Regulating mobile broadband data usage on a constrained network has posed a challenge for mobile broadband providers that can’t always easily expand their networks to accommodate growing demand.  As mobile broadband providers work with the frequency allocations they have either been assigned or won through airwave auctions, simply adding more capacity by using additional frequencies isn’t always possible.  So most providers have increasingly turned to usage allowances to artificially control demand on their existing networks.

Who wins the next round of spectrum auctions sets us up for the mobile broadband chicken and egg scenario.  Providers cannot bid the enormous dollar amounts these auctions routinely command without revenue from customers craving access.  Customers aren’t about to commit paying even more for mobile broadband service that, in the United States, is almost universally limited to five gigabytes of consumption per month.  Finding ways to attract new customers who have been resistant to the current pricing of mobile broadband service could provide a source for additional revenue.

But as far as consumers are concerned, the current model of “usage allowances” combined with punishing overlimit penalties is extremely unpopular, and will keep many potential customers away.

Camiant, which helps create and manage traffic management solutions for broadband networks, today announced the findings of its latest study, “Rethinking Mobile Broadband Data Rate Plans.”  Although some of the study was no doubt designed to help sell the case for Camiant’s product line devoted to “intelligent” network management and quota systems, it provides important insight into the European mobile broadband market.

The conclusion: Europeans don’t like Internet Overcharging schemes either.

In fact, when the 263 survey respondents using plug-in mobile broadband modems in the UK, France, Germany, Italy, Spain and Sweden were asked about their preferences for various rate plans, the key finding was consumers don’t like ‘Cap + Overage’ style rate plans.  Among their concerns:

• 62% didn’t know what their usage cap was;
• 76% didn’t know how much data they actually used;
• 39% didn’t know what happened if they went over the usage cap;
• 45% were very/moderately concerned about exceeding the cap.

When presented with four alternative rate plan structures and asked their preference — “Cap + Overage” was least preferred by consumers.  ‘None of the above’ was not an option, so those surveyed chose the plan most acceptable under the parameters of the study.  The result showed almost half wanted unlimited service, and just over one-third wanted to pay less for a plan with an allowance, but one that wouldn’t empty their wallets if they happened to exceed the limit:

Many users were willing to pay additional fees beyond the base subscription for potential “extras”:

• 43% of all respondents would pay €5 in addition to base plan for unlimited usage of one specific application. Of those that were interested, 90% said it was important that they select the application.
• 45% of respondents interested in a service that might provide lower speed at some point said they would be willing to pay between €1 and €3 for on-demand higher speed “for a short duration (e.g. 1 hour).”

“It’s becoming very clear that network operators need to offer a wider range of package options to users of mobile data users,” said Graham Finnie, Chief Analyst at Heavy Reading. “This study provides strong evidence that end users are willing to consider a range of alternatives to conventional usage management schemes.”

Some similar studies and focus groups being conducted in the United States testing additional rate plan options, most of which carrying a lower usage cap and lower pricing.  Many of the private studies are including the dreaded ‘I wouldn’t buy any of these plans because they are all too expensive for what you get’ option to determine if consumers are simply going to continue turning their noses up at overpriced data plans.

Mobile broadband growth at the $60 for five gigabytes price level has been accepted by the on-the-go traveler or business person dreading hotel Internet connection fees, but have been difficult to sell to occasional users, residential customers, or those who consider the price out of line for the amount of access it includes.  Most of these types of customers rely on free or reduced price wi-fi instead.

With 49% of survey respondents looking for unlimited plan options at reasonable prices, and most of the rest looking for a lower price with some limitations, today’s American mobile broadband pricing platform charging high prices for highly limited service is the worst of both worlds for consumers.

Despite challenging economic conditions, Time Warner Cable CEO Glenn Britt told CNBC broadband from the cable operator has remained strong during the downturn.  The company reported the addition of 117,000 new Road Runner customers during the third quarter, many switching from rival telephone company-provided DSL service.

A CNBC anchor who visited a conference recently and absorbed cable industry talking points about consumption-based pricing asked Britt about whether Time Warner Cable’s network had the capacity to handle skyrocketing data consumption.

“Our physical plant is very capable and we invest in it in a steady way, so I think we’re able to keep up with demand.  I think the other question you’re really raising is who pays […] is an evolving thing.  Also the history has been everybody pays the same for unlimited access.  I suspect that will change going forward to some more usage based model, but that in itself is controversial so we’ll have to see what happens,” Britt said.

Britt’s comments about investments in their network are challenged by the company’s own financial reports which showed a decline in those investments and in the cost of obtaining network bandwidth.

Still, Time Warner Cable is upgrading some areas to DOCSIS 3 technology to market higher speed service to broadband enthusiasts.

The company continues to face significant challenges in its mainstay cable television business, losing 84,000 cable televison package customers in the last quarter, a result of the loss of home ownership during the economic crisis according to Britt, and a general downturn in the economy.  Still, through a combination of price increases and marketing bundled services, the company grew average revenue per subscriber to $102.48 a month in the third quarter.

[flv]http://www.phillipdampier.com/video/CNBC – Glenn Britt on Earnings 11-6-09.flv[/flv]

Time Warner CEO Glenn Britt is interviewed on CNBC about the company’s third quarter earnings. (11/6/09 – 4 minutes)

Stop the Cap! reader Nonya advised us about Britt’s latest appearance on CNBC.  If you find news our readers might be interested in, send us your news tip under our “Contact Us” link above.

With all of the discussion about Net Neutrality recently, the mainstream media often has a difficult time absorbing what this concept means and ends up confusing it with Internet Overcharging schemes.  CNN is the latest to make the mistake — not once but twice in three days as Nicole Lapin and Tony Harris discuss how Net Neutrality policies will impact consumers.

Lapin suggests this week’s decision by the FCC to begin writing a formal Net Neutrality policy was a done deal, and that it would prevent Internet providers from charging higher prices for consumers who use their broadband accounts a lot.

Both statements are incorrect.

The FCC is only at the start of writing a formal Net Neutrality policy.  The basic tenets Chairman Julius Genachowski would like to see a part of a formal Net Neutrality rulemaking are on the table, but there is plenty of time between now and a final vote for telecommunications industry lobbyists to sweep several pages from Genachowski’s wish-list to the floor (and replace them with their own.)

Nothing in the proposed Net Neutrality policies would currently prohibit providers from moving to Internet Overcharging schemes like usage allowances, overlimit fees, and other pricing changes that are ultimately designed to reduce usage and extract higher pricing from consumers.

Rep. Eric Massa (D-NY) has a bill to put a stop the Internet Overcharging schemes that continues to need your support and advocacy with your member of Congress.  See the Take Action section for further details.

For the record:

Net Neutrality: A set of policies that prevents Internet providers from discriminating against certain broadband services or website content providers with speed throttles, blocks, or other impediments.  Providers would not be allowed to set up special premium traffic lanes with faster speed delivery of online web content for “preferred partners,” while leaving everyone else on a slower traffic lane.  It preserves the Internet we have today.

Internet Overcharging: Practices by broadband providers to limit usage of your broadband service and/or charge higher pricing based on arbitrary claims that consumers are “overusing” their unlimited broadband service.  These include usage caps or limits, usage allowances, consumption billing that includes usage allowances, overlimit fees/penalties for exceeding those limits, speed throttles that kick in when a user reaches their usage limit, and any accompanying services sold to consumers who think they might exceed their plan allowance (overlimit “insurance” policies, extra usage blocks sold at premium prices, etc.)

[flv width=”570″ height=”324″]http://www.phillipdampier.com/video/2009-10-21-CNN-FCC Net Neutrality.flv[/flv]

CNN’s Tony Harris talks with Nicole Lapin about Net Neutrality, and how the policy impacts small businesses that sell on the web.  (October 21 – 3 minutes)

Earlier today the two revisited the issue of Net Neutrality to explore the outcome of the FCC Net Neutrality decision:

[flv width=”570″ height=”324″]http://www.phillipdampier.com/video/2009-10-23-CNN-Net Neutrality Victory.flv[/flv]

CNN’s Tony Harris and Nicole Lapin discuss the “victory” for Net Neutrality proponents.  (October 23 – 2 minutes)

One day before the Federal Communications Commission in Washington announced draft guidelines to establish an American Net Neutrality policy, the Canadian Radio-television Telecommunications Commission (CRTC) announced its own guidelines to govern what Canadian broadband providers can and cannot do with the Internet traffic they deliver to millions of Canadian consumers.  While Bell (Canada), the nation’s largest telecommunications company praised the CRTC for its provider-friendly ruling, consumer groups varied their responses from “a step in the right direction” to “weak” to “here comes more gouging.”

The CRTC Net Neutrality policy for Canada essentially permits providers to continue to throttle broadband speeds for both retail and wholesale customers, and block traffic altogether should the CRTC grant permission in “exceptional cases,” as long as the provider discloses the practice to consumers up front, and warns them in advance of any policy changes that further slow their connections.

Laurel Russworm, who runs Stop Usage Based Billing, was not pleased.

“The CRTC decision doesn’t have a silver lining I can find; in fact they essentially said that usage based billing and caps are good tools to use to fight congestion. All Bell Canada has to do is warn us first, then they can gouge as they please. They’ve deferred making a decision on usage based billing until after the court challenges are dismissed, but I’m not holding my breath,” Russworm wrote.

On Wednesday the CRTC decided that Internet providers in Canada need measures to manage the traffic on their networks at certain times to deal with what providers claim to be a congestion problem.  At hearings held this past summer, several CRTC commissioners were receptive to the claims providers made that Canadian broadband does not have the capacity their American neighbors have.  Providers like Bell and Rogers claim that peer to peer traffic and increasing consumption of high bandwidth services have created capacity shortages on their networks, requiring traffic management which artificially slows certain traffic on their networks at “peak times.”  Canadian broadband providers almost universally also impose Internet Overcharging schemes on their customers, limiting customer use and charging them overlimit penalties for exceeding usage allowances.

The commission accepted the providers’ claims and gave the green light to those practices, but said before a provider literally blocks access to online services, or throttles time sensitive traffic on services like Voice Over IP telephone or two-way video conferencing to the point it becomes “degraded,” it needs to get Commission permission first.

Mirko Bibic, Bell Canada’s senior vice-president of regulatory and government affairs, told The Globe and Mail the ruling gives carriers the right to run their businesses the way they see fit. “We’re the experts, and we get the flexibility to determine how to manage our networks to give the user the best experience,” he said.

Bell already “throttles” its Internet service by slowing peer-to-peer downloading between 4:30 p.m. and 1 a.m. to make sure the network is not overloaded by a relatively small number of people transferring large video and music files.

Independent Internet providers are among the biggest proponents of Net Neutrality, and a ban on Internet Overcharging schemes known in Canada as “usage based billing.”  Many Canadian broadband providers obtain connectivity through wholesale accounts purchased from Bell.  The Canadian phone giant imposed both speed throttles and usage based billing on their wholesale customers.  Those costs, and the speed bumps that go with them, are now increasingly passed on to consumers.  Independent providers fear being put out of business.

For many of them, Wednesday’s decision might as well never have happened.

“This has really not changed anything,” Tom Copeland, chair of the Canadian Association of Internet Providers, told PC World.

Copeland said the “biggest, most glaring omission” from the ruling is the lack of restraints on the time of day or how long suppliers like phone or cable companies can manipulate traffic. “So we could continue to see traffic management every day of the year,” he said.

“We’re still not addressing the cause of the problem,” he added: “Either weak points in the network, or abuse by users.” Most casual users of peer-to-peer applications — the biggest offending programs in the eyes of providers – aren’t the problem, he said.

“We just went backwards at warp speed,” lamented John Lawford, counsel for a coalition of consumer groups that fought for an end to throttling of Internet traffic of consumers, “ while we watch the U.S. rocket ahead.”

“The CRTC has said in this decision that ISPs own your content and own your Internet connection” said Lawford, “You just got owned.”

The Public Interest Advocacy Centre represented the Consumers’ Association of Canada, Canada Without Poverty and Option consommateurs during the hearings on Net Neutrality.  PIAC argued that the Telecommunications Act required ISPs not to interfere with customers’ Internet traffic unless such traffic was clearly harming other users of the network and not otherwise.  “ISPs should act as common carriers and just carry traffic, not as broadcasters deciding what you watch” continued Lawford, “but now they can decide what gets through – and how much they get to charge you for the privilege.”  Lawford also noted the CRTC’s requirement for the ISPs to disclose their “Internet traffic management practices” will not actually stop any of the practices.

The CRTC has repeatedly taken broadband industry-friendly positions in direct opposition to Canadian consumer interests, helping to set the stage for Canada’s rapid decline in broadband leadership.  The country’s standing in broadband rankings has taken a stunning fall from its earlier top-shelf position.  Regulatory policies that permit abusive, anti-competitive practices and reward providers for rationing broadband instead of investing in expanding it are at the heart of the problem.

Since the CRTC has taken positions more worthy of a industry trade group than an independent regulator, an increasing number of Canadians are demanding the CRTC lead or get out of the way.  A large group of Canadian voters upset about any issue is sure to attract politicians, and the New Democratic Party of Canada (NDP) has arrived.

Charlie Angus (NDP)

Charlie Angus, New Democrat Digital Affairs Critic and MP for Timmins-James Bay, who already is on record opposing Internet Overcharging schemes, says the CRTC dropped the ball on Net Neutrality.

“Yesterday’s CRTC decision on Internet traffic-management practices is a blow to the future of digital innovation in Canada,” Angus said in a statement.

“This interference [from traffic management] will be bad news for small third-party competitors and leaves consumers subject to digital snooping and interference from cable giants,” he added.

“Basically the CRTC has left the wolves in charge of the henhouse. ISP giants have been given the green light to shape traffic on the internet in favor of their corporate interests,” he said. “This decision is a huge blow to the future competitiveness of the Internet.”

Angus says that the premise of today’s decision – that notification from the ISP will allow customers to make an informed decision on where to buy Internet service – misses the harsh reality that the market for Internet service in Canada is not nearly competitive enough to work.

“Canada has fallen to the back of the pack in Internet service provision and pricing after leading the way for years. This is the direct result of a small band of ISP giants blocking out competition,” Angus said. “This decision clears the way for ISPs to squeeze out third-party players who are attempting to provide better price and service options.”

South of the border, the FCC has taken clear steps toward the establishment of Internet neutrality on U.S. networks.

Angus said that principle of Net Neutrality should be at the center of Internet policy in Canada, and that the CRTC has missed a golden opportunity with yesterday’s decision.

“The principle of Net Neutrality must be a cornerstone of the innovation agenda. The CRTC has once again acted as the rubber stamp for large ISP and cable players to dominate the market and decide which traffic goes in the fast lane and which traffic gets stuck in the slow lane. This decision continues a long and dismal tradition of Canada’s communication policy decisions chipping away at the public interest to the benefit of a few corporate giants.”

Dissolve the CRTC, a group collecting signatures to petition for the closure of the Commission, also made several comments about the CRTC decision.

Among their conclusions:

• The new policy leaves the door open to providers deciding their economic interests are better served from traffic management practices like throttles and usage limits than network investments.  Short term limits may serve the interests of stockholders, but could discourage long term investments needed to create new 21st century broadband platforms;
• The Commission’s encouragement that providers make additional investments in their networks is likely to fall on deaf ears.  It was Bell’s lack of investment in their broadband network which led to the traffic management practices, and the recent hearings about them, in the first place.  Without mandates, there is no real pressure on Bell to change their investment strategy.
• The Commission’s policy to regulate this issue through a user complaint process that calls out bad actors has no historical precedent of working.  The CRTC has a long history of ignoring public involvement in telecommunications proceedings, and does not like to involve themselves with individual customer complaints.  Campaigns to flood the CRTC with complaints on specific issues using their language may be the only way to get them to investigate.  Additionally, complaints that call out the disparity in network management policies between wholesale and retail accounts may only lead to additional restrictions on both types of accounts, making a bad situation even worse.

Canadians must contact their elected officials and demand federal legislation to enact true consumer protection and broadband reform policies to restore Canada to a position of leadership in broadband.  The CRTC is ineffective and must not be the final arbiter on these important issues.

An avalanche of iPhones is to blame for AT&T's wireless problems, according to a Slate columnist

Telecommunications companies love people like Farhad Manjoo.  He’s a technology columnist for Slate, and he’s concerned with the congestion on AT&T’s wireless network caused by Apple iPhone owners using their phones ‘too much and ruining AT&T’s service for everyone else.’  Manjoo has a solution — do away with AT&T’s flat data pricing for the iPhone and implement a $10 price increase for any customer exceeding 400 megabytes of usage per month. For those using less than 400 megabytes, he advocates for a “pay for what you use” billing model.  Will AT&T adopt true consumption billing, a usage cap, or just another $10 price increase?  History suggests the latter two are most likely.

Stop the Cap! reader Mary drew our attention to Manjoo’s piece, which predictably has been carried through the streets by cheering astroturf websites connected with the telecommunications industry who just love the prospect of consumers paying more money.  They’ve called the organizations that work to fight against such unfair Internet Overcharging schemes “neo-Marxist,” ignoring the fact the overwhelming majority of consumers oppose metered broadband service and still don’t know the words to ‘The Internationale.’

Manjoo’s description of the problem itself has problems.

His argument is based on the premise that the Apple iPhone is virtually a menace on AT&T’s network.  He blames the phone for AT&T customers having trouble getting their calls through or for slow speeds on AT&T’s data network.

Every iPhone/AT&T customer must deal with the consequences of a slowed-down wireless network. Not every customer, though, is equally responsible for the slowdown. At the moment, AT&T charges $30 a month for unlimited mobile Internet access on the iPhone. That means a customer who uses 1 MB a month pays the same amount as someone who uses 1,000 MB. I’ve got a better plan—one that superusers won’t like but that will result in better service, and perhaps lower bills, for iPhone owners: AT&T should kill the all-you-can-eat model and start charging people for how much bandwidth they use.

How would my plan work? I propose charging $10 a month for each 100 MB you upload or download on your phone, with a maximum of $40 per month. In other words, people who use 400 MB or more per month will pay $40 for their plan, or $10 more than they pay now. Everybody else will pay their current rate—or less, as little as $10 a month. To summarize: If you don’t use your iPhone very much, your current monthly rates will go down; if you use it a lot, your rates will increase. (Of course, only your usage of AT&T’s cellular network would count toward your plan; what you do on Wi-Fi wouldn’t matter.)

First, and perhaps most importantly, AT&T not only voluntarily, but enthusiastically sought an exclusive arrangement with Apple to sell the iPhone.  For the majority of Americans, using an iPhone means using AT&T as their wireless carrier.  If AT&T cannot handle the customer demand (and the enormous revenue it earns from them), perhaps it’s time to end the exclusivity arrangement and spread the iPhone experience to other wireless networks in the United States.  I have not seen any wireless provider fearing the day the iPhone will be available for them to sell to customers.  Indeed, the only fear comes from AT&T pondering what happens when their exclusivity deal ends.

Second, problems with voice calling and dropped calls go well beyond iPhone owners ‘using too much data.’  It’s caused by less robust coverage and insufficient capacity at cell tower sites.  AT&T added millions of new customers from iPhone sales, but didn’t expand their network at the required pace to serve those new customers.  A number of consumers complaining about AT&T service not only mention dropped calls, but also inadequate coverage and ‘fewer bars in more places.’  That has nothing to do with iPhone users.  Congestion can cause slow speeds on data networks, but poor reception can create the same problems.

Third, the salvation of data network congestion is not overcharging consumers for service plans.  The answer comes from investing some of the $1,000+ AT&T earns annually from the average iPhone customer back into their network.  To be sure, wireless networks will have more complicated capacity issues than wired networks do, but higher pricing models for wireless service already take this into account.

Business Week covered AT&T’s upgrade complications in an article on August 23rd:

Many of AT&T’s 60,000 cell towers need to be upgraded. That could cost billions of dollars, and AT&T has kept a lid on capital spending during the recession—though it has made spending shifts to accommodate skyrocketing iPhone traffic. Even if the funds were available now, the process could take years due to the hassle and time needed to win approval to erect new towers and to dig the ditches that hold fiber-optic lines capable of delivering data. And time is ticking. All carriers are moving to a much faster network standard called LTE that will begin being deployed in 2011. Once that transition has occurred, the telecom giant will be on a more level playing field.

And there are limits to how fast AT&T can move. While it may take only a few weeks to deploy new-fangled wireless gear in a city’s cell towers, techies could spend months tilting antennas at the proper angle to make sure every square foot is covered.

Karl Bode at Broadband Reports also points out a good deal of the iPhone’s data traffic never touches AT&T’s wireless network and he debunked a piece in The Wall Street Journal that proposed some of the same kinds of pricing and policy changes Manjoo suggests:

iPhone users are using Wi-Fi 42% of the time and the $30 price point is already a $10 bump from the first generation iPhone. The Journal also ignores the absolutely staggering profits from SMS/MMS, and the fact that AT&T posted a net income of $3.1 billion for just the first three months of the year. That’s even after the network upgrades the Journal just got done telling us make unlimited data untenable.

Sanford Bernstein’s Craig Moffett has been making the rounds lately complaining that a wireless apocalypse is afoot, telling any journalist who’ll listen that the wireless market is “collapsing” and/or “grinding to a halt.” Why? Because as new subscriber growth slows and the market saturates, incredible profits for carriers like AT&T and Verizon Wireless may soon be downgraded to only somewhat incredible. Carriers may soon have to start competing more heavily on pricing, driving stock prices down. That’s great for you, but crappy for Moffett’s clients.

You’ll note that neither the Journal nor Moffett provide a new business model to replace the $30 unlimited plan, but the intentions are pretty clear if you’ve been playing along at home. As on the terrestrial broadband front, investors see pure per-byte billing as the solution to all of their future problems, as it lets carriers charge more money for the same or less product (ask Time Warner Cable). Of course as with Mr. Moffett’s opinions on network upgrades, what’s best for Mr. Moffett quite often isn’t what’s best for consumers.

If AT&T doesn’t have the financial capacity or willingness to appropriately grow their network, inevitably customers will take their wireless business elsewhere, and perhaps Apple will see the wisdom of not giving the company exclusivity rights any longer.

Manjoo’s proposals (except the $10 rate increase, which they’ll love) would almost certainly never make it beyond the discussion stage.  A pricing model that automatically places consumers using little data into a less expensive price tier, or relies on a true consumption “pay for exactly what you use” pricing model would cannibalize AT&T’s revenue.  Past Internet Overcharging pricing has never been about saving customers money — they just charge more to designated “heavy users” for the exact same level of service.  Need more money?  Redefine what constitutes a “heavy user” or just wait a year when today’s data piggies are tomorrow’s average users.  Now they can all pay more.

The average iPhone user already pays a premium for their AT&T iPhone experience — an average $90 a month for a combined mandatory voice and data plan — costs higher than those paid by other AT&T customers.  AT&T accounted for the anticipated data usage of the iPhone in setting the pricing for monthly service.

The biggest data consumers aren’t smartphone or iPhone users. That designation belongs to laptop or netbook owners using wireless mobile networks for connectivity.  Those plans universally are usage capped at 5 gigabytes per month, far higher than the 400 megabyte cap Manjoo proposes.  If AT&T felt individual iPhone customers were the real issue, they would have already usage capped the iPhone data plan.  Instead, they just increased the price, ostensibly to invest the difference in expanding their network.

Perhaps at twice the price, everything would be nice.

Manjoo admits AT&T does not release exact usage numbers, but it’s obvious a phone equipped to run any number of add-on applications that the iPhone can will use more data than a cumbersome phone forcing customers to browse using a number keypad.  That in and of itself does not mean iPhone users are “data hogs.”  In reality, 400 megabytes of usage a month on a network also handling wireless broadband customers with a 5 gigabyte cap is a pittance.  That’s 10 times less than a customer can use on an AT&T wireless broadband-equipped netbook, and still be under their monthly allowance.

Here’s a better idea: end the monopoly AT&T has on the iPhone in the United States. That would immediately do a lot more for AT&T customers, as the so-called “data hogs” that hate AT&T flee off their network.

Manjoo’s alternatives are a “pay $10 more” solution that won’t save consumers money and “pay exactly for what you use” plan that AT&T will never accept.

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