Talking Points

One of the grand mysteries of the entire “broadband can no longer be unlimited” argument is the incredible range of usage caps cable operators and telephone companies suggest are required to keep them from going the way of the U.S. auto industry.  Broadband providers doing capping will swear that their cap model is the only one that is “fair” and “protects consumers” and “allows us to make required upgrades.”  Once those arguments are recited in a unified chorus, corporate spokesfolks zig zag their way all over the place explaining why their 5/40/150/250GB cap is fairest of them all, while trying to ignore those providers who are quite happy and profitable with no cap at all.  The customer is the last person they ask, because they know the answer from most will be, “no cap at all.”

This bring several questions to the table:

• Can you provide us with the raw data that illustrates there is a major problem with the current unlimited broadband model and that it cannot sustain profitability except with usage caps?
• Can we obtain independent analysis of that data by a third party and/or put together a conference of business, public, and educational groups to consider new possibilities to deal with what is rapidly becoming a utility-type service?

The answers to those questions have been, by all major industry players, an emphatic “no.”  You are required to take their word there is a problem and their solution is the only one that works.  And, for that matter, take their word they have an infallible way to measure and bill for usage under a consumption based model.  You can independently verify your usage all you want, as long as you pay the bill they send you with their own usage measurement.

It’s not that we’ve been the only ones asking.  Broadband Reports has the same questions we do, and asked for the hard data to prove that flat-rate pricing is simply untenable going forward.  And here was their response:

“We’ve shared our analysis of our data. We’re not going to share raw data…just not going to happen.”

Okay then, I guess that settles that!

That provokes us to first ponder whether there actually -is- a crisis in the flat rate broadband industry at all?  A press release or a claim by a company official isn’t evidence of anything.

Assuming we will never get a satisfactory answer to that question, how about these:

• Why can a company like Time Warner be unable to survive with flat rate pricing in Rochester, Austin, San Antonio, and Beaumont, but can deliver faster speeds with no cap in cities where they face strong competition from uncapped providers?
• If the company was interested in an honest assessment of marketplace reaction to usage caps, why not test in communities with the most robust and challenging competition?
• Why should customers not be deeply offended for being involuntarily turned into guinea pigs and be expected to pay more for a dramatically reduced level of service?
• Why is the nation’s largest cable operator Comcast able to deliver service with a 250GB limit at their current pricing, Verizon FIOS is able to deliver a product line twice as fast as Time Warner with no usage cap at all, and the nation’s second largest cable operator Time Warner needs consumers choosing a meager 20GB tier to not only pay $10/month more than their current unlimited service, but also pay a penalty of $1 for every extra GB?

That old axiom about pricing what the market will bear comes to mind, particularly considering the fact Time Warner is only interested in “gathering facts” from cities where the competition is limited.

The fact the Internet of the last few years is becoming an increasing threat to the video side of the cable industry may also have something to do with it.  That will be the subject of an upcoming Talking Point.

Usage Caps on Selected Broadband Service Providers

Charter Cable – Cap starts at 150GB for “light user” plan, removed entirely for deluxe plan (60Mbps service) – Violators are asked to select higher tier service or face account suspension – No meter yet

Comcast Corporation – Residential accounts limited to 250GB usage per month – Violators face account suspension – Tracking meter provided

Time Warner Cable – Residential accounts limited to 5-40GB currently, Violators face $1 per GB overage fee – Tracking meter to be provided

Verizon FIOS – Residential accounts are unlimited.  No violation, no tracking meter required

The New York Times (hat tip: Shawn808) just exposed the argument from cable companies like Time Warner, who argue for punitive rate hikes and Internet rationing plans, as little more than a naked profit grab in an insufficiently competitive marketplace.

Competition, or the lack of it, goes a long way to explaining why the fees are higher in the United States. There is less competition in the United States than in many other countries. Broadband already has the highest profit margins of any product cable companies offer. Like any profit-maximizing business would do, they set prices in relation to other providers and market demand rather than based on costs.

Pretty much the fastest consumer broadband in the world is the 160-megabit-per-second service offered by J:Com, the largest cable company in Japan. Here’s how much the company had to invest to upgrade its network to provide that speed: $20 per home passed.

The cable modem needed for that speed costs about $60, compared with about $30 for the current generation.

Meanwhile, Time Warner made dubious claims that it required a punitive rationing plan and rate hike to increase profits to “invest in technology to keep up with demand.”  Other cable operators are deploying DOCSIS 3.0, an upgrade to the current cable broadband delivery platform, as a normal cost of doing business.  The upgrade actually benefits cable operators in meeting demand and reducing neighborhood congestion, by “bonding” multiple channels of data together to “fatten the pipeline.”  Time Warner has dragged its feet on doing this upgrade, according to the Times.

Most systems can be upgraded for no more than about $100 per home, including a new modem. Moreover, the monthly cost of bandwidth to connect a home to the Internet is minimal, executives say.

Yet Time Warner’s rationing plan, announced last week, would dramatically increase the price of Road Runner service, in some cases by hundreds of dollars per month, well above the costs the company claims it must pay to upgrade its network.  Even more moderate users will be paying far above the amortized cost of the network upgrade, month after month, indefinitely.  Some other operators are not imposing Time Warner’s ludicrously low usage caps and demanding more money for them.  They just charge considerably more for faster service.

So what’s wrong with this picture in the United States? The cable companies, like Comcast and Cablevision, that are moving quickly to install the fast broadband technology, called Docsis 3, are charging as much as $140 a month for 50 Mbps service.

Let’s compare and contrast what is entirely profitable in Japan vs. what Time Warner whines they need to just eke by:

Liberty Global – 160Mbps unlimited access – $60 per month¹

NTT Communications – 100Mbps unlimited download/930GB upload cap per month + free phone line – $42 per month²

Time Warner – 10Mbps 40GB usage cap – $55 per month ($1 each additional gigabyte)³

¹New York Times April 3, 2009   ²Broadband Reports June 25, 2008  ³Rochester Democrat & Chronicle April 3, 2009

So why does Time Warner really need to ration your Internet service and punitively limit your use of the net? Michael T. Fries, the chief executive of Liberty Global is candid:

Fear. Other cable operators, he said, are concerned that not only will prices fall, but that the super-fast service will encourage customers to watch video on the Web and drop their cable service.

The industry is worried that by offering 100 Mbps, they are opening Pandora’s box, he said. Everyone will be able to get video on the Internet, and then competition will bring the price for the broadband down from $80 to $60 to $40.

Aren’t you worried that the prices will fall too? I asked.

“Maybe,” he said very slowly. “We’ll see how it happens. We want to keep it up there for now. It is a premium service.”

Talking Points

One of the many arguments you will hear from the pro-rationing broadband providers is that “flat rate, unlimited” pricing is unfair.  A much fairer approach is to charge you for only what you use.

You don’t get flat rate service from your power company.  You have to pay for what you use.  Our company feels it’s fairer to every customer to charge for access just like your local gas and electric company does.  Then you only have to pay for what you actually use.

If you hear this argument, consider this:

With your gas and electric service, you control what you consume.  Don’t want to pay as much?  Turn off lights and lower the heat – you have absolute control.  But in the broadband world, it’s impossible to do this.  That’s because you do not have total control over your Internet connection.

Do you have to provide an electrical outlet for the guy standing outside of your front door with a power drill trying to break your lock and force his way in?  That’s what happens every day on your broadband connection.  Hackers, bots, network probes and other uninvited traffic is continuously arriving at your cable modem.  That blinking data light on the front of your modem is all you need to know that with usage caps, you are now paying for all of that traffic, day in and day out, 24 hours a day.  Time Warner, among others, apparently is incapable of stopping it, but they do feel capable of asking you to pay for it.

Right in the middle of preparing dinner, are you compelled to let the Viagra salesman, a home refinance scammer, a Nigerian with an offer you can’t refuse, and Capital One into your kitchen to pitch you products and services?  If these people broke into your home and turned on all of your lights and turned the heat up, you’d call 911 and have them arrested.  They can’t just move in and jack up your utility bills.  But on broadband, not only are they allowed into your home through web advertisements, pop-ups, and spam e-mail, but now you are expected to also pay for it!  This article brought to you by that free Nintendo Wii you just “won.”  Congratulations!  And since that pop up ad had audio in it, you owe us an extra nickel.

When you arrive home from work, is a power company representative parked in your driveway banging on your door begging to upgrade your meter because they found a major flaw in it after they installed it?  Probably not, and even it was true, you wouldn’t be billed for their problem.  But in the broadband world, Microsoft comes knocking at least once or twice a month with critical patches, bug fixes and upgrades, all of which consume bandwidth you are now being asked to pay for.  Be it a Linux distribution, an update for your iPod, or the latest antivirus definitions required to keep your online experience safe (because your broadband provider cannot), cough up the cash!

Whatever you do, don’t ask this question:

If my broadband connection is just like my gas and electric service, shouldn’t you also be regulated by the government to ensure you are providing fair, equitable, and reliable service?

On August 13th, Microsoft’s motherload of bug fixes, updates, and upgrades landed on the desktop in my office, which still runs Microsoft XP.   From ActiveX Killbits to the Windows Malicious Software Removal Tool – August edition, some 14 patches adding up to 37 megabytes of data were delivered over my broadband connection.   Considering the fact we maintain three desktops and three laptops here, that 37 megabytes just became 222 megabytes, just for whatever problems Microsoft uncovered this month.

In a usage cap environment, even routine software updates count against your monthly bandwidth allotment.   And don’t forget to include the frequent updates to anti-virus, anti-spyware and other related applications that will bring  updates sometimes more than once per day.

While no single application  of this type will consume  an enormous amount of bandwidth, the impact is cumulative.   A little here, a little there, and suddenly you find yourself over the limit.

It’s just one more talking point to consider mentioning in a broadband world hampered by usage caps and limits.

[Update: A great comment from rreay reminds me of these updates in the last week or two as well.   Anyone have any more to add to the list?]

• The recent iPhone/iPod touch update was 250 MB.
• 60 MB for the last iTunes/Quicktime update.

Robb from Hillsboro, Oregon graciously gave permission to share his own research on what a 5GB cap means in the real world.   Some upset about the usage cap announced by Frontier have suggested that’s almost as bad as going back to dial-up.   But as Robb discovered, you would be better off with 56k dialup! That’s because an unlimited Frontier dial-up account can deliver more to you in a month than a crippled DSL account with a 5GB usage cap on it.

See the numbers for yourself:

Courtesy: Robb (a/k/a 'funchords'), Hillsboro, Oregon