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Former FCC Boss: Data Caps Not About Network Congestion
An anonymous reader writes "Broadcasting Cable reports on comments from Former FCC chairman Michael Powell (now president of the U.S. cable industry's trade association) confirming what many have long suspected: data caps on internet service aren't just about network congestion, but rather about 'pricing fairness.' 'Asked by MMTC president David Honig to weigh in on data caps, Powell said that while a lot of people had tried to label the cable industry's interest in the issue as about congestion management. "That's wrong," he said. "Our principal purpose is how to fairly monetize a high fixed cost." He said bandwidth management was part of it, though a more serious issue with wireless.' Powell went on to say that ISPs had huge up-front costs which had to be allocated out to consumers, and those consumers were familiar with usage-based fees from paying their power bill or buying food. He was part of a panel with three other former FCC chairs. Dick Wiley agreed with his cost argument, adding that the marketplace was responding better than new legislation could. Michael Copps thought the FCC could question data caps a bit more, but wasn't opposed in principle. Reed Hundt said he wants the FCC to focus on getting better, faster, cheaper internet to 100% of the population."
Yeah, sure. All the ISP wants to do is be "fair" to its customers.
When a large company says it's trying to be "fair", you should hold on to your wallet tightly!!
I have Tim Warner cable and have unlimited
Fios is unlimited too
And how much data is it to get past the cap? I stream all my TV. Only have Internet. And I use less than 200gb per month. So far I'm at just over 50 for this month
So they can only blame themselves. I remember back when dial-up was the option, and there were packages with time-limits. But then a few ISPs started offering unlimited time, and as we moved to always-on, they continued to not set limits. 15 years later, they decide limits are what they want, and they're shocked people react negatively?
I have to use wireless because there is no reliable wired service to my house but I'm practically underneath a cell tower. I pay USD$60/month for 5 gigabytes and, if I go over, USD$60 per gigabyte for every gigabyte I go over that. The only way to tell how close I am to the usurious cap is to log into a website that's only updated once a day and which itself serves several megabytes of ads before I can get to the summary of my data usage. Oh, I also get 50%, 75%, and 90% emails and similar SMS messages which I can't receive because my access point is a MIFI which isn't really a phone. I have complained, and of course not only is nothing done the only competitor has EXACTLY the same pricing model. The one time I went over by accident it nearly doubled my bill and when I complained they "generously" gave me a one-time waiver, but when I told them I'd rather have the service slow down or stop working I got nothing but shrugs. Because, of course, it's a profitable trap and nothing else.
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They underprice their services to get users (recurring!), then force users to switch to higher-tier plans when they consume more? This is classic bait-and-switch.
http://en.wikipedia.org/wiki/Bait-and-switch
"Powell said that while a lot of people had tried to label the cable industry's interest in the issue as about congestion management. "That's wrong," he said."
So who were these wrong people who said it was congestion management?
Oh, that's right, THE CABLE COMPANIES THEMSELVES.
And if they want to talk about "fair", then what about the salaries of these executives?
Okay, I don't get it. The companies in question are showing record profits...and what he's saying makes it sound like the capital expenditures necessary to have built out the networks in the first place are on some other set of books that don't come into effect. Isn't it the case that companies usually finance capital expenditures, and then pay off the debt over time? Under those circumstances, if the price of connectivity had to stay high in order to pay off that debt, the level of profitability wouldn't be rising the way it is. His argument sounds like bullshit to me.
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shouldn't we also have usage-based pricing for the TV they sell us? So that we pay "fairly" for for the fixed cost of establishing the network? Why would that model be different, since it's not really about congestion, as admitted in the article?
The electric bill and buffet examples in the article are terrible: when we pay for electric usage, we actually are paying for utlization/generation; use more and something (coal, natural gas, etc.) actually gets consumed more. And most buffets are all-you-can-eat; if you're paying by weight or something, the analogy is the same — you're actually consuming something. But both bandwidth and TV channels are there no matter how much they're "consumed." Bandwidth can be saturated (the congestion problem) but it can't be actually consumed.
If we're going to talk about "fairness", let's talk about:
I have the t-mobile throttling plan on my Tab 10.1 it is horrible. 5GB cap which I usually hit around a week before my turnover. The final week it is throttled to 120k. If the throttling was to half speed or even 1/3 speed it'd be fine. 120k is absurd though.
Bandwidth can't be stockpiled. Any bandwidth not used is lost forever.
So while it's fair to sell priority access but it's not fair to block traffic from empty lines.
That's obstructionist.
Eminent domain exists to seize private assets for the public good.
All natural monopolies should be co-ops.
the phone company here runs DSL off copper at least a generation old and refuses to build-out to serve customers past 3 miles from a CO.. even though it's possible to bring the per-subscriber cost of extending DSL down to as little as $100.. and even though they charge nearly double the 'in town' rate for a fraction of the speed past about 1.5 miles.
the cable company hasn't upgraded anything outside of its headend since they moved into town in the 80s, except for dropping a neighborhood node on each end of town for data. cable internet rates go up at least once per year even though it's a small town with a big fat, underutilized uplink.
each wireless company has exactly one tower here, and when one is down (happens a few times a year) there's not even an agreement between them to carry calls on the other company's tower. towers are well under capacity but data rates go up and caps go down. what was a reasonable $50 for uncapped unthrottled data no longer exists thanks to verizon's buyout of alltel and the fcc for allowing that to happen.
and oh yea.. all four companies receive federal funds to provide service to this rural area....... it just never makes it here.
I don't think it means even that. In fact, I don't think "fair" was ever meant to mean "for you".
From my subjective experience just means "we want more money". The idea is that what they're already getting is so incredibly unfair, when they could be getting more with just a little PR, disinformation and maybe a little collusion. Why, the CEO is probably still driving a Mercedes, while his neighbour is driving a Bugatti Veyron. Can you imagine how unfair that is?
Sarcasm aside... Not that it's necessarily a bad thing or evil. They're expected, and indeed the system is such that they have a legal obligation, to make as much money as possible for the investors. Not fleecing you as hard as physically possible, would be a breach of that obligation. Whether you have some money left after that, is more of a side-effect, than intended. Indeed, it would be a breach of trust if they actually intended to take less money for fairness sake.
I suppose the system just works. Might as well enjoy it. But the corollary is that whenever some large company is talking about something being for your own good in any way, better bring your own lube, they want to shaft you. They're supposed to, after all. Some just are more subtle than others.
A polar bear is a cartesian bear after a coordinate transform.
Is "huge up-front costs" a euphemism for payments to maintain their legal monopoly in most of the neighborhoods that they "server"?
One reason for suspecting this is the recent stories (most recently from a study in Canada that was discussed here on /.) about the actual cost of running an Internet service being less than 1/000 of the money charged the customers. If that's not the explanation of the "huge costs", it must be something else. The obvious guess is the, uh, "campaign contributions" and other related costs of all those zillions of local monopolies that the comms industry has relied on since the development of the telegraph and telephone to prevent any actual competition from arising.
What other sorts of payouts could the phrase "huge up-front costs" refer to? It might be interesting to get a detailed accounting of all this, though I suppose a lot of it would be similarly buried behind a pile of euphemisms.
Those who do study history are doomed to stand helplessly by while everyone else repeats it.
If it were about congestion, they could simply use QoS with classification by quota to slow you down as you reach higher percentiles of bandwidth consumption.
"You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
Powell went on to say that ISPs had huge up-front costs which had to be allocated out to consumers, and those consumers were familiar with usage-based fees from paying their power bill or buying food.
In the case of wireless, I couldn't agree more. I negotiate with my local grocery store and set a fixed price for the maximum amount of groceries I might need each month. It works great most of the time, except when unexpected company shows up at the end of the month and I wind up paying an extra $70/egg in overage charges.
What has *science* done?!? -- Dr. Weird (ATHF)
Of course this isn't about congestion, if it was other countries with far higher bandwidth allocations wouldn't be charging a fraction of what we charge. Our national broadband is an international embarrassment and is holding back the economy. Hell, even China is starting to deploy Fiber directly to new construction - and - letting you pick your ISP.
Network lines need to be declared a critical infrastructure, turned over to a third party and let consumers truly have a choice of ISP's. There is no competition for broadband in this country outside of a select few areas and the results are overwhelming. If your lucky enough to live in an area with competition you get /much/ better deals.
The free market is a wonderful thing that work around almost any problem. However the free market can't work if competition isn't allowed and monopolies can corner the market. We need another trustbuster like Teddy Roosevelt.
Next election vote for zombie Teddie Roosevelt - dammit.
From TFA
QUOTE... for a business that requires "enormously high" fixed costs -- digging up the streets, put the wires in -- and operational expense, "it is a completely rational and acceptable process to figure out how to fairly allocate those costs among your consumers who are choosing the service and will pay you to recover those costs.UNQUOTE
To me -- "digging up the streets, put the wires in" - are start-up costs. And I would be willing to agree that they are "enormously high" However; operational expenses plus depreciation, insurance, etc. are recurring or "fixed" costs. My understanding is that operational "fixed" costs are very much, lower.
I have no problem with conspicuous consumers of bandwidth paying more. My problem is with costs not dropping for all consumers!
Why is it absurd? You got what you paid for, would you rather get billed like GP by the GB when going over? Or completely dropped from the net?
While I agree data cap sucks, fact is, you have a contract with them, like it or not, those are the terms.
The US should have been building the fiber lines based around a munipal/county model much the way most water/sewer systems work where the city/county government installs and maintains the lines and then leases out that line to whatever ISP the customer wants. Then we would have been allowed actual competition. Charter offers you the best package, fine you sign up for Charter for $X per month and they pay the city/county $y per month to lease the line. Want Mom&Pop ISP that charges $Z per month, great, they still pay the city/county $y per month to lease the line.
That is something at the local level I would have voted a bond issue, sales tax increase, or property tax increase for without a problem.
Instead we have the system we have now...
"The problem with socialism is eventually you run out of other people's money" - Thatcher.
Like the BILLIONS some of these providers were paid BY THE GOVERNMENT and WITH OUR TAX MONEY for the development of broadband?
You know, all that money they frittered away?
Chas - The one, the only.
THANK GOD!!!
They may have initially chosen all-you-can-eat, but it's entirely their prerogative to change that at any point in time (barring regulation by the FCC). If they think they can increase profits by going to a tiered model then I applaud them for doing so. Certainly their shareholders do. At the end of the day, the heavy users derive more utility from the service being provided, so I don't have much sympathy when they're required to pay more for it. They are, after all, getting more out of it. From the provider's point of view, his job is to ensure that the price for each individual customer is as high as possible without motivating that customer to forgo the product altogether (grandma stays on dial-up) or take his business elsewhere (heavy user migrates to a competitor whose service is purely flat-rate with no caps).
It seems that if bandwidth has very little cost to the provider then a given provider could differentiate itself as the haven for heavy users, moving to a flat-rate pricing model that's moderately more expensive than what its competitors is charging for "normal use" but significantly cheaper than what a "heavy user" would pay once he goes over the competition's bandwidth caps and starts paying by-the-byte. All heavy users would migrate to this provider. His cost to provide all the extra bandwidth would be only marginally higher than if all his users were "normal", but each one of them would be paying premium over what his competitors end up charging to 99% of their customers (who are not "heavy users").
US citizens have a collective power to take real estate, easements, and capital - as long as that taking is a forced sale for public use at a legally-determined "just" price. This power has been exercised through the states since before the federal Constitution was ratified. In fact, it's usually not possible to build electrical transmission lines, roads, and telco networks without using eminent domain. Telcos and public utilities thus have a constitutional obligation to facilitate public use - and if they don't do a good job, we the people can and should take their easements back - and take their wires while we're at it. Right now we're paying world-class profits for less than world-class service. If the telcos ask, "Well what are you going to do about it?" like schoolyard bullies we should remind them that their entire business is based on property rights that are not absolute.
of course its bullshit the cost per gb these days is so cheap it would take terabytes of data to start hurting there pockets. they also proved this fact with cell phone company's when they claimed there bandwidth was expensive.
How so? The more customers you want to serve at a given level with a given amount of spectrum, the more towers you need to put up. It costs money to put up towers, and this last-mile cost dwarfs the cost of backhaul transit.
Why are you surprised?
There are a couple fundamental issues with capitalism that are failing to be addressed here: monopolies, and natural monopolies.
Capitalism really is less about competition and more about accumulation of capital. The competitive behavior is the goal, but it comes with the built-in problem of monopolies. You can't allow people to 'win' this particular game. Taken to an extreme, you might end up with one company that simply owned everything.
Capitalism in this sense is kind of a bait-and-switch. We're sold on the idea of an efficient competitive marketplace, but end up with monopolies and rent-seeking.
The problem of natural monopolies is even worse. Your ability to start a competing business is almost entirely a function of how much initial capital it takes to enter said market. It's far easier to start a restaurant or web company than to start a company that lays undersea fiber optic cable. This is why people talk about 'barriers to entry' as a bad thing: they reduce the efficiency of the market. Further, there are some services where competition would have negative utility -- no one really needs multiple companies laying water, power, or sewage lines to their home.
The answer to both of these problems is government. The government's purpose is to prevent or eliminate these market failures.
With natural monopolies, there is no real purpose behind allowing them to make a profit. It's a form of taxation, and can justly be called a theft from the public. These markets are the natural purview of government.
We have a slightly larger toolbox for dealing with large companies. We can break them up entirely, levy progressive business taxes, or subsidize potential competitors.
We need to start divorcing the idea of competition from the idea of capitalism: they're not synonymous. Yes, I am anti-capitalist -- but very pro-competition. Which side are you on?
Those who advocate genocide deserve every protection afforded by law, and none afforded by common human decency.
Whatever their reasons, the biggest wrong is the failure to disclose up front the caps, instead marketing the service as "10Mbps" or whatever, period. Here's where the FTC should be involved, requiring every ad that makes any claims about their service to state all the limitations, and not in the manner we're accustomed to hearing from pharmaceutical and financial "service" ads, which sound like John Moschitta (FedEx ad fast talker) at the end. If being regulated by the FCC precludes such a regulation by the FTC (I think it does not), then that's what the FCC should be doing. People who argue for less regulation may or may not have a point in some cases, but really never have a decent argument against disclosure of terms of sale/service in advertising.
If you ignore congestion (which he is arguing that this is not about), then eating bandwidth doesn't cost the ISP significantly more. There's no real incrimental cost difference between a pipe being 10% full and 20% full. Bandwidth caps, so far, have mostly been about directing customers to services that make the ISP more money -- "Skype bandwidth will cost you, but using my home phone service will be a lot chaper".
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