Netflix continues to step up its attacks on providers who implement Internet Overcharging schemes on their wired broadband customers.

That concern is understandable as Netflix increasingly transitions to broadband streaming instead of mailing DVD’s to customers.

Getting in the way are five of the nation’s seven largest broadband providers, all imposing limits on customers just as they discover they might be able to do without cable television.

Netflix’s streamed HD shows now consume around 2GB per hour, according to Netflix general counsel David Hyman.  That can eat through usage allowances quickly.  Hyman penned an op-ed in the Wall Street Journal last year blasting the practices of usage caps and consumption billing.

Hyman

“Wireline bandwidth is an almost unlimited resource due to advances in Internet architecture,” Hyman wrote. “The marginal cost of providing an extra gigabyte of data—enough to deliver one episode of 30 Rock from Netflix—is less than one cent, and falling.”

That doesn’t seem to matter much to Comcast, CenturyLink, Charter Communications, and Cox.  All four providers have introduced hard usage limits on customers — a usage cap.  Exceeding it gives any of those providers the right to cut off your broadband service.  AT&T, always one to see a financial angle, charges for excess use of their DSL and U-verse service — $10 for every 50GB. Time Warner Cable recently announced its own experimental “optional” usage pricing package for very light users who consume fewer than 5GB per month.  It will slap overlimit fees on those participating customers who break through the 5GB ceiling at a rate of $1/GB, an enormous markup.

Providers with strict caps usually argue they come as a result of their own network’s capacity problems.  Cable operators who do not consistently manage their network traffic can experience traffic clogs by overselling service without upgrading capacity to sustain user demand.  But providers like Comcast, Cox, and Charter resolved those capacity problems with upgrades to DOCSIS 3 technology, which offer operators an exponentially bigger pipeline for Internet traffic.

Although Comcast promised to regularly review and adjust usage caps since implementing them four years ago, the nation’s largest cable operator has thus far seen no need to raise them.

“We feel that that is an extraordinarily large amount of data,” says Comcast’s Charlie Davis. “That limit is there to make sure we provide a great online experience for every single paying customer.”

Wall Street bankers have closely monitored the industry’s early results from Internet Overcharging, and have been encouraged, so long as operators implement it carefully.

Credit Suisse in a 2011 report to its investor clients suggested the key for successful usage-based pricing is to introduce it slowly and keep “sticker shock to a minimum in the early days” to reduce backlash by consumers and lawmakers.

Once established, the sky is the limit.

Netflix itself is also battling an Internet Overcharging scheme it faces — double-dipping by cable operators like Comcast.  In addition to the fees Comcast collects from customers for its broadband service, the cable operator also wants to be paid directly by Netflix to allow the movie service’s traffic on its network.

That’s an Internet toll booth, charges Netflix and consumer groups.  It’s also uncompetitive, says Hyman.

This month Comcast unveiled its own movie and TV show streaming service — Xfinity Streampix — from which, unsurprisingly, the cable company has not sought extra traffic payments from itself.

Opposed to Internet Overcharging

Three providers which don’t cap customers don’t see a reason to try.

Verizon Communications says its fiber network FiOS has plenty of capacity and has no plans to restrict customers’ enjoyment of the service.  In 2009, Cablevision’s Jim Blackley told one panel discussion usage caps are not in the cards.

“We don’t want customers to think about byte caps so that’s not on our horizon,” Blackley said. “We literally don’t want consumers to think about how they’re consuming high-speed services. It’s a pretty powerful drug and we want people to use more and more of it.”

California’s Sonic.net Inc., goes even further.  Its CEO, Dane Jasper, believes the Federal Communications Commission needs to be more assertive about protecting America’s broadband revolution and the customers that depend on the service.

The fact different operators can take radically different positions on the subject, despite running similar networks, suggests technical necessity is not the reason providers are implementing usage restrictions and extra fees on customers.

As Hyman writes:

Bandwidth caps with fees piled on top are a lousy way to manage traffic. All of the costs of supplying residential broadband are for supporting peak usage. Bandwidth consumed off-peak is completely free. If Internet service providers really wanted to manage traffic efficiently, they would limit speeds at peak times. If their goal is instead to increase revenues or lessen competition, getting consumers to pay per gigabyte is an excellent strategy.

Consumer access to unlimited bandwidth is good for society. It fosters innovation, drives commerce, and advances political and social discourse. Given that bandwidth is cheap and plentiful and will only grow more so with time, there is no good reason for bandwidth caps and fees to take root.

Consumers and regulators need to take heed of what is happening and avoid winding up like the proverbial frog in a pot of boiling water. It’s time to jump before it’s too late.

Verizon Wireless today introduced HomeFusion Broadband: a new service that provides high-speed in-home Internet access using the company’s 4G LTE wireless network.

Designed primarily to reach households with limited broadband options, HomeFusion will deliver download speeds of 5-12Mbps and upload speeds of 2-5Mbps. While installation will come free of charge, a one-time equipment charge of $199.99 applies.  Pricing is nearly identical to Verizon’s mobile broadband service:

• Up to 10GB — $60/month
• Up to 20GB — $90/ month
• Up to 30GB — $120/month
• Overlimit fee: $10/GB

Verizon's 4G LTE antenna must be mounted on an outside wall of your home to assure good reception. (Picture: The Verge)

Verizon says HomeFusion is their broadband answer for rural America.

“HomeFusion Broadband is just one of the new products and services that is made possible with our 4G LTE network,” said Tami Erwin, vice president and chief marketing officer, Verizon Wireless. “Customers want to connect more and more devices in their homes to the Internet, and HomeFusion Broadband gives them a simple, fast and effective way to bring the most advanced wireless connection from Verizon into their homes.”

A third party company, Asurion, will handle installation of Verizon’s cylinder-shaped antenna, installed on the side of a customer’s home.  The antenna is designed to pick up the best possible signal from Verizon’s growing 4G network.  The antenna transmits the signal to a company supplied router capable of connecting up to four wired and 20 wireless devices.

HomeFusion Broadband will be available beginning later this month in Birmingham, Ala., Dallas and Nashville, Tenn., with additional markets to follow.

Verizon’s product is unlikely to attract substantial interest in more populated areas where a 10GB monthly usage cap would prove unacceptable in many homes where multimedia content is a growing part of the Internet experience.  But is could compete with satellite broadband, which also has low monthly usage caps.  Verizon may also win back customers in service areas it sold to independent providers like FairPoint and Frontier Communications, which have since saddled most of their rural customers with 1-3Mbps DSL service.  But Verizon’s pricing puts rural America at a usage disadvantage because of the low monthly limits and higher price tag.

The development of HomeFusion could reduce Verizon’s investment and interest in further expanding its traditional rural broadband product — DSL.  But Verizon will have to expand its still-urban focused LTE 4G network further into the countryside for HomeFusion to serve its intended market.

Phillip "Keeping an Eye on Time Warner's Eye" Dampier

Today’s announcement by Time Warner Cable that it is reintroducing usage based billing, at least optionally for customers in southern Texas, is a concerning development that requires further examination and vigilance.  But before we delve into that, I’d like to thank the company for avoiding the kind of mandatory usage billing/cap system we’ve seen appearing at certain other providers.  We also welcome the company’s admission that they have earned enormous profits from unlimited consumption plans and consider that pricing part of the success story they’ve had selling Internet access.

Stop the Cap! has never opposed optional usage-based billing tiers for customers who feel their light usage justifies a service discount.  However, industry trends so far have made no provisions for truly unlimited usage plans that sit side by side tiered plans without quietly diluting the value of flat rate Internet with tricks and traps in the fine print.  We have serious concerns this “foot in the door” to Internet Overcharging could eventually become mandatory for all customers.  Perhaps Time Warner Cable will be different than all the rest.  We can only hope so.

Let’s break it down:

First, Time Warner Cable’s admission it blew it the first time it experimented with these pricing schemes is most welcome.  Being on the front lines of the battle against the company’s Internet Overcharging experiment in 2009 remains very-well-documented on this website.  We confronted arrogant local management that argued usage billing was “fair” and would barely affect any customer.  In fact, the original plan a later revision would have tripled flat rate Internet access to a ridiculous $150 a month.

The company’s 2009 “listening tour” was also a farce, with a number of e-mailed comments deleted unread (we know, because Time Warner’s comment system sent e-mail to customers telling them exactly that.)  Local media outlets, newspaper editorials, and customers made it quite clear: customers want their unlimited Internet access left alone.  They do not want to learn the mysteries of a gigabyte, they don’t want to watch a gauge to determine how much usage they have left, and they sure don’t want to pay any more for broadband service.

If Jeff Simmermon, Time Warner Cable’s director of digital communications, now represents the prevailing attitude about unlimited Internet access among Time Warner Cable’s executive management, that is a very welcome change indeed.  But we’re not completely convinced.  For nearly two years, Time Warner executives have talked favorably about usage-based billing as the “fairest way” to bill for Internet usage.  Besides Simmermon’s comments, we have seen nothing from CEO Glenn Britt or CFO Irene Esteves that indicates they have changed their original views on that.

Unfortunately, we’ve learned over the last three years today’s promises may not mean a lot a year from now.  We’ve watched too many companies introduce these pricing schemes and then gradually tighten the noose around their customers.  Once broadband usage is monetized, Wall Street looks to the practice of charging for usage as a revenue source, and they pressure companies to keep that money flowing.  What begins as an optional tiered plan can eventually become the only plan when flat rate broadband is “phased out.”

Canadians understand this is not unprecedented.  They’ve been down this broadband road before, and it is loaded with expensive potholes and broken promises to repair them.  Usage allowances have actually dropped at some Canadian providers.  The fixed maximum on overlimit fees has gradually been relaxed or removed altogether, exposing Canadian consumers to broadband bill shock.

Time Warner Cable customers are now paying upwards of $50 a month for broadband after consecutive annual rate increases.  That’s plenty, and usage should remain unlimited for that kind of money.

Still, Stop the Cap! has never been opposed to truly optional usage-based billing plans.  We’re just unconvinced companies will keep the wildly popular flat rate pricing if boatloads of additional revenue can be made dragging customers to tiered usage plans, particularly in the absence of aggressive competition.  Just ask AT&T.

Second, as we’ve seen on the wireless side, “unlimited Internet access” means one thing to consumers and all-too-often something very different to providers.  For example, companies have discovered they can claim to provide unlimited access but then de-prioritize flat rate traffic, or even worse, throttle speeds and give preferential treatment to usage-based billing traffic.  Time Warner Cable needs to commit that unlimited access means exactly that — no traffic prioritization, no speed throttles, and no sneaky fine print.

Third, we don’t expect Time Warner will get too many takers for their Broadband Essentials Internet program.  The discount, just $5 a month, is quite low for broadband service limited to 5GB per month.  Exceeding that limit is quite easy, and after just 5GB of “excess usage,” the discount is eaten away and the penalty rate of $1/GB kicks in.  That could ultimately risk up to $25 a month in extra charges.  I’m uncertain how many customers would want to risk exposing themselves to that for a modest discount.

While we are not issuing a Call to Action over these developments, we will be watching them very closely.  Time Warner Cable should make no mistake: if their usage billing plans begin to eat away at fairly priced unlimited access plans, we will once again picket the company and do whatever is necessary to bring political and consumer pressure to force them to rescind these kinds of pricing schemes yet again.

Time Warner Cable's usage meter.

Time Warner Cable today relaunched usage-based billing, offering customers a $5 monthly discount off Internet access when they confine their usage to a maximum of 5GB per month.

Stop the Cap! was at the forefront of protesting Time Warner’s last Internet Overcharging experiment in 2009, which would have allowed unlimited access for $150 a month — a major rate increase to be sure.  Other customers had usage allowances that originally would have ranged from 40-60GB per month, with overlimit fees of $1/GB or more.

Time Warner Cable’s Jeff Simmermon, director of digital communications, admitted the 2009 experiment attempted in Beaumont, San Antonio, and Austin, Texas, Greensboro/Triad, N.C., and Rochester, N.Y. was unsuccessful.

“Yes, we did try this before, a few years ago,” Simmermon said. “And yes, pretty much everyone agrees that it didn’t go so well. So we listened to customer complaints. A lot.”

The cable company is trying again in southern Texas, including the cities of San Antonio, Laredo, Corpus Christi, the Rio Grande Valley and the Border Corridor.

This time Simmermon says the usage-based pricing program for Time Warner Cable customers will be optional. He also promised Time Warner Cable customers will always have access to unlimited broadband at a flat monthly rate.

This is a major change for the cable company, because earlier statements from both CEO Glenn Britt and the chief financial officer Irene Esteves called usage based billing inevitable.

Simmermon admitted Time Warner Cable is making plenty of money selling unlimited access to customers today.

Simmermon

“We profit from unlimited consumption, and a free, open Internet is the sort of Internet that has gotten us this far,” Simmermon wrote on the company’s blog.

“All participation in the Essentials plan is opt-in, with the opportunity to save a few dollars each month,” Simmermon said. “It’s not going to be for everybody, and that’s fine — all Time Warner Cable customers will still have the option of selection an unlimited broadband plan.”

The details:

1) Up to 5GB/month of data transmission for a $5/month discount from one’s current monthly bill. All Standard, Basic and Lite broadband customers will be eligible. Turbo, Extreme and Wideband customers will continue as always, with access to unlimited broadband and no optional tiered plan or discounts.

2) The ability to opt-in and opt-out of a tiered package at any time.

3) A “meter” that tracks usage on a daily, monthly, weekly or even hourly basis, enabling customers to accurately gauge usage.

3) A 60 day/2 billing-cycle grace period to allow customers to adjust usage patterns. During this time the company will notify customers of overages but won’t charge for them.

4) Overages will cost $1 per GB, not to exceed a maximum of $25/month.

This presents the opportunity to save $5/month from a monthly broadband bill.

Time Warner already has the TV Essentials plan for $39.99/month that offers low-income households to have access to cable, in a stripped down package. Simmermon says this is meant to be the broadband equivalent.

[Stop the Cap! will publish our own views on this development in a separate editorial.]