The German Internet is functionally broken.

Deutsche Telekom, the largest telecommunications company in Germany, has announced it will introduce a brazen Internet Overcharging scheme for customers signing up for its broadband DSL service, including a throttle that reduces speeds to just 384kbps after as little as 75GB of monthly broadband usage.

For now, only new Telekom Deutschland customers signing up after May 1 will be affected by the usage limits. Customers will be offered the option of upgrading their Call & Surf package to get a larger usage allowance, although many parts of Germany are still reliant on DSL and its variants that cannot deliver the advertised speeds that go with the larger allowances:

• Up to 16Mbps: 75GB per month
• Up to 50Mbps: 200GB per month
• Up to 100Mbps: 300GB per month
• Up to 200Mbps: 400GB per month

“We want to offer customers the best network in the future and we will continue to invest billions to make that happen,” said Michael Hagspihl, marketing director of Telekom Deutschland. “However we cannot continue to sustain higher usage demand while lowering our prices. Customers with very high data volumes will have to pay more in the future.”

Company officials argue German broadband usage demands are accelerating at an ever-increasing rate, putting strain on the company’s network resources.

But critics question if usage demands are the root of the problem, why is DT exempting itself and its “preferred partners” from the data cap, including certain services that offer very high bandwidth video?

The Net Neutrality activist group Netzpolitik.org says DT is “massively violating Net Neutrality while the federal government looks away dreaming that the free market will solve the problem somehow.”

The group points out DT has admitted the speed throttle only applies to content providers who have not partnered up with the German telecom giant.

DT is exempting all of its own in-house content providers, the private television service Entertain, and telephone services (when provided by DT). For everyone else: the speed throttle gets closer the more customers use services like Apple iTunes or Amazon’s Lovefilm service. But DT says those companies can also get special treatment for the right price.

DT’s preferred partner cooperating agreements let “high quality content producers” pay for a managed services contract that guarantees exemption from the speed throttle and prioritization of their traffic on DT’s network, even if it means slowing down non-preferred partner content.

A parody future offer from DT.

“You cannot thumb your nose at Net Neutrality principles any better if you tried,” said Rene Pedersen, an Internet activist in Köln. “DT will have their emasculated two-tier Internet and all of Germany will have to suffer the consequences. Their own arguments do not even make sense. If there is a capacity crisis, how can they exempt some video providers that now consume the most network resources?”

“Until a few years ago, providers – just like the post – were just deliverers of packages,” said Netzpolitik’s Andre Masters. “This principle is called Net Neutrality – the equal treatment of data packets on the Internet, regardless of sender, recipient, or content. Now providers want to have a direct influence on the content sent, because they want to earn more money.”

Technology publisher Heise Online says the new usage restricting tariff has “triggered a veritable sh**storm” among net users who consider a 75GB usage limit untenable, particularly for families with multiple Internet users.

Heise is also critical of claims DT has made in the press that suggests German Internet users must either accept the usage caps or understand the company will have to spend at least €80 billion ($108 billion) to build a national fiber network to manage growing traffic.

In contrast, Goldman Sachs last year estimated the cost of wiring every home in the United States with Google Fiber would cost $140 billion, a number now considered inflated. Verizon FiOS managed to get costs down for its own fiber network to a level that suggests Google would only need around $90 billion — $10 billion more than DT claims it needs.

“DT is being disingenuous when they suggest it will cost €80 billion to solve their capacity problem. For that amount every household in Germany would get their own fiber cable with 200Mbps speeds or more,” Heise writes in their editorial. “To avoid slowing users down with a speed throttle, only a small fraction of this amount is needed to extend the Internet backbone and peering agreements between providers. For years network traffic has grown exponentially and DT has kept up with demand. So why does DT suddenly need to reshuffle the cards now?”

DT has also received criticism for how it has depicted its heavy users — mostly as content thieves and software pirates using file swapping networks to steal copyrighted works. But instead of dealing with copyright violations, DT wants a sweeping usage cap system that punishes every customer that wants to use their broadband connection.

“Customers are not insatiable Gierschlünde who want everything for free,” writes Heise. “They already pay a lot of money to Telekom: 12.5 million DSL customers roughly translates into around a half billion euros in sales per month.”

Back to the future.

The German news magazine Spiegel writes DT’s usage limits strangle the Internet for millions of Germans, especially for competing video providers:

When throttled, customers will need more than 23 hours to watch a DVD-quality movie. At Blu-ray resolution, it will take about two weeks to watch just one film.

[…] The implications of the end of Net Neutrality in Germany represents a form of economic censorship, and German politicians are standing by to watch it happen.

The federal government sees the Internet as a political bargaining chip and not as the social, cultural and economic tool it represents. The government acts in the interests of certain lobbyists, not Germany’s digital future. This allows German telecommunications companies to focus on their economic self-interests without government policies that demand investment in digital infrastructure.

A number of German Internet users are expected to switch to a cable provider, where available, to escape DT’s impending speed caps.

According to the Frankfurter Rundschau, many German cable companies also reserve the right to limit speeds for customers. But in practice, most don’t impose limits until traffic exceeds 60GB daily, and the speed cap is lifted the next day. A cable industry official says its cap currently impacts about 0.1 percent of customers, almost all who use peer-to-peer file swapping networks. Exempt from measurements that bring customers closer to a speed cap: web browsing, video streaming, and video-on-demand.

For now, Germany’s cable operators facing the same traffic growth DT speaks about find no need to impose further limits, stating their networks are handling the traffic with network upgrades as a normal course of business.

“It calls out DT’s claims as fraudulent, because cable Internet users visit the same websites and do the same things DT’s customers do and there only seems to be an ‘urgent’ problem in need of a speed throttle solution on BT’s network,” says Pedersen. “What needs to be throttled are the financial expectations of DT management and shareholders. The Internet is not their personal vault waiting to be plundered.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/What if Net Neutrality.mp4[/flv]

What if Net Neutrality did not exist?  [Subtitled] (1 minute)

Looking for new revenue opportunities

More than half (52 percent) of all U.S. consumers say Internet service is their home’s most important utility, according to a survey conducted by Verizon Communications as part of their Verizon FiOS Innovation Index project.

But Verizon’s research surveys go well beyond simply identifying who loves Internet access. Verizon’s real interest is identifying so-called “borderless consumers,” — customers who are seeking a seamless online experience and connectivity both inside and out of the home.

The convergence of wired and wireless broadband networks is a potentially enormous money-maker for Verizon, especially if you happen to be a Verizon Wireless customer.

“As the borderless consumer segment continues to grow, so will the need to identify, understand and anticipate what consumers truly want in their increasingly connected lives – today and in the future,” said Eric Bruno, vice president of FiOS strategy and development for Verizon.

Fran Shammo, Verizon’s chief financial officer, has previously told investors that monetizing data usage goes beyond text messaging and web browsing. The next frontier for enhanced revenue will come from the machine-to-machine segment. As consumers strive for a more connected future, enabling wireless connectivity for home appliances, automobiles, medical equipment, and other devices will create new revenue streams for the company.

Verizon’s new research surveys help the company target its future marketing to consumers most likely to be living the “borderless lifestyle.” Are you? Here are some key attributes:

• Above average income: Most are college educated, own their home, and nearly half earn $75,000 or more annually, so they can afford higher broadband bills;
• They are 18-34: Generation X and Millenials grew up in an increasingly connected world. Baby boomers are not far behind, but seniors are;
• Women somewhat outnumber men in their need to remain connected;
• You already have a computer, smartphone, or tablet and are connected to high speed Internet. Most of you want faster speed, if you can get it.

Verizon’s study becomes murkier over the issue of cord cutting. Verizon found that video streaming continues to drive Internet traffic growth, but at least 89% still prefer watching shows on their televisions. Verizon defines that as live TV, DVR, or on-demand from “TV/Cable service.”

But they did not ask whether consumers are watching more or less television provided by their cable, satellite, or phone company or if a larger proportion of viewing now comes from Netflix or other streamed content. That is a key indicator of whether a customer is gradually shifting viewing habits, which could ultimately make it easier to dump cable television.

With 90 percent of those surveyed looking forward to the day when every connectable device in their house can seamlessly interconnect and work together, Verizon’s potential revenue opportunities are enormous, if customers use Verizon Wireless for connectivity and not free Wi-Fi. Machine-to-machine wireless traffic can boost profits without costing the company much, especially under Verizon Wireless’ new Share Everything pricing. The impact of short data exchanges likely from home appliances and other similar devices is expected to be negligible. The profits from charging at least $10 a month to add each of those devices to a Verizon Wireless account are not.

Dispensing with “all-you-can-eat” data plans was the first step towards monetizing mobile broadband. Now some mobile operators are considering how to implement stage two: charging different pricing for different online applications to boost profits.

At the TM Forum Management World conference in Dublin, Ireland, mobile operators discussed managing and monetizing data usage, charging customers different rates for using various online services and applications. Total Telecom covered the conference and found mobile operators conjuring up new pricing schemes to maximize revenue opportunities.

Vikram Chadha, senior marketing director at United Arab Emirates-based Du, offered that mobile operators should bill for video traffic separately from standard data.

″Video is another beast,″ Chadha told the audience of executives. ″Operators need to look at video data in a totally different manner. It’s important to treat video as a different data element.″

Monetizing video streaming can “get high value out of that customer,” Chadha said.

Chadha

He also believes as general browser traffic declines, real money can be made charging different rates for customers accessing different apps. Providers could charge higher data pricing when customers use certain non-preferred apps, at the same time discounting traffic from apps that partner with wireless phone companies.

Chadha pointed to NTT DoCoMo’s partnership with Hulu. Both Hulu and the service provider market the service, with the one making the sale the beneficiary of most of the proceeds. That technically takes revenue away from Hulu and diverts it to NTT, which can engineer customized marketing efforts to target customers for the service.

But it does not stop there, according to Chadha. Mobile operators can generate even greater revenue by introducing Quality of Service (QoS) technology and billing customers extra for additional priority on the company’s wireless network, an important consideration for online video.

Chadha says his company now charges $1.25 for 30 minutes of video streaming from YouTube using “best available” network protocols. Customers who want to assure minimal buffering can buy a VIP Pass from Du for $2.50 for the same 30 minutes, and get priority on Du’s network.

″The [VIP pass customer] is assured of the bandwidth he gets and that gives the operator the opportunity to maximize his revenue,″ he said. ″[Apply] different QoS for different apps and you can charge differently. Or use location, and sell data more cheaply where networks are less congested, or at less busy times of day.”

Chadha’s worst enemy would be a strong Net Neutrality policy, which would prohibit operators from discriminating against or prioritizing different types of traffic. None of these pricing schemes would likely work if Du provided a flat rate mobile service either.

In the absence of such net protections, revenue and profit opportunities abound.

″Application-based charging is going to be very important and so is value-based charging,″ he predicted.

Verizon encourages customers to pig out on wireless-delivered streaming video.

Despite claims of a looming data usage crisis created by insufficient wireless spectrum, Verizon Wireless is introducing a new app that will encourage customers to find and watch streaming video on their mobile devices.

Viewdini premiers today on the Android platform, and Verizon hopes customers will use it to hunt down their favorite videos from Netflix, Hulu Plus, mSpot, and Comcast Xfinity, all from the Verizon Wireless app.

“We are just seeing a hunger for people wanting to watch video,” Verizon Wireless CEO Dan Mead said in an interview with AllThingsD. “I think this will capture the audience’s imagination.”

If customers use it to stream bandwidth heavy video on a tiered data plan, Verizon will also have the customer’s attention when the bill arrives.

Viewdini, considered one of Verizon’s “key product launches” for the year, does not amount to much on examination. The service does not host videos, it merely indexes them from other videocentric websites. The app will be exclusive to Verizon Wireless, but is not the company’s first foray in the competitive video streaming marketplace.

The Verizon Video app offers streamed video entertainment, but with a twist. Many titles offered by Verizon Video cannot be accessed while on Wi-Fi and require the company’s 3G or 4G network to watch, which counts against your usage allowance.

Mead

There is no indication yet whether Viewdini will have similar restrictions.

While Mead claims the company has several early warning indicators for customers approaching their monthly usage cap, he admits the company hopes to make additional revenue from customers who choose to exceed their allowance and buy additional data.

“We look at it as great flexibility for customers,” Mead called that choice.

While Verizon joins other wireless carriers in calling urgently for additional wireless spectrum, its marketing department does not recognize any wireless data shortage, and continues to introduce new products that encourage their customers to use an increasing amount of data, from which Verizon admits it will earn an increasing percentage of its revenue.

An innovative plan to rent New Yorkers a dime-sized over-the-air antenna housed in a Brooklyn data center to receive and stream local broadcasters could be the end of broadcast TV as we know it, at least if you believe the claims being made by network executives in their high-powered lawsuit.

Aereo, which charges $12 a month to an invitation-only customer base, is the target of serious legal action brought by the major broadcast networks and local TV stations that believe Aereo’s disruptive business model could allow cable operators to avoid paying retransmission consent fees for free, over the air television signals.

Aereo only streams local broadcasters in the New York metropolitan area to residents within viewing range of the signals. The company argues it operates legally because of a time-tested, sound legal principle: the Communications Act of 1934, which offers broadcasters a license to use the public airwaves in return for operating in the public interest. Aereo only rents its tiny antennas to one customer at a time, and provides them with streamed video received by that antenna. The company charges a nominal monthly fee to cover the costs of operating its data center and to cover streaming expenses.

The monthly subscription fee grants viewers access to watch one channel while recording another on a cloud-based DVR “storage locker.” Viewers can watch the signals on just about any device, as long as they are located within the New York metropolitan area. Travelers and those who live outside of the area cannot watch programming or subscribe to the service.

The threat to the nation’s pay television operators and broadcasters is obvious. Over the air television broadcasters increasingly rely on so-called “retransmission consent payments” collected from pay television operators in return for permission to place their signals on the cable, telco, or satellite TV dial. Broadcasters bank on that growing revenue. Pay television providers grudgingly agree to the payments and promptly pass them on to already rate-increase-weary subscribers, who want a way out of paying for hundreds of channels they don’t care to watch.

Aereo's over the air antenna is about the size of a dime.

Aereo breaks the business models of both broadcasters and the cable industry. Cord cutters can get reliable and cheap reception of over-the-air stations without dealing with cumbersome in-home antennas (or paying local cable companies for HD-quality local stations and a DVR box). Goodbye $70 cable-TV bill. Broadcasters also lose every time the local pay television company drops a subscriber. Aereo does not pay retransmission consent fees, nor do their subscribers.

But Aereo is not all bad news for pay television providers. If Aereo can survive the legal onslaught from broadcast interests, nothing stops local cable companies from licensing Aereo technology (or constructing their own system) that would bypass retransmission consent fees as well. That could save cable operators millions.

Ridiculous? Not according to Matt Bond, an executive vice-president at Comcast/NBC who told a New York federal court the risk is real.

“It makes little economic sense for cable systems and satellite broadcasters to continue to pay for NBCU content on a per-subscriber basis when, with a relatively modest investment, they can simply modify their operations to mirror Aereo’s ‘individual antenna’ scheme and retransmit, for free, over-the-air local broadcast programming,” Bond said. “I know for a fact that cable companies have already considered such a model.”

Diller

Broadcasters revile Aereo’s disruptive innovation.  Bond called the service “piracy.” Other network executives say it steals their content and resells it at a profit. Some are even predicting the destruction of broadcast television as we know it if Aereo is found to be legal. Virtually every network is on board for the lawsuit, which seeks an immediate injunction that would shut the service down.

Barry Diller, a veteran broadcast executive, has invested in Aereo and calls the broadcasters’ fears rubbish.

“It’s not the beginning of the destruction of anybody,” Diller told New York Magazine. “TV wasn’t the destruction of the movie business. Television wasn’t the destruction of radio. Cable wasn’t the destruction of broadcast networks. What happens is new alternatives come, and they live alongside whatever existed.”

“You have an antenna that has your name on it, figuratively … and it’s one-to-one. It is not a network,” Diller told members of the Senate Commerce Committee during a recent hearing. “It is a platform for you to simply receive, over the Internet, broadcast signals that are free and to record them and use them on any device that you like.”

Aereo is not a pioneer in the video streaming of over the air signals. iCraveTV launched in 1999 streaming broadcast stations from Buffalo, N.Y. and Ontario, Canada from its home base in Toronto. Broadcasters filed suit and quickly shut the service down. ivi-TV tried a similar venture in 2011 and was also shut down. Even companies experimenting with IPTV technology have run into trouble with some networks that feel threatened by a possible precedent that could be mistakenly established, starting a flood of similar services.

To date, only services that agree to broadcaster sanctions (Slingbox) or who have retransmission consent contracts with providers (such as the cable industry’s TV Everywhere project) have survived, but all have limitations imposed on their functionality that reduce their usefulness to consumers.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Aereo TV Demo May 2012.flv[/flv]

Aereo TV was demonstrated by the company CEO Chet Kanojia at the New York Tech Meetup May 9.  (21 minutes)