Stop the Cap! has suddenly started receiving a larger number of complaints about AT&T’s Internet Overcharging scheme in the past two weeks, indicating to us the company has started cracking down more forcefully on usage cap “violators.”

Those who purchased AT&T U-verse in an effort to avoid usage caps from their local cable company are particularly upset, because the phone company still markets its U-verse service as being ‘bandwidth-limit-free.’

AT&T advertises its U-verse service to this day as bandwidth limit free.

“We don’t limit your bandwidth to a particular amount,” promises AT&T in prominent language on its website. The fine print says something very different — AT&T limits the amount of usage customers get before being exposed to overlimit fees — 150GB for DSL, 250GB for U-verse. It is part of what the company calls wired “data plans.”

AT&T U-verse has a 250GB usage cap hidden in the fine print.

“It’s false advertising,” counters AT&T customer Don Brown. “Anyone who reads their promise of ‘no bandwidth limitations’ is going to assume that means no limits, but when I questioned company representatives about the promise, they pull out every trick in the book.”

Brown says one customer service representative told him ‘bandwidth limits’ refer to broadband speed — AT&T does not throttle its customers. Another said the ad claim meant that customers could keep paying AT&T additional money for as much usage as they want or need. But Brown believes AT&T knows better than that.

“When I signed up for service, I asked the salesperson who took my order if there were limits and they said there were none, period,” Brown says. “Not a word was spoken about 250GB limits or overlimit fees. I’m not buying their excuses — what wired ISP throttles customer speeds?”

In fact, AT&T itself defines “bandwidth” much the same way Brown does (underlining ours):

The term bandwidth can take on many meanings. In the case of AT&T U-verse products and services, the term bandwidth is commonly used when referring to computer networking and measuring Internet usage.

The amount of Internet usage is displayed in upload and download amounts. This would commonly be known as the amount of bandwidth the User used during a particular time.

Brown also has no access to any usage monitor or measurement tool, and AT&T told him he “can relax” because the company would send warnings when it noticed his usage was coming perilously close to the limit. But that makes planning around monthly usage limits difficult, because he has no idea what his usage is from day to day.

A week ago, he received his first warning in an e-mail message from AT&T, which was the first indication he was living under a usage cap.

“They are in a real hurry to collect more money from me but they don’t have their ducks in a row on an accurate meter I can depend on,” Brown says. “Would the local power, water, or gas company get away with that? I don’t think so.”

Brown decided AT&T’s “dishonesty,” as he puts it, made him cancel his service. He does not trust the phone company to accurately measure anything.

“At least I know the cable company is a pocket-picking crook so I can be on guard for their next move,” Brown says. “AT&T is more like the thief in the night that robs you blind while you are upstairs, asleep in bed.”

Chris Savage discovered AT&T’s “stealthy” 150GB usage cap on his DSL account when he received an e-mail warning of his own. He gets one more, after which AT&T will “bill shock” him with overlimit fees.

You have exceeded 150GB this billing period.

[…] The next time you exceed 150GB you’ll be notified, but not billed. However if you go over your data plan in any subsequent billing period, we’ll provide you with an additional 50GB of data for $10. You’ll be charged $10 for every incremental 50GB of usage beyond your plan.

AT&T DSL service has a sneaky 150GB usage cap in the fine print.

AT&T really isn’t interested in hearing questions or concerns about their “data plan,” telling customers at the bottom of the message:

Please do not reply to this email. This address is automated, unattended and cannot help with questions or requests.

Savage never knew AT&T implemented an Internet Overcharging scheme:

“This e-mail seemed to say to me, ‘We changed the rules on you without telling you and now you’ve broken them, so we’ll let you off this time, but consider yourself warned!'”

Savage has already cut cable’s cord and watches his television shows online, exactly what big phone and cable companies do not want their customers doing.

The bottom line is that 150GB is not enough for people like me who work at home, rely on Netflix for any kind of TV/Movies (since I don’t have cable or any other TV), have gamers in the house and run a website. What this means for me is that, once again I will have to cancel Netflix because watching just one movie or show per day would mean I would reach my cap about 2/3 of the way into the month. And that is if nobody else in the house watches anything on it, plays any online games or downloads anything.

In the end, it appears AT&T won and Netflix lost. Savage reports after going over AT&T’s limit two months in a row, he canceled his Netflix account — the only television service he had. AT&T DSL cannot even support one movie a night and one or two streamed cooking shows here and there without pushing the family over the limit AT&T imposes.

Earlier this week, Time Warner Cable unveiled its new 5GB limited-use broadband plans in Austin, Tex. The company told customers it would be “listening” to their concerns on the cable operator’s “TWC Conversations” website, and many Stop the Cap! readers shared with us copies of their own two cents, submitted as comments on that website.

But so far, the conversation seems very one-sided. To date, here is Time Warner’s presentation of the opposing point of view:

This reminds us how Time Warner Cable treated customers sending in their views of the 2009 (failed) experiment, when earnest writers like “De” eventually received this in response:

Reinventing the two way conversation.

Well I eventually submitted an email to TWC about the caps on April 14th. To prove they pay attention to their customers, they sent me this reply today (Over a month later) LMAO:

To: RealIdeas
Subject: Greedy Bandwidth Caps. The truth!?
Sent: Tue, 14 Apr 2009 04:22:52 -0400<  >

was deleted without being read on Sun, 31 May 2009 01:49:12 -0400

Just goes to prove they don’t care if the consumer wants the per byte billing or not – it’s coming anyway.

Our opinions and views are nothing to TWC — all that matters is the $$$$. The whole PR about them listening is just to ease media and political pressure. They have made their mind up already.

Shaw Communications executives last week announced, to the relief of Wall Street, the cable company is pulling back on great deals for cable TV, Internet and phone service this summer.

In an effort to appease Wall Street analysts like Phillip Huang, a researcher for UBS Investment Bank — who fear lower prices could “spiral into a price war, which obviously would be a lose, lose situation,” Shaw has made it clear it intends to stop some of its most aggressive promotions this summer.

“When you talk about promotions in the market, we’ve been very disciplined in that regard,” Shaw executives told analysts on last week’s quarterly results conference call. “It’s a highly competitive environment and will continue to be that way and we’re going to operate in a certain fashion.”

That “certain fashion” has cost them at least 21,500 subscribers who have already left Shaw this past quarter, most headed to Shaw’s biggest competitor Telus.

But some Wall Street analysts remain unsatisfied, noting there are major differences in telecommunications pricing in Canada. Western Canadians pay substantially less for phone, cable, and broadband service than their counterparts in Ontario and Quebec. Shaw and Telus customers also have much larger usage allowances for broadband service, and Telus so far has not enforced what limits they have.

Analysts peppered Shaw executives about why they are not raising prices to match what Bell, Rogers, and Vidéotron customers further east are paying.

Jay Mehr, Shaw’s senior vice president of operations told investors to hang in there.

“We still believe that we have some good pricing power when discipline really comes back into this market,” Mehr said on the call with investors. That signals Shaw is prepared to raise prices when aggressive deals end.

Wall Street also questioned why the company does not use long-term contracts to lock customers in place:

Mehr

Glen Campbell – BofA Merrill Lynch, Research Division: […] On service contracts: You’ve been pretty firm in not using them. Your competitor clearly does. […] Can you talk about the reasons for not going down the service contract road and whether you might reconsider that position?

Bradley S. Shaw – Shaw Communications: Well, there’s arguments for contracts as you — I guess, it’s really what these contracts do. As you said, we have equipment. Our [indiscernible] space — our Easy Own plan certainly is a very consumer-friendly plan as customers are getting something, and they’re agreeing to pay for it over time. And that creates kind of a natural kind of a relationship. What we don’t want to have happen is having customers, who are feeling confined by a contract, who otherwise would like to do something else. We don’t think that’s consumer-friendly. And so we’re looking at ways that we’d have more consumer-friendly kind of relationships but that still create some kind of a longer-term relationship that you can count on. But we don’t want to have the ball and chain kind of contracts that others have adopted.

[…] From a customer point of view. But also, the nature of contracts is there needs to be an enticement to get the customer sign a contract, and that enticement tends to be what we’re seeing in the market, which is fairly significant giveaways of hardware and other devices to be able to incent that. And so it will have has an impact on your cost of acquisition, and we’re trying to manage that. As Peter said, our Easy Own program is a very customer-friendly way for people to come on and make a commitment to us. And at the end of the period, they own their equipment. They haven’t had to pay upfront, and so it’s a nice way to manage that without being heavy-handed.

Shaw’s Exo Wi-Fi service is coming soon across western Canada.

Some other developments at Shaw, reported during the conference call:

• Spending on upgrades will continue to be on the aggressive side as the company builds out its new Exo Wi-Fi network and converts cable systems to digital service, creating additional space for broadband speed increases and other services;
• Broadband delivers the highest profit margins of all of Shaw’s services, so it remains a very important part of Shaw’s package;
• Customers are gravitating towards higher speed broadband packages, delivering extra revenue;
• The company has re-priced some of its plans and offers to be more friendly to broadband-only customers;
• Shaw is working to gain approval from communities across western Canada to deploy its Wi-Fi network, with plans to begin limited promotion of the new service by late fall or early 2013. Shaw expects its Wi-Fi network to have substantial coverage across the region within three years;
• Shaw plans to work with U.S. cable operators to participate in a Wi-Fi roaming network that will allow its customers access to the Wi-Fi networks being built in the United States;
• Shaw’s “TV Everywhere” project is being designed to protect existing video revenue. Rights are being acquired across the board for broadband, tablets and other mobile devices for a robust on-demand service. But live streaming is secondary.

Phillip “They Want to Save You Money By Charging You More” Dampier

The pro-Internet Overcharging forces’ meme of “pay for what you use” sounds good in theory, but no broadband provider in the country would dare switch to a true consumption-based billing system for broadband, because it would destroy predictable profits for a service large cable and phone companies hope you cannot live without.

Twenty years ago, the cable industry could raise rates on television packages with almost no fear consumers would cancel service. When I produced a weekly radio show about the cable and satellite television industry, cable companies candidly told me they expected vocal backlashes from customers every time a rate increase notice was mailed out, but only a handful would actually follow through on threats to cut the cord. Now that competition for your video dollar is at an all-time-high, providers are shocked (and some remain in denial) that customers are actually following through on their threats to cut the cord. Goodbye Comcast, Hello Netflix!

Some Wall Street analysts have begun warning their investor clients that the days of guaranteed revenue growth from video subscribers are over, risking profits as customers start to depart when the bill gets too high. Cable companies have always increased rates faster than the rate of inflation, and investors have grown to expect those reliable profits, so the pressure to make up the difference elsewhere has never been higher.

With broadband, cable and phone companies may have found a new way to bring back the Money Party, and ride the wave of broadband usage to the stratosphere, earning money at rates never thought possible from cable-TV. The ticket to OPEC-like rivers of black gold? Usage-based billing.

Since the early days of broadband, most Americans have enjoyed flat rate access through a cable or phone company at prices that remained remarkably stable for a decade — usually around $40 a month for standard speed service.

In the last five years, as cord-cutting has grown beyond a phenomena limited to Luddites and satellite dish owners, the cable industry has responded. As they learned customers’ love of broadband has now made the service indispensable in most American homes, providers have been jacking up the price.

Time Warner Cable, for example, has increased prices for broadband annually for the last three years, especially for customers who do not subscribe to any other services.

Customers dissatisfaction with rate hikes has not led to broadband cord cutting, and in fact might prove useful on quarterly financial reports -and- for advocating changes in the way broadband service is priced:

1. Enhance revenue and profits, replacing lost ground from departing video customers and the slowing growth of new customers signing up for video and phone services (and keeping average revenue per user ((ARPU)) on the increase);
2. Using higher prices to provoke an argument about changing the way broadband service is sold.

Pouring over quarterly financial reports from most major providers shows remarkable consistency:

• The costs to provide broadband service are declining, even with broadband usage growth;
• Revenue and profits enjoy a healthy growth curve, especially as increased prices on existing customers make up for fewer new customer additions;
• Earnings from broadband are now so important, a cable company like Time Warner Cable now refers to itself as a broadband company. It is not alone.

Still, it is not enough. As usage continues to grow in the current monopoly/duopoly market, providers are drooling with anticipation over the possibility of scrapping the concept of “flat rate” broadband, which limits the endless ARPU growth Wall Street demands. If a company charges a fixed rate for a service, it cannot grow revenue from that service unless it increases the price, sells more expensive tiers of service, or innovates new products and services to sell.

Providers have enjoyed moderate success selling customers more expensive, faster service, also on a flat rate basis. But that still leaves money on the table, according to Wall Street-based “usage billing” advocates like Craig Moffett, who see major ARPU growth charging customers more and more money for service as their usage grows.

Moffett has a few accidental allies in the blogger world who seem to share his belief in “usage-based” billing. Lou Mazzucchelli, reading the recent New York Times piece on Time Warner’s gradual move towards usage pricing, frames his support for consumption billing around the issue of affordability. In his view, usage pricing is better for consumers and the industry:

It costs real money to upgrade networks to keep pace with this demand, and those costs are ultimately borne by the subscriber. So in the US, we have carriers trying to raise their rates to offset increases in capital and operating expenses to the point where consumers are beginning to push back, and the shoving has come to the attention of the Federal Communications Commission, which has raised the possibility of treating Internet network providers as common communications carriers subject to regulation.

I believe that flat-rate pricing is a major source of problems for network carriers and consumers. In the carrier world, the economics are known but ignored because marketers believe that flat rates are the only plans consumers will accept. But in the consumer world, flat rates are rising to incomprehensible levels for indecipherable reasons, with little recourse except disconnection. Consumer dissatisfaction is rising, in part because consumers feel they have no control over the price they have to pay. This is driven by their sense of pricing inequity that is hard to visualize but comes from implicit subsidies in the current environment. The irony is that pay-per-use pricing solves the problem for carriers and consumers.

Mazzucchelli reposted his blog piece originally written in 2010 for the benefit of Times readers. Two years ago, he measured his usage at 11GB a month. His provider Verizon Communications was charging him $64.99 a month for 25Mbps service, which identifies him as a FiOS fiber to the home customer.  Mazzucchelli argues the effective price he was paying for Internet access was $5.85 for each of the 11GB he consumed, which seemed steep at the time. (Not anymore, if you look at wireless company penalty rates which range from $10-15/GB or more.)

Mazzucchelli theorized that if he paid on a per-packet basis, instead of flat rate service based on Internet speed, he could pay something like $0.0000025 per packet, which would result in a bill of $31.91 for his 11GB instead of $65. For him, that’s money saved with usage billing.

On its face, it might seem to make sense, especially for light users who could pay less under a true usage-based pricing scenario like the one he proposes.

Verizon Communications is earning more average revenue per customer than ever with its fiber to the home network. That’s about the only bright spot Wall Street recognizes from Verizon’s fiber network, which some analysts deride as “too expensive.”

Unfortunately for Mazzucchelli, and others who claim usage-based pricing will prove a money-saver, the broadband industry has some bad news for you. Usage pricing simply cannot be allowed to save you, and other current customers money. Why? Because Wall Street will never tolerate pricing that threatens the all-important ARPU. In the monopoly/duopoly home broadband marketplace most Americans endure, it would be the equivalent of unilaterally disarming in the war for revenue and profits.

That is why broadband providers will never adopt a true usage-based billing system for customers. It would cannibalize earnings for a service that already enjoys massive markups above true cost. In 2009, Comcast was spending under $10 a month to sell broadband service priced above $40.

Mazzucchelli

Instead, providers design “usage-based” billing around rates comparable to today’s flat rate pricing, only they slap arbitrary maximum usage allowances on each tier of service, above which consumers pay an overlimit fee penalty. That would leave Mazzucchelli choosing a lower speed, lower usage allowance plan to maximize his savings, if his use of the Internet didn’t grow much. On a typical light use plan suitable for his usage, he would subscribe to 1-3Mbps service with a 10GB allowance, and pay the overlimit fee for one extra gigabyte if he wanted to maximize his broadband dollar.

But his usage experience would be dramatically different, both because he would be encouraged to use less, fearing he might exceed his usage allowance, and he would be “enjoying” the Internet at vastly slower speeds. If Mazzucchelli went with higher speed service, he would still pay prices comparable for flat rate service, and receive a usage allowance he personally would find unnecessarily large. The result for him would be little to no savings and a usage allowance he did not need.

Mazzucchelli’s usage pattern is probably different today than it was in 2010. Is he still using 11GB a month? If he uses double the amount he did two years ago, under his own pricing formula, the savings he sought would now be virtually wiped out, with a broadband bill for 22GB of consumption running $63.82. By the following year, usage-based pricing would cost even more than Verizon’s unlimited pricing, as average use of the Internet continues to grow.

That helps the broadband industry plenty but does nothing for consumers. Mazzucchelli might be surprised to learn that the “real money to upgrade networks to keep pace with this demand,” is actually more than covered under today’s profit margins for flat-rate broadband. In fact, if he examines financial reports over the last five years and the statements company executives make to shareholders, virtually all of them speak in terms of reducing capital investments and the declining costs to deliver broadband, even as usage grows.

Verizon’s fiber network, while expensive to construct, is already earning the company enormous boosts in ARPU over traditional copper wire phone service. While Wall Street howled about short term capital costs to construct the network, then-CEO Ivan Seidenberg said fiber optics was the vehicle that will drive Verizon earnings for decades selling new products and services that its old network could never deliver.

Still, is Mazzucchelli paying too much for his broadband at both 2010 and 2012 prices? Yes he is. But that is not a function of the cost to deliver broadband service. It is the result of a barely competitive marketplace that has an absence of price-moderating competitors. Usage-based pricing in today’s broadband market assures lower costs for providers by retarding usage. It also brings even higher profits from bigger broadband bills as Internet usage grows, with no real relationship to the actual costs to provide the service. It also protects companies from video package cord-cutting, as customers will find online viewing prohibitively expensive.

One need only look at pricing abroad to see how much Americans are gouged for Internet service. Unlimited high speed Internet is available in a growing number of countries for $20-40 a month.

Usage-based billing is a dead end that might deliver temporary savings now, but considerably higher broadband bills soon after. It is not too late to turn the car around and join us in the fight to keep unlimited broadband, enhance competition, and win the lower prices users like Mazzucchelli crave.

Time Warner Cable has a usage meter up for some customers.

Time Warner Cable has reintroduced usage-limited broadband plans in Austin, Tex., three years after shelving an earlier market test that drew protests from local residents and civic leaders.

Time Warner Cable is offering three tiers of what it calls “Internet Essentials,” each offering different speeds of service, all with a 5GB usage allowance for a $5 monthly discount.

“It’s clear that one-size-fits-all pricing is not working for many consumers, particularly in a challenging economy,” regional vice president of operations in Texas Gordon Harp said. “We believe the choice and flexibility of Essentials will enhance value for lighter users, help us retain existing customers in a competitive marketplace and attract new customers to our superior Internet experience.”

But Stop the Cap! disagrees, noting the three variations of Internet Essentials all offer a tiny discount and come with a ridiculously low usage allowance.

With usage overlimit fees of $1/GB, currently limited to a maximum of $25, customers are playing Russian Roulette with their wallets. Just exceeding the allowance by 5GB a month eliminates any prospects of savings, and going beyond that will actually cost customers more than what they would have paid for unlimited Internet.

The company has added a usage tracker for Texas customers qualified to get the plan. It can be found under the My Services section of Time Warner Cable’s website.

Customers in Texas can choose from Grande Communications, AT&T or Verizon if they want to say goodbye to Time Warner’s endless interest in Internet Overcharging.  Image courtesy: Jacobson

Stop the Cap! recommends consumers strongly reject these plans. If customers are looking for a better deal on broadband, it is wiser to call Time Warner and threaten to take your broadband business to the competition. The savings that will result on a retention plan are sure to be better than the Internet Essentials discount, and no one will have to think twice about how they use their broadband account. Customers on an extremely tight budget can also downgrade to a slower speed plan that offers unlimited access, essential in any home with multiple broadband users.

Time Warner Cable does not help their position by significantly distorting the truth about their last experiment trying to limit customer broadband usage. In 2009, the company proposed changing the price for unlimited broadband to an enormous $150 a month. Customers protested in front of the company’s offices in several cities. Despite that, and the intense negative media coverage the company endured, Time Warner still believes its customers are itching to have their broadband usage limited:

Previous Experience with Usage-based Pricing

Time Warner Cable began testing usage-based pricing in 2009. Although many customers were interested in the plan, many others were not and we decided to not proceed with implementation of the plan. Over the past few years, we consulted with our customers and other interested parties to ensure that community needs are being met and in late 2011 we began testing meters which will calculate Internet usage.

We’d be interested to know what customers in the Austin area were consulted about the desire for usage-limited plans. Nobody consulted us either. We can imagine the “other interested parties” are actually Wall Street analysts and fellow industry insiders. We’re confident the overwhelming number of Time Warner Cable customers have no interest in seeing their unlimited use plans changed and company customer service representatives have told us there has been very little interest in the plans to date. For now, the company claims it won’t force people to take usage limited plans, but as we’ve seen in the wireless industry, yesterday’s promises are all too quickly forgotten.

With a usage meter now established, all it takes is an announcement Time Warner is doing away with unlimited broadband (or raising the price of it to the levels the company proposed in 2009), and customers are ripe for a broadband ripoff.

Time Warner Cable says it is “listening” to customers on its TWC Conversations website. We suggest you visit, click the tab marked Essentials Internet Plans, and let Time Warner Cable know you have no interest in these usage-limited plans and are prepared to go to war to keep affordable, unlimited Internet. With your voice, perhaps Time Warner Cable will finally realize that usage caps and consumption billing just don’t work for you or your family.