Chaos Program

Phillip Dampier says:

“The regulatory aspect is interesting. President Obama has expressed interest in bringing broadband Internet access to all Americans. Congress has held hearings on the subject. There has been an ongoing debate over Internet regulation for a number of years.”

Thanks for the link to StopTheCap! and I enjoyed reading your views on this.

I wanted to touch on a few points you made and expand on them.

First, let me say that in general I believe a free and competitive market approach will bring the most timely and provocative new services for consumers to explore and enjoy. A highly regulated “utility” status for the broadband industry would probably serve the basics, and do little more.

I believe the broadband industry in this country has generally become a duopoly in most markets – the incumbent cable operator and the incumbent telephone company are usually the most significant competitors, and for the last decade the story, and pricing, has basically remained the same. Cable operators compete on besting the telco on speed and features, and the telco competes on price. Consumers who want to save more end up with DSL. Consumers who want the fastest speed end up with cable modems.

And it has been profitable for both, as they continue to add new customers and develop add-on products such as higher speed tiers, support services, and online products.

Unfortunately, while their broadband divisions have been stable and profitable, their core businesses have been anything but. Telephone companies are rapidly losing wireline customers to VOIP and cell phones. Cable companies are starting to see consumers cut back on pay tiers or leave altogether for satellite or other video delivery technologies. Shareholders demand value and return, and now both companies are looking at their broadband divisions to find them.

Last summer we were listening to this industry complain about a “bandwidth shortage” which was a complete myth. When industry analysts reviewed what independent data they could find, it basically debunked this as nonsense. This year we’re hearing about usage caps because the industry does not want to keep up a level of investment to cope with the growth at the same levels they traditionally have. They now want a payday from customers to increase return, reduce the rate of investment in network expansion, and reduce demand and potential competition from broadband telephone and video products.

You can sense just how fishy this all is based on the wild divergence of tiers and capping these people are throwing at their customers. For Verizon FIOS, no cap and double the average speeds offered by cable is profitable and easily maintained. For Comcast, a simple 250GB cap on residential accounts suffices. For Time Warner, it’s 20GB unless you opt for a higher tier at a significant expense. For Frontier last summer, they wanted to impose a 5GB usage cap on their DSL service.

And each proclaims that the only way they can sustain their business model and profit margin is to implement their individual cap scheme. So one must ask, especially when none of these companies will make their underlying data public, why does Frontier absolutely need to do away with their unlimited plan and impose a 5GB cap vs. Time Warner’s 20GB vs. Verizon FIOS just happy as a clam to impose no cap whatsoever.

This is absolutely a price increase masquerading as a “value for lighter users.”

I’d also point you to the fact we continue to have a significant problem in this country in broadband access equality between rural and suburban/urban areas. I think the Obama Administration is seeking ways to make it possible for private companies to be encouraged to wire rural areas with broadband services, possibly through grants or tax abatements. I have not seen any initiative that proposes a government run Internet service.

One thing is certain. If consumers are to be forced into a duopoly situation, in those weaker competitive markets like Rochester, where Verizon FIOS will never compete because the incumbent telephone company is Frontier Communications, the natural result will be a redlined, substandard broadband market. Time Warner has no incentive not to cap and raise pricing, and Frontier is under capitalized and could never dream of building a state of the art fiber system to deliver broadband at more reliable speeds.

That will inevitably hurt the local economy, reduce local online entrepreneurship, chase away high tech workers who might actually choose a position in a more forward thinking region, and simply leave us disadvantaged going forward. No cable operator or telephone company is likely to overbuild another area, especially in these financially challenged times.

Under these circumstances, I could see a regulatory approach that insists that, for example, certain regions encompassing portions of a state with similar sized cities, must provide equal access throughout that region.

I agree with you that Time Warner could seek substantial new revenue streams by offering additional premium tiers with even higher speeds, which would draw those who are likely to be heavy users into higher priced tiers, but generate a win-win for both.

Instead, the company has chosen to artificially dampen demand with repressive caps, and extort potentially hundreds of extra dollars from residents who will all too easily exceed these kinds of caps.