Filipinos looking for reasons why broadband providers want to limit their Internet usage can find all the explanations needed in the financial reports of companies enthusiastically supporting Internet Overcharging proposals.

As ABS/CBN News noted, “To say that 2010 was a difficult year for the Philippine telecommunications industry is an understatement.”

“Consumers are demanding an unlimited telecommunications experience,” says Renato Razón, an investor and telecom industry watcher for more than 30 years. “The wireless sector and the growth of the Internet, and the companies that compete to provide both, have turned telecommunications in this country on its head.”

Razón tells Stop the Cap! the privatization of telecommunications initially showed a lot of promise for investment and development to get the country on the Asian economic fast track.  But increasingly in recent years, companies have grown fat and lazy, trying to compete with existing networks in need of upgrades — in search of quick profits and no costly capital expenses.

“They learned what they think are important lessons from the huge amounts of money that were spent to build and upgrade wireless networks in the Philippines,” Razón tells us. “They were convinced it was worth countless billions to build wireless infrastructure and wait for the enormous profits that would come later, but then everyone wanted to get into the business and the big profits they thought they’d get never materialized.”

Razón says wireless competition that exploded across major cities in the Philippines was initially a boon to consumers, who today benefit from heavily marketed unlimited calling and texting plans at declining prices.  But now that profits are taking a hit, investors and company executives learned what they feel is a bitter lesson.

As wireless becomes a mature market in the Philippines — with more than 80 percent of consumers already using wireless devices, almost all of the marketing from existing providers targets customers of their competitors.  Customers threatening to switch force providers to offer steeply discounted retention deals that are often infinitely renewable.

Such fire sale pricing enrages investors, who are calling for greater industry consolidation among the three largest operators.  With a fourth provider possibly on the horizon, the chorus demanding that some of the players get out of the market through mergers and acquisitions for the “good of all” could soon grow too loud to ignore.

“Heavy competition is your worst nightmare — it results in price wars and everyone, except consumers of course, are hurt in the end,” he admits.  “I admit I have to divorce myself from the fact my family and I are also consumers — and we love the lower prices — but as an investor, I understand the loud demands to improve shareholder value.”

Razón says executive compensation, often tied to financial performance, delivers the ultimate incentive that executives answer first to shareholders, not customers.

“If a handful of customers get angry at you, that doesn’t cost you the company-paid vacation on the French Riviera and a healthy bonus — an angry compensation committee answering to a dispirited Board of Directors could,” Razón says.

Razón says it’s the same story wherever private companies control telecommunications with few regulations governing their operations.  He believes private market solutions without regulatory oversight helps him more than it helps you.

“I understand what the Philippine government wants — regulations to promote better broadband, but they are only hearing from industry people on how to accomplish that,” Razón believes.  “They answer to shareholders who think about short term results and the health of their investment, not the overall health of the broadband marketplace.”

With financial results for 2010 showing the impact of price competition and predictions of another year of anemic profits, providers are looking for new revenue streams.  Broadband offers one of the few major growth opportunities available to telecom companies in the short term, Razón says.

“At least half this country doesn’t have meaningful broadband, so if you can deliver service over existing infrastructure, keeping capital costs low, you couldn’t count the money coming in fast enough,” Razón says.  “DSL from the phone companies delivers it all — existing phone wires delivering a value-added service to existing phone customers.  It’s not fast, but it’s cheap.”

Rafael Aguado, the chief operations officer of Bayan Telecommunications, agrees the real revenue is in broadband:

“2010 was a challenging year for the telcos, as competition intensified and the Internet/social media and new technologies influenced the shift on consumer behavior on how to communicate, putting pressure on traditional revenue sources like voice calls and international long distance calls. Data and internet subscribers continued to increase and is expected to accelerate to the next level of sustained growth.  It was a difficult year for Bayan but performance was consistent with the industry trend. Total revenue decreased due to lower voice revenues but residential internet and corporate data services posted revenue growth. With sound operating expense management, we expect the year to end in double digit growth in EBITDA. Our growth drivers next year would continue to be data and internet services for both consumer and corporate sectors.”

Philippines Long Distance Telephone Co.

Razón believes usage caps are just another mechanism to protect companies from performing costly upgrades.

“If you can limit usage, you don’t have to spend as much capital upgrading,” Razón says.  “Investors don’t mind if you spend to expand DSL into new territories, because the costs are relatively low.  They will get upset if your support and ongoing costs increase, however.”

That could explain the growing burdens of wireless traffic on the country’s cellular networks.  Some providers have been accused of deliberately overselling access to their networks while refusing to upgrade them to meet growing demands, because the return on “unlimited use” doesn’t deliver:

“The telco industry had a good year but its profitability was greatly reduced due to the highly competitive ‘unlimited plans’ that each provider offered its subscribers. This trend would continue this coming year,” said Ivan Uy, chairman, Commission on Information and Communications Technology (CICT). “What needs to be looked into is the deteriorating service availability or accessibility due to network congestion brought about by the unlimited plans. Customer dissatisfaction has been rising because of higher frequency of dropped calls, delayed SMS, and line unavailability.”

When given a choice how to solve this problem, most companies prefer to advocate for usage limits, not mass scale upgrades.

Even long distance companies, which played through a price war more than a decade ago, see the flow of investment heading into broadband.  Unfortunately, in their eyes, usage demands are coming along as well:

“Competition intensified in the cellular business. Broadband grew strongly. Margins came under pressure even as demand for more network resources increased. For PLDT, 2010 has been a year when it maintained its market leadership in the face of these challenges. Our focus has been managing this transition where traditional revenue sources such as fixed toll revenues like IDD and NDD were on the decline while new revenue sources such as broadband were on the rise. We preserved margins by strengthening cost management given the modest top-line growth.

“We expect the challenges of 2010 to carry into next year. Demand for bucket and unlimited offers in the cellular space will continue. We expect that broadband will keep growing given the growing popularity of social networking and new access devices such as tablets and smartphones. PLDT will continue to invest in its network in order to fortify its market leadership.” — Napoleon Nazareno, president and CEO, Philippine Long Distance Telephone Co.

For a long term investor like Razón who has seen this all before, there is a better answer: invest in your networks and grow them faster than your competitors.

“You have to spend money to earn money I have always found and there is a ton of money to be spent and made on broadband in this country,” Razón says. “The low hanging fruit has already been picked — now we must spend to get broadband into towns and villages and we should also be investing in content and products we can sell to broadband customers.”

Razón thinks Internet Overcharging schemes are a foolish mistake.

“You can’t create value-added services on an artificially limited network and expect consumers to buy,” Razón said.  “If you limit usage, you discourage people from using the services that get them addicted to using it in the first place.  Get them hooked, keep them happy and you have a customer for life.”

What would you do if your broadband bill was the same as your monthly rent?

That’s a question 21-year-old Notre Dame de Grace resident Amber Hunter has been dealing with since the neighbors began hacking their way into her wireless router, gaining access to her cable modem service from Videotron, Ltd., and running her bill into the next province.

It’s the predictable outcome of what happens when Internet Overcharging schemes gain traction, leaving ordinary consumers literally holding the bill.

Videotron sells usage limited broadband service across Quebec, but heavy users who routinely exceed their arbitrary usage caps knew there was a limit on the overlimit fees Videotron charged.

Not anymore.

Videotron left the usage caps on, but removed the limit on how much they can charge customers who exceed their monthly usage allowance.

Videotron sets prices like the OPEC of the Internet -- the sky is the limit

“The sky is the limit, or at least your bank account,” writes our Montreal reader Hei.  “The only thing unlimited with Videotron are the overlimit fees.”

Hunter had no idea she was being hacked.

“I had no idea what a gigabyte was, so when I started getting higher bills, I just assumed it was from watching TV shows online,” Hunter says.

Her boyfriend told her otherwise, making it clear it was impossible for her to be running up 350GB a month in usage just from watching a few movies and TV shows.

Since August, Hunter has accumulated more than $1,800 in broadband bills stemming from parties unknown who hacked their way into her wireless router and “borrowed” her Internet account.  Videotron itself is directly responsible for part of this debacle, encouraging Hunter to upgrade to a higher tier of service that upgraded her from a 30GB usage allowance to a 100GB usage allowance, with a major catch.

Hunter had become accustomed to paying her usual broadband bill plus the $50 maximum penalty charged for her “overuse.”  So a Videotron representative suggested a higher usage allowance plan might lower her bill.  But somehow, the Videotron customer service agent forgot to mention that the new plan no longer included a limit on overlimit charges.

When Amber switched plans, her broadband bill exploded.  Now the waitress hands over most of her weekly salary to Videotron.

“I’m a student, and I work at a bar, and now most of the money I have goes to pay my Internet bill,” Hunter told the Montreal Gazette. “It’s more than I pay for school and books, and I don’t have a lot of money left for food.”

She still owes the cable company $506 and they aren’t interested in providing her any service credits beyond the $313 they gave her a few months ago.

It took a Videotron help desk employee to finally unravel the mystery of the Internet Overcharges — someone was hacking into her wireless network.  Exactly who has been living their online life usage-limit free at Amber’s expense may never be known. Those living in apartment complexes and other multiple dwelling units can often find a dozen or more wireless connections, some password protected, others not.

Hunter’s wireless network was secured with a difficult to guess password using a four year old Linksys router.  Unfortunately, older routers often lack robust security and are easily hacked.

A handful of Canadian ISPs still offer unlimited broadband accounts.

As far as Videotron is concerned, it’s all Hunter’s fault — she should have understood what a gigabyte was, how many she was supposed to be using, what the security capabilities of her router were, that they were properly enabled, that she checked her usage on a daily basis looking for anomalies — investing her time, effort, and energy to stop the cable company before it billed her an enormous amount… again.

Speaking for Videotron, Isabelle Dessureault said, “It’s a case where Videotron showed some understanding and listened to what happened. We’re well-renowned in the industry for our technical support team. We credited her account for $313, but at a certain point, we need to share the responsibility. We don’t like these kind of situations.”

Videotron’s responsibility to their customers stopped where their profit margin began.  The company could have sent Amber a bill for the wholesale cost of her Internet usage, which she could have paid with a few of her bar tips.

Because Hunter’s broadband bills were now rivaling her monthly rent she decided to invest in her financial future, buying a new router and making sure the wireless was turned off.  Today she runs dozens of meters of Ethernet cable between all of her computers, just to keep the neighbors off her connection.

Although Videotron has become intractable, demanding Amber pay up, one of their competitors used the opportunity to score public relations points that Videotron sacrificed.

Jarred Miller, the president of the Internet Service Provider YOUMANO offered to cover all of Hunter’s overage fees amassed over the past year that also includes a free year of Internet service with his company, a generous offer Hunter will take.

YOUMANO is one of a handful of Canadian ISPs still offering unlimited Internet access, and do not think of themselves as the OPEC of the Internet.

The entire affair is a warning to Americans.  If you think Videotron is an Internet evildoer, imagine what Verizon, AT&T and Comcast could do to your bank account.  If they have their way, you’ll need to become intimately familiar with your router, the concept of a gigabyte, and take a class in “negotiating to win” when fighting over your future enormous broadband bills.

Listen to an interview with Amber Hunter. She appeared on this morning’s Daybreak on CBC Radio Montreal to discuss her experience with Videotron Internet Overcharging. (8 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Elk Grove, Calif. residents receiving letters from Frontier Communications claiming they are using the company’s Internet service too much are getting confusing responses from the phone company when calling to register complaints about the Internet Overcharging scheme.  Even worse, one company official told a subscriber they have to keep the new usage limits secret “for legal reasons in case we have to change it again.”  But no worries, Frontier explained to one customer: if you exceed the secret cap again, you’ll be notified future overages will be conveniently billed on a future Frontier bill.

Stop the Cap! has been receiving dozens of e-mailed complaints from customers upset that the company’s bait-and-switch broadband also comes with uninformed customer service representatives who can’t deliver straightforward answers to customers trying to understand how they can avoid up to $250 a month for 3Mbps DSL broadband service.

“When I signed up for Frontier DSL, nobody said a thing about usage limits,” writes our reader Trina who lives near Camden Park.  “My small business has DSL from Frontier as well and we were horrified when we received a letter telling us we were over-using their service.”

Trina and her husband have four teenage boys living at home, all sharing their Frontier DSL account.  When she called the company in response to the letter she received, the confusion began.

“The first representative didn’t understand what I was talking about and denied there were any limits and said the letter must have been a mistake,” Trina says. “But my husband noticed others in our area were talking about the letter on area message boards so when he called, he got a representative that confirmed the limits were real.”

Trina was told her home would need to upgrade to Frontier’s $249 monthly DSL service plan, the same one Frontier held over the heads of some customers in Mound, Minn. last year.

“I told them they must be smoking crack — are they serious?  There is no way I am going to pay $250 a month for DSL that gives us 1.5Mbps service — not in this world,” Trina says.  “My husband laughed when I told him, saying Frontier is going to drive themselves out of business from this stupidity.”

Elk Grove reader Stephen also called Frontier after he received a letter stating he used over 100GB in a month.

“Yeah, I used 104GB according to my router’s logs and Frontier deemed me a bandwidth abuser,” Stephen writes.  “Of course the company tried to sell me a plan priced at $100 a month for their lousy DSL service we got suckered into on one of their term contracts.”

Stephen said he’d manage to find a way to shave 5GB off his monthly usage and forego Frontier’s $99 offer until he signs up with a competitor and tells Frontier to take a hike.

“It’s one thing to be abused by a lackluster phone company like Frontier who never did a thing for Elk Grove — it’s another to pay them more for their abuse,” he writes.

Stop the Cap! reader Pete, also in Elk Grove, says he can’t get a straight answer over exactly what the monthly limit is.

“When I called, I was told 5GB by one representative, 100GB by another, but get this — when I logged into the ‘Flexnet’ Usage Meter the company tells you to review, it showed I had a 20GB limit,” Pete says.  “I called Frontier on the phone and told them I was so through with them — I can’t stand their nonsense.”

Pete wasn’t alone.  Our regular reader Mike figures his cap was actually 20GB a month if the company’s usage meter was to be believed, and he sent pictures.

“I got their nastygram last month over my usage and now my Flexnet meter shows me over the limit,” Pete says.  “I have been vocal on a local Elk Grove message board so I’m feeling like this is retaliation.”

In fact, Mike’s usage meter depicts him as well over the arbitrary 100GB limit Frontier suggests in their letter, despite not coming close to 100GB of usage.  Ditto for our reader Michelle who lives in Palo Cedro, a community Frontier can largely hold captive thanks to limited competition.

Benjamin, also in Palo Cedro, says Frontier’s move will hurt small businesses in the northern California Shasta County community of 1,200.

“I need high speed Internet to help start my business, which will largely involve uploading and downloading multimedia, (which is hard enough to do on a 1.5 connection) but to increase the cost is absolute insanity,” he says.

Our reader Mike discovered Frontier's usage meter suggests he has far less than a 100GB monthly usage allowance.

Benjamin’s alternatives barely qualify.

“I can either try Clearwire, which works terribly locally and is known for its speed throttles when congested, or HughesNet satellite-delivered Internet, which is overpriced,” Ben adds.

As our readers already know, satellite fraudband is no replacement for real broadband service, because it comes with a “fair access” policy that isn’t fair and doesn’t deliver much access.

“I will fight this any way I have to,” Benjamin says.

John in Elk Grove writes in to say the entire affair is a Frontier shell game.

“It’s pure bait and switch to sell us broadband without limits and then suddenly impose them while we are supposed to be on ‘price protection agreements’ that the company says will keep our prices stable,” John says. “Now we learn it’s all a shell game — they can say we used too much and that doesn’t count with their price protection scam.”

John adds Frontier can change the limits at will, and customers who choose to depart could still face enormous cancellation penalties.

“The Frontier representative I talked to when I called to cancel service told me I owed $300 for ending my contract early,” he said. “I told them to go to hell and that if they tried to collect, I’d personally make it my life’s work to cost them far more than that in lost business.”

Customer anger only increases after speaking with Frontier’s own representatives.

Uh oh. Frontier suggests Mike has already blown through his monthly usage allowance, despite his carefully reduced use of the service.

“Mr. Brown” shares his experience:

I am an Elk Grove resident and a Frontier DSL internet customer. I received the same letter from Frontier about exceeding the 100gb of bandwidth within a 30 day period. It said that I must reduce the amount of use or bump my account up to the next tier of service, a $99/mo business account.

I called the number on the letter to talk to a customer service representative so that they would not disconnect me for not responding within 20 days. I asked him if there is a maximum bandwidth cap. He told me that there is no cap, but that their terms of service says that they can disconnect you if you are exceeding reasonable usage and that Frontier will determine what is reasonable usage. The representative could not help me any further so he connected me with his supervisor.

The supervisor said that Frontier sent this letter out to about 1,000 customers in Elk Grove and that most of the customers who have called after receiving the letter have not questioned them and said they they will reduce their usage.

He also said that there is no longer any $99/mo plan, the only option is to reduce usage. He said they sent the letters out to the costumers who are using more than a reasonable about of bandwidth telling them to use less Internet. Then if they did not, Frontier will send another letter saying that if they use more than a reasonable amount that they will charge the customer for anything over.

He went on to say that Frontier had to remove the statement about the previous 5GB bandwidth cap in their terms and conditions and that for legal reasons they are not going to tell us what the new limit is, in case they have to change it again in the future.

I tried to get him to admit that there is a cap and to tell me what that limit was, but he would not.  He would only say that I would be okay if I did not go over 100gb/mo and that if I do, to expect to receive another letter with the new terms that would allow them to charge my account for excess bandwidth.

The one thing is common with readers we’ve heard from is their urgent search for a new provider.

Trina canceled all of her Frontier services at home and at her business and switched to SureWest, a fiber to the home provider.  Joining her includes Mike, Stephen, Pete and John.  Together, their combined disconnects will cost Frontier more than $500 a month in lost revenue, all because of broadband traffic that costs Frontier far less than 5 percent of that amount.  If each customer shares their horror story with friends, family, and neighbors, the loss in revenue could cost far more.

For customers like Mike, he can’t wait to get his SureWest service installed.  The company offers to buy out current contracts with companies like Frontier valued at up to $200, and their fiber-delivered broadband service leaves Frontier’s speeds in the dust.  Mike says if Frontier gives departing customers a hard time about early cancellation fees, file a complaint with the California Public Utilities Commission Consumer Affairs Branch.

SureWest offers 3/3Mbps service for $36.99 per month, 25/25Mbps service for $51.99 a month, and 50/50Mbps service for $181.99 a month.  A $3.99 High Speed Internet features and services charge applies.  There are no limits on SureWest’s Internet service.

SureWest delivers several fiber to the home broadband service plans that best Frontier's DSL speeds by a mile.

Frontier offers 3Mbps service with a slower upload speed for $32.99 per month or 10Mbps service for $44.99, both with a required price protection plan and $6.99 monthly modem rental fee.

“Why in the world would you pay Frontier more for less service,” asks Pete.  “Once they pile on the administrative fees, surcharges and taxes, it’s well north of $40 a month, and you don’t even get the speed they advertise, much less the usage limits they don’t.”

Wood

Roku CEO Anthony Wood told a cable trade publication he is not worried that providers will kill the market for his online video set-top box with Internet Overcharging schemes.

Wood told Multichannel News the broadband industry faces enough competition to prevent one or both traditional providers from implementing usage caps and metered pricing for broadband service.

“What we see from a practical point of view in the marketplace is that there’s enough competition from cable, telcos and wireless so that in every market there’s an unlimited option — and the price is competitive,” he said.  “Unlimited sells — it’s just a good marketing strategy.”

Wood may want to inform broadband providers of that, because several American phone and cable companies are experimenting with slapping usage limits on their customers, making his web-streaming set top box an expensive proposition.  For customers of Frontier Communications in Elk Grove, Calif., using too much Roku could mean broadband bills as high as $300 a month.

With some HD movies consuming 2-4 gigabytes per title, some companies experimenting with usage limits as low as 5GB per month would make online video the primary culprit for consumers blowing through their monthly usage allowance.  After one bill with overlimit fees arrives, the Roku box will be the first thing to go.

Netflix, a major investor in the Roku box, could see its plans to shift to online distribution of its massive DVD rental business stymied by large phone and cable providers, many of whom see Netflix and other online video services as competitors who use their broadband service to send movies to consumers.  Some cable and phone companies contend Roku, Netflix, and other online video streamers are freeloaders — using their networks “for free” and demanding additional compensation to keep carrying their content.

Wood discloses another reason why cable and phone companies could potentially adopt a hostile position towards his 100-employee operation — “cord cutting.”

Wood told Multichannel News about 12% of Roku customers say they have canceled cable or satellite TV after buying the set-top while another 12% said they reduced their service level.

The cable industry is trying to retain customers by putting an increasing amount of cable content online for subscribers who maintain their cable-TV package.  Roku gives subscribers one more reason to downgrade or cancel service, a problem that could be stopped with an Internet Overcharging scheme that makes using the product an expensive proposition.

Some Roku watchers believe Wood is making a mistake underestimating the telecom industry’s willingness to protect its turf.

Two years ago Roku VP Tim Twerdahl said the company was not worried about Comcast’s 250GB download cap.  But since then, other providers have proposed far lower caps.

Roku is best known for letting Netflix subscribers stream the video rental firm’s online titles direct to television sets.  But Roku also delivers access to Hulu, Amazon video, and a growing number of new “channels” delivering classic movies, music/music videos, news, and user-created programming.

The company offers three set-top models: HD ($60), which delivers up to 720p video; XD ($80), which adds support for up to 1080p and 802.11n Wi-Fi; and the XDS ($99), which offers dual-band 802.11n and component video and optical audio outputs.  The top model occasionally sells for as little as $79.99 when on sale from Amazon.com or direct from the manufacturer.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Introducing Roku.mp4[/flv]

A brief video introduction to Roku.  (1 minute)

Time Warner Cable has begun notifying western New York cable subscribers their rates are going up, effective in about three weeks.

The cable company includes the notification in customer bills arriving throughout December and early January in the Rochester and Finger Lakes region of upstate New York.

The new prices are the result of higher programming costs, the development of new innovative features, and continued investment in our infrastructure and investment.

Rates for Road Runner, Time Warner’s broadband service, are increasing as much as five dollars per month.  This represents the third increase in broadband rates for Time Warner customers in the last 13 months, and should finally bury any notion the cable operator needs to implement Internet Overcharging schemes to recoup usage costs.  Time Warner Cable’s Road Runner Turbo package was priced at just under $50 a month two years ago.  Today, the same service costs $64.90 per month for standalone customers — a $14.90 increase.

2011 Pricing: Turbo - up to $64.90, Standard - up to $54.95, Basic - up to $37.95, Lite - $25.99

Customers on bundled service packages will see rate increases of around $5 for a digital cable-only package, $7 for a cable-broadband package, $6 for a cable-phone package, and $9 for “All the Best” which delivers cable, phone, and Internet service.  Those with multiple televisions will see a doubling of rates for each additional TV hooked up to digital cable (was $0.50, now $1.00), a $0.16 decrease in the monthly rental cost of a traditional cable box, and a $0.04 increase in the cost for the remote control.

A rate increase for the Rochester, N.Y. area

Existing and new customers might find a year of savings with the company’s current Triple Play $99 promotional offer, which some report to be good for existing subscribers adding additional services.  For one year, subscribers will pay $33.33 each for broadband, video, and phone service (you must take all three).  For a subscriber with cable and broadband, adding the phone service actually will cost you nearly $20 less per month, even if you never bothered to use it:

Choose the speed that's right for you at the price that's not.

2011 Rates

• Watch N Surf: $118.99 per month
• Triple Play Promotion: $99 per month

Customers are reminded Time Warner’s retention agents are authorized to provide discounts and better offers to those threatening to take their business elsewhere.  If your rates are increasing, it might be a good time to threaten to walk and see what kind of offers the cable company provides to get you to stay.

Share your views and retention offers in our Comment section.