The German Internet is functionally broken.

Deutsche Telekom, the largest telecommunications company in Germany, has announced it will introduce a brazen Internet Overcharging scheme for customers signing up for its broadband DSL service, including a throttle that reduces speeds to just 384kbps after as little as 75GB of monthly broadband usage.

For now, only new Telekom Deutschland customers signing up after May 1 will be affected by the usage limits. Customers will be offered the option of upgrading their Call & Surf package to get a larger usage allowance, although many parts of Germany are still reliant on DSL and its variants that cannot deliver the advertised speeds that go with the larger allowances:

• Up to 16Mbps: 75GB per month
• Up to 50Mbps: 200GB per month
• Up to 100Mbps: 300GB per month
• Up to 200Mbps: 400GB per month

“We want to offer customers the best network in the future and we will continue to invest billions to make that happen,” said Michael Hagspihl, marketing director of Telekom Deutschland. “However we cannot continue to sustain higher usage demand while lowering our prices. Customers with very high data volumes will have to pay more in the future.”

Company officials argue German broadband usage demands are accelerating at an ever-increasing rate, putting strain on the company’s network resources.

But critics question if usage demands are the root of the problem, why is DT exempting itself and its “preferred partners” from the data cap, including certain services that offer very high bandwidth video?

The Net Neutrality activist group Netzpolitik.org says DT is “massively violating Net Neutrality while the federal government looks away dreaming that the free market will solve the problem somehow.”

The group points out DT has admitted the speed throttle only applies to content providers who have not partnered up with the German telecom giant.

DT is exempting all of its own in-house content providers, the private television service Entertain, and telephone services (when provided by DT). For everyone else: the speed throttle gets closer the more customers use services like Apple iTunes or Amazon’s Lovefilm service. But DT says those companies can also get special treatment for the right price.

DT’s preferred partner cooperating agreements let “high quality content producers” pay for a managed services contract that guarantees exemption from the speed throttle and prioritization of their traffic on DT’s network, even if it means slowing down non-preferred partner content.

A parody future offer from DT.

“You cannot thumb your nose at Net Neutrality principles any better if you tried,” said Rene Pedersen, an Internet activist in Köln. “DT will have their emasculated two-tier Internet and all of Germany will have to suffer the consequences. Their own arguments do not even make sense. If there is a capacity crisis, how can they exempt some video providers that now consume the most network resources?”

“Until a few years ago, providers – just like the post – were just deliverers of packages,” said Netzpolitik’s Andre Masters. “This principle is called Net Neutrality – the equal treatment of data packets on the Internet, regardless of sender, recipient, or content. Now providers want to have a direct influence on the content sent, because they want to earn more money.”

Technology publisher Heise Online says the new usage restricting tariff has “triggered a veritable sh**storm” among net users who consider a 75GB usage limit untenable, particularly for families with multiple Internet users.

Heise is also critical of claims DT has made in the press that suggests German Internet users must either accept the usage caps or understand the company will have to spend at least €80 billion ($108 billion) to build a national fiber network to manage growing traffic.

In contrast, Goldman Sachs last year estimated the cost of wiring every home in the United States with Google Fiber would cost $140 billion, a number now considered inflated. Verizon FiOS managed to get costs down for its own fiber network to a level that suggests Google would only need around $90 billion — $10 billion more than DT claims it needs.

“DT is being disingenuous when they suggest it will cost €80 billion to solve their capacity problem. For that amount every household in Germany would get their own fiber cable with 200Mbps speeds or more,” Heise writes in their editorial. “To avoid slowing users down with a speed throttle, only a small fraction of this amount is needed to extend the Internet backbone and peering agreements between providers. For years network traffic has grown exponentially and DT has kept up with demand. So why does DT suddenly need to reshuffle the cards now?”

DT has also received criticism for how it has depicted its heavy users — mostly as content thieves and software pirates using file swapping networks to steal copyrighted works. But instead of dealing with copyright violations, DT wants a sweeping usage cap system that punishes every customer that wants to use their broadband connection.

“Customers are not insatiable Gierschlünde who want everything for free,” writes Heise. “They already pay a lot of money to Telekom: 12.5 million DSL customers roughly translates into around a half billion euros in sales per month.”

Back to the future.

The German news magazine Spiegel writes DT’s usage limits strangle the Internet for millions of Germans, especially for competing video providers:

When throttled, customers will need more than 23 hours to watch a DVD-quality movie. At Blu-ray resolution, it will take about two weeks to watch just one film.

[…] The implications of the end of Net Neutrality in Germany represents a form of economic censorship, and German politicians are standing by to watch it happen.

The federal government sees the Internet as a political bargaining chip and not as the social, cultural and economic tool it represents. The government acts in the interests of certain lobbyists, not Germany’s digital future. This allows German telecommunications companies to focus on their economic self-interests without government policies that demand investment in digital infrastructure.

A number of German Internet users are expected to switch to a cable provider, where available, to escape DT’s impending speed caps.

According to the Frankfurter Rundschau, many German cable companies also reserve the right to limit speeds for customers. But in practice, most don’t impose limits until traffic exceeds 60GB daily, and the speed cap is lifted the next day. A cable industry official says its cap currently impacts about 0.1 percent of customers, almost all who use peer-to-peer file swapping networks. Exempt from measurements that bring customers closer to a speed cap: web browsing, video streaming, and video-on-demand.

For now, Germany’s cable operators facing the same traffic growth DT speaks about find no need to impose further limits, stating their networks are handling the traffic with network upgrades as a normal course of business.

“It calls out DT’s claims as fraudulent, because cable Internet users visit the same websites and do the same things DT’s customers do and there only seems to be an ‘urgent’ problem in need of a speed throttle solution on BT’s network,” says Pedersen. “What needs to be throttled are the financial expectations of DT management and shareholders. The Internet is not their personal vault waiting to be plundered.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/What if Net Neutrality.mp4[/flv]

What if Net Neutrality did not exist?  [Subtitled] (1 minute)

Maitreyi Krishnaswamy, Verizon’s head of FiOS TV admits she practically never watches live television — she records everything on her DVR first.

Krishnaswamy has been responsible for many of the interactive video services offered on Verizon’s FiOS TV platform, including on-screen apps, the media program guide, and how customers connect various devices to the FiOS television experience.

Now she’s directing Verizon’s consumer video services — deciding which channels make the lineup on FiOS TV and the networks available for streaming to mobile devices.

Krishnaswamy told the Tampa Tribune she recognizes the way Americans watch television has changed over the past few years, and she admits it has led to the “growing” trend of customers’ cord-cutting their cable TV subscriptions in favor of online viewing.

Krishnaswamy

“The question is: Is it growing enough for us? For us, it’s a matter of cord-cutters versus cord-shavers — people who switch to smaller tiers,” Krishnaswamy said. “Is the migration to a-la-carte enough that we can go that route? It has a way more important impact that just on them. It impacts how we negotiate TV contracts with studios. It’s not something we can do overnight, but definitely something we’ve been looking at.”

Verizon has made it clear it intends to compete for customers regardless of how they watch television, but Krishnaswamy signals the company is also considering protecting their core video business model, and would only say Verizon had no announcements to make “just as yet” regarding an Internet Overcharging scheme including usage caps and overlimit fees. Critics of data caps argue that limiting broadband usage prevents customers from taking their viewing experience online because it threatens consuming the majority of their monthly data use allowance.

But Verizon does not mind offering customers a TV Everywhere experience — streaming video content over its broadband network, so long as a customer also subscribes to its TV package. The company already offers live streaming television of many channels on its lineup and wants to bolster that with on demand content. Verizon also is experimenting with non-traditional set top boxes, and although Krishnaswamy had nothing to say about supporting the forthcoming Apple TV, she is actively working on improving how Verizon’s television service works away from the traditional company-provided set top box.

Some highlights:

• Verizon’s partnership with Redbox will let the company offer a new streaming and DVD rental service for customers, regardless of whether they live in a Verizon FiOS area or not. Customers will be able to access the service over mobile broadband, Wi-Fi, or any home broadband connection;
• Verizon will introduce an online viewing app for forthcoming versions of Amazon’s Kindle;
• The company has thus far only managed to secure streaming rights for in-home viewing and has run into difficulty getting content providers to let customers watch shows while on the go;
• Google Fiber is “interesting,” but Krishnaswamy doesn’t believe they are “a real operator” when only offering service in one city. She thinks the project is a good idea, however, because it forces competing providers “to increase your speed;”
• Verizon is considering simplifying its family of apps to reduce customer confusion. They currently have different apps for home security, home media, the remote control, and the program guide. Verizon wants its MyFiOS app to become a “super-app” that manages everything.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/TVnext Interview – Maitreyi Krishnaswamy Verizon FIOS 1-28-11.m4v[/flv]

Back in 2011, Maitreyi Krishnaswamy explained her thinking about where Verizon FiOS was taking the TV experience. Many of these applications have since been released, but Verizon — like most providers — still runs into brick walls with content providers getting licensing to allow more flexible viewing of content.  (12 minutes)

An Australian Internet Service Provider that caps customer usage and charges extra if you want to exceed your allowance has taken to the company’s blog to argue that usage caps are fair, even as their customers start departing for competitors offering unlimited service.

iiNet chief technology officer John Lindsay defends the company’s usage-based billing scheme, which charges more than $30 a month for DSL service with a 20GB usage cap.

“Service providers in favour of a two-speed Internet argue that there is limited capacity on the Internet and that those using the most bandwidth by delivering rich content or transferring large files should pay more,” wrote Lindsay. “In Australia, we have a different business model for the Internet. ISPs operate on a pay-as-you-go model, which also shapes the consumer market. Here, consumers can choose a plan with upload and download quotas to fit their usage and pay according to their needs – the more you use, the more you pay.”

Lindsay

Unfortunately for Lindsay, an increasing number of Australians don’t agree and are switching to providers like TPG and Dodo, which have become enormously popular selling flat rate, unlimited broadband service.

Lindsay warns that if Australia adopts the flat rate service model popular in the United States, a Net Neutrality debate will be sparked as customers discover ISPs are unable to handle the traffic and start prioritizing their own content.

“Operating a quota based business model ensures we’re not responsible for policing activity online – our customers pay a fair price for the services they receive and we can focus on more important issues than where their traffic is coming from,” Lindsay argues. “While US providers argue about a two-tier system, our priority is to provide awesome customer service and ensure our customers enjoy a seamless experience online, whatever it is their Internet connection means to them.”

Of course, Lindsay’s characterization of the American broadband landscape is fact-challenged, because most broadband providers have plenty of capacity to deliver content. Some simply want to earn a new revenue stream from content producers for managing that traffic, even though paying customers already compensate them for that service.

Australia’s data caps have traditionally been onerous because of the higher costs and limited capacity of underseas cables that handle traffic inside and out of the Pacific Basin. But Australians have complained about the low caps for years — so loudly that the Australian government has made construction of a super-capacity fiber to the home network a national priority for the country as international capacity also increases.

Customers were not fooled by Lindsay’s rhetoric.

“This is nonsense,” wrote Lachlan Hunt. “Australia’s model of capped usage limits with higher prices for higher caps, and of ISPs including yourself offering free zones where such data doesn’t count towards the monthly quota is exactly the problem that Net Neutrality advocates aim to deal with. It treats data from companies who choose to partner with you to get their content in the free zone as privileged compared with everyone else, and similarly with other ISPs.”

Hunt complains iiNet’s caps were “ridiculously low” and interfered with his career in the web development industry. Today he lives and works in Europe, where usage caps are increasingly a thing of the past.

“I’m really hoping that you will eventually wake up and realize that usage caps go together with Non-Neutral internet, and with the introduction of the [national fiber to the home network], which brings both higher speeds and capacities, you should be able to lower prices, abolish usage caps and offer a fair model with pricing tiers based on the chosen speeds.”

Stop the Cap! also addressed Lindsay:

[…] We have learned dealing with this issue for several years that ISPs are terrified of their own argument if carried to its fullest extension. If iiNet wants customers to fairly pay for only what they use, they should be billing them on exactly that basis. A flat charge per gigabyte — no allowances/quotas, no penalty overage fees or speed throttles, no wasted, unused quota at the end of the month.

But they don’t dare. If you charged $1/GB (still a crime-gouge compared to the wholesale price), those customers currently paying $30 for up to 20GB service might suddenly be paying $5-15 instead.

[…] If you asked your customers whether they prefer unlimited service or your current cap system, most will clamor for unlimited, even if it costs them a bit more, just for the peace of mind of never facing overage charges or speed throttles.

This argument has never been about capacity. It’s about what it always is about: money.

Wall Street analysts are predicting the end of free video streaming in the near-term as media and cable companies regain control over online content for themselves.

Cable companies are partnering with content producers to move a growing amount of streamed video content behind paywalls in an effort to protect their core business profits.

The trend is evolving so rapidly, analysts like Laura Martin with Needham & Co. predict the end of free streaming is imminent.  Either customers will pay upfront or use TV Everywhere “authentication platforms” that require evidence of a pay television subscription before being able to watch.

Craig Moffett, an analyst with Sanford Bernstein, perennially sees cable operators as the most likely winners in the billion-dollar entertainment battle.

“They’re winning the broadband wars,” Moffett says of the cable industry. “Broadband is increasingly the flagship product, not the video distribution business.”

Cable networks and program producers are growing increasingly alarmed at the impact video streaming services like Hulu and Netflix are having on their bottom lines.

Case in point: the fall of Nickelodeon, a popular children’s cable network that used to guarantee high ratings and lucrative ad revenue.  Recently the network has fallen off the ratings cliff.  Some careful analysis found the reason why: Netflix.  Nickelodeon, along with many other cable networks, licensed a number of their series to Netflix for on-demand viewing. In households with young children, parents increasingly choose the on-demand Netflix experience for family viewing over the traditional cable channel.

Moffett

That’s a major problem for content producers and networks, and Moffett quotes industry insiders who predict licensing deals for Netflix streaming will increasingly not be renewed (perhaps at any price) as networks retrench to protect their core business.  What is left will soon be behind paywalls, limited to customers who already subscribe to a pay television service.

That line of thinking is already apparent at Time Warner (Entertainment), Inc., where CEO Jeff Bewkes rarely has a good thing to say about Netflix.  His company refuses to license a significant amount of their content for online streaming because it erodes more profitable viewing elsewhere.

Time Warner only licenses older content and certain “serialized dramas” that have proven difficult to syndicate on traditional broadcast television or cable outlets.  But the company keeps kid shows to itself and its own distribution platforms, like Cartoon Network.

When it does let shows go online, it wants them behind paywalls.

Bewkes applauded Hulu’s recently announced plans to move its service away from free viewing.  Authenticating viewers as pay TV subscribers before they can watch “makes sense” to Bewkes.

“Hulu is moving in the right direction now,” Bewkes said.

Big media companies do not want significant changes to the viewing landscape, where major networks front the costs for the most expensive series, and cable networks commission lower budget programs and repurpose off-network content.  Pay television providers bundle the entire lineup into an enormous package consumers pay to receive. That is the way it will stay if they have their say.

“Just because consumers would rather get individual channels a-la-carte, on-demand, and streamed — only what they want to pay for — [if they think] that is inevitably the way the world if going to evolve, not so fast,” Moffett said. “It may be the way consumers want it and it may be the way technologists want it, but the media companies have a say here.”

“There is no way they are going to voluntarily unbundle themselves,” Moffett said.

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/Bloomberg Moffett on Cable Operators 4-30-12.mp4[/flv]

Craig Moffett talks about the current state of the media business on Bloomberg News.  He sees trouble ahead for online video streaming, as powerful media and entertainment content distribution companies reposition themselves to better control their content… and the revenue it earns.  The big winners: Cable operators, Hollywood, and major cable networks.  The losers: Consumers, Netflix, Hulu, and free video streaming. (11 minutes)

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/Bloomberg Martin Sees End of Free Streaming TV Content 5-4-12.mp4[/flv]

Laura Martin with Needham & Co. predicts the imminent demise of free video streaming. Media companies can’t handle the loss of control over their programming, and the erosion of viewers (and ad revenue) it brings.  Martin tells Bloomberg News she sees a future of paywalls blocking access to an increasing amount of online video content.  (5 minutes)

Phillip Dampier

Sometimes you have to wonder if some people have no shame.  Former Sen. Chris Dodd, who now collects a fat paycheck as chairman of the Motion Picture Association of America, has his fur in quite the ruffle this morning, upset to learn thousands of websites have voluntarily gone offline in a one day protest against proposed copyright legislation bought and paid for by the industry he now represents.

“Some technology business interests are resorting to stunts that punish their users or turn them into their corporate pawns, rather than coming to the table to find solutions to a problem that all now seem to agree is very real and damaging,” Dodd said in a statement.

Corporate pawns?  The irony of Dodd’s use of the revolving door between his public office and the special interests he used to oversee (and now earns a living from), was lost on him.  So was the fact the MPAA and its recording industry cohort the RIAA have spent the past several years alienating consumers extorting settlements out of those presumed guilty, under threat of being sued for much more.  With years of overreach and customer alienation under their belts, pardon America if they suspect Hollywood’s latest anti-piracy plan is more of the same.

Dodd served the people of Connecticut when the music and movie industry began a series of crackdowns on content theft that did more harm than good.  This is the industry that fought the right of consumers to record TV shows on home VCR’s for later viewing, wanted to tax blank media, raised prices on CD’s and DVD’s to the point it fueled piracy, for years refused to license legal online content in ways that would have undercut piracy, imposed “digital rights management” technology that effectively curtailed fair use of content consumers purchased for themselves, and sued customers it suspected of stealing — innocent or otherwise.

Dodd

But Chris Dodd doesn’t work for the American people any longer.  He works for giant corporate studios and now represents their interests.

Dodd is especially upset because the Stop SOTA protests may actually be effective at shutting down the railroading of the so-called “Stop Online Piracy Act” through Congress.

“It is an irresponsible response and a disservice to people who rely on them for information… A so-called ‘blackout’ is yet another gimmick, albeit a dangerous one, designed to punish elected and administration officials who are working diligently to protect American jobs from foreign criminals,” said Dodd.

The industry has spent millions trying to position their legislation as a solution to shady offshore counterfeiters and content thieves, but the bill’s most significant provisions hit much closer to home.

The proposed legislation would allow the Department of Justice and content owners to seek court orders against any site accused of “enabling or facilitating” piracy.  Since America’s long arm of justice can reach only between the states of Hawaii and Maine, this most important provision of the proposed bill would do little to curtail those “foreign criminals.”

SOPA also demands that search engines censor themselves to remove anything Hollywood suspects of infringing copyright from search listings.  As the Electronic Frontier Foundation has documented for years on its Chilling Effects project website, such powers have already been used within the scope of the Digital Millennium Copyright Act to wipe out listings that just reference copyrighted works, occasionally even by third parties that have no real standing to file the complaint.  At least websites responding affirmatively to DMCA complaints are protected from unknowingly violating copyright law.  Under SOPA, those protections are bypassed, potentially making even innocent infringement liable for civil action and search engine blocking.

Much of the enforcement, likely encouraged by companies Dodd now represents, will be done at the behest of Hollywood studios and other deep pocketed content producers.  Ultimately, most of the impact will be felt by consumers suspected of “infringing,” many who effectively lack the financial resources to prove their innocence.

Any web publisher would need to think twice about publishing anything online, if only because the financial risks of defending oneself against alleged copyright infringement would be onerous.

Since most of the criminal element Dodd claims to be concerned with is in it for the money, the most obvious solution is simple: remove the financial incentive.  A victim of copyright infringement need only seek a court order that bars financial transactions between theft-oriented websites and the online payment processors that supply the money.  Barring credit card companies, online payment services like PayPal, and other payment services from accepting money for copyright infringement puts the criminals out of business fast.  Existing provisions in the DMCA already force search engines to remove infringing content.

The alternative is turning the Internet over to the Hollywood copyright police, who along with the movie industry have demonstrated a long history of broad brush enforcement that cares little about the presumed innocence of the accused.