.

Whittington

“We increased broadband speeds to residential and business customers that can now offer 12Mbps service to over 40% of our footprint and 24Mbps service in our most competitive markets,” said Windstream chief operating officer Brent K. Whittington. “We expanded our Raleigh data center to increase the floor space by 10,000 square feet to keep up with the rapidly growing customer base and demand for cloud-based services.”

Whittington notes customers that hunger for faster broadband speeds are using them largely to watch online video, and Windstream has begun marketing campaigns targeting video-hungry customers.  Customers using the Internet for basic web browsing and e-mail are not very interested in paying more for faster service, however.

“Customers still don’t want to pay incrementally for higher speed services,” Whittington said. “We try to position Windstream as all the speed you need, which is really trying to help make sure customers understand our parity with cable as it pertains to speeds because some of the perceptions around traditional ADSL services, they’ve used against us, and that’s working for us. But again, customers really just, we find, don’t want to spend a lot more for incremental speeds. We see that as revenue upside in the future, but not seeing a great deal of demand there right now.”

While Windstream customers will likely find current product pricing stable over the coming year, the FCC’s recent approval of Universal Service Fund (USF) reform does allow the phone company to raise rates on customers.  Some Wall Street investment firms have suggested Windstream do precisely that to boost revenues.

Timothy Horan from Oppenheimer & Co., Inc. noted Windstream’s local rates seem low.

“I don’t think they’ve been raised for a long period of time,” Horan observed. “I think you have to go through some [state regulators], but can you do that without having rate cases, and is that part of the plan at all?”

Anthony W. Thomas, Windstream’s chief financial officer, tried to put Horan at east.

“The FCC has provided a mechanism, it is our understanding, in the order that will allow us to pass along price increases up to $0.50 per month to our customers over a 5-year period,” Thomas explained.

Phillip Dampier on USF Reform: It might have been great, it could have been a lot worse, but ultimately it turned out to be not very good.

Last week, the Federal Communications Commission unveiled their grand plan to reform the Universal Service Fund, a program originally designed to subsidize voice telephone service in rural areas deemed to be unprofitable or ridiculously expensive to serve.  Every American with a phone line pays into the fund through a surcharge found on phone bills. Urban Americans effectively subsidize their rural cousins, but the resulting access to telecommunications services have helped rural economies, important industries, and the jobs they bring in agriculture, cattle, resource extraction, and manufacturing.

The era of the voice landline is increasingly over, however, and the original goals of the USF have “evolved” to fund some not-so-rural projects including cell phone service for schools, wireless broadband in Hollywood, and a whole mess of projects critics call waste, fraud, and abuse.  For the last several years, USF critics have accused the program of straying far from its core mission, especially considering the costs passed on to ratepayers.  What originally began as a 5% USF surcharge is today higher than 15%, funding new projects even as Americans increasingly disconnect their landline service.

For at least a decade, proposals to reform the USF program to bridge the next urban-rural divide, namely broadband, have been available for consideration.  Most have been lobbied right off the table by independent rural phone companies who are at risk of failure without the security of the existing subsidy system.  Proposals that survived that challenge next faced larger phone company lobbyists seeking to protect their share of USF money, or by would-be competitors like the wireless industry or cable operators who have generally been barred from the USF Money Party.

This year, FCC Chairman Julius Genachowski finally achieved a unanimous vote to shift USF funding towards the construction and operation of rural broadband networks.  The need for broadband funding in rural areas is acute.  Most commercial providers will candidly admit they have already wired the areas deemed sufficiently profitable to earn a return on the initial investment required to provide the service.  The areas remaining without service are unlikely to get it anytime soon because they are especially rural, have expensive and difficult climate or terrain challenges to overcome, or endure a high rate of poverty among would-be customers, unable to afford the monthly cost for the service.  Some smaller independent phone companies are attempting to provide the service anyway, but too often the result is exceptionally slow speed service at a very high cost.

The new Connect America Fund will shift $4.5 billion annually towards rural broadband construction projects.  Nearly a billion dollars of that will be reserved in a “mobility fund” designated for mobile broadband networks.

The goal is to bring broadband to seven million additional households out the 18 million currently ignored by phone and cable operators.

The FCC believes AT&T will take a new interest in upgrading its rural landline networks, even as the company continues to lobby for the right to abandon them.

Unfortunately, the FCC has set the bar pretty low in its requirements for USF funding.  The FCC defines the minimum level of “broadband” they expect to result from the program — 4/1Mbps.  That’s DSL speed territory and that is no accident.  The phone companies have advocated a “less is more” strategy in broadband speed for years, arguing they can reach more rural customers if speed requirements are kept as low as possible.  DSL networks are distance sensitive.  The faster the minimum speed, the more investment phone companies need to make to reduce the length of copper wiring between their office and the customer.  Arguing 4Mbps is better than nothing has gotten them a long way in Washington, but it also foreshadows the next digital divide — urban/rural broadband speed disparity.  While large cities enjoy speeds of 50Mbps or more, rural towns will still be coping with speeds “up to” 4Mbps.

The FCC does not seem too worried, relying heavily on a mild incentive program to prod providers to upgrade their DSL service to speeds of 6/1.5Mbps.

The irony of asking AT&T to invest in an aging landline network they are lobbying to win the right to abandon is lost on Washington, and future speed upgrades for rural America from companies like Verizon are in serious doubt when they sell off their rural areas to companies like FairPoint and Frontier and leave town.

Critics of USF reform suggest the program is still stacked in favor of the phone companies, and considering the state of their copper wire networks, would-be competitors are scratching their heads.

The cable industry, in particular, is still peeved by reforms they feel leave them at a disadvantage.  Of course, Washington may simply be recognizing the fact cable companies are the least likely to wire rural America, but when they do, the service that results is often faster than what the phone company offers.  The nation’s biggest cable lobbyist — ironically also the former chairman of the FCC, Michael Powell — still feels a little abused after reading the final proposal.

“While we are disappointed in the Commission’s apparent decision to ignore its longstanding principle of competitive neutrality and provide incumbent telephone companies an unwarranted advantage for broadband support,” said National Cable & Telecommunications Association President Michael Powell, “we remain hopeful that the order otherwise reflects the pro-consumer principles of fiscal discipline and technological neutrality that will bring needed accountability and greater efficiency to the existing subsidy system.  We are particularly heartened by the Commission’s efforts to ensure that carriers are fairly compensated for completing VoIP calls.”

Wireless operators are not happy either, because the arcane requirements that come with the USF bureaucracy were written with the phone companies in mind, not them.  Small, family-owned providers find it particularly difficult to do business with the USF, if only because they don’t have the staff or time to navigate through endless documents and forms.  Phone companies do.

Your phone bill is going up.

Many consumer groups are relieved because it could have been much worse.   The FCC could have simply capitulated and adopted the phone companies’ wish-list — the ABC Plan.  Thankfully, they didn’t, but the FCC has naively left the door open to substantial rate increases for consumers by not capping the maximum annual outlay of the fund.  That follows the same recipe that invited higher phone bills and questionable subsidies awarded in an effort to justify the original USF program even after it accomplished most of its goals. Consumers may face initial rate increases of $0.50 almost immediately, and up to $2.50 a month five years from now.

The FCC, unjustifiably optimistic, suspects phone companies and other telecommunications interests won’t gouge customers with higher prices.  They predict rate increases of no more than 10-15 cents a month.  I wouldn’t take that bet and neither will consumer groups.

“We’re going to press the FCC to ensure that these are temporary increases, because history has shown that these types of costs tend to stick around and go on and on and on,” said Parul Desai, policy counsel for Consumers Union.

An even bigger question left unanswered is just how far the FCC will get into the broadband arena when it refuses to take the steps necessary to ensure it has an admission ticket.  The agency has avoided classifying broadband as a telecommunications service, an important distinction that would bolster its authority to oversee the industry.  Without it, some members of Congress, and more importantly the courts, have questioned whether the FCC has any business in the broadband business.  Just one of the many high-powered players in the discussion could test that theory in the courts, and should a judge throw the FCC’s plan out, we’ll be back at square one.

[flv]http://www.phillipdampier.com/video/C-SPAN Tom Tauke from Verizon on Changes to the Universal Service Fund 10-29-11.flv[/flv]

Verizon’s chief lobbyist Tom Tauke spent a half hour last weekend on C-SPAN taking questions about USF reform and the side issues of IP Interconnection and Net Neutrality policies. Tauke supports consolidation of small phone companies into fewer, larger companies.  He also expands on his company’s lawsuit against Net Neutrality, which fortuitously (for Verizon) will he heard by the same D.C. Court of Appeals that threw out the FCC’s fines against Comcast for throttling broadband connections.  Politico’s Kim Hart participates in the questioning, which also covered wireless spectrum issues impacting Verizon Wireless, AT&T’s stumbling merger deal with T-Mobile, and Verizon’s latest lawsuit against the FCC for data roaming notification rules.  (28 minutes)