The sledgehammer of usage-based billing

Brian Stelter’s article today, “Sweeping Effects as Broadband Moves To Meters,” illuminates a part of the local cable monopoly story for high-speed Internet access and the consequences of this power for America’s future. There is an epic narrative here that is worth a full-length action movie. Or two.

(Who would play Brian Stelter? Perhaps this could be the beginning of his “All the President’s Men” career. Woodward and Bernstein got Hoffman and Redford, after all.)

The precis of the story: : Time Warner Cable is moving to charging for tiers of data usage. It’s thinking of itself as a data company. (It uses the term “broadband,” and watch out for that – that means managed, prioritized, price-discriminated data.) : If users go over their particular tier, they’ll be charged $1 per gigabyte. There are a couple of paragraphs about slow speeds – not clear how that fits into the story. Then the nut: People are suggesting that there may not be enough competition to drive down the price of data transport. And online companies dependent on capacity are worried about their future.

First, a couple of holes that the newspaper story falls into. “Some of Time Warner Cable’s competitors are moving the same way, slowly but surely, toward tiers of pricing for higher speeds and bigger amounts of broadband at home, mimicking the wireless industry’s much-maligned pricing plans.” Time Warner does not have competitors among cable companies – if by competition you mean a cable distributor that could constrain Time Warner’s pricing or ability to manage its pipe for its own purposes. Time Warner’s DOCSIS 3.0 services do compete with Verizon’s FiOS, but FiOS is available in just a tiny part of Time Warner’s footprint. The major cable distributors long ago divided up the country among themselves.

“As online video use soars, customers just want faster and better broadband service, and they complain (online, naturally) when Web pages or videos take too long to load.” The placement of this idea in the story seems to suggest that there is some connection between congestion or high usage and the need for the cable distributors to create usage tiers. There is no basis whatever for this. Cable distributors have a choice: They could maintain the 90+ % margins they enjoy for data services and the astonishing levels of dividends and buybacks their stock produces, or they could rearchitect their networks to serve obvious consumer demand. But they are in harvesting mode, not expansion mode. And no competitor is pressuring them to expand.

“‘Our network is not an infinite resource, and it is expensive to expand it,’ David L. Cohen, a Comcast executive, said.” There is no empirical connection between any of the pricing involved in this story – the monthly prices, the overage prices, any of it – and the cost of actually providing data service and responding to consumer demand. The major cable distributors can charge whatever they want, however they want, for whatever services they define. There is no oversight of any of this and no visibility into what is actually going on. (But, with a tick-tock drama, maybe Stelter or someone else will invest the time to find out.) It’s just one large digital pipe with hundreds of channels. A handful of those channels are dedicated to two-way (but very slow on the upstream) digital Internet access. Because consumers have no choice, and cablecos have no competition, the cable operators can choose how to allocate that resource in ways that make the most gravy as possible for them.

“Companies big and small are coming up with ways to get faster broadband to more people; many people believe that broadband speeds will inevitably improve as time goes on, just as computer chip speeds have.” It’s true that alternative fiber providers are trying to avoid their local incumbents and sell reasonably-priced fiber data access, but Time Warner and its colleagues are doing all they can to make avoiding their services illegal or extremely difficult. Just remember what happened in North Carolina last year, where Time Warner managed to make the expansion of municipal fiber systems unlawful. So storage gets cheaper, computation gets cheaper, but truly high-speed access is out of reach for many Americans.

This is the truth: “The Netflixes of the world are wary of these moves, though there may be little they can do.”: Although the cable operators keep saying “it would be in our interest” to encourage online video (because more online video leads to more consumer demand for data), that’s a phrase we should worry about. That’s exactly what Standard Oil’s John D. Rockefeller told potential regulators worried about his control over refineries, and NBC told lawmakers worried about getting rid of rules prohibiting vertical integration between programming and distribution.

The cable operators have a built in, giant conflict of interest. They want to make sure that only their own premium video products are successful, and they can twist all the dials to make sure that happens. They can re-define services (calling their own content “specialized” and exempting it from caps or usage-based billing), they can withhold programming (particularly sports and live specials and first-run premium content) in concert with their colleagues, or charge so much for it that it won’t make sense to compete with them online, they can treat the bits coming from non-partners badly through their control over in-home devices as well as the pipe itself…endless endless ways to control.

And it’s also true that, at the moment, there’s nothing anyone can do under current law to prevent any of this. And that’s a problem for the country as a whole. We won’t make the upgrade to fiber if government actors are under the thumb of companies whose rational interest is in harvesting rather than expanding.

So – go be that Woodward or Bernstein. There’s a great story here.