“If the caps need o be adjusted, they can be adjusted.”

Which btw they never stated officially and couldn’t guarantee.

http://twitter.com/alextwc

Rather than “impugning the motives” of the carriers, I’m simply looking at what the incentives are that drive their actions. According to law, investor-owned companies have one obligation only, to make money. They will behave differently according to whether they are an unregulated monopoly, operating in a truly competitive environment, or perhaps as a regulated monopoly.

An unregulated monopoly will try to make the most money with the least effort or investment that it can get away with. Rather than investing in its infrastructure, it will play with its rate structure with devices such as caps, putting a damper on its customers’ use of its service – especially if it plays the rates so that users end up paying steeply for over-use.

By contrast, companies in a competitive environment have the incentive to improve their infrastructure and offer their customers higher speeds which plenty of them will willingly pay for. I’m not saying that monopolies won’t ever improve their infrastructure, just that they’ll take their own sweet time.

Any of the arguments you have made in favor of caps applies equally well to a non-capped, higher speed scenario – better, in fact, since the latter imposes no limitations on customers other than what they willingly impose on themselves.

Quote “The system that TWC floated and then withdrew is not a cap.”

It is actually a tiered series of caps involving steep over-use charges for those who step over the line.

The problem that keeps coming up here is the supporters of the Massa bill making sweeping generalizations that aren’t backed up by even simple calculations and then impugning the motives of the carriers. Some people are persuaded by this sort of thing, of course. What I find really odd is the use of the term “cap” to describe usage-based pricing. Comcast has a cap – 250 GB/mo – and if you exceed it for two or three months you’re history. The system that TWC floated and then withdrew is not a cap.

The costs of middle-mile bandwidth vary region by region, and there’s no hard rule about how much it should cost to each consumer. And it certainly is the case that transit costs are capacity-based, so the economics of broadband are very sensitive to usage.

That’s inconvenient, but true.

OK, that’s all, I’m out of here.

OK, let’s get to the core issue – bandwidth. There’s a difference between bandwidth/speed and quantity of usage. In my case, I rarely download anything that requires high speed but I listen to WiFi internet radio for maybe 30 hours a week, which along with my other use could take me well over some arbitrary cap, without my having put any significant stress on the provider’s system.

Quoting what you wrote:

“Like I said, the cost of raw bandwidth is declining, slowly, but people are using more of it. On the question of connections vs bandwidth, it’s helpful to bear in mind that each connection has a certain capacity, so the overall system has to be engineered with enough capacity to meet peak load. While it’s true that off-peak usage doesn’t cost anything measurable, increasing the capacity to meet greater peak load does have a cost, and it’s not linear.

So bandwidth is not free.”

All very true, but it’s absolutely no argument for caps. It’s logical that the telecoms should invest in higher speed and offer them for a higher fee. Unlike usage caps, paying for a higher-speed tier would be the user’s choice. Users would voluntarily limit their own speed rather than having the telecom company imposing an arbitrary cap. And I don’t think you’ll find anyone who wants higher speed objecting to paying for it.

You can be sure that usage caps will be designed so that users will often exceed their limit and pay steep overcharges. This is nothing but a money grab by which the telecoms, exploiting their monopoly positions, will be in effect charging their customers up front to raise money for capital investments which are not necessarily guaranteed to happen. In a truly competitive environment, companies would invest their own money in capital improvements and recoup their investment from customers willingly paying for better service. The cap will only work under monopoly or near-monopoly conditions and would actually be a disincentive for improvement.

So don’t try to tell people that the cap is in their own interest when it is not.

The modem and CTMS equipment upgrade for D3 isn’t going to break the bank either as pointed out in this NY Times article…

http://bits.blogs.nytimes.com/2009/04/28/cablevision-goes-for-us-broadband-speed-record/

“Cablevision has said it spent $300 million for its upgrade to Docsis 3 and the deployment of Wi-Fi hot spots for use by its Internet customers around the New York area. That investment comes to about $97 for each of Cablevision’s 3.1 million customers, or $60 for each of the homes passed. Those relatively low numbers are consistent with other reports that say the overall cost to deploy Docsis 3 is quite low compared with the premium prices that cable companies are charging for 50-megabit and 100-megabit service.”

Cablevision had no problems with modem supplies so I don’t for one minute buy that as a reason for delaying D3 deployment.

And finally…and this is all I’M going to say on the subject. Healthy competition, Congressional legislation, common carrier status, muni broadband services, FTC anti-trust action, FCC regulation……I’m for whatever means works to break free of these cable monopolies and old-school telco-think, and to push this country to the forefront of the information age rather than stagnate and watch other nations pass us by. Just ask our Canadian friends to the north how Internet Overcharging is working out for them.

TWC officials have also been quoted telling their shareholders that those who already willingly pay more for faster service actually subsidize the lost revenue from the few who have dropped to the lesser tiers.

Once at the Internet Exchange point, the packet has to find a route that will take it to its destination, and that route may have a fee associated with it, which will be volume-based. The confusion in the Bits article is that it doesn’t include all three parts of the packet’s journey in the explanation, although they are included in the pricing calculation.

It’s also worth noting that DOCSIS 3 requires each consumer to upgrade his cable modem. If you’re leasing one, that’s not a big deal, but if you bought one, it may be. There is only 1 DOCSIS 3 modem on the market right now, so it may be prudent to delay this upgrade until more are available. And similarly, the deployment of D3 will stress the regional (“Middle Mile”) network, and that’s not a free upgrade either.

Finally – and this is all I’m going to say – we already have means to stop price-gouging in the 20 percent or so of broadband markets that don’t have competition: file a complaint with the FTC. That system works pretty well, so I don’t see any need to replace it with a system that requires permission for every new pricing plan. That’s the big fallacy of the Massa plan, and it’s evident from the discussion that it’s not based on real data or a commitment to explore the least intrusive means of regulation to achieve the desired goal.

“The other way that cable companies are increasing capacity is by using new technology known as Docsis 3. This is a standard that allows companies to use more video channels for Internet service. The current standard uses one video channel. The first generation of Docsis 3 service combines four 38-Mbps channels into a pool of roughly 152 Mbps that can be divided among customers. Cable companies can decide whether to use that capacity to offer higher speeds to customers or to increase the number of customers who can be served at slower speeds, avoiding the need to split nodes.”

If Time Warner Cable would have rushed to rollout DOCSIS 3.0 as fast as they rushed into their Internet Overcharging scheme, then we wouldn’t be having this discussion. Instead they’re only rolling it out in NYC in 2009 (coincidentally their most competitive market), and will gradually phase it in over the next couple of years. They don’t seem to be rushing to shore up the levies for the impending exaflood.

Oh and yet another relevant part of that article….

“A medium-sized Internet provider might pay about $10,000 per month for a one gigabit per second connection to the Internet. If the system didn’t own its own network in the metropolitan area, it may need to spend another $2,000 to $15,000 per month for a connection between a local system and the central office of whatever company was providing their Internet bandwidth. Assuming that bandwidth is divided among nodes of 500 homes sharing 38 Mbps, that means the cost of bandwidth ranges from 76 cents to $1.92 per month.”

And that’s for a medium-sized ISP. I’m sure TWC negotiates rates even better than that. So explain to me how on Earth a flat-rate pricing model isn’t insanely profitable now and for the forseable future? Greed….just pure greed!

As I alluded to in an earlier post…

“All these costs, by the way, apply whether or not anyone on the system is actually surfing or downloading anything.” “…providers will not sell bandwidth by the gigabyte to businesses, even though many customers want to buy it that way. For example, some movie studios that send large files to DVD manufacturing plants, don’t want to pay for connections they only use from time to time.

“The network providers almost always say ‘No,’” Mr. King said. “As long as the bandwidth is open for business, it will cost you the same whether there is data running or not.”

In other words, the cable and phone companies want to charge consumers per gigabyte even though they refuse to sell it to business customers on the same basis.”

This is an excellent article that describing the cost structures of ISPs. I encourage everyone to read EVERY WORD of it rather than take snippets out of context.

The relevant part is this: “In general, [bandwidth] cost is linear. That means if everyone started using a lot of Internet video, and a cable system split all their 500 home nodes in half, the cost of the Internet bandwidth would double. That cost, however, has been declining steadily, perhaps 5 percent to 10 percent a year, Ms. Dillenbeck said.”

Like I said, the cost of raw bandwidth is declining, slowly, but people are using more of it. On the question of connections vs bandwidth, it’s helpful to bear in mind that each connection has a certain capacity, so the overall system has to be engineered with enough capacity to meet peak load. While it’s true that off-peak usage doesn’t cost anything measurable, increasing the capacity to meet greater peak load does have a cost, and it’s not linear.

So bandwidth is not free.

And I am not speaking here for anyone but myself, once again.

Yet again not a single claim or representation you’ve made has been backed up with anything beyond your personal opinion. I invite anyone who wants to explore the costs and revenues of Time Warner Cable’s broadband division to visit the Investor Relations section of timewarnercable.com and read the SEC filings for themselves. They can put up a PR snowjob all they like, but they can’t easily lie to their shareholders and the SEC.

Landel Hobbs, COO of TWC admits that usage based pricing in a goldmine that will deliver bigger veins of enrichment as time passes. “Average Revenue Per Subscriber continues to grow,” he said. “Broadband data is such a great product. I think there will be some customers who don’t use much that will select the lower tier. But over time, they will use more and move up to the higher price plans.” — NY Times (4/8/09)

Of course they will. Because when TWC sets low usage caps based on nothing but a whim, it immediately stems video competition from customers afraid of exceeding the paltry allowance provided, and provides a built-in Money Party, even for consumers who may not exceed them today, but almost certainly will tomorrow. That means $$$$.

The fear-mongering over broadband slowdowns, brownouts and exafloods is used as an excuse to justify plundering customers’ wallets. The same company that complains about online video is going to be providing a bountiful harvest of online video themselves, but only if you are an authenticated cable TV package subscriber. They’re also unconcerned about the ability of their own network to sustain it, and even if they were, DOCSIS 3 provides a viable upgrade path at costs more reasonable than what they just spent implementing Switched Digital Video to handle additional HD channels. It also creates new revenue potential for them -and- reduces the need for neighborhood node management/splits.

The rest of your reply has all sorts of problems and misconceptions:

1) I honestly am happy with continuing to pay the $50 a month I pay right now for Road Runner service and am not asking for a lower bill. If competition delivers one, that’s fine with me, but I’ve been happy as a Road Runner customer since it arrived here in 1998 (in fact I was a beta tester and among the first five to have formally purchased the service when it went live).

I will not accept, however, a ludicrously higher bill. For me to maintain the same service I have right now, allowing me to use 20GB or 200GB a month without looking at some gas gauge, it will cost me 300% more — $150 a month. That’s completely outrageous and unacceptable, especially because it comes with absolutely ZERO service improvements. It’s the same product and service, only now three times more expensive.

Now what am I willing to pay more for? Additional speed, especially on the upload side. Just taking care of my web work, uploading at Road Runner speeds on a Standard account tops out at 384kbps. I pay extra right now to get a whopping 1Mbps upload. Give me more speed, especially for uploads, and I’ll open my wallet. Throttle or cap me, and I start looking for another provider.

Of course, one of the reasons they chose Rochester is that there was no Verizon FiOS service just waiting to cash in on TWC’s mistakes.

You asked about the costs to deliver bandwidth. They are declining industry-wide. Time Warner Cable admits it right in their SEC filings. We’re talking about costs that are FAR less than the $1-2/GB TWC was asking subscribers to pay -in addition to- their monthly broadband account fee. Based on TWC’s own revenue statements, there is an enormous markup taking place under current flat rate pricing models. Telling customers they’ll need to pay $150 a month for the same level of service they used to pay $50 for, or get stuck with paltry usage caps with steep overlimit penalties, and the markup now leaves earth’s orbit.

Again, readers can read the reports themselves. Your response is always “the data I’ve seen” or, when you boil it all down, ‘if you knew what I know’ rhetoric that comes with no way a reader here can check it out for themselves. That’s empty rhetoric.

While we’re sticking to facts, you said you found it curious Eric Massa doesn’t “represent Austin.” I find it curious you’d even mention it. He represents western New York, which is where I live. I have no idea what Austin has to do with this.

And, if you’re going to work for ITIF, at least know their address. Despite your protestations they aren’t on K Street, here’s their complete address:

ITIF
1101 K Street, NW, Suite 610
Washington, DC

Honestly, if we can’t even trust you to know your own employer’s address, how can we believe anything else you have to say. :-)

Honestly, I wish you well in your new career, and I enjoyed the back and forth. I hope readers can take something from it as well. Regards….

He a member of the U.S. Congress. Bills he proposes affect EVERYONE.

“Excuse me, but are you claiming that bandwidth costs to TWC are a constant – the same for each customer/account – regardless of how much each customer uses?”

Ummm…..yes, for the most part they are. The point is that the end users and the ISP both pay for connections….not bits. The ISPs pay for network connections to transit and peers and for maintaining those networks. Whether idle or used to full capacity, they pay for the bandwidth. This is exactly why ISP refused to charge per GB for movie studios to transmit data. They said the cost is in the connection whether used or not. As it stands now, ISPs offer customers bandwidth-limited connections to their networks. We pay for those connections and they cost the ISP whether we use them or not, and since my connection is bandwidth-limited already, I should be able to use that bandwidth to it’s fullest whenever and however I want. I shouldn’t have to count bits because the bits themselves don’t cost anything. Setting some arbitrary cap and charging me outrageous overage fees is a pure money grab, plain and simple.

“And yes, we know that the costs of raw bandwidth are declining (which they can only do if there are costs for bandwidth, of course) but the relevant question is whether they’re falling as fast as customer consumption is increasing. The data I’ve seen says they aren’t.

So let’s see if we can’t stick to the facts.”

Let’s do shall we. I would LOVE to see this data! Please provide it or a link to it.