[flv width=”490″ height=”380″]http://www.phillipdampier.com/video/RT ATT Buys Support from Non-Profits 6-10-11.flv[/flv]

It’s a bad day for American television journalism when Russian State Television manages to tell viewers the facts about the merger of AT&T and T-Mobile that American networks ignore.  Russia Today is Moscow’s external television service, and delivers English language news to a global audience.  Public Knowledge’s Art Brodsky gets to tell RT viewers the real facts about dollar-a-holler groups advocating for AT&T,  a story American networks might not want to share with AT&T ad dollars at risk!  (7 minutes)

Phillip Dampier

Stop the Cap! reader Kimon discovered the debate over Net Neutrality is far from over when alerting us to a strong rebuke of the net policy in a number of newspapers published regionally by GateHouse Media.

Macedon, N.Y. resident Cheryl Miller doesn’t like the federal government involving itself in the Internet, and considers the “physical part of the Internet” the private property of Internet Service Providers:

When a progressive liberal takes up a cause, you can bet he’s found another way to undermine someone else’s liberty. The issue of “net neutrality” is a prime example of this rule.

The concept of net neutrality has piggybacked into recent public interest stories about groups with high-minded names like Free Press and Public Knowledge — stories about Internet-assisted food, clothing and book drives for the needy around the world, and other such humanitarian and environmental endeavors. It is sneakily implied that the success of such undertakings are the result of net neutrality principles, but they are not.

[…] Proposed net neutrality legislation would prohibit ISPs from charging different rates for various types of content or services, such as is done with cable and satellite television (think pay-per-view and premium channels). Restricting ISPs from operating in profitable ways is a disincentive to invest in more bandwidth to better serve customers, and likewise discourages innovations that could benefit consumers. More regulation will result in less profit, less competition, higher prices and a stunted Internet.

For Miller, any government policy that interferes with AT&T, Verizon, and Comcast’s view of how the Internet should be ordered amounts to a government takeover of the Internet, especially when the government can tell providers they cannot prioritize traffic or charge customers different prices to access different content.

Here at Stop the Cap!, we were unimpressed with Miller’s arguments and partisan cheap shots, especially at the expense of public policy groups like Free Press and Public Knowledge.  Perhaps she does not realize conservative groups like the Christian Coalition of America are also supporters of Net Neutrality.  But we don’t necessarily blame her either, considering all of the money being spent by corporate-funded groups to distort Net Neutrality’s ultimate goal: to ensure the same formula that made the Internet a runaway success is kept firmly in place.

Our formal response appeared in the same newspapers this afternoon:

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)

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.

A small wireless ISP owner who regularly complains about Net Neutrality and an industry friendly group that opposes broadband oversight were the handpicked guests at a hearing held today to investigate Net Neutrality.  Only one witness, Gigi Sohn from Public Knowledge was there to defend the important consumer net protection principle.

The hearing, held by the House Judiciary Subcommittee on IP, Competition and the Internet was among the first held in the new Republican-controlled Congress, which overwhelmingly opposes Net Neutrality.  It opened an opportunity for Net Neutrality-opponents to attack the watered down rules, adopted by the Federal Communications Commission last December.

Laurence “Brett” Glass, owner of Lariat, a wireless ISP in Laramie, Wyoming, is a familiar name to those who follow comment sections of public interest websites and newspapers.  Glass regularly attacks the concept of Net Neutrality and favors Internet Overcharging schemes, if only to protect revenues on his bandwidth-limited wireless ISP.

Glass told Congress adoption of even the FCC’s watered down regulations will put his company’s future at risk because they could be interpreted to allow “servers” on his network.  Andrew Schwartzman, a net-neutrality proponent and senior vice president at the Media Access Project, says the restriction could technically violate rules, but only if it was argued as a prohibition of attaching server hardware/equipment.

“He is describing a practice which would violate Michael Powell’s 4 principles from 2005 (I think) since it allows end users to attach any device,” Schwartzman said in an e-mail to The Hill.

Of course, the watered down Net Neutrality regulations exempt wireless networks, and Glass’ argument ignores the long-recognized concept of the Acceptable Use Policy, which prohibits network activities that can create problems for the network itself or other customers.  The FCC moving in to crush Lariat over such a scenario is hard to imagine in any case.

Larry Downes, another witness, represents the Big Telecom-friendly TechFreedom, which loathes industry regulations that could impact big players like AT&T and Verizon.

Downes argued the Net Neutrality rules were slipped in during the Lame Duck Session to avoid Republican scrutiny on Capitol Hill and are completely unnecessary.  Downes argues:

• There is no need for new regulation because there were never any serious violations (ignoring the Comcast incident that interfered with network traffic and the subsequent adventures (by others) this year on the wireless side where content access is being repackaged and sold by third parties based on access and usage).
• Enforcement mechanisms are complex and expensive: It costs too much to investigate, so why bother?
• Exceptions reveal a profound misunderstanding of “the Open Internet”: Downes argues today’s well-accepted concept of speed equality and agnostic network management are simply popular with consumers and irrelevant to the technical workings of the Internet itself.
• The FCC lacked authority to issue the rules—and likely knew it: By not invoking appropriate authority, the FCC’s new Net Neutrality policies may fail to pass court scrutiny.

Downes favors a different kind of net freedom — one for corporations to treat the online ecosystem as they please and let the free market sort it out.  If you are served by two providers who believe in Internet Overcharging schemes and speed throttles, so be it.  If you’re lucky enough to be served by a provider that supports today’s online experience, lucky you.

The FCC evidently was not invited to testify about their own policy.  Instead, Public Knowledge’s Gigi Sohn argued for Net Neutrality, but even she complains the FCC’s current provisions of that policy don’t go far enough.  Public Knowledge is planning a pushback against Republican-led efforts to repeal Net Neutrality in a campaign launching later this week — The Internet Strikes Back.

(Click the image on the left to enroll in the campaign and participate in the effort to stand up for Net Neutrality this Thursday.)

Public Knowledge:

You – the Internet – are going to make it clear that ISPs cannot be gatekeepers and do not get to choose which websites work and which websites do not work.  You – the Internet – will tell all of Congress to join the 105 Representatives who have already come out clearly in support of a free and open Internet.