Phillip Dampier

This week, the tech community has been buzzing over new entrants in the world of cloud computing.  Apple’s iCloud in particular has sparked enormous media coverage as the company plans to encourage customers to access all of their favorite content over their broadband connection.  Apple is also moving towards online distribution of many of its software products, including the forthcoming OS X Lion operating system, suggesting consumers can pass up traditional physical media like CD-ROMs or DVDs.

Cloud storage theoretically allows you to store your entire music, video and photo collection online for easy access from any device.  Watching the 20-somethings buzz about 100GB+ secure file lockers and the end of traditional file storage as we know it has been amusing, but these people need to get their heads out of the clouds.  Unless they become politically involved in America’s broadband debate, it is not going to happen the way they hope it will.

Tech entrepreneur?  Meet broadband provider reality check: the Internet Overcharging usage cap and “excessive use” pricing scheme.

While Steve Jobs was introducing iCloud, broadband providers and their industry friends have been ruminating over the impact all of this new traffic will have on their broadband networks.  In an homage to former AT&T CEO Ed Whitacre’s “you can’t use my pipes for free,” the drumbeat for implementing “control measures” for cloud computing and video traffic has been amplified several times over by certain providers, Wall Street analysts, and their trade press and equipment supplier lackeys.

One alarmed provider pondered the impact of iCloud in terms of their past experience with iTunes, which also spiked traffic when it was first released.  Others balk at the notion of consumers using broadband platforms to move entire libraries of content back and forth, especially on wireless networks.  The only sigh of relief detected?  Apple won’t start iCloud with video content — just music, at least at first.

The enemies list

The biggest targets — the companies that get a lot of pushback from providers for using “their networks” to earn millions for themselves are Google, Netflix, Amazon and Apple.  Each of them are rapidly moving into the online entertainment business, threatening to provoke more cable TV cord-cutting.  Netflix is now responsible for 30 percent of online traffic during primetime hours, a fact that some use as an accusation — as if Netflix should be held to account for its own success. Amazon has opened its own cloud based music storage and is also increasingly getting into online video content streaming.  Apple has a novel approach at handling its forthcoming iCloud music feature which should save hours in uploading, but the company is also moving towards online distribution of a growing proportion of its software, including the huge bug fixes and upgrades that will easily exceed a gigabyte if you own several Apple products.

Google is a frequent Washington target and honestly delivers the only truly effective corporate pushback to anti-consumer broadband pricing some providers have contemplated.  In fact, Google is putting its money where its mouth is building a gigabit network larger providers repeatedly scoff at as unnecessary, too costly, and too complicated.

While millions in venture capital funds new online innovations, only a miniscule amount of money is being spent to counter the lobbying major providers are doing in Washington to redefine the broadband revolution in their terms, complete with usage pricing that bears no relation to cost, arbitrary usage limits, and ongoing lack of true competition.

Online innovation is grand, but allowing providers to strangle it with Internet Overcharging schemes guarantees to end the party real fast.

Individually, none of the new cloud services are likely to blow out usage caps in excess of 100GB, but in combination they certainly could.  Anyone using online file backup, cloud storage of video and large music collections, uses Netflix or other online streaming services, and spends lots of time on the web will easily approach the limits some providers have established.  That doesn’t even include large software updates.  Unless you have an unlimited usage plan on the wireless side, don’t even think about using most of these services with AT&T’s 2GB monthly wireless usage cap.

Glenn Britt: The Internet is a utility which is why we can keep raising the price.

In the handful of countries with ubiquitous Internet Overcharging, little of this will pose a problem — companies won’t launch cloud computing services in markets where usage caps will effectively keep customers from using them.

That is why it is critical for some of America’s largest technology companies to get on board the fight against Internet Overcharging, and demand Washington recognize broadband as a utility service that should be wide open and usage cap free.  The evidence is right in front of you.  Time Warner Cable CEO Glenn Britt recognizes the fact broadband is an essential part of our lives today, which is why he is confident enough to keep raising the price and charging even more in the future.  It’s not about “network congestion,” “building the next generation of broadband,” or “pricing fairness.”  Stop the Cap! started at ground zero for Time Warner Cable’s 2009 version of “pricing fairness” — $150 a month for an unlimited use broadband account that likely cost major providers less than $10 a month to provide.  It’s about pure, naked profiteering, unchecked by free market competition in today’s broadband duopoly.

Unless a company like Google can vastly expand its own broadband rollouts, it is increasingly apparent to me (and many others), we may have to move towards an entirely different model for broadband in the United States — one built on the premise of the Interstate Highway System.  One advanced, publicly-owned fiber network open to all providers on which telecommunications services can travel to homes and businesses from coast to coast.

Nobody says private companies shouldn’t be able to compete, but every day more evidence arrives they will never be inclined to deliver the next generation of service that other countries around the world are starting to take for granted.  They will instead protect their current business models at all costs, even if that means throwing America’s broadband innovation revolution under the bus.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CNN Will iCloud Measure Up 6-7-11.flv[/flv]

CNN takes a look at what makes Apple’s iCloud service different from competitors from Google and Amazon.  (5 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CNN Dropbox Cloud Computing 6-8-11.flv[/flv]

CNN talks with the folks at Dropbox about their cloud file storage system.  (3 minutes)

More than halfway into Glenn Britt’s appearance last week at a Wall Street-sponsored investor event, the head of the nation’s second largest cable company candidly admitted years of price hiking is finally driving a growing segment of America’s hard-pressed middle class out of the market:

“There is a segment of our economy that should be of concern.  We have a bifurcating economy where people who are college educated and like everybody in this room are doing okay.  For that segment, pay TV [pricing] is fine.  There is another group of people who are sort of falling out of the middle class.  For some of those people, pay TV is too expensive.”

That’s a remarkable admission from a cable company that has consistently raised prices for its products well in excess of inflation for at least a decade, and judging from the rest of his comments, there is plenty more of the same on the way.

Britt is nearing his 10th anniversary as CEO of what is now Time Warner Cable, formerly a division of AOL/Time-Warner.  In the past decade, the company he oversees has undergone a transformation in its business model. In 2001, digital cable was all the rage, delivering the 500-channel television universe at the cost of rapidly increasing cable bills.  Cable broadband was just coming back from the dot.com crash, with many Americans still mystified by the concept of “www” and whether a web address had a “/” or a “\” in it.

Time Warner Cable CEO Glenn Britt tells Wall Street investors at the Sanford Bernstein conference the company is using their customers’ addiction to high speed broadband as leverage for rate increases — three in the last three years. Britt’s world view for Internet Overcharging schemes like consumption billing are reinforced in a room where ordinary customers aren’t invited and the Wall Street types in attendance dream about the enormous profits such pricing would bring. June 1, 2011. (6 minutes)
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Today, broadband is threatening to become the cable industry’s most important product — one that Americans will crawl through broken glass to buy.  In larger cities, the competitive war between DSL and cable broadband has been settled and DSL lost.  That has brought Time Warner a steady stream of customers departing their local phone company and bringing their telecommunications business with them.  Even during the economic downturn, Britt notes, one of the last products people will agree to give up is their broadband Internet access.

“Broadband is becoming more and more central to people’s lives,” Britt said. “It is becoming our primary product. People are telling us that if they were down to their last dollar, they’d drop broadband last.”

Britt openly tells investors Time Warner Cable will take that last dollar, and many more.

“We are able to raise prices,” Britt notes. “As broadband becomes a utility, you can charge more.  So after a dozen years of not raising prices for broadband service, for the last three years we have been raising prices.”

Britt notes the company is also enjoying increased average revenue per customer as many upgrade their broadband service to higher speed tiers which deliver higher revenue to the cable operator.

But as the market for broadband matures, the next level of profits could come from so-called “consumption pricing,” which could make yesterday’s rate increases look like a miniscule price adjustment.  In 2009, Time Warner Cable sought to test new broadband pricing that would have tripled the cost of unlimited broadband from $50 a month to an astonishing $150 a month.  A firestorm of protests for this level of Internet Overcharging temporarily killed the prospect of OPEC-like profits, unsettling some Wall Street investors and analysts, many who refuse to let the dream die.

Among the biggest proponents of this kind of metered pricing is, in fact, Sanford Bernstein — the sponsor of the conference.  So it came as no surprise Britt faced additional browbeating in the hour-long interview to reintroduce these pricing schemes.  After all, Britt is told, AT&T has implemented a usage cap and Cable One has (what the interviewer calls) a “quite interesting” pricing model — delivering the smallest usage caps to customers with the highest speed tiers.  So when will Time Warner follow suit?

Once again, Britt said he’s a true believer in consumption billing and thinks the industry will move in that direction, but refused to give an exact timetable.  “Consumption billing” goes beyond traditional usage caps by establishing a combination of a flat monthly service fee, and additional charges for the amount of data you use.  Time Warner’s original proposal limited consumption to 40GB per month at today’s broadband prices, but added an overlimit fee of $1-2 for each additional gigabyte.

The strangest part of the hour was Britt’s defense of usage pricing with an impromptu discussion with his wife the evening before about the pricing models of public transit in European capitals (they’ve no doubt visited), and metropolitan New York City.

Britt shared that in the finest cities of Old Europe, bus and train travelers paid different rates based on how far they traveled within the city.  In New York, his wife noted, one price gets you access to any point in the city on the subway.  

How fair is that?

Aside from the hilariously unlikely scenario either Britt or his wife have stepped foot on a New York City public bus or subway train in the last decade, his rendition of “consumption billing is fairer”-reasoning fell flat because it argues a false equivalence between the cost to move data and the expenses of a public transit system.  Remember, Time Warner is the cable company that pitches unlimited long distance calling on the one platform that most closely resembles broadband — telephone service.

“People want us to invest more to keep up with the traffic,” Britt argued.  “People who use it should pay less — people who want to spend eight hours a day watching video online is fine with me, but they should pay more than somebody who reads e-mail once a week.”

This is the same Glenn Britt who just minutes earlier confessed the cable company has been raising prices on all of its broadband customers for three years in a row because they can.  Earlier attempts at consumption billing saved nobody a penny.  Light users were given a paltry usage allowance that could be largely consumed by downloads of security patches and software updates, after which a very punitive overlimit fee kicked in.  Besides, Time Warner Cable already sells a “lite” usage plan today that has few takers.  Most consumers want, and are willing to pay for a standard, flat rate broadband account.  That’s the account Britt and his Wall Street cheerleaders want to get rid of come hell or high water.

Britt is asked whether pay television is getting too expensive for the hard-pressed middle class. For many consumers, it is, which is why the company is developing its “welfare” tier called TV Essentials — a sampling of cable networks with plenty of holes in the lineup to remind subscribers what they are missing if they make do with this less expensive package. June 1, 2011. (3 minutes)
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Throughout the hour long interview, Britt’s read of the hard-pressed common American family comes across as more than a little hollow — more like hopelessly out of touch.  One part Marie “Let Them Eat Cake” Antoinette and one-part “we’ll throw a bone to some and raise prices on the rest,” Britt is content lecturing consumers — discouraging them from crazy ideas like “a-la-carte” cable pricing and reasonably priced broadband.

The Wall Street crowd loved every minute, and the friendly echo chamber atmosphere made Britt feel more than welcome at the conference.  While Time Warner Cable’s CEO spent more than a hour talking to Wall Street, he has no time to actually sit down and talk with his customers — the ones that want nothing to do with his Internet pricing schemes.  Indeed, at one point Sanford Bernstein’s host dismisses customers as “people who want everything for free,” a contention Britt partly agreed with.

Have another piece of cake.

If you are still wealthy enough to buy an iPad and are enjoying Time Warner Cable’s free streaming app, watch out. It may not be free for long. As Britt partially admits, Time Warner Cable is using the online video service as a “Trojan Horse” to get subscribers hooked on their online video, before they attach a price tag to the service. June 1, 2011. (3 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

And what about all of this much-ballyhooed “investment” in tomorrow’s broadband networks?

Britt confesses the cable company is spending less than ever on system upgrades and capital construction projects.  Why?  The company forecasts its demand and growth five years out and budgets accordingly.  The current target is to spend just 15 percent of revenue on such projects, and based on budget planning, there is no urgent need to upgrade Time Warner’s broadband networks to keep up with demand.  In fact, it was all smiles when Britt revealed one of the company’s biggest expenses — the costly set top box — may not be a permanent part of America’s cable future after all.  Britt offered there was a good chance capital spending might even decline further in the future.

Britt suggests the next generation of television sets will deliver the same functionality as today’s set top box at a cost paid by the consumer.  Time Warner’s slow march to all digital cable means the need for wholesale upgrades of cable systems is over for perhaps a generation.  And with an IP-based cable delivery platform, software upgrades and improvements can be made without paying the high asking price charged by today’s handful of set top manufacturers.

In fact, outside of programming costs, Britt doesn’t see any long term challenges to years of good times for investors. Even minor competition from the telephone companies, who generally charge prices very similar to what Time Warner Cable charges, pose no big threat.

His biggest nightmare?  A check on the industry’s near-unfettered power by Washington regulators.  Despite Britt’s claims the cable industry is already well-regulated, in fact it is not.  Since 1996, cable companies can charge whatever they choose for standard cable, phone and Internet service.  Consumption billing, which will almost certainly be seen as gouging by consumers, may trigger an unwelcome intrusion by Congress, especially if the industry continues to cause a drag on America’s broadband ranking, already waning.

For investors, the glory days of huge rate hikes for cable television are likely behind us, Britt warns.  But have no fear: for the generally well-heeled and barely-hanging-on there is plenty of room for more rate increases on broadband — and meters, too.

Once again, Britt unintentionally admits the truth: Time Warner Cable does not have a broadband congestion problem that requires an Internet Overcharging scheme to solve. In fact, he admits the cable company is spending less than ever on network upgrades for residential subscribers, and expects that trend to continue. He’s also avoiding overpaying for merger and acquisition opportunities. June 1, 2011. (6 minutes)
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Comcast customers looking for some savings off their broadband service are getting some decent discounts when threatening to take their business elsewhere.  Depending on the competition in your area, customers are paying as little as $19.99 per month for Comcast Performance Internet, which delivers around 12Mbps download speed.  While the best deals often go to new customers, current customers can get some nice discounts just by using the word “cancel.”

Stop the Cap! has collected some examples from our readers about recent experiences with Comcast’s retentions and promotions departments.  Any customer can try any of these numbers and ask if promotions are available.  Comcast pricing can vary regionally, as do their offers.  If you don’t like the first one you hear about, ask them if they can do any better.  Very often they can.

Chicagoland

Call 1-800-934-6489, select option ‘4’ for downgrade or disconnect, then option ‘2’ for disconnect

Tell the operator you are considering dropping your broadband service because it is too expensive, but a friends of yours is getting a promotion for current customers offering $19.99 a month for Comcast Performance Internet.  Can I get that offer?

They will check for qualified offers for your area and may attempt to offer promotions for triple play packages.  In Chicago, the current Performance promo is $19.99 a month for six months, then $46.95 for the next six months.  But your pricing may vary.

San Francisco Bay Area/Seattle

Call 1-800-970-6405.  They will usually answer asking if you are calling about a special promotion.  Ask them about the Internet offer priced at $19.99 for first year, $34.99 for second year and verify what level of Internet service this provides (it should be Performance).  Some people report this offer is available to new customers only, others say it works for existing customers.  It is provided by an authorized reseller for Comcast.

Tennessee/Mid-South

Call 1-877-395-5388.  Ask about current promotions.

Expect at least five minutes of bad deals.  Hold out for 6Mbps service at $19.99 for six months or 8Mbps at $29.99 for 12 months.  You can often get them to extend the 6Mbps service pricing for 12 months.  Ask for any activation/installation fees to be waived.

Business Class Service (Usage Cap Free!)

Commercial (Business) HSI 12/2Mbps service is available for as little as $60 per month without TV or $65 with basic TV.  All installation fees can be waived.  Expect a 1-2 year commitment.  You may want to Google around for any third party Comcast Business Class resellers who can provide 12/2Mbps service for as little as $44 a month with a six month commitment and $35 activation fee.

General Advice

All promotions with Comcast are strictly “your mileage may vary.”  If a particular representative is not giving you a good offer, thank them, hang up and try another phone number shown above or call later.  You should get used to asking “is this the best you can offer” and “can this fee be waived?”  You won’t get it if you don’t ask.

With Comcast, you will also do much better buying your own cable modem and avoiding the monthly rental fee.  Perhaps some of our readers can join in the discussion in the comments with some modem recommendations.

When your promotion ends, getting an extension requires more work.  Many representatives will not want to offer you back-to-back promotions but some will when pressed.  You can also cancel service and then start a new account with the cooperation of a family member.

Some of the best pricing promotions require some level of cable television service.  If you want broadband-only service, let the representative know you want offers for that level of service only.

The $49 "cap" plan isn't your maximum monthly fee, it's the MINIMUM monthly fee. The company selling it was fined for misleading advertising.

Banking on the fact most consumers do not understand what a “gigabyte” represents, much less know how many they use per month on usage-capped broadband plans, large telecommunications companies enjoy a growth industry collecting enormous overlimit fees that bear no relation to their actual costs of delivering the service.

The social implications of “usage cap and tier” pricing are enormous, according to Australia’s Communications & Media Authority.  Australia remains one of the most usage-capped countries in the world, and broadband providers have taken full advantage of the situation to run what the ACMA calls a broadband Confusopoly.

As a growing number of mobile broadband customers in the United States and Canada approach the allowance limits on their mobile data plans, Australia’s long experience with Internet Overcharging foreshadows a North American future of widespread bill shock, $1000+ telecom bills, and families torn apart by finger-pointing and traded recriminations over “excessive use” of the Internet.

Not helping matters are providers themselves, some who distort and occasionally openly lie about their plans.  In Australia, Optus was fined $200,000 for advertising a “Max Cap $49” plan that led many to believe their maximum bill would amount to $49.  But not so fast.  Optus turned the meaning of the word “cap,” typically a usage limit, upside down to mean a capped minimum charge.  Indeed, the lowest bill an Optus customer could receive was $49.  Using data services cost extra.  The company also claimed customers could use accompanying call credits “to call anyone,” another fact not in evidence.

Another common marketing misconception is the “unlimited mobile broadband” plan — the one that actually comes with significant limits. In most cases, providers want “unlimited” to mean there are no overlimit fees — they simply throttle the speed of the service down to a dial-up-like experience once a customer exceeds a certain amount of usage.  Companies like Cricket disclose their usage triggers.  Others, like Clearwire, do not — and they are applied arbitrarily based on customer usage profiles and congestion at the transmission tower.  While annoying, at least these plans do not impose overlimit fees which lead to the growing problem of “bill shock.”

Bill Shock

North Americans getting enormous mobile data bills remains rare enough to warrant attention by the TV news.  Often the result of not understanding the implications of international roaming, customers can quickly run up thousands of dollars in mobile bills while touring Europe, cruising, or even just living along the Canadian-American border, where accidental roaming is a frequent problem.

But as Americans only now become acquainted with usage-capped mobile data plans with overlimit fees, bill shock may become much more common.

In Australia, which has had a head start with usage-capped mobile data, an incredible 58 percent of customers exceeded their usage allowances at least once in a calendar year, and this statistic comes from April 2009.  The bill shock problem has now become so pervasive in Australia, in 2010 the office of the Telecom Ombudsman received more than 167,955 consumer complaints about the practice.

In the United States, one in six have already experienced surprise data charges on their bills — that’s 30 million Americans.  The Federal Communications Commission found 84 percent of those overcharged said their cell phone carrier did not contact them when they were about to exceed their allowed service limits. In about one-in-four cases, the overlimit fee was greater than $100.

Sen. Tom Udall (D-N.M.) proposed legislation that would require a customer to consent to overlimit fees before extra charges accrue for voice, data, and text usage.

The Cell Phone Bill Shock Act of 2011 would also require carriers to send free text messages when a customer reaches 80 percent of their plan’s allowance.

“Sending an automatic text or email notification to a person’s phone is a simple, cost-effective solution that should not place a burden on cell phone companies and will go a long way toward reducing the pain of bill shock by customers,” said Udall, a member of the Senate Commerce Committee. “As more and more cell phone companies drop their unlimited data plans, this problem only stands to get worse. I am proud to stand up for cell phone consumers and reintroduce this important legislation.”

In Australia and North America, legislation to warn consumers of impending overlimit fees has been vociferously fought by the telecommunications industry.

Udall

The CTIA-Wireless Association in Washington said such measures were completely unnecessary because consumers can already check their usage by logging into providers’ websites.  Even worse, they claim, bills like Udall’s threaten to destroy innovation and harm the industry by locking a single warning standard into place.  CTIA claims that wouldn’t help consumers.

But Australian regulators, who have years of experience dealing with unregulated carriers’ usage limit schemes say otherwise, noting industry efforts to self-regulate have been spectacular successes for the industry’s bottom line, just as much as they are a failure for consumers who end up footing the bill.

Even worse, unregulated providers taking liberties with marketing claims can have profound social implications when customers find they can’t pay the enormous charges that often result.

The Brotherhood of St. Laurence, a charity, reported one instance of an elderly client who received a $1,200 broadband bill he couldn’t pay outright.  Even as he negotiated a monthly payment plan with the provider, the company shut off his home phone line without warning.

“His telephone service was particularly important because he used a personal alarm call system, which entailed wearing a small electronic device that he could activate in the event of a medical emergency,” noted a report on the incident.

The Australian Competition and Consumer Commission found a long-standing competitive feud by two large mobile providers in Australia — Telecom and Optus — has only brought more instances of marketing excesses that ultimately don’t benefit consumers.  The Commission increasingly finds it lacks the resources to keep up with the slew of questionable advertising.

Some industry critics suspect providers treat ACCC’s fines as simply a cost of doing business, and some like Optus have been rebuked more than once by the regulator for false advertising.

The ACMA says the longer government waits to protect citizens from provider abuses, the more consumers will be financially harmed, especially as data usage grows while usage caps traditionally do not.

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Southern Cross has the monopoly for international fiber connections between New Zealand and the rest of the world.

Three companies — Telecom New Zealand, Verizon, and Optus jointly own the single underseas fiber network that connects New Zealand with the rest of the world.  Unless a second underseas fiber provider provides competition, the monopoly control on international connectivity may guarantee New Zealand an ultra fast fiber broadband network for domestic use, but leave consumers heavily usage-capped and subjected to monopoly price-gouging for international traffic.  Those are the claims of Sam Morgan, a venture capitalist and philanthropist who advises Pacific Fibre, the company that wants to bring that second underseas fiber cable to New Zealand.

American and Canadian providers routinely point to Australia and New Zealand as examples of countries with usage-caps firmly in place, arguing this provides justification to do likewise in North America.  But usage caps in the South Pacific are a product of international capacity shortages — a problem not found in either the United States or Canada, so their claims have no merit.

Morgan explores the implications of a second fiber cable reaching New Zealand — the imminent removal of the hated Internet Overcharging schemes.  The clip comes courtesy of TV New Zealand.  (17 minutes)