Among the public interest groups that have historically steered clear of the fight against usage caps and usage based billing is Public Knowledge.

Stop the Cap! took them to task more than a year ago for defending the implementation of these unjustified hidden rate hikes and usage limits.  Since then, we welcome the fact the group has increasingly been trending towards the pro-consumer, anti-cap position, but they still have some road to travel.

Public Knowledge, joined by New America Foundation’s Open Technology Initiative, has sent a letter to the Federal Communications Commission expressing concern over AT&T’s implementation of usage caps and asking for an investigation:

[…] Public Knowledge and New America Foundation’s Open Technology Initiative urge the Bureau to exercise its statutory authority to fully investigate the nature, purpose, impact of those caps upon consumers. The need to fully understand the nature of broadband caps is made all the more urgent by the recent decision by AT&T to break with past industry practice and convert its data cap into a revenue source.

[…] Caps on broadband usage imposed by Internet Service Providers (ISPs) can undermine the very goals that the Commission has committed itself to championing. While broadband caps are not inherently problematic, they carry the omnipresent temptation to act in anticompetitive and monopolistic ways. Unless they are clearly and transparently justified to address legitimate network capacity concerns, caps can work directly against the promise of broadband access.

The groups call out AT&T for its usage cap and overlimit fee model, and ponder whether these are more about revenue enhancement than network management.  The answer to that question has been clear for more than two years now: it’s all about the money.

The two groups are to be commended for raising the issue with the FCC, but they are dead wrong about caps not being inherently problematic.  Usage caps have no place in the North American wired broadband market.  Even in Canada, providers like Bell have failed to make a case justifying their implementation.  What began as an argument about congestion has evolved into one about charging heavy users more to invest in upgrades that are simply not happening on a widespread basis.  The specific argument used is tailored to the audience: complaints about congestion to government officials, denials of congestion issues to shareholders coupled with promotion of usage pricing as a revenue enhancer.

If Bell can’t sell the Canadian government on its arguments for usage caps in a country that has a far lower population density and a much larger rural expanse to wire, AT&T certainly isn’t going to have a case in the United States, and they don’t.

The history of these schemes is clear:

1. Providers historically conflate their wireless broadband platforms with wired broadband when arguing for Internet Overcharging schemes.  When regulators agree to arguments that wireless capacity problems justify usage limits, extending those limits to wired broadband gets carried along for the ride.  Dollar-a-holler groups supporting the industry love to use charts showing wireless data growth, and claim a similar problem afflicts wired broadband, even though the costs to cope with congestion are very different on the two platforms.
2. Providers argue one thing while implementing another.  Most make the claim pricing changes allow them to introduce discounted “light user” plans.  But few save because true “pay only for what you use” usage-based billing is not on offer.  Instead, worry-free flat use plans are taken off the menu, replaced with tiered plans that force subscribers to guess their usage.  If they guess too little, a stiff overlimit fee applies.  If they guess too much, they overpay.  Heads AT&T wins, tails you lose.  That’s a clear warning providers are addressing revenue enhancement, not network enhancement.
3. Claims of network congestion backed up with raw data, average usage per user, and the costs to address it are all labeled proprietary business information and are not available for independent inspection.

There are a few other issues:

In the world of broadband data caps, the caps recently implemented by AT&T are particularly aggressive. Unlike competitors whose caps appear to be at least nominally linked to congestions during peak-use periods, AT&T seeks to convert caps into a profit center by charging additional fees to customers who exceed the cap. In addition to concerns raised by broadband caps generally, such a practice produces a perverse incentive for AT&T to avoid raising its cap even as its own capacity expands.

In North America, only a handful of providers use peak-usage pricing for wired broadband.  Cable One, America’s 10th largest cable operator is among the largest, and they serve fewer than one million customers.  Virtually all providers with usage caps count both upstream and downstream data traffic 24 hours a day against a fixed usage allowance.  The largest — Comcast — does not charge an excessive usage fee.  AT&T does.

Furthermore, it remains unclear why AT&T’s recently announced caps are, at best, equal to those imposed by Comcast over two years ago.  The caps for residential DSL customers are a full 100GB lower than those Comcast saw fit to offer in mid-2008. The lower caps for DSL customers is especially worrying because one of the traditional selling points of DSL networks is that their dedicated circuit design helps to mitigate the impacts of heavy users on the rest of the network. Together, these caps suggest either that AT&T’s current network compares poorly to that of a major competitor circa 2008 or that there are non-network management motivations behind their creation.

AT&T has managed to create the first Internet version of the Reese's Peanut Butter Cup, combining Comcast's 'tolerated' 250GB cap with AT&T's style of slapping overlimit fees on data plans from their wireless business.

As Stop the Cap! has always argued, usage caps are highly arbitrary.  Providers always believe their usage caps are the best and most fair around, whether it was Frontier’s 5GB usage limit or Comcast’s 250GB limit.

AT&T experimented with usage limits in Reno, Nevada and Beaumont, Texas and found customers loathed them.  Comcast’s customers tolerate the cable company’s 250GB usage cap because it is not strictly enforced — only the top few violators are issued warning letters.  AT&T has established America’s first Internet pricing version of the Reese’s Peanut Butter Cup: getting Comcast’s tolerated usage cap into AT&T’s wireless-side overlimit fee.  The bitter aftertaste arrives in the mail at the end of the month.

Why establish different usage caps for DSL and U-verse?  Marketing, of course.  This is about money, remember?

AT&T DSL delivers far less average revenue per customer than its triple-play U-verse service.  To give U-verse a higher value proposition, AT&T supplies a more generous usage allowance.  Message: upgrade from DSL for a better broadband experience.

Technically, there is no reason to enforce either usage allowance, as AT&T DSL offers a dedicated connection to the central office or D-SLAM, from where fiber traditionally carries the signal to AT&T’s enormous backbone connection.  U-verse delivers fiber to the neighborhood and a much fatter dedicated pipeline into individual subscriber homes to deliver its phone, Internet, and video services.

A usage cap on U-verse makes as much sense as putting a coin meter on the television or charging for every phone call, something AT&T abandoned with their flat rate local and long distance plans.

Before partly granting AT&T’s premise that usage limits are a prophylactic for congestion and then advocate they be administered with oversight, why not demand proof that such pricing and usage schemes are necessary in the first place.  With independent verification of the raw data, providers like AT&T will find that an insurmountable challenge, especially if they have to open their books.

[flv width=”640″ height=”368″]http://www.phillipdampier.com/video/Bell’s Arguments for UBB 2-2011.flv[/flv]

Canada’s experience with Usage-Based Billing has all of the hallmarks of the kind of consumer ripoff AT&T wants Americans to endure:

• A provider (Bell), whose spokesman argues for these pricing schemes to address congestion and “fairness,” even as that same spokesman admits there is no congestion problem;
• Would-be competitors being priced out of the marketplace because they lack the infrastructure, access, or fair pricing to compete;
• Big bankers and investors who applaud price gouging and are appalled at government checks and balances.

Watch Mirko Bibic try to rationalize why Bell’s Fibe TV (equivalent to AT&T U-verse) needs Internet Overcharging schemes for broadband, but suffers no capacity issues delivering video and phone calls over the exact same line.  Then watch the company try and spin this pricing as an issue of fairness, even as an investor applauds the company: “I love this policy because I am a shareholder.  That’s all I care about.  If you can suck every last cent out of users, I’m happy for you.”  Finally, watch a company buying wholesale access from Bell let the cat out of the bag — broadband usage costs pennies per gigabyte, not the several dollars many providers want to charge.  (11 minutes)

In a stretch even the most accomplished Yoga master would never attempt, an industry-funded dollar-a-holler group has told Congress that Internet Overcharging is a useful tool to combat online piracy.

On Tuesday, Daniel Castro, an analyst at the Information Technology and Innovation Foundation (ITIF), testified before the House Judiciary Committee on the issue of combating “rogue sites [that] operate in a low risk, high reward environment.”

In December 2009, ITIF proposed a number of policies to help reduce online copyright infringement, especially in countries that turn a blind eye to copyright enforcement. The purpose of these policies is to establish a robust enforcement mechanism to combat IP theft online. These recommendations include the following:

• Create a process by which the federal government, with the help of third parties, can identify websites around the world that are systemically engaged in piracy;
• Enlist ISPs to combat piracy by blocking websites that offer pirated content, allowing pricing structures and usage caps that discourage online piracy, and implementing notice and response systems;
• Enlist search engines to combat piracy by removing websites that link to infringing content from their search results;
• Require ad networks and financial service providers to stop doing business with websites providing access to pirated content;
• Create a process so that the private sector can consult with government regulators on proposed uses of anti-piracy technology;
• Fund anti-piracy technology research, such as content identification technology;
• Pursue international frameworks to protect intellectual property and impose significant pressure and penalties on countries that flout copyright law.

Castro’s idea of allowing providers to establish “pricing structures and usage caps” stands out like a sore thumb in the context of battling piracy because it is the only recommendation on the list that targets every broadband user with the same broad brush, punishing every customer whether they are engaged in piracy or not.

It would be like setting up roadblocks and searching every vehicle in a city to search for a shoplifter.  Every individual is found guilty before being proved innocent, and will be forced to pay higher prices regardless of the outcome.

The ITIF proposal runs contrary to years of efforts by Internet Service Providers to avoid being involved in the personal business of their customers.  In 2009, major ISPs wanted no part of enforcing a proposal from the record industry for a “three strikes, you’re out” plan.  Verizon, among others, made clear copyright enforcement was not their responsibility to police, although many ISPs are willing to forward copyright infringement notices to individual customers.

Castro’s testimony goes over the top when he blames his own suggested pricing antidote for “hurting law-abiding consumers who must […] pay higher prices for Internet access to compensate for the costs of piracy.”

Of course, no ISP has ever suggested they would use the extra revenue earned from Internet Overcharging to combat another industry’s piracy problem.

His sweeping indictment against consumers extends beyond nipping at their bank accounts on behalf of telecommunications companies who help fund the group he represents.  He also suggests those who oppose his piracy prescriptions are either in league with, or defenders of piracy — or other offenders ranging from criminal enterprises to kiddie porn peddlers.

Castro’s support for usage caps to control illicit online activities leaves collateral damage as far as the eye can see.  It also simply won’t work for many forms of piracy Castro complains about.  ISPs with usage caps go out of their way to note even the most draconian limits still allow thousands (if not hundreds of thousands) of songs to be downloaded — legal or otherwise.  Castro testified e-published books are now increasingly vulnerable to piracy, content compact and easy to obtain even with usage limits.  Combating websites dealing in counterfeit goods with usage limits isn’t even worth trying.

What Castro’s proposal will do is limit access to the growing amount of legitimate online video traffic.  While the author cites statistics that “one in four bits of traffic traveling on the Internet today is infringing content,” (taken from a report commissioned by NBC-Universal, who has a major interest in this battle) he ignores other facts.  Namely, more than three-quarters of all broadband traffic is legal and legitimate.  Nearly 20 percent of primetime broadband traffic is coming from companies like Netflix who are in the business of providing a legal alternative to video piracy.

Castro’s argument on usage caps simply falls apart: ISPs, who have never been particularly interested in being the enforcement divisions for Hollywood studios, should be given the right to limit broadband usage and raise prices to combat piracy even when most of that traffic heads for legitimate websites?

Public Enemy #1 for Content Theft circa 1981: The $1,400 VCR

Online piracy enforcement should not involve Internet Overcharging schemes, and arguments that it should only illustrate why so many consumers and public interest groups get nervous about industry-proposed enforcement mechanisms.  Too often, they ignore presumption of innocence before guilt, browbeat alleged offenders into settlements to avoid costly litigation — guilty or not, and turn over policing to an industry with a long track record of overreach to protect their business interests. The record speaks for itself:

• Demands to ban videotape recorders in the 1970s and early 1980s for “piracy reasons”;
• Tax cassettes and video tapes to cover alleged piracy losses in the 1980s;
• Tax blank digital media in the 1990s because of “rampant piracy”;
• Impose monthly “piracy recovery surcharges” on broadband users in the 2000s;

Now the industry wants to police the piracy problem on its own terms.  As before, the proposed solutions are worse than the problem.

Back to the future.  In 1981, ABC’s Nightline ran this report on the entertainment industry suing a VCR owner, retailers, and manufacturers for piracy over taping a television station with a videocassette recorder.  The concern in 1981 — technology was moving faster than copyright law could keep up.  Many of the yesterday’s players are part of today’s debate, including Universal, the company that purchased research indicting 20 percent of all Internet traffic as “illegal.” (Part 1 of 3 – 9 minutes – Courtesy WEWS-TV Cleveland, ABC News, and ‘videoholic1980s’)

Today’s piracy debate rehashes the same accusations of content theft, only the technology has changed.  One executive tells the Nightline audience he’s offended at being told the industry already earns enough.  The movie and television industry predicted calamity over the VCR more than 30 years ago, saying it would cost them billions in lost profits.  Hollywood eventually lost the argument against the VCR and their businesses turned out fine, earning billions in revenue selling videotapes of movies and television shows to consumers they were willing to sue just a few years earlier. (Part 2 of 3 – 9 minutes)

Before Washington is asked to join the panic-frenzy over online piracy, perhaps they should recall the same predictions of doom and gloom made by many of the same companies — predictions that were overstated.  Imagine if they had succeeded in banning the VCR?  Indeed, just as before, Hollywood stands to earn billions online when they make their content available for easy, legal viewing at a reasonable price.  Slapping usage limits on broadband consumers is the worst idea ever to promote legal viewing of digital content because it discourages customers from shopping for it.  (Part 3 of 3 – 4 minutes)

Jenkins

The Wall Street Journal attempted to attach its own conventional wisdom in an opinion piece about cloud-based streaming that suggests Canada “is just ahead of the U.S. in introducing usage-based pricing [and] has bloggers and politicians accusing Bell Canada of unconscionable ‘profiteering’ from usage caps. The company, they rage, is reaping huge fees for additional units of bandwidth that cost Bell Canada virtually nothing to provide.”

The author, Holman Jenkins, is a regular on the ultra-business friendly editorial page of the Journal, and has been raging against Net Neutrality and for higher Internet pricing for several years now.

Jenkins’ latest argument, just like his earlier ones on this subject, falls apart almost immediately:

This critique, which is common, could not more comprehensively miss the point. Another car on the roadway poses no additional cost on the road builder; it imposes a cost on other road users. Likewise, network operators don’t use overage penalties to collect their marginal costs but to shape user behavior so a shared resource won’t be overtaxed.

Jenkins needs to spend less time supporting his friends at companies like AT&T and Bell and more time exploring road construction costs.  If you are going to try and make an analogy about traffic, at least get your premise straight.

Before debunking his usage-based billing meme, let’s talk about road construction for a moment.  In fact, the kind of traffic volume on a roadway has everything to do with what kind of road is constructed.  In the appropriately named “Idiots’ Guide to Highway Maintenance,” C.J.Summers explores different types of road surfaces for different kinds of traffic.  Light duty roads in rural areas can get results with oil and stone.  Medium duty side streets and avenues are frequently paved with asphalt, and heavy duty interstates routinely use concrete.  Traffic studies are performed routinely to assist engineers in choosing the right material to get the job done.

Digital information doesn’t wear down cables or airwaves.  If broadband traffic occupies 5 or 95 percent of a digital pipeline, it makes no difference to the pipeline.  Jenkins is right when he says Internet Overcharging schemes are all about shaping user behavior, but for the wrong reasons.

Jenkins thinks Netflix and other high bandwidth applications face usage-based pricing to allow providers to keep their broadband pipes from getting overcongested:

Netflix is one of the companies most threatened by usage-based pricing, and it has quickly geared up a lobbying team in Washington. In a recent letter to shareholders, CEO Reed Hastings downplayed the challenge to Netflix’s video-streaming business. In the long run, he’s probably right—the market will settle on flat-rate pricing once the video-intensive user has become the average user.

In the meantime, however, Netflix shareholders had better look out.

In fact, providers are reaping the rewards of their popular broadband services, but almost uniformly are less interested in investing in them to match capacity.  It is as if the AT&Ts of this world assumed broadband users would consume    T H I S    M U C H   and that’s it — time to collect profits.  When upgrade investments don’t even keep up as a percentage of revenue earned over past years, the inevitable result will be a custom-made excuse to impose usage limits and consumption billing to manage the “data tsunami.”

Canadian providers did not slap usage caps on broadband users because Netflix arrived — they lowered them. Telling users they cannot consume the same amount of bandwidth they used a month earlier has nothing to do with managing traffic, it’s about protecting their video businesses by discouraging consumers from even contemplating using the competition.  Jenkins works for a company that understands that perfectly well.  News Corp., has a major interest in Hulu as well as satellite television services in Europe and Oceania.

The rest of Jenkins’ piece is as smug as it is wrong.  In attacking Net Neutrality supporters as “crazies” trying to defend their “hobby horse,” Jenkins claims public interest groups are pouting about usage-based billing, too:

All along, what the net neut crazies have lacked in intellectual consistency they’ve made up in fealty to the business interests of companies that fear their services would become unattractive if users had one eye on a bandwidth meter. That’s why opposition to “Internet censorship” morphed into opposition to anything that might price or allocate broadband capacity rationally. But such a stance is rapidly becoming untenable, whether the beneficiary is Google, with its advertising-based business model, or Netflix, Apple, Amazon and others who hope to capitalize on the entertainment-streaming opportunity.

All are betting heavily on the cloud. All need to start dealing realistically with the question of how the necessary bandwidth will be paid for.

Part of Jenkins’ theory calls back on his usual Google bashing — he perceives the company as a parasite stealing the resources bandwidth providers paid for, while forgetting the success of their businesses ultimately depends on content producers (who indeed pay billions for their own bandwidth) making the service interesting enough for consumers to buy.

But there is nothing rational about Jenkins’ support for Internet Overcharging.  North Americans already pay some of the highest prices in the world for the slowest service.  While providers attempt to lick the last drop of profits out of increasingly outdated networks (hello DSL!), their future strategy is less about expanding those networks and more about constraining the use of them.

Jenkins is ignorant of the fact several of Net Neutrality’s strongest proponents, Public Knowledge being a classic example, have not historically opposed usage-based pricing, much to my personal consternation.  As we’ve argued (and I submit proved), Net Neutrality and Internet Overcharging go hand in hand for revenue hungry providers.  If they cannot discriminate, throttle, or block traffic they consider to be costly to their networks, they can simply cap demand on the customer side with usage limits or confiscatory pricing designed to discourage use.  That is precisely what Canadians are fighting against.

It’s all made possible by a broken free market.  Instead of hearty competition, most North Americans endure a duopoly — a phone company and a cable company.  Both, particularly in Canada, have vested interests in video entertainment, television and cable networks, and other entertainment properties.  As long as these interests exist, companies will always resist challenges to their core business models, such as cable TV cord cutting.  It’s as simple as that.

The “realistic” way bandwidth will be paid for escapes Jenkins because his quest for condescension takes precedence over actual facts.  Content producers already pay enormous sums to bandwidth providers like Akamai, Amazon, and other cloud-based distribution centers.  Consumers pay handsomely for their broadband connections, part of which covers the costs of delivering that content to their homes and businesses.  AT&T and other providers don’t deserve to get paid twice for the same content.  Indeed, they should be investing some of their enormous profits in building a new generation of fiber-based broadband pipelines to keep their customers happy.  Because no matter how much data you cram down a glass fiber, the ‘data friction’ will never cause those cables to go down in flames, unlike Jenkins’ lapsed-from-reality arguments.

Some of America’s largest media companies are starting to get nervous over reported stipulations Comcast and NBC-Universal must meet in order to win FCC approval of their merger deal.

The Wall Street Journal reports ‘all-lobbyists-on-deck’ as companies fear collateral damage to their own nascent online video businesses.

At issue is the FCC-proposed condition that would require Comcast to offer NBC programming to any online video service that has reached a similar deal for content from at least one of NBC’s competitors, such as Walt Disney Co. or News Corp.

That could create a highly competitive online video marketplace, with open access to video programming — content many companies want to tightly control.

Last week, lobbyists from Disney, News Corp., and Time Warner pelted the FCC with filings fearing Comcast-NBC deal stipulations could also impact their businesses, potentially risking exclusivity deals with firms like Netflix or Apple.  At the worst, such rules could permit the development of virtual ‘online cable systems,’ delivering hundreds of hours of programming daily — more than enough to potentially invite customers to turn away from traditional cable-TV or satellite packages.

Perish the thought, suggest some Wall Street analysts who are prepared to downgrade companies that cannot maximize revenue from a controlled online video marketplace.

The three companies, among others, have suggested language that limits any stipulations exclusively to the Comcast-NBC deal, or changing the terms to impact their own operations less.

Public interest groups continue to press their views that the proposed deal delivers nothing to consumers but higher bills and fewer programming choices.

Consumers Union, publisher of Consumer Reports, joined with more than two dozen public interest groups urging a more careful review of the deal:

“We believe that a merger of this size and scope will have a devastating effect on the media marketplace,” a letter to President Barack Obama and Congress says. “It will result in less competition, higher consumer costs and fewer content choices. It also will give one company unprecedented control over innovative new media that offer news, information, entertainment and cultural programming through emerging technologies.”

Joel Kelsey, policy analyst for Consumers Union, said this proposed merger could have major consequences for consumers: “This merger would combine a major television network and film studio with the nation’s largest cable company and residential broadband provider, which could be a recipe for disaster. This merged giant has great potential to lead to higher cable and broadband rates for consumers, less competition in online video, and less diversity among the programming choices for viewers. There are no clear benefits to consumers from this merger.”

Comcast has agreed to several stipulations that are supposed to protect consumers.  Among them, a three-year requirement Comcast provide standalone Internet service to consumers for $49.95 a month.  But the deal says nothing about Comcast’s Internet Overcharging scheme — an arbitrary usage cap on their broadband service.

Comcast would also agree to adhere to Net Neutrality rules (as defined by the FCC) for up to seven years.  Since those rules are closely aligned to what Comcast volunteered to follow earlier, there was little reservation agreeing to them going forward.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Bloomberg Comcast Deal May Hang on Showing Rivals Online Video 12-23-10.flv[/flv]

Bloomberg News’ Todd Shields explains the proposed conditions the FCC seeks to impose on the Comcast-NBC merger deal.  (12/23/2010 — 4 minutes)

Copps

Julius Genachowski’s fellow Democratic commissioner Michael Copps is signaling discontent with the FCC chairman over his weak approach at Net Neutrality reform.

During a Thursday speech before the Columbia University School of Journalism in New York, Copps said several aspects of Genachowski’s proposed reforms are non-starters for him.

In particular, he objects to Internet toll-booths, part of the “paid prioritization” argument that would allow preferred content to get traffic priority, presumably in return for money.  Copps sees that as the Internet’s great un-equalizer, allowing deep pocketed content providers to gain a competitive advantage.

Copps calls such arrangements dangerous, insisting they “cannot be allowed to supplant the quality of the public Internet service available to us all.”

Copps also finds it unacceptable that wireless providers gained major concessions that would allow them to treat content unequally.

“Internet Freedom also means guaranteeing openness in the wireless world as well as the wired. As people cut their wired connections, why would we deny them openness, accessibility and consumer protections in the wireless world,” Copps asked.

None of the proposals Genachowski makes may withstand legal challenges, Copps says, if the Commission does not reclassify broadband under Title II of its regulatory authority, declaring the Internet a “telecommunications service.”

“If this requires reclassifying advanced telecommunications as Title II telecommunications — and I continue to believe this is the best way to go — we should just do it and get it over with,” Copps said.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/BBC News The public is crying out for news and information 12-3-10.flv[/flv]

The FCC’s Michael Copps appeared on BBC America’s World News to discuss his concerns about the quality of American broadcast journalism and Internet policies.  (4 minutes)

Mignon Clyburn, the Commission’s newest Democratic member, is being lobbied heavily by public interest groups to join Copps in demanding a better deal for consumers.  But some analysts think she’ll be the easiest vote for Genachowski to get.

Clyburn is a strong proponent of Net Neutrality and has made the issue a centerpiece of several public appearances.

Genachowski may find his proposal ultimately will fail to win a majority vote, because Republicans are strongly opposed to it, and his fellow Democratic commissioners may find voting for what some are calling a capitulation to providers too unpalatable.

Republicans promise to try and derail any Net Neutrality reforms in the House of Representatives when they take control in January.

[flv width=”540″ height=”380″]http://www.phillipdampier.com/video/Mignon Clyburn Open Internet Champion.flv[/flv]

Mignon Clyburn receives thanks from public interest groups for her support of an Open Internet.  (2 minutes)