Motorola SB6120 SURFboard DOCSIS 3.0 eXtreme Broadband Cable Modem

Another year, another rate hike for millions of Comcast customers.  The cable company is notifying cable subscribers of rate increases for programming and equipment.  While Comcast says the rate increases are among the lowest the company has implemented, the sting will be felt differently based on the types of services a customer receives.  One particularly nasty increase is for the cable modem rental fee.  In most areas, that used to be $3 a month, but is now increasing a whopping 66% to $5 a month.  Comcast blames the increased equipment expenses incurred upgrading their broadband network.

Consumers can avoid the monthly rental fee by purchasing their own cable modem, retailing for $60-100 depending on the model.  A Motorola SB6120 SURFboard DOCSIS 3.0 eXtreme Broadband Cable Modem is available from Amazon.com for less than $90 and works with Comcast.

Although not every Comcast customer rents a cable modem from the company, the company will earn hundreds of millions of dollars in new revenue from the rate increase for cable modems, according to Multichannel News.

The Marin Independent Journal crunched the numbers:

In the San Francisco area, where Comcast has 2.2 million customers, the average rate increase will be 1.6 percent, down from a 4.9 percent spike in 2008-09 and a 6.9 percent jump in 2005-06.This year’s rate increase is the lowest in the past six years in what has become an annual rate hike for Comcast customers. The company has raised rates on its average Marin customer by a cumulative 29.5 percent over the past six years, based on the company’s annual notices of price changes.

The San Jose Mercury News observes that the rate increases will hit some harder than others:

Ironically, the customers who will see their rates increase are those who subscribe to the company’s lowest-end — and least-enhanced — packages. Subscribers to Comcast’s more expensive packages generally will see no rate increase.

Mindy Spat, communications director of The Utility Reform Network, a San Francisco-based consumer advocacy organization, said Comcast appears to be taking advantage of its lower-end customers.

She noted that many Bay Area consumers who were unable to tune in the new digital broadcast signals signed up for limited basic cable to continue to get the local channels after the old analog ones were switched off earlier this year. With the increases, Comcast also appears to be trying to push customers into higher-tier packages, she charged.

“If consumers had choices, they certainly would not choose Comcast,” Spat said. “But they don’t, and Comcast is taking advantage of the fact.”

Of course, the only thing not increasing this year is Comcast’s 250GB usage cap.  It remains locked firmly in place at 2008 levels.  How much Comcast will recoup from a perpetual modem rental fee providing up to $300+ million a year in new revenue is an open question.  But clearly some cable operators intend to pay for upgrades to their networks by means other than forcing consumers into consumption billing schemes.

Communications and Information Technology Minister Hon. Steven Joyce

New Zealand, long ranked near the bottom of the barrel in broadband according to OECD rankings, will embark on a $1.5 billion (NZD) national broadband initiative, with a publicly-owned fiber network as its hallmark.

The plan, which will give urban and suburban New Zealand residents access to speeds faster than commonly available in the United States, will reach three-quarters of the population within the next ten years.  New Zealand has discarded the “wait around for the private sector” approach, which has left the country with stiflingly slow and heavily capped broadband at high prices.  Instead, it will create an open access fiber optic network on which private providers can compete and offer consumers the speeds they desire.  Communications and Information Technology Minister Steven Joyce issued a statement explaining why the government was getting involved:

Private sector companies have decided, on behalf of their shareholders and as a commercial decision, not to invest in a nationwide network of fibre-to-the-home at this point in time.  The government understands this, and so wishes to assist and work with the private sector in improving the business case for ultra-fast broadband.

The government is also getting involved in order to encourage the provision of widespread open access dark fibre services, which will facilitate the best possible competition outcomes in emerging markets and encourage innovation in wholesale and retail services.

For residents in 33 communities across the country targeted for access to the new network, it cannot come soon enough.  For many of them the most important issue, even beyond speed, is an end to what one Henderson resident called “the current crap called ‘data caps.'”

“The speed of the broadband is meaningless compared to the tiny data caps involved.  On the current slow broadband, I use up my 50GB data cap 12-15 days into the month.  Ultra fast broadband would only be useful with no data caps involved, because the existing broadband speed is twice as fast as the cap already,” Lucy in Auckland told the New Zealand Herald.

Rose in Glenfield agrees:

“We have a 20GB data cap that we chew through in about 10-14 days, and then we are stuck on 64kbps or we have to pay another $30 for another 20GB to get through the rest of the month. When are they going to address these kinds of issues,” she asks.

New Zealand has seen the impact of Internet Overcharging schemes for years.  Providers originally introduced ‘data caps’ to reduce the usage on their networks, but have since relied on them, and consumption billing also as a way to collect revenue.  Most residential customers endure usage caps of 20-50GB per month.  After that, some providers dramatically reduce their connections to just above dial-up speed, while others have found new revenue by charging customers $2/GB or more in overlimit penalties and fees.  Some offer additional usage allotments, but at high prices, such as $30 for 20GB of additional usage.

The result has been a dramatically lower adoption of broadband in New Zealand, and many don’t think it’s worth the money.

John Rutter in Howick suggests speed is secondary to dealing with the issue of loathed usage caps.

“I like the idea of a ultra-fast broadband investment initiative but I hope Internet service providers like Vodafone, Slingshot, and Orcon will provide unlimited Internet soon. Unlimited Internet should come first, then ultra-fast broadband,” he said.

The government has received public support for its broadband initiative.  The public benefit is a much faster “public highway” on which private providers can offer service to individual customers.  By constructing a fast pipeline publicly that no provider is willing to provide privately, it creates additional value for consumers who find faster, more reliable service, preferably on better terms.

“Already a number of companies have shown interest in the government’s broadband initiative,” Joyce said in a statement. “It’s time to get on with finding the right partners to build these networks.”

The government “is prepared to accept a less than commercial return” from the partners. It aims to hold less than 25 per cent in the partnered investment vehicles and will resist contributions of more than 50 per cent.

For rural New Zealand, the answer generally won’t come from a fiber-based strategy, Joyce says.  Instead, the government estimates $300 million will be needed from public and private sources for a rural broadband plan.  Significant portions of New Zealand are difficult to reach with traditional broadband networks, and many New Zealand residents in even medium sized outlying towns find themselves on long waiting lists for what service is available.

Steve in Wellington told the Herald “a lot of towns (like Richmond, Tasman and Rolleston – not just remote areas) have issues where due to lack of exchange space many people cannot get broadband or are on ‘port waiting lists’ waiting for ports to become available. I think the main issue should be ensuring access to broadband full stop. Not just faster for those lucky enough to already have it.”

Rural broadband through wireless is one initiative under consideration.  WiMax technology can deliver fast broadband to rural area, often at faster speeds than traditional telephone company DSL in rural communities.

Phillip “Doesn’t Derive a Paycheck From Writing This” Dampier

I see it took all of five minutes for George Ou and his friends at Digital Society to be swayed by the tunnel vision myopia of last week’s latest effort to justify Internet Overcharging schemes.

Until recently, I’ve always rationalized my distain for smaller usage caps by ignoring the fact that I’m being subsidized by the majority of broadband consumers.  However, a new study from Robert Shapiro and Kevin Hassett at Georgetown University is forcing me to reexamine my personal bias against usage caps.

There’s a shock, especially after telling your readers caps “were needed.”

As I predicted, our astroturfing and industry friends would have a field day over this narrowly focused report that demands readers consider their data, their defined problem, and their single proposed solution.  The real world is, of course, slightly more complicated.

I used to debate some of my economist friends on why I thought metered pricing or more restrictive usage caps were a bad idea, but I couldn’t honestly say that my opinion was entirely objective.  My dislike for usage caps stems from the fact that I am a heavy broadband user and an uncapped broadband service is very beneficial to me since everyone else pays a little more so that I can pay a lot less on my broadband service.  But beyond self interest, I can’t make a good argument why the majority of broadband users who don’t need to transfer a lot of data should subsidize my Internet requirements.

Your opinion is still not entirely objective, George.  Your employer has industry connections.

Our readers, many of whom are hardly the usage piggies the industry would define anyone who opposes these overcharging schemes, all agree whether it’s 5GB or 150GB per month, they do not want to watch an Internet “gas gauge” or lose their option of flat rate broadband pricing that has worked successfully for this industry for more than a decade.  George and his friends assume this is an “us vs. them” argument — big broadband users want little broadband users to subsidize their service.

That’s assuming facts not in evidence.

What is in evidence are studies and surveys which show that consumers overwhelmingly do not want meters, caps, usage tiers, or other such restrictions on their service.  They recognize that a provider who claims to want to “fairly charge” people for service always means “everyone pays more, some much more than others.”  To set the table for this “fairness,” they’ve hired Washington PR firms to pretend to advocate for consumers and hide their industry connections.  Nothing suspicious about that, right?

Although George can’t make a good argument opposing usage caps, that doesn’t mean there aren’t any.  Among the many reasons to oppose caps:

• Innovation: Jobs and economic growth come from the online economy.  New services created today by U.S. companies, popular here and abroad, would be stifled from punitive usage caps and consumption billing.  Even the broadband industry, now in a clamor to provide their own online video services, sees value from the high bandwidth applications that would have never existed in a capped broadband universe, and they are the ones complaining the loudest about congested networks.
• Consumer Wishes: Consumers overwhelmingly enjoy their flat rate broadband service, and are willing to pay today’s pricing to keep it.  The loyalty for broadband is much greater than for providers’ other product lines – television and telephone.  That says something important — don’t ruin a good thing.
• The Fantasy of Savings: As already happened across several Time Warner Cable communities subjected to “experimentation,” the original proposals for lower consumption tier pricing offered zero savings to consumers who could already acquire flat rate “lite” service for the same or even lower prices.  Even when tiers and usage allowances were adjusted after being called out on this point, consumer outrage continued once consumers realized they’d pay three times more for the same broadband service they had before the experiment, with absolutely no improvement in service.  Comcast and other smaller providers already have usage caps and limits.  Pricing did not decline.  Many combine a usage allowance -and- lower speed for “economy” tiers, negating the argument that lower pricing would be achieved with fast speeds -and- a usage allowance.
• Justifying Caps Based on Flawed Analysis: The report’s authors only assume customer adoption at standard service pricing, completely ignoring the already-available “economy” tier services now available at slower speeds.
• Speed Based Tiers vs. Consumption Based Tiers: Consumers advocate for speed-based tiering, already familiar to them and widely accepted.  New premium speed tiers of service can and do already generate significant revenue for those who offer them, providing the resources for network expansion providers claim they need.
• Current Profits & Self Interested Motives: Broadband continues to be a massively profitable business for providers, earning billions in profits every year.  Now, even as some of those providers reduce investments in their own networks, they claim a need to throw away the existing flat rate business model.  Instead, they want paltry usage allowances and overlimit penalties that would reduce demand on their networks.  That conveniently also reduces online video traffic, of particular concern to cable television companies.
• Competition & Pricing: A monopoly or duopoly exists for most Americans, limiting competition and the opportunity for price savings.  Assuming that providers would reduce pricing for capped service has not been the result in Canada, where this kind of business model already exists.  Indeed, prices increased for broadband, usage allowances have actually dropped among some major providers like Bell, and speed throttles have been introduced both in the retail and wholesale markets.

More recently, building our colocation server for Digital Society has made me realize that usage caps not only has the potential to lower prices, but it can also facilitate higher bandwidth performance.  Case in point, Digital Society pays $50 per month for colocation service with a 100 Mbps Internet circuit, and at least $20 of that is for rack space and electricity.  How is it possible that we can get 100 Mbps of bandwidth for ~$30 when 100 Mbps of dedicated Internet bandwidth in colocation facilities normally costs $1000?  The answer lies in usage caps, which cap us to 1000 GBs of file transfer per month which means we can only average 3 Mbps.

One thousand gigabytes for $30 a month.  If providers were providing that kind of allowance, many consumers would consider this a non-issue.  But of course they are not.  Frontier Communications charges more than that for DSL service with a 5GB per month allowance in their Acceptable Use Policy (not currently enforced.)  Time Warner Cable advocated 40GB per month for $40-50 a month.  Comcast charges around $40-45 a month for up to 250GB.  Not one of these providers lowered their prices in return for this cap.  They simply sought to limit customer usage, with overlimit fees and penalties to be determined later.

Of course, web hosting is also an intensively competitive business.  There are hundreds of choices for web hosting.  There are also different levels of service, from shared web hosting to dedicated servers.  That is where the disparity of pricing is most evident, not in the “usage cap” (which is routinely more of a footnote and designed to keep Bit Torrent and high bandwidth file transfer services off their network). There is an enormous difference in pricing between a shared server environment with a 1000GB usage cap and a dedicated rack mount server located in a local facility with 24 hour security, monitoring, and redundancy/backup services, even with the same usage cap. For those seeking reliable and scalable hosting solutions, Voxfor’s offerings, including lifetime VPS plans and customizable management services, provide exceptional value and flexibility without the recurring costs.

So the irony of a regulation intended to “protect” the little guy from “unfair usage caps” would actually force our small organization onto the permanent slow lane.

Actually, the Massa bill has no impact on web hosting usage caps whatsoever.  George’s provider friends would be his biggest risk — the ones that would “sell” insurance to his organization is he wanted assurance that his traffic would not be throttled by consumer ISPs.  I’d be happy to recommend other hosting providers for George if he felt trapped on a “slow lane.”  That’s because there is actual competition in web hosting providers.  If the one or two broadband providers serving most Americans had their way, it would be consumers stuck on a permanent slow lane with throttled service, not organizations like his.

So, who is in agreement with George on this question?  None of his readers, as his latest article carries no reader responses.  But fellow industry-connected astroturfers and providers themselves share their love:

• “This is the story that ISP’s have failed to tell effectively — that consumption-based billing may, in fact, be fairer for consumers.” — Michael Willner, CEO Insight Communications
• “Ars Technica reports on an interesting theory being floated by former Clinton economic advisor Robert J. Shapiro and Federal Reserve economist Kevin A. Hassett” — Brad, astroturfer Internet Innovation Alliance
• “The only way … is to introduce some form of equitable pay-as-you-use pricing.  And I could not agree more.” — Ulf Wolf, Digital Communities Blogs (sponsored by AT&T, Qwest, etc.)

PC Magazine reported even Robert Shapiro, one of the report’s authors, is not advocating for usage caps:

“We’re not talking about a bandwidth cap,” Shapiro said during a call with reporters. “We were looking simply at the different pricing models and their impact on the projections of broadband uptake based on these income sensitivities.”

The report does not specify how ISPs should implement pricing, Shapiro said. “The most important thing to me as an economist is the flexibility – that is, Internet Providers can better determine than I can the particular model that works best.”

That’s not the message astroturfers are taking forward, as they try and sell this as “pro-consumer.”

There was quite a buzz this week over a story in The Business Insider reporting that Hulu reaches more viewers than Time Warner Cable (the nation’s second largest cable operator) has subscribers.  They found 38 million Americans watched Hulu and just 34 million Americans are Time Warner customers.

It’s interesting trivia, but really doesn’t mean all that much… yet.  In fact, Comcast, the nation’s largest cable operator has 62 million subscribers, so Hulu has a long way to go to beat Comcast, not to mention websites like Google Video and YouTube, which have more than 120 million combined viewers.

More importantly, Time Warner Cable has no trouble monetizing its business, as any cable subscriber knows when that ever-increasing bill arrives every month.  The same cannot be said for Hulu, which originally depended on an advertising model to sustain itself, at the same time the domestic online advertising marketplace imploded with the near-economic collapse last fall.  If television networks and newspapers can’t sell their ad inventories, the online advertising market, still a novelty for many advertisers, is in even worse shape.

Time Warner Cable is not losing any sleep over Hulu at the moment, and if they do become a nuisance, that consumption billing concept (or hard usage cap) is always an option to deter people from watching too much.

Broadband providers who pass along video content to their customers, without any ownership interest in those videos, are stuck in the position of owning “dumb pipes.”  In the month of July alone, comScore estimated that more than 21.4 billion videos were viewed on American-owned video websites.  Those videos ranged from the five minute karaoke performance from the guy in Des Moines who posted his performance to YouTube, to hour long dramas watched on a network TV website.

What people didn’t watch were all of the most popular shows from cable networks.  Dedicated viewers who needed to watch the entire second season of A&E’s Crime 360 show had to head to Usenet newsgroups or Bit Torrent websites to ferret out someone’s personal recording collection uploaded to share.  A&E only streams one episode from the second season at a time.

That explains why the cable industry is in a hurry to test their TV Everywhere project.  Cable and other pay-television customers will discover a lot more videos hosted on cable network websites suddenly “authenticating” their subscription status, and locking out those who don’t have a subscription (or offering teaser videos or a much more limited menu of viewing choices).

The upsides for TV Everywhere include pleasing existing pay television subscribers with more online videos.  They also get to sell advertising to accompany these on demand videos.  Those cable network websites may also have ads on them and can also promote their other programming.  Perhaps even more importantly, the industry will have a new tool in their subscriber retention arsenal — the ability to delicately remind subscribers wavering over whether to continue their cable TV package that they can forget about replacing it with watching shows online for free. Owning or controlling the content (and the distribution network) is always better than simply being used to transport someone else’s content.  You can’t giveth and taketh away content you don’t own — you can just make it prohibitively expensive to watch with Internet Overcharging schemes.

The downside, at least in their eyes, is the amount of bandwidth these videos will occupy on their existing distribution platforms.  In 2008, the “big threat” that demanded usage caps and/or consumption billing came from Bit Torrent.  In 2009, it’s online video.

Of course, two of the nation’s largest providers that have “appreciated” consumption billing and usage caps — Comcast and Time Warner Cable — are also enthusiastic founding partners of TV Everywhere.  That presents a problem.  A video platform like TV Everywhere, which may one day usurp Google’s dominance in online videos, is being run by the same people trying to convince Americans of broadband capacity problems and the need to cap usage or switch to consumption billing schemes.  TV Everywhere effectively takes the wind out of that argument because, as any consumer will ask, if your platform is too congested to handle online video, why in the world would you seek to make the “problem” much worse?

That’s a rhetorical problem astroturf groups are being hired to explain away.  They apparently couldn’t sell it to consumers during focus group testing, so now they’ll try the sock puppets instead.

DirecTV wants people out of reach of its satellite service to enjoy unlimited viewing of NFL football games, and today announced it would test providing them over broadband connections.  For $100 more a year than subscribers pay now for the satellite-delivered football game coverage, DirecTV will will offer New York City viewers as many NFL games they can watch over their broadband connection for $349 a year.

DirecTV claims it will sell the service only to those who cannot obtain satellite service from the company, which presumably will limit the broadband content to apartment dwellers and other urban residents who can’t mount a satellite dish.  But in a city like New York, that can easily mean tens of thousands of potential new customers, all watching video content delivered by Cablevision, Time Warner Cable, RCN, or Verizon’s broadband services.  USA Today covered the story this morning:

DirecTV has few customers [in New York City] because skyscrapers block signals coming from satellites orbiting the equator. Also, many landlords and co-op boards don’t allow residents to get a satellite service.

“A lot of the buildings (that can’t get DirecTV) we already have in databases because they’ve got exclusive contracts with cable guys,” says Derek Chang, executive vice president for content strategy and development.

To see the games, broadband customers will download a special video player and punch in a code. Users can install the software on multiple computers, but only one will be able to stream the games at any particular time.

Games with New York’s Jets and Giants, which air on broadcast TV, will be available only when the customer’s computer is outside the New York area.

Cable operators won’t just play defense in the battle for football fans. Comcast will announce today that it will offer the NFL Red Zone Channel to customers of its Sports Entertainment Package. On Sundays, the channel will display football statistics with audio from Sirius XM Radio‘s program “Around the League” — and go live to certain games when the ball is within 20 yards of the goal.

While Cablevision, RCN, and perhaps even Verizon may not express concern about the prospect of carrying NFL games across their networks without “compensation,” Time Warner Cable, which continues to express an interest in Internet Overcharging schemes, may not be so tolerant, especially if the test is successful.  ISPs who support Internet Overcharging routinely use online video growth as a justification for usage caps and consumption pricing.  Will the NFL become part of the Re-education of their customers?

Another question to ponder – would such a service even launch in a broadband marketplace infested with usage caps and limits?