Commissioners of the National Telecommunications Commission (NTC), led by its chair Gamaliel Cordoba (middle, in blue shirt) preside in a public hearing Tuesday on the proposed circular requiring broadband data limit for consumers and minimum broadband speed for service providers. The event, which was held at the NTC main office in Quezon City, was attended by various industry stakeholders, including telcos, bloggers, and consumer advocacy groups. Photo by Melvin Calimag; Courtesy: GMANews.tv

Philippine consumers won a major victory this morning, successfully stripping language permitting Internet usage limits from a broadband reform measure before the country’s telecommunications regulator.

In a newly revised draft, this language written by and for some of the nation’s largest telecom providers was removed after a major consumer push-back:

“WHEREAS, it has been observed that few subscribers/users connect to the internet for unreasonably long period [sic] of time depriving other users from connecting to the internet; NOW, THEREFORE… Service providers may set the maximum volume of data allowed per subscriber/user per day.”

Consumer rights group TXTPower was instrumental in exposing the provider-written language and generating a groundswell of opposition to broadband usage limits.  The group’s leader Tonyo Cruz said Internet Overcharging schemes like usage caps deliver all of the benefits to providers while limiting consumer access and increasing bills.

“The adoption of [usage caps] will destroy social media in the Philippines and affect businesses,” Cruz told commissioners at a National Telecommunications Commission public meeting attended by consumers.

Cruz compared broadband in the Philippines with a turtle race.

“Imposing caps would be like putting speed limits on slow-moving turtles,” he said.  “It is one thing for telcos to say that a small percentage of consumers abuse their networks, but is another and more important thing to know whether they actually deliver the promised services and whether they have at the moment or in the future the capacity to deliver them.”

Cruz says his group doesn’t oppose providers dealing individually with consumers who use their accounts to the point of creating problems for other users on the network, but a blanket usage limit punishing every Filipino was unacceptable.

The issue rapidly became a political hot potato when ordinary Filipinos contacted their elected representatives to protest the measure.

Kabataan Partylist representative Mong Palatino put the Commission on notice: “NTC’s draft memo [including usage caps] is clearly anti-consumer and regressive. It tramples on the rights of the consumers to get what they pay for in terms of a reliable Internet service,” Palatino wrote in a widely distributed statement. “By allowing telcos and Internet Service Providers (ISPs) to limit Internet speed and connection, NTC seemingly wants the whole nation to regress to an Internet era that is much slower and highly unstable,” Palatino explained.

For Cruz, the entire argument for usage caps and the complaints about consumers using too much Internet service “ring weird.”

“The telcos who complain about over-use are the same companies actively encouraging consumers to use the Internet and become avid Internet users, to watch and upload videos and photos,” Cruz noted.

Cruz and other consumer activists want the Commission to hold additional public hearings, and stream them live over the Internet.

Filipinos looking for reasons why broadband providers want to limit their Internet usage can find all the explanations needed in the financial reports of companies enthusiastically supporting Internet Overcharging proposals.

As ABS/CBN News noted, “To say that 2010 was a difficult year for the Philippine telecommunications industry is an understatement.”

“Consumers are demanding an unlimited telecommunications experience,” says Renato Razón, an investor and telecom industry watcher for more than 30 years. “The wireless sector and the growth of the Internet, and the companies that compete to provide both, have turned telecommunications in this country on its head.”

Razón tells Stop the Cap! the privatization of telecommunications initially showed a lot of promise for investment and development to get the country on the Asian economic fast track.  But increasingly in recent years, companies have grown fat and lazy, trying to compete with existing networks in need of upgrades — in search of quick profits and no costly capital expenses.

“They learned what they think are important lessons from the huge amounts of money that were spent to build and upgrade wireless networks in the Philippines,” Razón tells us. “They were convinced it was worth countless billions to build wireless infrastructure and wait for the enormous profits that would come later, but then everyone wanted to get into the business and the big profits they thought they’d get never materialized.”

Razón says wireless competition that exploded across major cities in the Philippines was initially a boon to consumers, who today benefit from heavily marketed unlimited calling and texting plans at declining prices.  But now that profits are taking a hit, investors and company executives learned what they feel is a bitter lesson.

As wireless becomes a mature market in the Philippines — with more than 80 percent of consumers already using wireless devices, almost all of the marketing from existing providers targets customers of their competitors.  Customers threatening to switch force providers to offer steeply discounted retention deals that are often infinitely renewable.

Such fire sale pricing enrages investors, who are calling for greater industry consolidation among the three largest operators.  With a fourth provider possibly on the horizon, the chorus demanding that some of the players get out of the market through mergers and acquisitions for the “good of all” could soon grow too loud to ignore.

“Heavy competition is your worst nightmare — it results in price wars and everyone, except consumers of course, are hurt in the end,” he admits.  “I admit I have to divorce myself from the fact my family and I are also consumers — and we love the lower prices — but as an investor, I understand the loud demands to improve shareholder value.”

Razón says executive compensation, often tied to financial performance, delivers the ultimate incentive that executives answer first to shareholders, not customers.

“If a handful of customers get angry at you, that doesn’t cost you the company-paid vacation on the French Riviera and a healthy bonus — an angry compensation committee answering to a dispirited Board of Directors could,” Razón says.

Razón says it’s the same story wherever private companies control telecommunications with few regulations governing their operations.  He believes private market solutions without regulatory oversight helps him more than it helps you.

“I understand what the Philippine government wants — regulations to promote better broadband, but they are only hearing from industry people on how to accomplish that,” Razón believes.  “They answer to shareholders who think about short term results and the health of their investment, not the overall health of the broadband marketplace.”

With financial results for 2010 showing the impact of price competition and predictions of another year of anemic profits, providers are looking for new revenue streams.  Broadband offers one of the few major growth opportunities available to telecom companies in the short term, Razón says.

“At least half this country doesn’t have meaningful broadband, so if you can deliver service over existing infrastructure, keeping capital costs low, you couldn’t count the money coming in fast enough,” Razón says.  “DSL from the phone companies delivers it all — existing phone wires delivering a value-added service to existing phone customers.  It’s not fast, but it’s cheap.”

Rafael Aguado, the chief operations officer of Bayan Telecommunications, agrees the real revenue is in broadband:

“2010 was a challenging year for the telcos, as competition intensified and the Internet/social media and new technologies influenced the shift on consumer behavior on how to communicate, putting pressure on traditional revenue sources like voice calls and international long distance calls. Data and internet subscribers continued to increase and is expected to accelerate to the next level of sustained growth.  It was a difficult year for Bayan but performance was consistent with the industry trend. Total revenue decreased due to lower voice revenues but residential internet and corporate data services posted revenue growth. With sound operating expense management, we expect the year to end in double digit growth in EBITDA. Our growth drivers next year would continue to be data and internet services for both consumer and corporate sectors.”

Philippines Long Distance Telephone Co.

Razón believes usage caps are just another mechanism to protect companies from performing costly upgrades.

“If you can limit usage, you don’t have to spend as much capital upgrading,” Razón says.  “Investors don’t mind if you spend to expand DSL into new territories, because the costs are relatively low.  They will get upset if your support and ongoing costs increase, however.”

That could explain the growing burdens of wireless traffic on the country’s cellular networks.  Some providers have been accused of deliberately overselling access to their networks while refusing to upgrade them to meet growing demands, because the return on “unlimited use” doesn’t deliver:

“The telco industry had a good year but its profitability was greatly reduced due to the highly competitive ‘unlimited plans’ that each provider offered its subscribers. This trend would continue this coming year,” said Ivan Uy, chairman, Commission on Information and Communications Technology (CICT). “What needs to be looked into is the deteriorating service availability or accessibility due to network congestion brought about by the unlimited plans. Customer dissatisfaction has been rising because of higher frequency of dropped calls, delayed SMS, and line unavailability.”

When given a choice how to solve this problem, most companies prefer to advocate for usage limits, not mass scale upgrades.

Even long distance companies, which played through a price war more than a decade ago, see the flow of investment heading into broadband.  Unfortunately, in their eyes, usage demands are coming along as well:

“Competition intensified in the cellular business. Broadband grew strongly. Margins came under pressure even as demand for more network resources increased. For PLDT, 2010 has been a year when it maintained its market leadership in the face of these challenges. Our focus has been managing this transition where traditional revenue sources such as fixed toll revenues like IDD and NDD were on the decline while new revenue sources such as broadband were on the rise. We preserved margins by strengthening cost management given the modest top-line growth.

“We expect the challenges of 2010 to carry into next year. Demand for bucket and unlimited offers in the cellular space will continue. We expect that broadband will keep growing given the growing popularity of social networking and new access devices such as tablets and smartphones. PLDT will continue to invest in its network in order to fortify its market leadership.” — Napoleon Nazareno, president and CEO, Philippine Long Distance Telephone Co.

For a long term investor like Razón who has seen this all before, there is a better answer: invest in your networks and grow them faster than your competitors.

“You have to spend money to earn money I have always found and there is a ton of money to be spent and made on broadband in this country,” Razón says. “The low hanging fruit has already been picked — now we must spend to get broadband into towns and villages and we should also be investing in content and products we can sell to broadband customers.”

Razón thinks Internet Overcharging schemes are a foolish mistake.

“You can’t create value-added services on an artificially limited network and expect consumers to buy,” Razón said.  “If you limit usage, you discourage people from using the services that get them addicted to using it in the first place.  Get them hooked, keep them happy and you have a customer for life.”

What would you do if your broadband bill was the same as your monthly rent?

That’s a question 21-year-old Notre Dame de Grace resident Amber Hunter has been dealing with since the neighbors began hacking their way into her wireless router, gaining access to her cable modem service from Videotron, Ltd., and running her bill into the next province.

It’s the predictable outcome of what happens when Internet Overcharging schemes gain traction, leaving ordinary consumers literally holding the bill.

Videotron sells usage limited broadband service across Quebec, but heavy users who routinely exceed their arbitrary usage caps knew there was a limit on the overlimit fees Videotron charged.

Not anymore.

Videotron left the usage caps on, but removed the limit on how much they can charge customers who exceed their monthly usage allowance.

Videotron sets prices like the OPEC of the Internet -- the sky is the limit

“The sky is the limit, or at least your bank account,” writes our Montreal reader Hei.  “The only thing unlimited with Videotron are the overlimit fees.”

Hunter had no idea she was being hacked.

“I had no idea what a gigabyte was, so when I started getting higher bills, I just assumed it was from watching TV shows online,” Hunter says.

Her boyfriend told her otherwise, making it clear it was impossible for her to be running up 350GB a month in usage just from watching a few movies and TV shows.

Since August, Hunter has accumulated more than $1,800 in broadband bills stemming from parties unknown who hacked their way into her wireless router and “borrowed” her Internet account.  Videotron itself is directly responsible for part of this debacle, encouraging Hunter to upgrade to a higher tier of service that upgraded her from a 30GB usage allowance to a 100GB usage allowance, with a major catch.

Hunter had become accustomed to paying her usual broadband bill plus the $50 maximum penalty charged for her “overuse.”  So a Videotron representative suggested a higher usage allowance plan might lower her bill.  But somehow, the Videotron customer service agent forgot to mention that the new plan no longer included a limit on overlimit charges.

When Amber switched plans, her broadband bill exploded.  Now the waitress hands over most of her weekly salary to Videotron.

“I’m a student, and I work at a bar, and now most of the money I have goes to pay my Internet bill,” Hunter told the Montreal Gazette. “It’s more than I pay for school and books, and I don’t have a lot of money left for food.”

She still owes the cable company $506 and they aren’t interested in providing her any service credits beyond the $313 they gave her a few months ago.

It took a Videotron help desk employee to finally unravel the mystery of the Internet Overcharges — someone was hacking into her wireless network.  Exactly who has been living their online life usage-limit free at Amber’s expense may never be known. Those living in apartment complexes and other multiple dwelling units can often find a dozen or more wireless connections, some password protected, others not.

Hunter’s wireless network was secured with a difficult to guess password using a four year old Linksys router.  Unfortunately, older routers often lack robust security and are easily hacked.

A handful of Canadian ISPs still offer unlimited broadband accounts.

As far as Videotron is concerned, it’s all Hunter’s fault — she should have understood what a gigabyte was, how many she was supposed to be using, what the security capabilities of her router were, that they were properly enabled, that she checked her usage on a daily basis looking for anomalies — investing her time, effort, and energy to stop the cable company before it billed her an enormous amount… again.

Speaking for Videotron, Isabelle Dessureault said, “It’s a case where Videotron showed some understanding and listened to what happened. We’re well-renowned in the industry for our technical support team. We credited her account for $313, but at a certain point, we need to share the responsibility. We don’t like these kind of situations.”

Videotron’s responsibility to their customers stopped where their profit margin began.  The company could have sent Amber a bill for the wholesale cost of her Internet usage, which she could have paid with a few of her bar tips.

Because Hunter’s broadband bills were now rivaling her monthly rent she decided to invest in her financial future, buying a new router and making sure the wireless was turned off.  Today she runs dozens of meters of Ethernet cable between all of her computers, just to keep the neighbors off her connection.

Although Videotron has become intractable, demanding Amber pay up, one of their competitors used the opportunity to score public relations points that Videotron sacrificed.

Jarred Miller, the president of the Internet Service Provider YOUMANO offered to cover all of Hunter’s overage fees amassed over the past year that also includes a free year of Internet service with his company, a generous offer Hunter will take.

YOUMANO is one of a handful of Canadian ISPs still offering unlimited Internet access, and do not think of themselves as the OPEC of the Internet.

The entire affair is a warning to Americans.  If you think Videotron is an Internet evildoer, imagine what Verizon, AT&T and Comcast could do to your bank account.  If they have their way, you’ll need to become intimately familiar with your router, the concept of a gigabyte, and take a class in “negotiating to win” when fighting over your future enormous broadband bills.

Listen to an interview with Amber Hunter. She appeared on this morning’s Daybreak on CBC Radio Montreal to discuss her experience with Videotron Internet Overcharging. (8 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Wood

Roku CEO Anthony Wood told a cable trade publication he is not worried that providers will kill the market for his online video set-top box with Internet Overcharging schemes.

Wood told Multichannel News the broadband industry faces enough competition to prevent one or both traditional providers from implementing usage caps and metered pricing for broadband service.

“What we see from a practical point of view in the marketplace is that there’s enough competition from cable, telcos and wireless so that in every market there’s an unlimited option — and the price is competitive,” he said.  “Unlimited sells — it’s just a good marketing strategy.”

Wood may want to inform broadband providers of that, because several American phone and cable companies are experimenting with slapping usage limits on their customers, making his web-streaming set top box an expensive proposition.  For customers of Frontier Communications in Elk Grove, Calif., using too much Roku could mean broadband bills as high as $300 a month.

With some HD movies consuming 2-4 gigabytes per title, some companies experimenting with usage limits as low as 5GB per month would make online video the primary culprit for consumers blowing through their monthly usage allowance.  After one bill with overlimit fees arrives, the Roku box will be the first thing to go.

Netflix, a major investor in the Roku box, could see its plans to shift to online distribution of its massive DVD rental business stymied by large phone and cable providers, many of whom see Netflix and other online video services as competitors who use their broadband service to send movies to consumers.  Some cable and phone companies contend Roku, Netflix, and other online video streamers are freeloaders — using their networks “for free” and demanding additional compensation to keep carrying their content.

Wood discloses another reason why cable and phone companies could potentially adopt a hostile position towards his 100-employee operation — “cord cutting.”

Wood told Multichannel News about 12% of Roku customers say they have canceled cable or satellite TV after buying the set-top while another 12% said they reduced their service level.

The cable industry is trying to retain customers by putting an increasing amount of cable content online for subscribers who maintain their cable-TV package.  Roku gives subscribers one more reason to downgrade or cancel service, a problem that could be stopped with an Internet Overcharging scheme that makes using the product an expensive proposition.

Some Roku watchers believe Wood is making a mistake underestimating the telecom industry’s willingness to protect its turf.

Two years ago Roku VP Tim Twerdahl said the company was not worried about Comcast’s 250GB download cap.  But since then, other providers have proposed far lower caps.

Roku is best known for letting Netflix subscribers stream the video rental firm’s online titles direct to television sets.  But Roku also delivers access to Hulu, Amazon video, and a growing number of new “channels” delivering classic movies, music/music videos, news, and user-created programming.

The company offers three set-top models: HD ($60), which delivers up to 720p video; XD ($80), which adds support for up to 1080p and 802.11n Wi-Fi; and the XDS ($99), which offers dual-band 802.11n and component video and optical audio outputs.  The top model occasionally sells for as little as $79.99 when on sale from Amazon.com or direct from the manufacturer.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Introducing Roku.mp4[/flv]

A brief video introduction to Roku.  (1 minute)

Media excitement about recent iterations of allegedly “4G” networks aside, no currently available wireless broadband service will replace the need for traditional wired broadband so long as providers limit consumption to 5GB (or less) per month.

As average consumption per household is now at least three times that level, wireless broadband customers will be faced with three choices:

1. Supplement a wireless broadband account with an unlimited, wired broadband service;
2. Be prepared to pay overlimit fees or purchase additional accounts or “usage packs;”
3. Reduce usage to remain within plan limits.

Sprint currently remains the largest carrier offering unlimited access to its 4G network, also sold independently under the Clearwire brand.  But as Clear subscribers found out, “unlimited” comes with “unlimited hassles” if Clear’s “intelligent network management” software catches you using it “too much.”  Speeds are quickly throttled downwards, well below even Sprint’s slower 3G network.

Many of Clear’s customers signed up in response to ads promising the 4G wireless service as a “home broadband replacement.”  Ditch your cable modem or DSL service for a wireless alternative!  Some salespeople even dared to suggest Clear was faster than cable or DSL.  Only for most it is not.

Every carrier has their own version of “4G” here or on the way, most of which can deliver better and faster service than the 3G alternative, but wireless providers are hellbent on ensuring customers never get used to the concept of truly unlimited service.

Glenn Britt, CEO of Time Warner Cable, admits the wired broadband industry erred when it got people used to all-you-can-use broadband.

“We made a mistake early on by not defining our business based on the consumption dimension,” Britt told investors back in 2009 when the company was contemplating its own metered usage trials.

4G networks can bring out the "data hog" in everyone if you actually take advantage of the faster speeds to stream multimedia.

Wireless providers are working hard not to repeat that mistake.

AT&T found usage caps anger customers, but got away with implementing a 2GB monthly wireless usage cap tied with the introduction of the wildly popular newest iPhone (and helped by grandfathering existing unlimited customers until their next phone upgrade.)

“If I had a baby in my hand and my iPhone and I had to drop one, I’d drop the baby,” laughed Dallas iPhone owner Luisa Benton.  But Benton’s love for her Apple phone does not extend to AT&T’s network, noting she has dropped calls and had poor reception in certain areas.

Many iPhone owners retain their cable or DSL broadband service because AT&T’s wireless usage cap limits what they can manage online, and the company’s network problems only adds insult to pocketbook injury.  With many locked into two year contracts, few are going to brave early termination fees to find an alternative.

As providers upgrade their networks, they are also upgrading their prices.  Verizon’s new LTE network, for example, carries a premium price tag for those wishing to use it.

Customers looking for a faster wireless experience will pay $50 for 5 GB or $80 for 10 GB of data on Verizon’s new network.  Run over those limits and an overlimit fee of $10 per gigabyte kicks in.

“People are never going to use wireless networks the way you see them on the commercials,” writes Stop the Cap! reader Jo-Anne in Seattle.  “They are always watching movies or TV shows — services you absolutely don’t want to risk at those prices.”

J0-Anne asked a Verizon representative if new 4G smartphones would be permitted to use unlimited data plans.

“‘Don’t bet on it,’ was the reply I got — Verizon may keep unlimited around for 3G network users only,” she said.

If true, Verizon will deliver overpriced, inadequate service for any customer looking to leave their home broadband account behind.  As soon as multimedia gets involved, usage caps rapidly become a dealbreaker.

Verizon recently contracted with Bridgewater Systems Corporation to supply it with data management software.  Bridgewater is also a major supplier of network throttling solutions to ferret out heavy users and impede their speed, as part of “fair use policy” regimes.

Some wireless companies are trying to have their cake and eat it too — selling “unlimited” wireless broadband service hampered by an aggressive “policy control” network management scheme.  You’ve seen the ads promising unlimited access, but probably missed the fine print warning the provider will throttle your wireless broadband speed to something comparable to dial-up once they deem you a data hog.

Cricket and Clear are both notorious for throttling customer speeds and delivering disclosures of the practice more impenetrable than North Korea.

A Clear blog entry tried to simplify the legalese:

During times of high network utilization our network management system may limit speeds, but we never limit the amount of data a customer with an unlimited data plan may use. The algorithm in place reviews several factors including long and short-term usage, current network capacity, and network demand to determine if network management needs to be applied.

The end result is that a few heavy users temporarily give up some speed during limited times of high demand so that everyone can have a good experience. A majority of customers are having a positive experience and experiencing faster speeds during times of greatest demand since these enhancements were enacted.

The “positive experience” Clear’s blogger reports may be wishful thinking, however, after reading the company’s support forums.  They’re overloaded with thousands of angry customers and probably many more ex-customers.  An “unlimited” broadband experience is meaningless if customers endure speeds well below the minimum acceptable definition of “broadband,” often for days on end.

Cricket is no better:

Cricket sets usage levels on the amount of data a customer can upload and download within stated periods of time. If you exceed your rate plan usage levels, Cricket will temporarily reduce the speed at which you can send and receive data over the Cricket network. You will still be able to use the service but your speed will be slower. Cricket may use other traffic management and prioritization tools to help ensure equitable access to the Cricket network for all customers. Your service speed is not guaranteed and is subject to this Fair Use Policy.

Cricket has set a data usage level (“Usage Level”) per customer. As shown in your rate plan brochure or on www.mycricket.com, this Usage Level varies based on the rate plan you’ve selected. Every day, we measure your upload and download data usage (“Actual Usage”) to determine if your total Actual Usage, as aggregated over your bill cycle (“Usage Total”), exceeds the Usage Level for the rate plan you selected. During hours of operation, you can inquire about your Usage Total versus your monthly Usage Level by calling 1-800-Cricket and speaking with a Care representative.

Once you begin a new bill cycle your rate plan Usage Level upload and download speeds will be restored.

The average Cricket customer is unlikely to grasp anything beyond the fact their speed sucks if they are targeted by Cricket’s throttle.  It’s not as simple as breaking through your monthly usage allowance.  Cricket can and does throttle customers who seem like they could exceed the limit, based on their daily account activity.

In the end, most wireless customers pay more for less service.  The primary benefit is portability, and carriers consider that worth the premium prices charged.  But as the Internet’s love affair with all things multimedia continues, none of these providers will provide a suitable alternative to the traditional home-wired broadband account.

[flv width=”432″ height=”260″]http://www.phillipdampier.com/video/WFAA Dallas iPhone Frustration 11-30-09.mp4[/flv]

Last year like this year, WFAA-TV in Dallas reports frustrations continue with AT&T’s wireless data network.  The company’s response?  Limit customers’ use of it and push more of them off to Wi-Fi alternatives.  (2 minutes)