Another year, another rate hike for millions of Comcast customers.  The cable company is notifying cable subscribers of rate increases for programming and equipment.  While Comcast says the rate increases are among the lowest the company has implemented, the sting will be felt differently based on the types of services a customer receives.  One particularly nasty increase is for the cable modem rental fee.  In most areas, that used to be $3 a month, but is now increasing a whopping 66% to $5 a month.  Comcast blames the increased equipment expenses incurred upgrading their broadband network.

Consumers can avoid the monthly rental fee by purchasing their own cable modem, retailing for $60-100 depending on the model.  A Motorola SB6120 SURFboard DOCSIS 3.0 eXtreme Broadband Cable Modem is available from Amazon.com for less than $90 and works with Comcast.

Although not every Comcast customer rents a cable modem from the company, the company will earn hundreds of millions of dollars in new revenue from the rate increase for cable modems, according to Multichannel News.

The Marin Independent Journal crunched the numbers:

In the San Francisco area, where Comcast has 2.2 million customers, the average rate increase will be 1.6 percent, down from a 4.9 percent spike in 2008-09 and a 6.9 percent jump in 2005-06.This year’s rate increase is the lowest in the past six years in what has become an annual rate hike for Comcast customers. The company has raised rates on its average Marin customer by a cumulative 29.5 percent over the past six years, based on the company’s annual notices of price changes.

The San Jose Mercury News observes that the rate increases will hit some harder than others:

Ironically, the customers who will see their rates increase are those who subscribe to the company’s lowest-end — and least-enhanced — packages. Subscribers to Comcast’s more expensive packages generally will see no rate increase.

Mindy Spat, communications director of The Utility Reform Network, a San Francisco-based consumer advocacy organization, said Comcast appears to be taking advantage of its lower-end customers.

She noted that many Bay Area consumers who were unable to tune in the new digital broadcast signals signed up for limited basic cable to continue to get the local channels after the old analog ones were switched off earlier this year. With the increases, Comcast also appears to be trying to push customers into higher-tier packages, she charged.

“If consumers had choices, they certainly would not choose Comcast,” Spat said. “But they don’t, and Comcast is taking advantage of the fact.”

Of course, the only thing not increasing this year is Comcast’s 250GB usage cap.  It remains locked firmly in place at 2008 levels.  How much Comcast will recoup from a perpetual modem rental fee providing up to $300+ million a year in new revenue is an open question.  But clearly some cable operators intend to pay for upgrades to their networks by means other than forcing consumers into consumption billing schemes.

Today is Stop the Cap!‘s first anniversary.  One year ago today, this website was launched with the news that Frontier Communications, the local telephone company in Rochester, New York and in dozens of mostly rural communities nationwide, had quietly changed its Acceptable Use Policy to define appropriate maximum usage of their DSL service at a measly 5GB per month.

The  boneheaded, out of touch decision was called out for what it was: a profiteering provider pilfering wallets of their broadband customers.

All the signs of a Money Party among cable and DSL providers at consumer expense were apparent last summer.  Time Warner Cable was experimenting with a consumption billing plan in Beaumont, Texas.  In Canada, rhetoric about “bit caps” was already being circulated, trying to convince Canadians that broadband service was somehow as difficult to provide there as it is in Australia and New Zealand, where such caps were already in place.

To bring limits, rationing quotas, and consumption based billing to the United States would require consumers to ignore massive profits broadband providers were harvesting quarter after quarter at existing prices.  But demands for big profits from Wall Street meant they had to come from somewhere, and for cable companies with eroding profits from their cable TV divisions, and telephone companies dealing with disconnect requests for wired telephone lines, broadband was their choice.

It seems that what was insanely profitable a decade ago, when cable modem and DSL service started to introduce Americans to broadband, would now simply be ‘piles of  cash stacked like cord wood’-profitable as traffic increased. As the broadband adoption rate increased, bandwidth costs plummeted, and several providers also proudly trumpeted their reduced investments in their networks as a hallmark of keeping “costs under control.”

Consumers began actually using their service for… broadband-specific services, at the encouragement of providers’ marketing departments, touting their “always on” connection at “blazing fast speeds” to download music, movies, play games, and more.  Network utilization increased, and providers want someone to pay for a “bandwidth crisis” that isn’t a crisis at all.  Responsible investment in network infrastructure should be a given, in recognition that at least a small portion of those growing profits must be spent on maintaining and improving service.

One year ago, I laid out what was before us:

Cable operators have been discussing implementing usage caps in several markets to control what they refer to as a “broadband crisis.” The industry has embarked on a lobbying campaign to convince Americans, with scant evidence and absolutely no independent analysis of their numbers, that the country is headed to a massive shortage in bandwidth in just a few short years, and that a tiny percentage of customers are hogging your bandwidth.

Frontier, ever the rascally competitor, has decided to one-up Time Warner’s Road Runner product by slapping on a usage cap now for DSL customers before Road Runner considers doing the same. And in a spectacularly stupid move competitively, they have implemented a draconian cap that even the cable industry wouldn’t try to implement.

Time Warner Cable “took one for the team,” according to industry-friendly Multichannel News, when it introduced a ludicrous Internet Overcharging experiment of its own announced this past April, which would have “saved” customers money by getting them to “pay for what they use.”  In fact, their plan proved my point last summer, following the same roadmap of “bandwidth crisis” to “heavy downloaders” to trying to squeeze customers for more money for upgrades they could easily have done with the enormous profits they already earn.

Their proposal would have made a deliciously profitable $50 a month Internet service now cost consumers $150 a month with absolutely zero improvement in service, speed, or performance.  But Wall Street would have been happy with the higher returns.

Some 400+ articles later, we’ve educated consumers across North America about the reality of Internet Overcharging.  Despite industry propaganda “education” efforts, astroturfing groups we’ve exposed as having direct connections with the telecommunications providers paying them to produce worthless studies, fear-mongering about Internet brownouts by equipment vendors with solutions to sell, and a hack-a-thon of formerly respectable broadband pioneers and ex-government officials who sold their credentials for a paycheck to lobby and spout industry propaganda, most consumers continue to reject overcharging for their broadband service.  Consumers instinctively know a cable company with a rate change always means a rate increase, and plans to “save people money” actually means they will “protect industry profits.”

We have achieved victory after victory in 2008-2009:

• Fought back against Frontier’s boneheaded plan, and convinced them that DSL can compete best on price and flexibility — no usage cap has ever been enforced at Frontier, and today they are using Time Warner Cable’s blundering profiteering experiment against them in their marketing materials.  For rural Frontier customers with no other broadband provider, that’s a major relief from being stuck with one broadband option that rations their usage to ludicrously low levels.
• Stopped Time Warner Cable’s experiment before it got off the ground in several “test cities.”  The people of Austin, San Antonio, Rochester, and the Triad region of North Carolina did Time Warner Cable customers nationwide a tremendous service in halting this experiment before it spread.  Our efforts even brought a United States Senator, Charles Schumer, to the front lawn of Time Warner Cable in Rochester to announce the nightmare was, at least for now, over.  We managed to even see an end to the overcharging of customers in Beaumont, Texas who lived through a summer, winter, and spring, overpaying for their broadband service.
• We raised hell in the North Carolina state legislature, coming to the aid of Wilson and other communities in the state trying to get municipal broadband projects off the ground.  Communities across the state faced anti-consumer corporate protectionist legislation written by the telecommunications industry, introduced by willing elected officials who took big telecom money, and sold out their constituents.  We killed two bills, forced a sponsor of one such measure to repudiate his own bill, and gave major headaches to legislators that thought they could just cash those big checks, vote against your interests, and you’d never know.  Those days are over.
• We helped bring legislation up in Congress to draw attention to the issue of Internet Overcharging, and have called out providers who want to use their marketing departments to lie to customers about their broadband costs and profits, while being considerably more honest with their shareholders in their quarterly financial reports.  Congressman Eric Massa’s legislation would demand companies show proof of the need to implement consumption based billing.  Indeed, as consumers find out how profitable broadband service is at today’s prices, they’ll never tolerate the profit padding providers seek with tomorrow’s caps/limits, penalties and fees, and unjustified tiers.

As you can see, Internet Overcharging is not a dead concept.  An educated consumer will recognize a swindle when they see one, and providers continue to test overcharging schemes in focus groups in different parts of the country.  They’ll use any analogy, from a buffet lunch to a toll road traveled by big trucks and little cars.  They’re looking for anything they can find to sucker you into believing paying more for your broadband service is fair.

Broadband service must be fast, affordable, and competitive.  In too many communities in Canada and the United States, a monopoly or duopoly marketplace has guaranteed none of those things.  In our second year, we must remain vigilant in our core mission to fight Internet Overcharging, but we also need to fight for more competition, regulation where competition does not exist, oversight over providers, and support for projects that will enhance broadband and make it more affordable than ever.  With your help, we can stand toe to toe with any provider, because the facts are on our side, not theirs, when it comes to Internet Overcharging schemes.

Welcome to Year Two!

AT&T is jacking up phone rates for residents of Alabama, one year after state officials deregulated the Alabama telephone service marketplace based on the premise that competition would bring about lower rates for consumers, not higher.

Darrell Baker, director of the Alabama Public Service Commission’s telecommunications division, said telephone companies heavily promoted the price deregulation plan by claiming competition would keep rates down.  An industry-friendly deregulation bill was passed in 2005 over PSC objections, and another bill the Alabama Legislature passed this spring expanded deregulation further.

Alabama residents will now pay for that free-market construct in a state with limited local line competition.

AT&T spokesman Hood Harris said customers with Basic Service, a single-line home phone, will see their bill rise 3 percent, from $16.95 per month to $17.45.  Approximately 15 percent of AT&T’s Alabama customers have basic service.

Customers with AT&T’s deluxe plan, the Residence Complete Choice Package, will see an increase of 9.5 percent, from $21 per month to $23.

Harris blamed the increases on inflationary costs.

Baker was unimpressed with the rate increase announcement.  “It doesn’t sound like the competitive market is having much impact,” he said.  Baker expects other telephone companies in the state to quickly follow suit.

AT&T increased rates in 2008 by 4.1%.

Stop the Cap! has obtained new evidence outlining the scheduled implementation of Frontier’s new usage cap, its rationale, and how the company intends to convince customers that a usage cap is right for them.

New documents  made available exclusively to Stop the Cap! show a company relying on highly questionable, possibly manipulated data to argue for usage caps, at a time when many cap opponents have accused the broadband industry of fixing the facts around the narrative of  a need for metered Internet service.   The documents also raise new questions about whether company officials are using actual Frontier usage data, which we easily obtained from our own sources, or if they are simply telling a different version of reality to their employees.

The Implementation Plan

Despite the representations by Frontier customer service made to several readers of Stop the Cap!, there definitely is a 5GB usage cap, as published on the company’s website.   However, sources tell us the wording of the usage cap announcement may not have been completely vetted by company officials, and its appearance may have been premature.   The company has started to tweak the language on the page, perhaps in response to the predictable backlash, now adding language to tell customers they will not  be charged any overuse fees or face service interruption if they exceed the cap at this time.

Company officials are following a careful plan, the details of which we have obtained,  to roll out the usage cap in Frontier service areas,  starting with notification of the “problem of bandwidth usage” in a newsletter to be mailed to customers in September, stating Frontier’s position on the problems of bandwidth consumption and inviting a dialogue on the issue.

Company officials will also continue to  use the same flawed statistics published on their website to give customers a measure of what 5GB of usage constitutes.   No independent evidence backing up their claim of a bandwidth consumption problem, or the actual impact on Frontier’s network, or their resulting costs, will be provided to consumers.

With the ultimate outcome already pre-determined by company officials, the implementation of a 5GB cap is already underway across all of their residential DSL product lines (which vary according to speed provided).   Company officials will also conduct focus group testing and further marketing research in an effort to determine how to market the new service limitations, and convince customers that a 5GB  monthly cap is a reasonable and fair solution.

The company will also announce bandwidth measurement tools available to subscribers starting in 2009, so they can monitor just how rapidly they will exceed Frontier’s usage caps.

Customers exceeding 5GB per month will eventually be offered an option to consume more bandwidth at yet-to-be-determined rates, but there are questions as to whether an unlimited consumption plan will ever be available from Frontier.

The rationale for the cap, outlined in different documents  supplied to Stop the Cap!, varies according to who the document’s audience is.   Customer service personnel are being told the usage cap is a result of excessive bandwidth consumption.   But another document emphasizes the increased revenue potential a capped DSL product provides.

This raises new questions about whether the usage cap is truly intended to be a reasonable solution to their claims of a “broadband crisis,” or a financial rescue plan to enhance profits and offset substantial losses from their other divisions, particularly traditional telephone service.   Company officials draw direct lines between the  growing returns available from broadband services and how that revenue has become increasingly important to company profits as well as shareholder value and return in a difficult economic environment.

It’s a win-win for any company that can successfully increase profits, decrease investment in infrastructure, and convince customers that the resulting dramatic reduction in service represents a  positive change.

“The average customer uses less than 1.5GB per month”

Remarkably, Frontier has told employees that the average customer uses less than 1.5GB of usage per month. But Stop the Cap! has seen company data which suggests otherwise, and that raises questions as to whether company management is really aware of the actual usage profile of their customers, or if they are simply not disclosing the facts to employees now forced to defend their 5GB “solution.”

For instance, we have noted that in just one division, Elk Grove, California, more than 40% of customers already well-exceed 5GB of usage per month, often consuming more than 20GB of usage.   In other divisions, the numbers tell a story wildly different from what Frontier management is telling their employees.

We’ve also seen figures that illustrate the myth of the “bandwidth hog.”   While every division has stories of a handful of heavy users obviously running a torrent client or server 24 hours a day, which can consume hundreds of gigabytes of usage over a  month, there is absolutely no evidence those users represent a growing percentage of Frontier’s customers.   Additionally, Frontier’s existing acceptable use policies already provide avenues for the company to address those engaged in prohibited activities without punishing their entire customer base.

In fact, the company’s own research shows broadband usage growth increasing, but at a largely even rate, as customers begin to take advantage of new broadband-tailored services, such as streaming video.

It’s also notable Frontier has a partnership with Netflix to provide new customers with the benefits of a Netflix membership when signing up to a Frontier product bundle.   Ironically, Netflix is launching a new service to deliver video content to subscribers who use a home terminal sold by the company that connects to their broadband service.   Frontier customers attempting to use the service will exceed their usage cap just using the service a few times per month.

The overall Internet bandwidth growth pattern is comparable across many providers, and is not out of line with historical averages.   To be sure, the Internet is rapidly growing, but so are the resources to manage that growth.   Many costs, such as bandwidth, are actually declining, particularly for the industry’s largest players on a “per-gigabyte” basis.

Maggie Wilderotter, CEO of Frontier Communications, uses numbers that simply don’t add up:

Broadband usage consumption at Frontier in on track to increase by 100% year over year. It is important to note that close to 80% of our customers will NOT REACH the 5 Gb cap for several years.

Let’s do the math.   Using their own figures, which are disputed by their own internal numbers, let’s discover what “several years” equals in Frontier time:

Frontier’s Predicted Usage Trend

January 1, 2008   Customer utilizes 1.5GB usage
January 1, 2009   Customer utilizes 3GB usage
January 1, 2010   Customer utilizes 6GB usage

If you are a Frontier DSL customer in western New York, even relying on their numbers disclosed to employees, by the time you are finished raking your leaves in the fall of 2010, you will already be considered a “bandwidth hog” by Frontier, subject to overuse penalties.

We’re Doing This Because They’re Doing It

Prominent among Frontier’s reasons for implementing a bandwidth usage cap is that other companies are doing it.   As Stop the Cap! has observed, the lack of competition in many areas has allowed a duopoly of broadband providers to emerge, easily allowing for both companies to mirror rate increases and restrictions without fear of mass subscriber defection.

Frontier also complains it is forced to invest millions of dollars in their network and infrastructure as a result of Internet growth.   Their latest 10-Q SEC filing suggest a lower amount, but regardless, these kinds of investments have always been a factor in broadband services.   Independent research of bandwidth usage illustrate the trends are completely in line with well-predicted trends made several years ago without panic from bandwidth providers, and many of these costs also come from broadband subscriber growth, which Frontier itself trumpets as a success in its messages to employees.

The challenge Frontier faces is that it remains a small player in a narrowing field of large national providers.   Larger companies with more resources enjoy greater economy of scale in both equipment and bandwidth costs, and the ability to leverage multiple services (video, telephone, and very high speed data) over a high capacity fiber optic or hybrid fiber/coaxial network.   Those stuck with aging copper wire on telephone poles are at an immediate disadvantage.

Frontier recognizes these challenges, and has managed to find the financial resources to continue acquiring additional companies to incorporate into its portfolio, most recently including Commonwealth Telephone Enterprises,  Inc. ($1.1 billion), Global Valley Networks, Inc. and GVN Services through  a purchase from Country Road Communications,  LLC ($62 million).   It’s also attempting to build its own fiber-to-the-home network in limited areas, typically in new housing developments or apartment buildings.

As  Stop the Cap! will reveal in an exclusive report later this week, Frontier and other traditional wireline telephone companies are rapidly losing revenue from traditional telephone subscribers as they disconnect service, relying on their wireless phone or competing voice over IP telephone services.  Broadband remains a shining beacon in a sea of economic challenges the traditional telephone company industry faces. The push for profitability of this successful product line is becoming more critical than ever.   Limiting subscriber use enhances those profits.

Run The Clock Out On The Contract Customer

Frontier’s customer service representatives have been told to resist efforts by consumers with term contracts with the company to pursue their right to terminate service without incurring any early termination fees.   We have learned that customer service representatives have been instructed to tell customers trapped in multi-year DSL contracts that  Frontier is not currently enforcing a usage cap, so there is nothing for them to opt-out from.

But as Stop the Cap! has already reported, customers under contract have the right to exit that contract if the company unilaterally attempts to change the terms.   Frontier’s own marketing tells customers a “price protection agreement,” a feature of a term contract, protects them from price increases for the balance of the contract.   But with a 5GB usage cap, those exceeding the cap face significant penalties or overage fees for doing so beginning as early as next year.   Where’s the price protection?

Through an opt-out procedure the company includes in its terms and conditions, customers have 30 days to notify the company it does not accept the material change a 5GB usage cap represents to their contract.   After 30 days, continued use of the service constitutes acceptance of the new terms going forward under an existing contract.

Until Frontier guarantees in writing that a customer under contract will be exempted from any usage cap or corresponding overage fees for the balance of their contract, we continue to recommend the consumer cancel their contracts within the 30 day window that opened on July 23, 2008 when the company first published a notice to customers of the 5GB usage cap.

“We want to establish a dialogue with customers.”   OK, Here’s What We Have To Say

Although the company claims to want to take the time to engage in a dialogue with customers, their actions thus far have largely been in one direction.   In the material we were able to review, it’s clear the company has already determined exactly what steps it plans to take and has a timeline for doing so.   The only thing left is the focus group and market research to try and find a way to sell their customers on their plans and do damage control.

Stop the Cap! continues to urge Frontier, a secondary competitor in many markets, to reconsider their plans to implement this usage cap.   In addition to cannibalizing your own customer base, who will flee in greater numbers to competitors as consumers become educated about the impact of such caps, this kind of usage capped service at current pricing attracts regulatory review of the current state of broadband service in this country.

More importantly, this may well represent the biggest missed opportunity to deliver a marketing win for Frontier in the history of the company.   DSL has managed to survive against cable competition because it is willing to compete on price, even if it cannot always match the speeds that cable and fiber optic platforms can deliver.   To survive in this marketplace, being willing to deliver that lower price and more flexibility is the only way DSL can ultimately succeed in areas where a faster competitor is available.

A 5GB capped DSL service in metro Rochester against Road Runner guarantees the end of Frontier DSL as a meaningful player in that market, especially if Time-Warner capitalizes on the cap in their marketing, which is likely.   In areas where Verizon FiOS is rolling out service, Frontier employees should be updating their resumes and start looking for work elsewhere.   Your career path at Frontier ends where Verizon’s unlimited, extremely fast, and competitively priced fiber optic broadband network begins.

It’s not too late to make the right choice and plug into the reality of today’s broadband marketplace.  That’s our dialogue to you, with the sincere hope Frontier executives will pick up what we’re putting down before the last customer out the door switches off the lights.

Coming Up Tomorrow: How Frontier Competes With Time-Warner & Other Providers
Friday: Frontier’s Losses Accelerate in The Phone Line Business
And next week: Undoing the Damage; Becoming a More Effective Competitor & Customer Reaction to Frontier’s Bandwidth Cap Plans