In a stretch even the most accomplished Yoga master would never attempt, an industry-funded dollar-a-holler group has told Congress that Internet Overcharging is a useful tool to combat online piracy.

On Tuesday, Daniel Castro, an analyst at the Information Technology and Innovation Foundation (ITIF), testified before the House Judiciary Committee on the issue of combating “rogue sites [that] operate in a low risk, high reward environment.”

In December 2009, ITIF proposed a number of policies to help reduce online copyright infringement, especially in countries that turn a blind eye to copyright enforcement. The purpose of these policies is to establish a robust enforcement mechanism to combat IP theft online. These recommendations include the following:

• Create a process by which the federal government, with the help of third parties, can identify websites around the world that are systemically engaged in piracy;
• Enlist ISPs to combat piracy by blocking websites that offer pirated content, allowing pricing structures and usage caps that discourage online piracy, and implementing notice and response systems;
• Enlist search engines to combat piracy by removing websites that link to infringing content from their search results;
• Require ad networks and financial service providers to stop doing business with websites providing access to pirated content;
• Create a process so that the private sector can consult with government regulators on proposed uses of anti-piracy technology;
• Fund anti-piracy technology research, such as content identification technology;
• Pursue international frameworks to protect intellectual property and impose significant pressure and penalties on countries that flout copyright law.

Castro’s idea of allowing providers to establish “pricing structures and usage caps” stands out like a sore thumb in the context of battling piracy because it is the only recommendation on the list that targets every broadband user with the same broad brush, punishing every customer whether they are engaged in piracy or not.

It would be like setting up roadblocks and searching every vehicle in a city to search for a shoplifter.  Every individual is found guilty before being proved innocent, and will be forced to pay higher prices regardless of the outcome.

The ITIF proposal runs contrary to years of efforts by Internet Service Providers to avoid being involved in the personal business of their customers.  In 2009, major ISPs wanted no part of enforcing a proposal from the record industry for a “three strikes, you’re out” plan.  Verizon, among others, made clear copyright enforcement was not their responsibility to police, although many ISPs are willing to forward copyright infringement notices to individual customers.

Castro’s testimony goes over the top when he blames his own suggested pricing antidote for “hurting law-abiding consumers who must […] pay higher prices for Internet access to compensate for the costs of piracy.”

Of course, no ISP has ever suggested they would use the extra revenue earned from Internet Overcharging to combat another industry’s piracy problem.

His sweeping indictment against consumers extends beyond nipping at their bank accounts on behalf of telecommunications companies who help fund the group he represents.  He also suggests those who oppose his piracy prescriptions are either in league with, or defenders of piracy — or other offenders ranging from criminal enterprises to kiddie porn peddlers.

Castro’s support for usage caps to control illicit online activities leaves collateral damage as far as the eye can see.  It also simply won’t work for many forms of piracy Castro complains about.  ISPs with usage caps go out of their way to note even the most draconian limits still allow thousands (if not hundreds of thousands) of songs to be downloaded — legal or otherwise.  Castro testified e-published books are now increasingly vulnerable to piracy, content compact and easy to obtain even with usage limits.  Combating websites dealing in counterfeit goods with usage limits isn’t even worth trying.

What Castro’s proposal will do is limit access to the growing amount of legitimate online video traffic.  While the author cites statistics that “one in four bits of traffic traveling on the Internet today is infringing content,” (taken from a report commissioned by NBC-Universal, who has a major interest in this battle) he ignores other facts.  Namely, more than three-quarters of all broadband traffic is legal and legitimate.  Nearly 20 percent of primetime broadband traffic is coming from companies like Netflix who are in the business of providing a legal alternative to video piracy.

Castro’s argument on usage caps simply falls apart: ISPs, who have never been particularly interested in being the enforcement divisions for Hollywood studios, should be given the right to limit broadband usage and raise prices to combat piracy even when most of that traffic heads for legitimate websites?

Public Enemy #1 for Content Theft circa 1981: The $1,400 VCR

Online piracy enforcement should not involve Internet Overcharging schemes, and arguments that it should only illustrate why so many consumers and public interest groups get nervous about industry-proposed enforcement mechanisms.  Too often, they ignore presumption of innocence before guilt, browbeat alleged offenders into settlements to avoid costly litigation — guilty or not, and turn over policing to an industry with a long track record of overreach to protect their business interests. The record speaks for itself:

• Demands to ban videotape recorders in the 1970s and early 1980s for “piracy reasons”;
• Tax cassettes and video tapes to cover alleged piracy losses in the 1980s;
• Tax blank digital media in the 1990s because of “rampant piracy”;
• Impose monthly “piracy recovery surcharges” on broadband users in the 2000s;

Now the industry wants to police the piracy problem on its own terms.  As before, the proposed solutions are worse than the problem.

Back to the future.  In 1981, ABC’s Nightline ran this report on the entertainment industry suing a VCR owner, retailers, and manufacturers for piracy over taping a television station with a videocassette recorder.  The concern in 1981 — technology was moving faster than copyright law could keep up.  Many of the yesterday’s players are part of today’s debate, including Universal, the company that purchased research indicting 20 percent of all Internet traffic as “illegal.” (Part 1 of 3 – 9 minutes – Courtesy WEWS-TV Cleveland, ABC News, and ‘videoholic1980s’)

Today’s piracy debate rehashes the same accusations of content theft, only the technology has changed.  One executive tells the Nightline audience he’s offended at being told the industry already earns enough.  The movie and television industry predicted calamity over the VCR more than 30 years ago, saying it would cost them billions in lost profits.  Hollywood eventually lost the argument against the VCR and their businesses turned out fine, earning billions in revenue selling videotapes of movies and television shows to consumers they were willing to sue just a few years earlier. (Part 2 of 3 – 9 minutes)

Before Washington is asked to join the panic-frenzy over online piracy, perhaps they should recall the same predictions of doom and gloom made by many of the same companies — predictions that were overstated.  Imagine if they had succeeded in banning the VCR?  Indeed, just as before, Hollywood stands to earn billions online when they make their content available for easy, legal viewing at a reasonable price.  Slapping usage limits on broadband consumers is the worst idea ever to promote legal viewing of digital content because it discourages customers from shopping for it.  (Part 3 of 3 – 4 minutes)

Time Warner Cable’s new free iPad application, giving authenticated cable customers a selection of live cable channels to watch on the portable device, crashed under heavy demand last evening, hours after the company unveiled it in a mass e-mail campaign to customers.

Time Warner Cable TV for iPad is Time Warner’s first serious effort at delivering a cable TV experience to an online audience, initially streaming 31 cable channels in HD to customers who pay for both cable television and broadband from the company.

Several of the featured networks were part of earlier contract battles with the cable company. Scripps-Howard’s Food Network and HGTV are there, as is Fox’s FX and Fox News.  Some smaller “less-connected” networks like Hallmark Channel also made the cut.  Comcast-NBC’s networks also have a prominent place, including Bravo and CNBC.  All four major cable news channels are included.  Time Warner has been making a point to negotiate for on-demand and streaming rights with cable networks as part of contract negotiations.

Channel Lineup

Requirements

• iPad™ with iOS 4.
• Time Warner Cable video package at the Standard (Expanded Basic) level or higher.
• Time Warner Cable Internet Service (Road Runner^® Standard or higher recommended for best experience. EarthLink^® High Speed or EarthLink^® Cable Max is also supported).

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Time Warner Cable advertises its new iPad app for online viewing.  (15 seconds)

Time Warner Cable's new app for the iPad delivers 31 channels of live cable network viewing for free -if- you are a cable subscriber willing to watch from home.

Plenty of channels are missing though, including local broadcasters, Turner Broadcasting-owned networks like TNT and Turner Classic Movies, and sports networks.

But the most obvious limitation is that the service only works from inside of your own home, over a Time Warner Wi-Fi broadband connection.  You cannot take your viewing on-the-go.  This limitation seemed curious, considering other companies provide similar online viewing apps that can be used anywhere a wireless connection exists. 

Despite the limits, AdWeek reports several unnamed cable networks fired off warning shots yesterday to Time Warner Cable executives warning them they were streaming networks without permission.

Network legal reps are issuing a flock of heated missives to the nation’s No. 2 cable operator, calling for an immediate halt to a new service that allows subscribers to stream video content to iPads and other tablet devices. Although Time Warner Cable introduced the free app just 24 hours ago, a number of cable network groups have already made it abundantly clear that they had not signed off on any such distribution arrangement.

[…] “Distribution via any sort of third-party app is not addressed in our carriage deals with Time Warner Cable or any other operator,” said one affiliate chief. “There is going to be a messy dissection of what the rights are, but our position is that [this sort of distribution] is not authorized by our affiliate agreements.”

TWC CEO Glenn Britt has cautiously navigated the syntactic rapids, offering carefully worded assessments about the nature of the service. “Certainly all the business structures with the owners of copyrights are not fully in place, but you can begin to see a very exciting future for this set of industries and for the American consumer,” Britt said last August, after announcing plans to bow the iPad app. “There is great potential in all these devices…But it’s also a complicated process.”

Cable networks are concerned viewers who are not authenticated cable subscribers could get free access to programming from account sharing.  But considering Time Warner Cable has locked down viewing to inside the home for the time being, it is unlikely Time Warner Cable faces the same degree of wrath that could be heaped on Comcast and satellite dish TV providers who deliver apps that permit anywhere-viewing.

Time Warner Cable's new iPad app crashed under a heavy load last night.

The cable company’s heavy promotion of the newly-available app in mass e-mail announcements was probably a mistake, however.  The online viewing party came to a rapid end last night when the company’s servers, unprepared for the demand, ended up turning away many would-be viewers.

Jeff Simmermon, director of digital communications for the cable company, said they did not anticipate the level of demand they got last night.

“At about 8 o’clock last night the app crashed under a much heavier load than we anticipated. Our engineering team is working as hard as they can to put a fix in place and get everything up and running as soon as they can,” Simmermon wrote on Time Warner’s blog.

“For the time being, the app is running with only 15 channels. We have found that by temporarily reducing the number of available channels, we can ease strain on the authentication process. This will enable us to offer at least some sort of an experience to our customers while we get a fix in place. We’ll add the other 17 channels back in as soon as we can fix the underlying issue, and we’ll be adding more channels in future iterations of the app as well.”

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Rich Greenfield demonstrates Time Warner’s new iPad app.  (3 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/North Carolina Community Networks Best Broadband.flv[/flv]

Despite provider-financed arguments in opposition of North Carolina’s community broadband networks, here is a fact incumbent cable and phone companies simply cannot argue with: Fibrant and GreenLight deliver far better broadband service with the fastest speeds in the state, all without slowdowns or Internet Overcharging schemes like usage limits.  (4 minutes)

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Sen. Al Franken (D-Minn.) delivered comprehensive remarks at today’s South By Southwest (SWSW) gathering in Austin, Tex.  Franken declared the fight for Net Neutrality is by no means over, and claimed corporate opponents and some members of Congress are “using a rhetorical technique called ‘making stuff up'” to fight the rules guaranteeing a free and open Internet.  Franken added an open Internet does not mean open season for online content piracy, but preserving today’s online experience is crucial for entrepreneurs working in the 21st century digital economy, as well as for the creative talent attracted to SXSW.  (45 minutes)

Although more than 30 million Americans have experienced getting bill shocked with a cell phone bill loaded with overlimit fees and penalties, a wireless industry group says 19 out of 20 of these customers are economically better off getting those high bills, and any plan to notify customers in advance when their usage limits are reached would “harm innovation, limit consumer choice, and impair the potential for competitive differentiation.”

These incredible conclusions come in a filing from the Wireless Communications Association International, an industry group funded by AT&T, Sprint, Clearwire, and Time Warner Cable.

The WCAI just released a new white paper claiming Americans facing Internet Overcharging from usage-capped wireless data plans are actually saving money when carriers impose overlimit fees.  Their reasoning for this new math?  You might overpay for a usage plan that delivers a higher usage allowance than you need.

"And to think they actually believed us when we said Internet Overcharging saved people money!"

The wireless industry is heavily lobbying the Federal Communications Commission to stop the agency from imposing new rules to deal with the bill shock problem.  The FCC favors an advance warning system, which would force providers to notify customers by e-mail or text message when they near their usage allowance.  Letting customers know when they are about to pay enormous penalty usage rates before they are reflected on a future bill could save Americans millions annually.

The WCAI-funded study says consumers don’t need the agency’s help, going as far as to claim the majority of Americans are already well aware they are exceeding their plan limits, and are better off paying short-term penalties.

“The FCC is weighing new regulations that it says will eliminate so-called ‘bill shock,’ but this analysis makes plain that consumers don’t need regulators’ help,” WCAI President Fred Campbell said. “If you give them the right information, they know how to pick the best deal.”

But critics charge providers fighting this provision want to hide the most basic information of all — when consumers are on the verge of running up huge bills.

“The FCC’s effort on bill shock is long overdue in a wireless environment where today’s heavy user is tomorrow’s average user, and where the wireless Web is more and more important to commerce and to society,” Free Press Policy Counsel M. Chris Riley said. “It is vital that consumers are empowered with the information and the tools needed to make decisions about their own wireless usage so they can avoid outrageous charges.”

The WCAI white paper suggests that if providers are forced to issue advance warnings, companies may have to raise rates to compensate.  The paper’s author suggests consumers would find that worse than just paying the bills with overlimit fees:

The Nielsen Study indicates that many consumers incurring overages do so willfully and repeatedly. Their behavior suggests it is unlikely that usage notifications or usage controls would change their behavior because they are either indifferent to the overage charges or have determined that the occasional overage charge is more economical for them than choosing a more expensive plan. Notwithstanding that these overage-incurring consumers may not want or need additional notifications or controls, the adoption of the FCC‘s regulatory proposals would impose on all consumers the financial burden of ―protecting this one small group.

The WCAI dismisses the huge number of complaints that arrive at the FCC each year over this issue as simply “opinions” from consumers, not nearly as credible as their own analysis of actual customer bills.

The paper even argues with the definition of ” bill shock,” suggesting that the nearly 7 percent of wireless customers who blow past their voice allowances only face an average penalty of around $18.  That is “surprising or inconvenient; but it is unlikely to be shocking.”

Bill Shock

The WCAI study admits the dollar amounts for data-usage bill shock can be considerably higher, sometimes $100 or more.  The charges occur more frequently, too — impacting nearly 18 percent of customers.  But the group dismisses it as a rare occurrence anyway and that carriers will issue credits for astronomical surprise bills.  Besides, the paper concludes, when it was written most consumers were enrolled in increasingly-rare “unlimited use” plans.  Since the raw data was collected largely before AT&T abandoned its flat rate data pricing in 2010, statistics regarding bill shock for AT&T’s new limited use plans were not available.  The white paper inaccurately dismisses that major rate change, claiming it “had no impact on the data analyzed.”  That leaves readers believing the rate changes made no difference.

But the group’s logic completely derails when it concludes there are “consumer benefits to overages.”  Namely, providers “simplified” rate plans to reduce choice which was causing “customer confusion.”  The paper concludes “there is substantial evidence that consumers make deliberate choices to incur overages rather than upgrading to a more expensive monthly rate plan, and that they overwhelmingly benefit from such choices.”

The white paper ignores several important factors:

1. The diminishing number of unlimited access plans which give consumers a way to avoid overlimit fees, especially for data;
2. Carriers themselves arbitrarily set the arbitrary rules for the playing field – calling plan allowances, data allowances, limits, overlimit fees and penalties, and roaming rates;
3. The study ignores the record number of consumers complaining about surprising bills and the true economic impact providing simple text message or e-mailed notifications would have, and doesn’t give any reason why a consumer can’t simply shut off services once limits are reached, to prevent excess charges.

The white paper notes that 736,000 Americans annually are getting surprisingly high bills.  Assuming they are an average of $20 higher than anticipated, that represents nearly $15 million dollars in extra revenue for carriers — ample reason to hire dollar-a-holler groups to produce nonsensical reports that conclude a system to notify consumers they are about to be one of those 736,000 customers is actually bad for them and their wallets.

The FCC’s Consumer Task Force recommends these strategies to avoid bill shock:

•    Understand your calling pattern for making voice calls, and ask your carrier for a plan that would be best for your kind of use.
•    If you are an infrequent phone user, consider a pre-paid plan. Because you “pre-pay” for all your minutes, these plans make it impossible to go over your set limit.
•    Understand what your roaming charges are and where you will incur them.
•    Understand your options for data and text plans.
•    If you are going to use your mobile phone outside the U.S. for voice, email, and other services, make certain to find out beforehand what charges may apply. (Visit Wireless World Travel for more information about using a wireless phone in other countries.)
•    Ask how your carrier can help you avoid bill shock – with phone or text alerts, by letting you monitor your account online, or by giving you other information.
•    If you have tried to resolve a billing issue with your carrier and can not reach an acceptable resolution, complain to the FCC. You can call our Consumer Center, toll-free, at 1-888-CALL FCC (1-888-225-5322), or file a complaint here.

To learn more, read the FCC’s White Paper on Bill Shock.

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The Federal Communications Commission discusses the problem of “bill shock.”  (1 minute)