[ NNSquad ] Re: Big ISPs to Customers: Bend Over and Close Your Eyes

[Brett Glass <nnsquad@brettglass.com>]

At 10:41 AM 4/10/2009, Lauren Weinstein wrote:

> No matter how creatively they
> try to spin their press releases, telecom is taking the elevator to
> profits, and subscribers are being left with -- that's right boys and
> girls -- the shaft.

Lauren,

As much as you'd like to play the role of "consumer crusader," the 
above is simply false. Internet providers are imposing caps and 
overage charges not to reap unfair profits but rather to avoid big losses.

Internet service providers buy backbone bandwidth according to the 
continuous capacity of the link (usually measured in megabits per 
second). That bandwidth can be very expensive (in our case, $100 
per Mbps per month; in some ISPs' cases, $325 per Mbps per month or 
more). In certain big cities, you can sometimes get bandwidth at $3 
per Mbps per month, but only if you purchase huge amounts of 
bandwidth and pick it up at a major hub. (In other words, the $3 
per month doesn't include the delivery system.)

End users, on the other hand, want a palatable flat rate price for 
service. Typically, it's $30 to 45 per month (though what they 
really want is $15-20). And even at the lowest service level, they 
expect Web pages to arrive quickly. They want VoIP to work. And 
they want interactive games to be responsive.

And so, what ISPs must do to provide them with reasonable monthly 
rates is reminiscent of the old engineer's joke:

Q: How do you carry two tons of canaries in a one ton truck?
A: You keep beating on the sides as you drive along, so that at 
least half of the canaries are airborne at any given moment.

In other words, to satisfy consumers, and ISP needs to oversell 
bandwidth and rely on the fact that not all users are consuming 
network resources at the same time. The ISP can let users burst to 
very fast speeds, but you can't have all of them doing things which 
continuously take up megabits of bandwidth for extended periods of time.

ISPs can also leverage the fact that most users have a limited 
capacity to produce new content. They may be prolific writers, but 
this isn't even a blip on the radar because text takes so little 
bandwidth. They may be avid photographers, but even good still 
photographs take lots of time to compose, crop, and post. They may 
even create a lot of video, but since video is generally uploaded 
to servers close to the backbone (e.g. YouTube) for general 
distribution, this also does not create much continuous upstream 
traffic. For this reason, ISPs can buy more downstream than 
upstream bandwidth, and design their systems so that they have more 
downstream than upstream capacity.

Now, enter two classes of applications that don't lend themselves 
to oversale. One is P2P. Leaving aside for a moment the fact that 
P2P is overwhelmingly used for illegal activity, the two big 
problems with P2P are that it often has a 100% duty cycle and 
consumes precious upstream bandwidth. This wreaks havoc with the 
careful engineering that is done to reduce the cost of users' service.

The second application that causes problems is video streaming. An 
HD stream can easily take up several megabits per second... and 
users, who are used to leaving the TV on, don't realize just how 
much it would cost the provider if they left the stream on in the 
same fashion. So, they often stream content for hours -- EVEN WHEN 
THEY ARE NOT WATCHING IT. (The same is true of music; many users 
leave Sirius/XM or Pandora running all day even if they are out of the room.)

The problems are further compounded by the fact that the Internet 
is not a broadcast medium. When another user tunes into an 
over-the-air television station or even a station on a cable TV 
network, no new resources are consumed. But on the Internet, each 
video is an individual stream which consumes more resources and 
creates additional costs. And as users attempt to lower their 
household expenses in the face of an economic downturn, more and 
more people are cutting off their video services and trying to 
stream their favorite shows instead -- multiplying this effect.

For all of these reasons, ISPs MUST either discourage continuous 
use of bandwidth-hogging applications (analogous to beating on the 
side of the truck in the joke above) or raise their prices. This 
creates a serious dilemma. They do not want to insist that 
customers pay the full price of backbone bandwidth plus a markup, 
because the higher prices would anger consumers and cause many of 
them -- especially those not financially well situated -- to drop 
their service. It would also discourage potential new customers 
from signing up.

ISPs likewise do not want to charge by the bit, because so many 
applications that download (e.g. virus checkers, which download 
updates frequently) are beyond the average user's control.

So, they have been forced to adopt a hybrid approach. They start 
with a low flat rate that applies when the user obeys the 
assumptions that allow cost reduction. They then add surcharges 
which -- if they're designed correctly -- will approximate the 
direct sale of backbone bandwidth on a "cost plus" basis to heavy 
users who push their connections to the limit.

Of course, all such schemes are approximate. The crudest 
approximation -- caps plus overage charges -- tends to discriminate 
against users who do lots of long, low bandwidth downloads, and 
also tends to cause nasty surprises (as do overage charges on cell 
phones). But as one makes the formula more sophisticated (and more 
accurate), the combination of restrictions and surcharges becomes 
less and less comprehensible to the customer.

The result: more and more naive consumers are already claiming that 
ISPs are discriminating against online video because it competes 
with their own offerings (at least when the ISP is a cable company) 
or leveraging market power. One member of the US House of 
Representatives, Rep. Eric Massa of New York, has gone as far as to 
say that any sort of metering should be illegal. "I firmly oppose 
capping Internet usage," he said in a press release posted at

http://massa.house.gov/?sectionid=24&sectiontree=23,24&itemid=205

"and I will be taking a leadership role in stopping this 
outrageous, job-killing initiative." The Congressman also claimed 
that metering and capping Internet  service harms free speech, 
which is absurd on its face because virtually no user can "speak" 
enough to have his or her speech impeded by the caps.

I called and e-mailed the Congressman's office and asked, "Would 
you also be opposed to metering of electricity? Of natural gas?"

As of this morning I haven't gotten a response.

--Brett Glass 

  [ Brett, a key factor that makes the situation intolerable from a
    consumer standpoint is the lack of any effective regulation to
    help ensure reasonable parity in costs, bandwidth caps, and other
    associated factors related to Internet service.  In the absence
    of such regulation, it's totally luck of the draw depending on
    where you live, with vast variations.  And as we've seen, when
    significant competition is available in those very limited areas
    with major ISP overbuilds, suddenly things seem to change in a
    positive way.

    This isn't rocket science.  Lack of effective major competition
    plus lack of regulation historically always equals consumers
    getting kicked in the groin.

        -- Lauren Weinstein
           NNSquad Moderator ]