AT&T’s march towards monetizing data usage has just gotten a twist with a new idea from the company to develop “a toll-free wireless Internet” where app makers foot the bill for your data usage.

First appearing in a Wall Street Journal article, John Donovan, AT&T’s executive for network and technology, suggested the new “app maker pays”-option will ease consumers’ fears about using high bandwidth apps that eat into AT&T’s data allowances.

“A feature that we’re hoping to have out sometime next year is the equivalent of 800 numbers that would say, if you take this app, this app will come without any network usage,” Donovan said at the Mobile World Congress in Barcelona, Spain. “It’d be like freight included.”

Critics of the idea pounced immediately, calling AT&T’s latest plan the realization of former CEO Ed Whitacre’s dream that content producers “can’t use [AT&T’s] pipes for free.”

Harold Feld, legal director at consumer group Public Knowledge thinks he’s got AT&T’s number:

Just to be clear, here is what AT&T Wireless is doing:

1. Create an artificial scarcity with an arbitrary bandwidth cap for its wireless services;

2. Charge users who exceed this arbitrary bandwidth cap;

3. Claim to do consumers a favor by letting the ap developer pay for exceeding the arbitrary bandwidth cap.

Which cuts to the heart of the problem in wireless, IMO. The argument in favor of a wireless capacity cap is, in a nutshell, “wireless is different from wireline because the physics imposes bandwidth limitations.” In the presence of these bandwidth limitations, we need a rationing scheme of some kind. Bandwidth caps are a neutral way of rationing and encourage app developers to write more efficient applications — thus improving the system overall.

The problem with this argument is it is impossible at present to determine just how true or false it actually is. I referred above to AT&T’s bandwidth cap as arbitrary. As far as I (or any outside observer) can tell, AT&T just selected a number and said “this is where we impose a cap.” You can buy a higher cap on a monthly basis, or can pay as you go above the cap in the form of overages.

AT&T has no worries about data tsunamis and "exafloods" when app makers or consumers are willing to pay more.

In fact, AT&T’s journey away from unlimited access to their wireless network is well underway.  Just two years ago, customers paid $30 a month for unlimited data on a smartphone.  Then AT&T ended “unlimited” access, imposing a 2GB usage cap on their most popular wireless data plan.  Now AT&T is looking to monetize its wireless traffic even further as customers grow more reticent about using high volume applications that could threaten one’s usage allowance.

Despite AT&T’s ongoing drumbeat America is in the midst of a wireless bandwidth crisis, the ‘national emergency’ is over as soon as someone — anyone other than AT&T — opens their wallet and agrees to pay more for data traffic.  Then the sky is the limit.

The logical inconsistencies of a company crying for more mobile spectrum concurrently envisioning new ways to monetize high volume wireless traffic (eg. large file downloads, online video, etc.) exposes the hollow center of  Internet Overcharging.  The “exaflood”/data tsunami only seems to threaten AT&T’s network when content producers and/or consumers are not paying extra for every kilobyte.

As Stop the Cap! has argued before, AT&T is increasingly  in the bandwidth shortage/rationing business.

The company underspent on its network, balked at the price tag to upgrade capacity (but had no trouble planning to pay substantially more to acquire T-Mobile), and now complains it has to charge higher prices because the federal government blocked its merger and the FCC won’t hand over additional spectrum.

There are two approaches to fat profits in the broadband business these days:

1. 

   A Proud Member of: Team Rationing for Profit

   Team Innovation: Believe in your product and nurture its growth with upgrades, innovation, and pricing that guarantees an enthusiastic and loyal customer base;

2. Team Rationing for Profit: Leverage your dominant market power by rationing your product, charging higher prices for less service.  Monetizing usage controls traffic growth, reducing the expense of upgrading your network. With limited competition, even alienated customers face few alternative choices and a steep early termination exit fee.

Based on statements from AT&T’s Donovan, AT&T is a firm believer in the latter.

“There’s a view of an entitlement that says that any impediment to riding over the top of our network is inherently wrong, is un-American,” Donovan said, adding AT&T needed to find creative ways to deal with and profit from surging mobile-data use.

Feld thinks it says something else.

“This new plan is unfortunate because it shows how fraudulent the AT&T data cap is, and calls into question the whole rationale of the data caps,” Feld said. “Apparently it has nothing to do with network management.  It’s a tool to get more revenue from developers and customers.”

CNN's Scare Stories on Wireless

As part of our ongoing coverage of the telecommunications industry, I talk with a variety of reporters in both Canada and the United States.  We have educated local newspapers, national wire services, local TV news, and even big national consumer magazines about the problems consumers have with the North American telecommunications industry.  Whether you are a wireless customer facing eroding usage caps and increasing prices, or a wired broadband customer now being slapped with Internet Overcharging schemes that monetize your usage, the truth about why your bill has gone up isn’t too hard to find, if you bother to look.

Unfortunately, CNN-Money just published a “week-long” series on the wireless mobile phone market that might as well have been written by the CTIA, the nation’s cell phone lobby.

“The Spectrum Crunch” was supposed to be a sober and objective report about the state of congestion on America’s cell phone networks. Instead, the reporter decided industry press releases and lobbyist talking points were good enough to form the premise that America is deep in a cell phone crisis.

Sorry America, Your Airwaves Are Full

Part one of CNN’s special report is a laundry list of disaster predictions, explaining away rate increases and usage caps, and an industry-skewed view that the answer to the “crisis” is to give wireless carriers all the frequencies they want.

The spectrum crunch is not an inherently American problem, but its effects are magnified here, since the United States has an enormous population of connected users. This country serves more than twice as many customers per megahertz of spectrum as the next nearest spectrum-constrained nations, Japan and Mexico.

When spectrum runs short, service degrades sharply: calls get dropped and data speeds slow down.

That’s a nightmare scenario for the wireless carriers. To stave it off, they’re turning over rocks and searching the couch cushions for excess spectrum.

They have tried to limit customers’ data usage by putting caps in place, throttling speeds and raising prices. Carriers such as Verizon, AT&T, Sprint, T-Mobile, MetroPCS and Leap have been spending billions to make more efficient use of the spectrum they do hold and billions more to get their hands on new spectrum. And they have tried to merge with one another to consolidate resources.

The FCC has also been working to free up more spectrum for wireless operators. Congress reached a tentative deal last week, approving voluntary auctions that would let TV broadcasters’ spectrum licenses be repurposed for wireless broadband use.

[…] The bad news is that none of the fixes are quick, and all are expensive. For the situation to improve, carriers — and, therefore, their customers — will have to pay more.

The United States also covers more ground, with lots of wide open spaces where frequencies can be used and re-used without interference problems.  As AT&T keeps illustrating, how you run your business has a lot to do with the quality of your service, spectrum crisis or not.  AT&T customers in heavily-populated urban markets cope with dropped calls and slow data not because the company has run out of frequencies, but because AT&T has failed to appropriately invest in its own network.  AT&T’s problems are generally not shared by customers of other carriers.  Even T-Mobile, which has the least spectrum of all major carriers, does not share AT&T’s capacity issues.

CNN reporter David Goldman suggests mergers and consolidation have been a solution for ‘wireless shortages’ of the past.  But are mergers about consolidating resources or leveraging profits?

The spectrum war’s winners and losers

AT&T’s failed $39 billion bid for T-Mobile was largely aimed at getting its rival’s spectrum. The Department of Justice and the Federal Communications Commission killed the deal, saying it would be too damaging to wireless competition.

That put the entire industry on notice: The carriers will have to solve their problems without any blockbuster takeovers.

The regulators’ main concern was that the deal would take the ranks of national carriers down from four to three. That’s why experts now expect the big players to focus instead on acquiring smaller, low-cost carriers like MetroPCS and Leap Wireless. Their spectrum could relieve capacity issues in large metro areas, which are the places most crippled by the crunch.

Industry analysts also think that Sprint and T-Mobile could gain approval to merge, though that’s a bit like two drowning victims clinging together. Sprint is losing piles of money every quarter, while T-Mobile is hemorrhaging customers with contracts.

Another possibility is that several carriers could partner in a spectrum-sharing joint venture.

But the most likely scenario is that the carriers continue fighting each other to snap up the last remaining large swaths of high-quality spectrum.

Stephenson

The claim that AT&T sought the purchase of T-Mobile USA for spectrum acquisition falls apart when you examine the record.  For instance, during AT&T CEO Randall Stephenson’s presentation at the merger announcement, shareholders were told the buyout would deliver cost synergies and savings, would stabilize earnings from a more predictable mobile market (with T-Mobile’s ‘market disruptive’ pricing out of the way), and would allow the company to secure additional frequencies.  However, as Stop the Cap! reported back in August, documents released by the FCC showed AT&T unprepared to specify what T-Mobile spectrum it expected to acquire, much less how the company intended to use it.

The “problem” AT&T sought to solve, in the eyes of both the Justice Department and the FCC, was pesky competition from T-Mobile and the reduced profits AT&T endured as T-Mobile forced competitors to deliver better service at lower prices.

Even Goldman admits T-Mobile had the smallest inventory of wireless spectrum among the major carriers — scant reason for AT&T to court a merger for spectrum purposes.

The spectrum winners continue to be AT&T and Verizon, who have the largest inventory of favorable frequencies, and both continue to warehouse spectrum they are not using for anything.

Your Cell Phone Bill is Going Up

Has your mobile phone bill jumped this past year?

Get used to it.

Demand for wireless data services is soaring, forcing carriers to invest massively to keep up. They have two main options: Upgrade their network technology or acquire more wireless spectrum to give them more bandwidth.

“Massively” is in the eye of the beholder.  Verizon outspent AT&T on network upgrades and continues to enjoy enormous returns on that investment.  Most major cell companies spend billions on network improvements, but also earn tens of billions from their customers.  Yet in the midst of the “spectrum crisis,” AT&T CEO Randall Stephenson told investors revenue was up — way up:

“We’ll expand wireless and consolidated margins. We’ll achieve mid-single-digit EPS growth or better. Cash generation continues to look very strong again next year. And given the operational momentum we have in the business, all of this appears very achievable and probably at the conservative end of our expectations.”

AT&T’s chief financial officer John J. Stephens put a spotlight on it:

In 2011, 76% of our revenues came from wireless and wireline data and managed services. That’s up from 68% or more than $10 billion from just 2 years ago. And revenues from these areas grew about $7 billion last year or more than 7% for 2011. We’re confident this mix shift will continue. In fact, in 2012 we expect consolidated revenues to continue to grow, thanks to strength in these growth drivers with little expected lift from the economy.

[…] We also continue to bring more subscribers onto our network with tiered data plans, more than 22 million at the end of the quarter, with most choosing the higher-priced plan. As more of our base moves to tiered plans and as data use increases, we expect our compelling [average revenue per subscriber] growth story to continue.

That’s a story AT&T has avoided sharing with customers, because more than a few might take exception that the past year’s rate increases have more to do with the company’s “compelling growth story” than a spectrum shortage.

CNN could have reported this themselves, had they bothered to look beyond the press releases and talking points from the wireless industry. The reporter even conflated recent increases in early termination fees as part of the “spectrum shortage.”

Readers have to glean the real story by reading between the lines.  Here is an example:

As Suraj Shetty, Cisco’s marketing chief, puts it: “Data caps are curbing the top 1% of users, but not the top 20%.”

For carriers, finding the sweet spot is a delicate balancing act. Heavy data consumption is costly for them. On the flip side, smartphone users, who are typically required to buy pricey monthly data plans, are their most lucrative customers.

The ideal customer is someone with a smartphone they use sparingly.

That reality could eventually be reflected in your monthly bill. All four of the major carriers declined to comment about their future pricing strategies, but analysts expect them to start experimenting with new “pay for what you consume” approaches.

The real agenda is finding customers who buy the most service and use it the least.  Usage caps and throttles don’t even work, if one believes Mr. Shetty.  Curbing one percent of your heaviest users does little to curtail congestion when the top 20% remain within plan limits and create an even greater strain on the network.

It’s another hallmark of Internet Overcharging — monetizing broadband usage while using “congestion” as an excuse.  If a customer uses 10GB on an unlimited usage plan or 10GB on a limited use plan, the impact on the network is precisely the same.  Only the profit-taking is different.

There Are Solutions

Only in the last part of the series does CNN’s reporter discover there are some practical solutions to the spectrum crunch.  They include:

• Splitting cell phone traffic to reduce tower load.  Adding additional towers is one solution, but not all have to be huge, unsightly monstrosities.  In parts of Canada and Europe, new “micro-cells” on top of traditional power poles or buildings can reduce tower load, especially in urban areas.  These units, which can fit in the palm of your hand, are especially good at serving fixed location users, such as those sitting at home, work, or in a shopping center.  They don’t create eyesores, are relatively inexpensive, and are effective.
• Allocation of spectrum.  The FCC is working on making additional wireless spectrum available.  Some carriers are cooperating to alleviate capacity issues, share towers, and collaborate on new tower planning.
• Consider Wi-Fi.  AT&T found offloading traffic to Wi-Fi and even home-based “femtocells” — mini in-home cell towers have effectively reduced demand on their wireless 3G/4G networks.  There is still room to expand.

[flv width=”576″ height=”344″]http://www.phillipdampier.com/video/CNN Solutions to the spectrum crunch 2-2012.flv[/flv]

Alcatel-Lucent has a solution to the capacity crunch — a microcell cube that can be attached to a building or phone pole.  (3 minutes)

Noted online petitioner Change.org will be promoting a petition to stop bandwidth capping this week.

Perhaps best known for hosting an appeal which influenced Bank of America to drop their proposed $5 monthly ATM card fee, Change.org will be presenting the ‘no data capping’ petition on various social media sites in an attempt to gain signatures.

The petition’s letter, directed to AT&T, Comcast, the Federal Communications Commission, and all Internet Service Providers (ISPs) who practice data capping, demands that they return to a billing model of unlimited access for a reasonable monthly fee.  Telecommunication providers have a responsibility to improve service, not lower it, the authors argue, particularly in light of the fact that taxpayer-funded broadband pipelines already exist, which the providers are not using.

Petition author David K. Smith argues that data caps contradict the Internet’s inherent purpose.  In the petition page’s linked article, “Why Data Caps Are Censorship,” he states that as the Internet is exponentially growing, one can always access more information than any data cap could allow, resulting in censorship from “the Big Picture.” The article maintains that exclusion from the total amount of information available results in “leashed” users having an incomplete perspective due to restricted access, and that incomplete, fragmentary information is useless.

“Now is a great time to be signing and sharing this petition,” said Smith.  “We have Change.org’s attention, and more and more articles are appearing to protest bandwidth injustices.  I feel this is a critical fight for our freedom to information.”

Change.org online help assets suggest that one of the most effective ways to gain signatures is for advocates to place a link to the petition under appropriate news and technical articles, along with a paragraph describing its relevance to the subject discussed.

[Stop the Cap! encourages readers to sign this (and other) petitions which declare the practice of Internet Overcharging unacceptable.  Whether it’s data caps or throttled speeds, customers deserve an unlimited, unthrottled Internet experience they pay good money to receive.  As financial reports show, today’s unlimited pricing formula delivers enormous profits to broadband providers, even as their costs to provide the service continue to decline.]

Phillip "Telus Lost Me" Dampier

For my first vacation in more than 20 years, I chose to spend 10 days in Alberta in 2007, driving a Dodge Charger (what National car rental considers an ‘economy size’ in Calgary) from Calgary to Banff, Ft. Macleod to Crossfield, and a variety of places in-between.  It’s an amazing place, far too under-rated.  I even bought a hat.

Telus Country.

While I confess to using the rental lodge’s Telus phone more than once, I never signed up as a customer.

But Telus thinks I did.

In today’s e-mail, a survey about why we canceled our Telus service.

We’re helpers at Stop the Cap! so we participated, telling them they could go a long way to improve their service by officially abandoning Internet Overcharging schemes like usage caps and bring western Canada the unlimited Internet people deserve.

It’s the least we could do for a company that honestly never did anything for us (and we mean that in a good way).

Not a problem

Who knew America’s largest cable and phone companies were in the broadband shortage business?

Broadband evangelist Craig Settles has been as outraged about this year’s crop of anti-broadband legislation as we have here at Stop the Cap!

He wrote about the implications of allowing state laws to be changed in favor of the big cable and phone companies in a piece published by GigaOM that details where these anti-community Internet bills are coming from:

This push is brought to you by the American Legislative Exchange Council (ALEC), a group of corporate lobbyists who ghostwrite state bills behind closed doors that their pocket legislators then push on the floor. This “model” of anti-muni broadband legislation contains wording that is replicated in these latest bills and newspaper op-eds that attack community broadband.

Many of the nation’s largest phone and cable companies funnel funds into ALEC, and even sponsor wine-and-dine trips for state legislators and their families as part of a comprehensive effort to get their foot (and later proposed legislation) in the door.

Download this archive of ALEC-written and sponsored state legislation/policies affecting telecommunications and IT.  (16mb .zip file)

Few state legislators fully realize the implications of some of these measures, which can hamstring their state’s broadband networks into “good enough for you” broadband, as determined by Comcast, AT&T, Time Warner Cable, Verizon, and others.

ALEC’s dog-and-pony show opens with its corporate backers enhancing their campaign contributions to legislators likely to support their agenda.  ALEC’s lobbyists can then provide “boilerplate” templates for legislation that can be slightly modified and introduced at the state level for consideration.

With a significant increase in campaign contributions targeting friendly legislators, community broadband suddenly becomes a hot topic at the statehouse.

Legislators do not work alone to pass these measures.  As we’ve seen in other states, industry-backed lobbying firms deliver a comprehensive set of support services for the campaign to stop community broadband competition:

1. Talking points for legislators and others opposed to municipal Internet;
2. Professionally produced mailers that can be distributed to every home in a community bashing community networks;
3. Sample letters to the editor intended for local newspapers and easy-to-send letters to legislators asking them to support anti-broadband legislation;
4. Help from seemingly “independent” outside groups that criticize such networks, without disclosing their funding comes, in part or whole, from the cable or phone company.

Settles

Being hoodwinked by the companies that want these kinds of bills passed leave your community’s broadband needs entirely in the hands of providers that have performed so poorly in some cities, local governments have decided they have to provide the service themselves.  Settles illustrates the obvious:

This isn’t about unfair competition by local government. When Wilson’s 12-person IT department can plan, build and manage a network that can deliver speeds (up to a gig) 20 times faster than the best Time Warner Cable offers, that’s competing with superior technology. When Comcast customers switch to Chattanooga’s gig network because of their public utility’s better customer service, that’s competent competition. When tiny Reedsburg, Wis. refuses to compete against the large cable company on price, but beats competitors by offering greater value such as a better selection of Internet services, they compete based on local credibility.

So U.S. communities have to ask themselves, are they going to stay stuck on the train or will they be zipping along at warp speed?

Providers and their industry friends will always argue that you don’t need gigabit broadband speed — what you get from your cable or phone company today is “fast enough.”  Some go as far as to argue current providers are equipped to deliver whatever service customers need, but the demand “just is not there.”

Big Problem.

But as we argued on GigaOM ourselves, the nation’s largest telecom companies have already proven they apparently cannot meet the demand that exists today.  That is because an increasing number of them have started to slap arbitrary usage caps and other limits on their customers’ broadband usage.  Customers don’t want these Internet Overcharging schemes, yet they persist because of what providers effectively admit is a broadband shortage on their networks.

So for a city like Chattanooga, Tenn., which of the following providers should be punished (and potentially even banned) for being in the broadband business:

1. AT&T, which delivers around 6-7Mbps DSL in suburban Chattanooga or up to 24Mbps on its U-verse platform with 150GB/250GB usage limits respectively;
2. Comcast, which delivers up to 50Mbps over cable broadband with a 250GB usage cap;
3. EPB Fiber, which delivers up to 1,000Mbps over fiber optics with no usage cap.

If you are AT&T or Comcast, clearly the provider that must be stopped is #3 — EPB Fiber.  After all, you can’t be in the broadband shortage business when the competitor next door offers a broadband free-for-all made possible from an investment in a superior network that exists to serve customers, not shareholders and investment banks.