When the FCC delivers for Big Telecom's agenda, stocks soar. Comcast shares exploded on news the company could largely do as it pleases with its broadband service. (CNBC)

Comcast’s stock price soared today as Wall Street was cheered by news America’s largest cable operator would likely face little regulatory restraint from consumer protection policies designed to keep broadband providers from meddling with Internet traffic.  But investors were also excited by the green light signaled by Federal Communications Commission chairman Julius Genachowski that launching Internet Overcharging schemes like “usage-based” billing, speed throttles and hard usage caps on broadband consumers was also acceptable marketplace behavior.

Craig Moffett, a Wall Street analyst with Sanford Bernstein said Genachowski’s remarks left the marketplace with little doubt it can get away with price increases and new limits on broadband consumption.

“The FCC here is expressly acknowledging the need to ration broadband, and that’s a really big deal,” said Moffett, appearing on CNBC this afternoon.  “I think you are going to start to see usage-based pricing plans from the broadband providers pretty quickly.”

Moffett also acknowledged his firm’s own research showing consumers despise such pricing schemes and admits the impact on America’s broadband landscape is likely to include a dramatic shift in how customers use their Internet accounts.

“When customers think they are going to be charged when they click on that link and watch a movie, they are going to be inclined to watch fewer movies,” Moffett said.  “You can’t expect linear progression of online video because there are going to be feedback loops like usage-based pricing that are going to limit usage.”

Moffett says cable operators are benefiting from Chairman Genachowski’s new approach because it opens the door to repricing wired broadband accounts to limit broadband consumption.  Since most analysts guessed regulators would allow usage-based pricing to remain on wireless broadband, the unexpected green light for similar rationing plans on cable broadband, DSL, and other wired services was welcome news, at least for providers and Wall Street.

Consumers that don’t deliver a resounding negative response to elected officials, the FCC, and the White House better start thinking twice about clicking that YouTube video, because that few minutes could cost plenty if providers slap higher prices and limits on broadband service in the coming year.

[flv]http://www.phillipdampier.com/video/CNBC The Fight for Your Right to Surf the Web 12-1-10.flv[/flv]

A Wall Street telecom analyst predicts the end of unlimited home broadband accounts is going to come quickly, now that the FCC has capitulated on Net Neutrality policies.  (3 minutes)

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.

Stop the Cap! comments: After today’s confirmation of the story below, it turns out that not only will Charter enforce its usage caps, it is also implementing a throttling scheme that will turn down speeds for “heavy users” when Charter’s overburdened broadband network is congested.  We’ve seen how that works in Europe.  Network management techniques like throttling and usage caps allow providers to turn up the speed and usage controls and turn down the level of investment to grow their broadband networks to meet growing customer demand.

Wall Street will certainly encourage this kind of behavior so long as Charter customers have few alternative choices.  This is bad news for Charter customers who may find the phone company’s unthrottled and typically unlimited broadband a much better alternative, even if it does run slower.

Two separate e-mails arrived in our mailbox this evening from individuals claiming to work for Charter’s call center informing us customer service agents are required to attend a meeting Thursday to explain Charter Cable’s new hard-usage cap Internet Overcharging policy.

It’s too late for us to touch base with company officials for verification, but both our sources shared nearly-identical details of the forthcoming hard usage cap program:

“Effective Nov. 16th, Charter will begin enforcing their Usage Cap policy strictly:

• Base Service: 100GB per month
• Plus & Max: 250GB per month
• Ultra: 500GB per month

Violators will receive two warnings and then face service suspension for up to six months unless they switch to a Business Class broadband product.”

Our other source tells us CSR’s are being trained to deal with irate customers who are deemed violators, all because Charter is in no financial position to keep up with network demands.

Until we receive absolute verification, this should be considered unconfirmed information.

Charter Cable has maintained soft usage caps for some time, rarely enforced on a system-by-system basis with phone calls.  The details are buried on Charter’s website.  They have generally left most customers alone.  But if Charter intends to enforce a formal Internet Overcharging scheme, customers will have just one more reason to despise the company, which already rates as the worst cable broadband provider in the United States according to Consumer Reports (only Wildblue and HughesNet — both satellite fraudband providers scored worse for broadband).

Updated 3:04pm ET:  Here is a statement we received from Charter regarding this matter:

Charter is introducing some new programs designed to improve our high-speed Internet service.  We had planned to send information your way when we start to inform our customers directly; however, in the spirit of flexibility here is a quick summary for you today.

As I know that you know, Charter has long offered graduated tiers of Internet service, ranging from lower speed “Lite” (1 Mbps) versions to “Ultra60” (60 Mbps) and each service level has a monthly usage threshold within which customers are supposed to limit their usage.  Until this point, we haven’t taken action to enforce our thresholds; however, in order to continue providing the highest quality Internet service, we do plan to begin enforcing our “No Excessive Use of Bandwidth” policy documented in our Acceptable Use Policy (AUP). The thresholds are substantially above typical use for approximately 98% of our customers.

In December, we will begin reaching out to a select group of customers whose use is excessive to make them aware of their usage patterns, to help identify possible causes (e.g., unsecured wireless routers or viruses) and review security options with these customers to reduce the risk of unauthorized Internet use. We are currently working on a way to present data usage to customers so they can self-monitor their bandwidth usage.  Until we make that tool available directly, customers who are notified of excessive use will be provided a contact at Charter who can check the customer’s usage throughout the month to help them better manage their Internet usage. If the excessive usage continues repeatedly, their Internet service could be suspended. Our intent is to prevent the very small number of users who are consuming excessive amounts of bandwidth from negatively impacting the experience for the majority of our customers.

In tandem with enforcing our “Excessive Use of Bandwidth” policy, we will also introduce a congestion management policy to improve the Internet experience for all of our customers.  Congestion Management will become part of our standard Network Management practices, and the policy will be protocol agnostic, which doesn’t distinguish among the online activities, protocols or applications a customer uses. It applies only during periods of congestion (which we find to be relatively rare).  It affects only the heaviest users (less than 1%) in small time increments, who will have their bandwidth limited during times of congestion, however, no Internet activities will be blocked.  We based this system on the “fair share” model described to the FCC in September of 2008.

We certainly wanted you to know about these initiatives and believe these steps will help us deliver the best possible Internet experience for our residential users.

Anita Lamont

[Updated 12:14pm ET:  We reached out to Charter Cable’s social media reps and media relations in e-mail this morning and are still waiting for a confirmation/denial/comment on this story.  If/when we get one, it will appear here as an update.]

A firestorm erupted this week on Broadband Reports over news that Shaw Cable was turning its existing “soft” Internet Overcharging scheme into a “hard” system filled with usage limits and overlimit fees.  One of Shaw’s social media representatives tried to throw some water on the fire:

I’ve seen a lot of discussion here about the new policy, and quite a bit of inaccurate or incomplete information and speculation, so I’d just like to set all of this straight.

Essentially, the system works like this: your package includes an allowance for a certain amount of traffic. If you exceed that traffic for one billing cycle, you will receive a notice on your bill advising you of the fact. We also automatically activate your traffic monitor so that you can monitor your usage from that time forward.

Since the bill arrives, of necessity, after your billing cycle ends, we give you a cycle’s grace between the period when you exceeded and when we start charging. That is to say that if you exceed in billing cycle one, you’ll receive your bill part of the way through billing cycle two, and so we won’t start charging for excess traffic until billing cycle three.

As to how much bandwidth will cost, here’s how it works:

If you exceed your monthly traffic allowance, you’ll receive a bill for $1 per GB for Extreme and above, $2 per GB for High Speed and High Speed Lite. Considering how much media, etc, you can obtain in 1 GB, $1 is not expensive.

However, if you plan to exceed by a considerable margin, data packs are also available, and what these do is allow you to increase the traffic allowance by the following amounts:

• $5 for 10 GB
• $20 for 60 GB
• $50 for 250 GB

So this gives you the option to increase your monthly traffic allowance to meet your needs. It’s also considerably less expensive than the standard $1-$2 per GB rate.

The best part about the data packs is that you can apply them at any time up to three days before the end of your billing cycle. So if you discover that you’ve exceeded your included usage allowance, and still have three days to the end of the billing cycle, just give us a call (or chat) and ask that we add the appropriate data pack for you.

[…]I’ve seen some posts here suggesting that this new policy has been financially motivated to avoid upgrading our networks. That’s actually not the case. In fact, just a few weeks ago we increased the included usage for all of our services by 25%, just in time for NetFlix. If you want to think about it in financial terms, just consider how much more bandwidth the network would need to allow a 25% increase for every customer, and how much that kind of network upgrade would cost. It’s pretty clear that our motives are not financial. If they were, increasing the included usage would not be very sensible, would it? It would, after all, considerably reduce the number of customers exceeding their monthly traffic allowance, would it not?

I hope that this clarifies the situation, but if there are any questions, please do feel free to ask.

James – Shaw

Shaw tinkers with their Internet Overcharging scheme

In part, this rebuttal was also directed to Stop the Cap!, because we are actively participating in that discussion.  Shaw’s argument about usage limits and how the company’s implementation of them benefits their customers is familiar to many of our readers who fought off usage caps proposed by Time Warner Cable last year.  Somehow, the same company that sets unjustified limits and penalty prices on already-overpriced broadband service is doing customers a real favor by offering alternative pricing plans for heavier users that reduces war-crime profiteering to pickpocketing.

That’s logic Stalin might have appreciated, but most customers already burdened with high cable and broadband bills won’t.

Our response:

Don’t you just love it when Internet Overchargers always claim their new gotcha fees are never about the money?

“James” from Shaw offers a classic example of what happens when your broadband provider implements a scheme to boost your broadband bill and then claims it’s good news that the company has some options to keep those overlimit fees from stinging too badly.

When Internet Overchargers tell you it’s not about the money, it’s really ALL about the money.

Here's what happens when a third provider ruins a Canadian broadband duopoly

Who knew that an invisible border that makes unlimited Internet possible in Vancouver, Washington makes it impossible in Vancouver, B.C. Using Shaw’s argument, providers south of the border are headed straight for bankruptcy court while companies like Shaw barely hold on with “free usage upgrades” of existing limits.

But of course the financial reports for shareholders Shaw’s social media mavens don’t talk about tell the real story. Shaw enjoys considerable revenue from their broadband division thank you very much, and plans to do even better now that they can achieve ‘revenue enhancers’ from their enforced Internet Overcharging schemes.

That’s another way of saying Shaw’s Wallet Biters are back for more of YOUR money.

Whether it’s 20 cents per gigabyte (at least a 100 percent markup) or $2 (rape and pillage pricing), these schemes are hardly good news for Shaw customers. Indeed, if Shaw was truly concerned about saving their customers something under their cap ‘n tier regime, they’d deliver those “usage paks” to customers automatically instead of forcing them to call the company to add them when they go over the limit. If you remember to ask, Shaw gets extra profits they can take to the bank. If you forget, Shaw throws a Money Party on the extra high everyday overlimit rates.

What Shaw forgets to tell you is the cost to deliver increased usage and bandwidth to customers is ALWAYS dropping, and dropping fast. The price charged to move 10GB of traffic not too long ago moves 100GB today. So it’s hardly rough on Shaw to expand yesterday’s unjustified limit to today’s higher, still unjustified limit.

When one also considers yesterday’s “soft cap” is about to become tomorrow’s budget-busting “hard cap,” few Shaw customers are calling 1-800-FLOWERS to send a thank-you bouquet to Calgary.

Having been to Calgary, I know the people in Alberta and elsewhere across western Canada know a ripoff when they see one. They ask, “why is our broadband so overpriced and usage limited?” They wonder where the CRTC has been. They wonder why countries in Asia and even eastern Europe are now beating the pants off Canadian broadband with faster speeds at lower prices.

The fact is, Shaw pulls these overcharging tricks on their customers because they can. The broadband duopoly in Canada from cable and phone companies deliver punishing usage limits on Canada that are being banished in other countries around the world. Even notorious cappers like Australia and New Zealand are finally ridding themselves of broadband that is always capped, always throttled.

What would be sensible is that Shaw, a multi-billion dollar major player in Canada would plow some of their enormous profits into network capacity upgrades that can accommodate the needs of Canada’s growing knowledge economy, not inhibit its growth. Then, earn additional profits by selling even faster speed tiers and content customers can access over those networks.

Considering even Shaw admits only a small percentage of customers create traffic problem on their networks, it’s not hard to see the company’s new reliance on hard Internet Overcharging is designed to capture new revenue from those hitting their caps, thanks to the increasing number of broadband customers using their fast connections for high bandwidth content.

And hey — bonus: it also discourages those customers from even considering pulling the plug on their cable package to watch everything online.

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)