Studies find few surprises for cable and phone companies that pay for them.

Internet plans with term contracts, usage limits, and other pricing tricks are good for consumers and save them money over comparable unlimited usage plans.

That is the conclusion of a new study from the Technology Policy Institute, an industry front group funded by AT&T, Comcast, the National Cable & Telecommunications Association, Qwest, Time Warner Cable, T-Mobile, and Verizon.

Scott Wallsten and James Riso’s “study,”Residential and Business Broadband Prices, Part 1: An Empirical Analysis of Metering and Other Price Determinants,” claims to have taken a comprehensive look at 25,000 plans offered across North America, Europe and the Pacific to make their case that a residential service plan with a 10GB monthly usage cap would save consumers 27 percent over the price of a comparable unlimited plan, as long as data use stays below the cap.  They also suggest additional savings can be had if consumers lock themselves into term contracts with service providers (most of which carry hefty fees to exit early.)

These results suggest that the unlimited data plans typically offered by most U.S. wireline broadband providers may not be optimal for many consumers. The details of capped plans matter, and how an individual user is affected depends on the base price, allowed data usage, and consequences for exceeding the cap. Nevertheless, because capped plans are—all else equal—cheaper than unlimited plans, many consumers, particularly the low-volume users, are likely to pay less for broadband with data caps than they would for plans offering unlimited data transfer.

Wallsten and Riso make much of AT&T’s recent decision to end unlimited usage for wireless broadband, suggesting that consumers are saving money with new, low-use plans over the company’s old unlimited pricing.  The authors claim close to 70 percent of iPhone users consume less than 200 MB per month, which is the cap for AT&T’s cheaper data plan.

But the authors concede that usage is growing — rapidly in the case of online video, which sets the stage for consumers saving money today, but facing serious overlimit charges on their bills tomorrow:

Some analysts, however, remain concerned that these plans make video streaming impractical given the bandwidth it consumes, could eventually cost consumers more as they use their wireless devices more intensively, and generally make it less likely for wireless to become a viable substitute for wireline broadband. To be sure, while Figure 3 shows that the vast majority of users consume small amounts of data today, it also shows per user mobile data consumption growing quickly, so the number of people who exceed the caps could increase significantly in a relatively short period of time.

Major U.S. wireline providers have not yet introduced metered pricing successfully, though, as shown above, it is common in other countries. An experimental metered pricing plan by Time Warner Cable garnered strong reaction, prompting one group to demand that Congress ―investigate ongoing metered pricing practices to determine the impact on consumers. Some in Congress did, in fact, hold hearings on the plans. In response to this backlash, Time Warner Cable canceled its experiment.

Despite the political reaction, all consumers are not inherently worse off or better off with metered pricing. Low-volume users are likely to be better off under metered plans and high volume users worse off. The net effect on any given consumer depends on his data use, the base price, how much data the base price allows, the price of data when exceeding the cap, and how much he would have paid for an unlimited plan.

Wallsten and Riso also admit several parts of their study are “incomplete,” and “lack data.” We would also include the facts they ignored whether consumers prefer unlimited plans, how customers would feel about a bill with overlimit fees attached, or whether the usage cap levels the authors note in their study are adequate.  They also completely ignore the critical issue of bandwidth cost trends and their relationship to consumer pricing.

But of course they would, considering the same providers who want these pricing schemes are paying the costs for the study.

Welcome to the world of Hired Gun Research.

Wallsten, in particular, has been singing the same cap-happy tune for several years now, churning out the same industry-financed conclusions about broadband.  Back in 2007, he delivered a piece trumpeted by the Progress & Freedom Foundation and the Heartland Institute — two groups notorious for parroting corporate-friendly talking points.  Back then it was about Internet overloads and supporting Internet toll booths for “congestion pricing” after Comcast got caught secretly throttling broadband customer speeds.

Dave Burstein of DSL Prime notes most consumers don’t like caps, lock-in contracts, or speed throttles.

“Policymakers should normally assume that imposing caps generally results in negative consumer welfare. The small efficiency gains don’t come close to making up for a second rate Internet,” Burstein writes. “Everyone is better off with a robust, unthrottled Internet. It allows for an important form of video competition and market access for innovative new net offerings. It’s a better experience for the user and hence more people will be connected, a good thing.”

In this latest study, the two authors completely ignore some very important facts:

• Who sets the pricing for unlimited and usage-capped broadband?  Providers.  Do consumers save money from usage limited plans because of decreased provider costs passed along to consumers or pricing schemes that artificially inflate unlimited broadband pricing to drive customers to “money-saving” limited plans that teach usage restraint or expose consumers to dramatic overlimit fees?

• What are the trends for wholesale bandwidth costs and how does that trend comport with industry pricing schemes that have increased broadband pricing in the United States?  An honest study would reflect these costs are dropping… dramatically, and would introduce the very real question of whether unlimited broadband is a problem in search of a revenue-generating solution that would come from further monetizing broadband with so-called “consumption pricing.”

• What is the consumer perception of usage-limited broadband?  An important part of this equation is whether consumers want unlimited broadband service to be discontinued.  Every study to date not paid for by the providers themselves shows consumers are willing to pay today’s prices for the peace of mind they receive in not being exposed to limits or overlimit fees.  Wallsten and Riso touched on the consumer backlash, to a considerable part coordinated by Stop the Cap!, over Time Warner’s pricing scheme which would have tripled broadband pricing for an equivalent level of service.  But the authors charge on with their pro-cap conclusions regardless.

• Wallsten and Riso’s study only casually mentions the dramatically different paradigms of wireless and wireline broadband.  The former is delivered using technology that is recognized to have limitations that can only be seriously addressed with additional spectrum allocation that could take years to address.  The latter is already being mitigated by cable broadband technology upgrades, fiber optics, and improved backbone connections that often deliver much better access at a fraction of the price providers paid just a few years earlier.  Drawing comparisons between AT&T’s wireless broadband pricing and wireline broadband is dubious at best, especially since two companies largely control pricing and service for the majority of wireless customers in the United States.

• To prove its contention limited broadband service is “common in other countries,” the authors cite a Frequently Asked Questions article by Comcast trying to justify that company’s own usage cap to its customers.  So because Comcast’s PR department says it, it must be true.  In fact, in countries where usage capped broadband has been a traditional problem, consumer demand and public policy efforts have moved providers towards offering unlimited service plans to meet popular demand.  In fact, in countries like Australia, New Zealand, and South Africa, governments have cited usage caps as a serious disadvantage to growth of the digital economy.  Consumers certainly agree.

Burstein adds:

Caps or other throttling measures are almost never imposed because of actual congestion problems (on large, wired networks.)  The caps would be at far higher levels if they were, like Comcast’s 250 gigabytes. The usual explanation is bogus. The typical consumer advocate believes the caps are about preventing competition to the carriers’ own video package. That’s certainly common, but so is price discrimination to yield increased potential revenues. As Scott notes, price discrimination in a strongly competitive market can work out well for all concerned. With strong competition, the benefits flow through to consumers. Since competition in broadband is typically weak, I believe it far more often has little consumer benefit but is good for company profits.

The authors conclude that despite limitations on data available, “The policy implications, however, are clear.  Policymakers should not immediately conclude that data caps and other pricing schemes that differ from traditional unlimited plans are necessarily bad.”  Instead, the authors suggest pricing trends should be evaluated over time to identify the effects on prices, investment and usage.

Although that’s a point Burstein agrees with, we feel there is substantial evidence this debate is based not on experimental pricing to find new customers, but rather a defensive position to respond to an inevitable public backlash against Internet Overcharging schemes.  Providers are desperately looking for excuses to further monetize broadband, cut costs, and deliver an effective impediment to online video competitors using broadband networks to deliver alternative, less expensive services to consumers.

Policymakers should listen to their constituents, who are more than comfortable with today’s unlimited broadband experience.  Nobody objects to experimental low usage plans with discount pricing, but not at the expense of ending or repricing existing unlimited service into the stratosphere.  Today’s broadband industry earns billions in annual profits, even as their costs decline.  Providers have done considerable profit-taking in the last few years from their broadband divisions, slashing upgrades and other investments to keep pace with traffic demands.

A Facebook group has been established to oppose Clear's Internet Overcharging schemes

The clock may be running out on Clearwire, America’s “4G-WiMax” wireless broadband provider controlled by Sprint, with close investment ties to Comcast and Time Warner Cable, who both resell Clear wireless broadband under their own brands.

At issue is money — the lack of it, and the wireless company’s cash on hand has grown so perilously low, Clearwire was forced to admit to its investors it may not survive beyond the first half of next year:

Based on our current projections, we do not expect our available cash and short-term investments as of September 30, 2010 to be sufficient to cover our estimated liquidity needs for the next 12 months. We also do not expect our operations to generate positive cash flows during the next 12 months. Without additional financing sources, we forecast that our cash and short-term investments would be depleted as early as the middle of 2011.

The Securities and Exchange Commission rules governing public companies represent a public relations nightmare for anyone trying to put a positive spin on bad news, and Sprint chief Dan Hesse desperately tried to make lemonade out of the financial lemon Clearwire increasingly represents for the wireless company.

“If you get to the point where you don’t have 12 months of cash in the till, even if you’ve got negotiations going on, or what have you, you have to, from an accounting perspective, say you have a going-concern issue,” Hesse said. “That doesn’t mean that Sprint and other partners won’t continue to fund Clearwire.”

With Sprint’s 54 percent stake in Clearwire defining the entity as a subsidiary of Sprint, its demise could risk Sprint’s own financial well-being, something Sprint plans to address in 2011, potentially ending its majority stake in the company.

For Hesse and his cable partners, Clearwire’s financial problems are being spun as a result of the venture’s success.  The company says it cannot afford the rapid expansion it has undertaken to expand its WiMax network into additional cities across the country, and faces serious financial challenges from the subsidies consumers demand when buying smartphones.

Hesse particularly complains about the latest whiz-bang smartphones consumers demand, many costing upwards of $600.  Consumers in the United States don’t pay full retail price.  In return for two year contracts carrying steep cancellation penalties, carriers cut the price of most high end phones to $200 or less.

“Subsidies are going through the roof in our industry,” Hesse said. Nearly 40 percent of Sprint customers use the company’s 4G network, and that number is rising.

Revenues are up 114 percent from a year earlier to US$147 million. But Clearwire’s losses for the last quarter alone amounted to $139 million, or $0.58 per share.

As a result, Clearwire slashed 15 percent of its staff, laying off nearly 600 employees and has indefinitely suspended its expansion plans to bring the network to additional cities.  Clearwire will also shutter many of its planned retail outlets — some already built — and delay the introduction of its own branded smartphone.

But even that may not be enough.

Although Clearwire’s growth has been double the level anticipated, achieving a net gain of 1.23 million subscribers in the third quarter — reaching 2.84 million total subscribers, not all of those customers are sticking around once they begin using the service.

Complaints about the company’s poorly disclosed speed throttling continue to be a regular topic on Clear’s support forums.  At least 1,000 complaints have been logged on Clear’s own support forums and elsewhere online about the speed traps.  A Facebook group opposing the schemes has also been established.

Stop the Cap! filed a formal complaint with the New York Attorney General’s office accusing the company of false and misleading advertising and fraud for claiming customers would enjoy “blazing fast speeds” with no limits or speed throttling, despite the fact company officials later admitted they were throttling customers deemed to be “using the service excessively.”  Dozens of additional complaints from Clearwire customers have been filed with state Attorneys General across the country, as well as with the Federal Trade Commission in Washington.

Just how much is too much has never been made clear by the company, but many users report the speed throttle reduces speeds to 250kbps, often for hours at a time.

Clearwire told Electronista:

Throtting is based on the current utilization for each cell tower, and many low-use towers do not throttle speeds at all. For high-use towers, throttling occurs during peak-use times.

A customer’s maximum speed is based on the number of gigabytes of data transferred in the past seven days and the download speeds for the past 15 minutes. Speeds are recalculated every 15 minutes, at which point a throttled customer will be bumped up to a higher speed. Rather than implementing one speed for throttling, the calculations will move customers between 48 different speed brackets.

The worst offenders using peer-to-peer software on Clearwire’s network may face repeated throttling.

Clearwire advertises a faster Internet experience for their 4G service, but many report they receive speeds far slower, even if they have engaged in very little usage.

Many consumers are also unknowingly finding themselves back on Clear’s network even though they signed up with a third party provider.  Clear resells access to its network under a variety of different brands not limited to Sprint, Road Runner Mobile, Comcast Internet2Go, and Best Buy Mobile/Wireless.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Clear Speed Woes 11-10-10.flv[/flv]

This Clearwire customer visits a Clear hotspot location and discovers even on a Wi-Fi network, Clear’s speeds don’t match their advertising claims.  Then, he discovers just how sneaky Clearwire gets in disclosing important information about the company’s wireless speeds customers might want to know before signing up.  (5 minutes)

Yet another telecom industry-backed front group claiming to represent the interests of small businesses managed to get its very-predictable opposition to Net Neutrality published in this morning’s Washington Post.  That is a small achievement considering the newspaper’s editorial page that increasingly promotes Big Telecom’s agenda.

This time it was the AT&T-sponsored “Small Business & Entrepreneurship Council,” which the Post claims is a “nonpartisan advocacy and research organization dedicated to protecting small business and promoting entrepreneurship.”  Hardly.  More on that later.

Karen Kerrigan is president, chief executive — and head regurgitator of the same false talking points AT&T and others have used to oppose Net Neutrality from the start:

The Federal Communications Commission is poised to impose new rules on the Internet using an outdated regulatory regime originally designed for the monopoly telephone system of the 1930s.

[…]Essentially, government regulations and bureaucrats would now direct how traffic over the broadband Internet flows rather than privately managed networks — they would also dictate what type of speeds, services and prices consumers should have (one size fits all) rather than let the market and innovators determine those things.

[…]Net neutrality rules would give the FCC new powers to micromanage the operations and pricing and service levels of the privately owned and financed broadband networks that are the physical heart of the Internet. This is a strategy for chasing away the billions of dollars that broadband network operators (principally the telecom and cable companies) plan to invest in broadband infrastructure and new technology.

Kerrigan

Of course, the “outdated regulatory regime” we’ve heard about from AT&T repeatedly is not coming along for the ride in broadband reform… only the authority to provide an effective checks-and-balances system for the marketplace duopoly most Americans find when shopping for Internet access.  Nothing about Net Neutrality dictates speeds and prices consumers pay for broadband.  Considering the United States continues to lose ground in broadband rankings, all of the innovation the SBE claims would be lost was never here to lose.  It has been in South Korea, Japan, and increasingly eastern Europe.

Net Neutrality does not micromanage operations, pricing, or service levels.  In fact, it is the most simple, easy to understand government proposal around.  It states simply that broadband providers will treat all websites equally, will not run toll booths to extract extortion payments from content producers to guarantee their material won’t be artificially slowed down or blocked, and guarantees no provider censorship.  The industry’s claims that Net Neutrality will harm investment is phoney-baloney from the phone and cable companies.  They’ve earned fat profits in a Net Neutral-world for a decade.  But now decreasing interest in landlines and cable TV service means they’re trolling for more revenue, and they think they’ve found an untapped goldmine setting up toll booths on the Internet.

In Kerrigan’s world view, not allowing AT&T and Verizon to install paywalls, speed throttles, and establish paid special relationships with big businesses harms small businesses.  To prove her case, Kerrigan quotes Evelyn Nicely, president of Springfield-based Nicely Done Kitchens:

“Small businesses such as ours depend on every tool we can use to succeed. Undoubtedly, our strongest ally in terms of client communication, marketing, and product specifications comes from the use of broadband and the Internet. It has given us the ability to compete with anyone, even the larger and better-funded players in our industry, through our Web site and its innovative tools, which enable us to effectively market our services to the public.”

Of course, nothing in Nicely’s comments opposes Net Neutrality.  In fact, such important broadband reform preserves the strongest ally her business has — a free and open Internet that lets her compete with far larger players on an equal, level playing field.  The biggest threat to that level playing field is not passing Net Neutrality.  It would allow companies like Lowes or Home Depot to become paid, preferred content partners with broadband providers who could direct Ms. Nicely’s potential customers not to her website, but to them.  Large companies who can afford the price will find their ads splashed on broadband provider-home page portals that deliver customized web searches, preferred partner online ads and error redirection pages that can send customers who may mistype Nicely’s business name to her direct competitors.

How Nicely could ultimately manage to keep her business open in a broadband world where special favors can be bought and delivered should be a major concern for her and every other small business.

Kerrigan's Small Business Survival Committee was dedicated to serving the interests of Big Tobacco companies like Philip Morris.

It’s no concern of the SBE, whose corporate backers keep this front group up and running.  But then it’s not the friend of small business it claims to be, and it’s hardly a “council.”

Before discovering the money that can be made parroting talking points for big cable and phone companies, Kerrigan was shilling for Big Tobacco, getting substantial contributions for her Small Business Survival Committee (a/k/a Small Business Survival Foundation) which received more than $100k from Philip Morris, hardly a small business at the time.

The SBE knows how to attract media attention through catnip-like “scorecards” that rank elected officials based on just how friendly they are to SBE’s benefactors.  The group and its leaders are darlings of conservative political media.  Their views see Communism anywhere individuals collaborate on their own in a way that costs big business profits.  Its chief economist even saw Borg-socialism in the concept of “open source” software:

“In the software universe, something similar to the Borg from ‘Star Trek’ seems to be at work,” declared SBE’s Raymond J. Keating. “It’s called open source software distributed under an agreement known as General Public License (GPL). If you recall, the Borg are ‘Star Trek’ bad guys. They’re basically evil bureaucrats with skin problems, who assimilate every species they come in contact with throughout the universe. Societies are wiped out. Individual thought and creativity are extinguished as individuals are absorbed into a collective. Something similar could be said of GPL-based open source software.”

An impartial, fair observer of telecommunications policy for small business the SBE is not.

Unfortunately, the Washington Post, whose parent company owns cable operator Cable One, has little incentive to see through the SBE’s haze of telecom industry-inspired talking points.

Reed Hastings, CEO of Netflix, shows off the company's growing reliance on broadband streaming, moving away from its original DVD-by-mail rental business.

Last week, Netflix CEO Reed Hastings was showered with questions from Wall Street during the company’s third quarter-results conference call.  At the top of the agenda — the company’s shifting business model away from DVD rentals-by-mail gradually towards instant on-demand streaming over broadband networks.

At issue is how Netflix can survive a broadband industry that controls the pipeline Netflix increasingly depends on for its continued existence.

Hastings tried to assuage his cable competitors by telling investors the company is hardly a threat to cable-owned movie channels and basic cable.  But he admits ultimately the company will be in a real mess if Internet Overcharging schemes like usage caps and speed throttles limit the amount of content customers can affordably access:

“We have some vulnerability depending on capped usage and what happens. Comcast has a cap, but it’s 250 gigabytes and so most users feel that they have an unlimited experience, and it gives us plenty of room to deliver a high-def stream. On the other hand, AT&T Mobile data on an iPad is now capped at two gigabytes, [and that’s] not enough room to deliver hours and hours of high-def.  We are definitely sensitive [to the issue] in the long term [whether] the industry ends up at 250 gigabytes or two at the other extreme.”

There is some limited evidence Netflix’s success in Canada is already being tempered by usage limits near-universally imposed in the country.  Rogers, a major cable company in eastern Canada, even reduced usage caps for certain tiers of service around the same time Netflix announced its imminent arrival north of the border.

Barry McCarthy, Chief Financial Officer notes fewer Canadians are converting their free trials of Netflix’s streaming service into paid subscriptions.

“We anticipate we are seeing slightly lower conversion rates in Canada than we see in the U.S.,” McCarthy told investors.

As Netflix moves towards higher quality video streams, the amount of data consumed increases as well.  In Canada, that eats into broadband usage allowances, and fast. As soon as customers start receiving warnings they are nearing their monthly usage limit, or receive a broadband bill with overlimit fees, Netflix is likely to lose that customer.

Cable and phone companies in Canada are already warning customers that online video is a major culprit of exhausted usage allowances.  Both are also happy to remind their customers they are happy to sell them access to unlimited video — through cable or telco TV subscriptions.  Rogers owns a major chain of video rental stores as well.

What can Netflix do about usage capped broadband?  Not much, admits Hastings.

“There is a not a lot of improvement in compression techniques. But what we can do is just deliver a lower bit stream, a lower quality video experience. So, for example, not too high-def. So, that’s one possible way to partially mitigate that impact,” Hastings said.

Netflix will soon face increasing competition, especially from the cable industry’s TV Everywhere projects, and they won’t deliver a lower quality video experience.

Time Warner Cable and Comcast this month both formally introduced their respective video on demand services.

Comcast’s Xfinity online service arrives after months of beta testing.   Comcast customers can watch video selections from nearly 90 movie and television partners, including programming from HBO, Viacom, and Paramount.  Ultimately, the online video service is expected to deliver access to dozens of cable channels and individual programs from studios and networks at no charge to those who subscribe to a cable television package.

Time Warner Cable took a more modest approach last week by introducing ESPN Networks to its cable subscribers who register with the cable company’s MyServices website.  The new customer portal allows subscribers to review and pay their cable bill, add new services (but not cancel existing ones), remotely program DVR boxes, and also verifies subscriber status for future cable subscriber-only online video programming.

Netflix may soon find itself at the mercy of the cable and telephone companies which deliver broadband access to the majority of Americans.  Not only is it difficult to convince customers to pay a monthly fee for programming the cable industry may eventually give away for free, it may be downright impossible for Netflix to survive if those providers decide to squeeze the customer’s pipeline to unlimited Netflix content.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Comcast Xfinity Ad Spot 10-2010.flv[/flv]

Comcast Ad Introducing Xfinity Online.  (1 minute)

With continued inaction at the Federal Communications Commission, some stakeholders in the Net Neutrality debate continue to file comments with the Commission trying to find a “third way” to bring about guarantees for online free speech and access while softening opposition to “network management” technology that allows providers to manipulate broadband traffic.

Among such filers is the Communications Workers of America, which seeks a “middle-ground approach” to protecting a free and open Internet.

The CWA has always maintained its feet in two camps — with consumers looking for improved broadband and with the communications companies that employee large numbers of the union’s members, who will build out those networks and provide service.

The union shares our annoyance with FCC Chairman Julius Genachowski for his complete inaction on broadband policy thus far.  In short, the Commission keeps stalling from taking direct action to reclassify broadband as a telecommunications service, restoring its ability to oversee broadband policy lost in a federal appeals court decision earlier this year.

The CWA used a piece by David Honig from the Minority Media and Telecommunications Council (MMTC) to echo its own position:

MMTC isn’t alone in being frustrated with the FCC’s disappointing attitude toward real action this past year. In a recent interview with the Wall Street Journal, FCC Chairman Julius Genachowski expressed impatience with the glacial pace of policymaking at his Commission. Although he mentioned that the FCC, under his direction, has implemented some notable reforms, he conceded that “there is still a lot to do.”

Unfortunately, regardless of how earnest the Chairman is in his desire to move forward with the business of policymaking, his actions speak much louder than his words. Indeed, his yearlong pursuit of network neutrality rules — first via a traditional rulemaking proceeding and, most recently, via an effort to reclassify broadband as a telecommunications service — has cast a long and almost suffocating pall over many of the items that the Chairman wishes to act upon. His inaction on civil rights issues — especially EEO enforcement — is just one example of how paralyzed the agency has become.

Recent news that Congress will not move forward to address the regulatory questions that currently vex the Commission (e.g., whether the FCC has authority to regulate broadband service providers) could embolden the Chairman to adopt the sweeping regulatory changes for broadband that he proposed earlier this year. Doing so in the absence of Congressional action would only invite immediate legal challenges that would mire the FCC in litigation, appeals, and remands for years to come.

To put it plainly, the FCC is stuck. Although it recently adopted some promising orders related to broadband (e.g., new rules for accessing new portions of wireless spectrum called “white spaces” and for enhancing access in schools and libraries), the Commission has failed to move forward with implementing core provisions of its monumental National Broadband Plan.

The union last week also submitted its latest round of comments requested by the Commission, this time to broaden its position on a proposed compromise.  We’ve delineated which of the proposals we believe are primarily pro-consumer (in green), pro-provider (red), and which fall straight down the middle (blue):

• First, wireline broadband Internet access providers (“broadband providers”) should not block lawful content, applications, or services, or prohibit the use of non-harmful devices on the Internet.
• Second, wireline and wireless broadband providers should be transparent regarding price, performance (including reporting actual speed) and network management practices.
• Third wireline broadband providers should not engage in unjust or unreasonable discrimination in transmitting lawful traffic.
• Fourth, broadband providers must be able to reasonably manage their networks through appropriate and tailored mechanisms, recognizing the technical and operational characteristics of the broadband Internet access platform.
• Fifth, the Commission should take a case-by-case adjudication approach to protect an open Internet rather than promulgating detailed, prescriptive rules.

The first and third principles are strongly pro-consumer, although as we’ve seen, providers have a tendency to want to define for themselves what is “harmful,” “unjust,” or “unreasonable” and impose it on their customers.  We’ve seen provider-backed front groups argue that the concept of Net Neutrality itself is all three of these things.  Any rules must be clearly defined by the Commission, not left to open interpretation by providers.

The second principle cuts right down the middle.  Consumers deserve an honest representation of broadband speeds marketed by providers (not the usual over-optimistic speeds promised in marketing materials), and transparency in price — especially with gotchas like term contracts, early cancellation penalties, overlimit fees, etc.  But providers can also go to town with abusive network management they’ll market as advantageous and fair, even when it is neither.  Just ask customers of Clear who recently found their “unlimited” wireless broadband service, marketed as having no speed throttles, reduced in speed to barely above dial-up when they used the service “too much.”  Clear says the speed throttles are good news and represent fairness.  Customers think otherwise, and disclosure has been lacking.

The fourth and fifth principles benefit providers enormously.  Network management itself is neither benevolent or malicious.  The people who set the parameters for that management are a different story.  A traffic-agnostic engineer might use such technology to improve the quality of services like streamed video and Voice Over IP by helping to keep the packets carrying such traffic running smoothly, without noticeably reducing speeds and quality of service for other users on that network.  There is nothing wrong with these kinds of practices. There is also nothing wrong with providing on-demand speed boosts on a pay-per-use basis, so long as the network is not oversubscribed.

But since providers are spending less to upgrade their networks, providers may seek to exploit these technologies in a more malicious way — too stall needed upgrades and save money by delivering a throttled broadband experience for some or all of their customers.  If customers can be effectively punished for using high bandwidth applications, they’ll reduce their usage of them as well.  That’s good for providers but not for customers who are paying increasing broadband bills for a declining level of service.

Some examples:

• Customers using high bandwidth peer-to-peer applications can have their speeds throttled, sometimes dramatically, when using those applications;
• Internet Overcharging schemes like usage caps, overlimit fees, and “fair access” policies can discourage consumers from using services like online video, file transfer services, and new multimedia-rich online gaming platforms like OnLive, which can consume considerable bandwidth;
• Preferred content can be “network managed” to arrive at the fastest possible speeds, at the cost of other traffic which consequently must be reduced in speed, meaning your non-preferred traffic travels on the slow lane;
• Providers can redefine levels of broadband service based on intended use, relegating existing packages to “web browsing and e-mail” while marketing new, extra-cost add-ons for services that take the speed controls off services like file transfer and online video, or changes usage limits.

The CWA runs the Speed Matters website, promoting broadband improvements.

It is remarkable the CWA seeks to allow today’s indecisive Commission to individually adjudicate specific disputes, instead of simply laying down some clear principles that would not leave a host of loopholes open for providers to exploit.

Big players like Comcast, AT&T, and Verizon have plenty of money at their disposal to attract and influence friends in high places.  If the Commission thought Big Telecom’s friends in Congress were breathing down its neck about telecom policy now, imagine the load it will be forced to carry when these companies seek to test the Commission’s resolve.

Opponents of Net Neutrality claim broadband reclassification will leave providers saddled with Ma Bell-era regulation.  But in truth, the FCC can make their rules plain and simple.  Here are a few of our own proposals:

1. Network management must be content-agnostic.  “Preferred partner” content must travel with the same priority as “non-preferred content;”
2. Providers can use network management to ensure best possible results for customers, but not at the expense of other users with speed throttles and other overcharging schemes;
3. Providers can market and develop new products that deliver enhanced speed services on-demand, but not if those products require a reduction in the level of service provided to other customers;
4. Customers should have the right to opt out of network management or at least participate in deciding what traffic they choose to prioritize;
5. Providers may not block or impede legal content of any kind;

In short, nobody objects to providers developing innovative new applications and services, but they must be willing to commit to necessary upgrades to broaden the pipeline on which they wish to deliver these services.  Otherwise, providers will simply make room for these enhanced revenue services at your expense, by forcing a reduction in your usage or reducing the speed and quality of service to make room for their premium offerings.

The industry itself illustrates this can be done using today’s technology.

The cable industry managed to accomplish benevolent network management with products like “Speed Boost” which delivers enhanced, short bursts of speed to broadband customers based on the current demand on the network.  Those speed enhancements depend entirely on network capacity and do not harm other users’ speeds.

Groups like the CWA need to remember that compromise only works if the terms and conditions are laid out as specifically as possible.  Otherwise, the player with the deepest pockets and closest relationships in Washington will be able to define the terms of the compromise as they see fit.

And that’s no compromise at all.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/CWA Larry Cohen on the Open Internet Jobs and the Digital Divide 9-14-10.flv[/flv]

Communications Workers of America president Larry Cohen outlined the union’s position on Net Neutrality before the Congressional Black Caucus Institute on Sept. 14, 2010.  (2 minutes)