Opinion

Felix Salmon

You won’t have broadband competition without regulation

Felix Salmon
Feb 21, 2014 17:03 UTC

Tyler Cowen isn’t worried about the cable companies’ broadband monopoly. His argument, in a nutshell: if you can’t afford broadband, that’s not the end of the world: you can always go to the public library, or order DVDs by mail from Netflix. And if the cable companies’ broadband price is very high, then that just increases the amount of money that alternative broadband providers can potentially make in this “extremely dynamic market sector”. Indeed, he says, if regulators were to force cable companies to decrease their prices, then that would only serve to decrease the amount of money that a competitor could make, and thereby lengthen the amount of time it will take “to reach a more competitive equilibrium”.

The first big thing that Cowen misses here is television. Cowen knows that there’s more to broadband than watching movies on Netflix, but what he doesn’t really grok is that there’s more to Netflix than watching movies on Netflix. Netflix has moved away from the movies model (which was a constraint of the DVDs-by-mail model) to a TV model. And that makes sense, because Americans really love their TV. They love it so much that cable-TV penetration is still substantially higher than broadband penetration. As a result, any new broadband company will not be competing against the standalone cost of broadband from the cable operators: instead, they will be competing against the marginal extra cost of broadband from the cable company, for people who already have — and won’t give up — their cable TV.

If you’re a cable-TV subscriber, the cost of upgrading to a double-play package of cable TV and broadband is actually very low; what’s more, there’s a certain amount of convenience involved in just dealing with one company for both services. The result is the barriers to entry, in the broadband market, are incredibly high. Cowen talks about pCells and Google Fiber, but really they prove my point: pCells are untested technology which would surely cost a mind-boggling amount of money to roll out nationally, while it’s taking even the mighty Google a huge amount of time and money to bring its own broadband service to a relatively small number of mid-size cities.

What’s more, all of that effort is redundant and duplicative: we already have perfectly adequate pipes running into our homes, capable of delivering enough broadband for nearly everybody’s purposes. Creating a massive parallel national network of new pipes (or pCells, or whatever) is, frankly, a waste of money. The economics of wholesale bandwidth are little-understood, but they’re also incredibly effective, and have created a system whereby the amount of bandwidth in the US is more than enough to meet the needs of all its inhabitants. What’s more, as demand increases, the supply of bandwidth quite naturally increases to meet it. What we don’t need is anybody spending hundreds of billions of dollars to build out a brand-new nationwide broadband network.

What we do need, on the other hand, is the ability of different companies to provide broadband services to America’s households. And here’s where the real problem lies: the cable companies own the cable pipes, and the regulators refuse to force them to allow anybody else to provide services over those pipes. This is called local loop unbundling, it’s the main reason for low broadband prices in Europe, and of course it’s vehemently opposed by the cable companies.

Local loop unbundling, in the broadband space, would be vastly more effective than waiting for some hugely expensive new technology to be built, nationally, in parallel to the existing internet infrastructure. The problem with Cowen’s dream is precisely the monopoly rents that the cable companies are currently extracting. If and when any new competitor arrives, the local monopolist has more room to cut prices and drive the competitor out of business than the newcomer has.

In other words, the market in delivering broadband to the home is pretty much the opposite of the international text-messaging market which was disrupted so effectively (and so profitably) by WhatsApp. The initial impetus for WhatsApp came in Europe, where lots of people want to communicate with their friends across borders: from Germany to Austria, say, or from the Netherlands to Belgium. Text messaging across borders is expensive, both to send and to receive, and WhatsApp used those phones’ existing internet connectivity to be able to provide a better service at a price of zero. Since the mobile operators weren’t willing to bring their international text-messaging prices down to zero, they simply lost tens of billions of dollars’ worth of text messages to WhatsApp and other internet-based messaging services.

In broadband, by contrast, it’s the cable operators who could, if they wanted to, bring the marginal cost of broadband down to zero. (There’s no reason, in principle, why they can’t provide broadband for free to anybody with a cable-TV subscription.) Meanwhile, any would-be disruptor, needing to repay a massive capital investment, is going to have less ability to slash prices than the incumbents do.

So don’t count on competition to bring down prices in the broadband space. This is an area where the regulators — and only the regulators — can really be effective.

COMMENT

Realist, I knew that number was ridiculously low, but I couldn’t let it go.

Still, $20 billion in capex for a telco with revenue of $128 billion is not special. And I would bet a disproportionate amount is spent on their LTE network. I doubt much is spent expanding their fiber footprint or upgrading their DSL service.

Posted by KenG_CA | Report as abusive

Monopolizing bandwidth

Felix Salmon
Feb 17, 2014 19:04 UTC

Paul Krugman makes a simple but powerful point about Comcast’s acquisition of Time Warner Cable:

One puzzle about recent U.S. experience has been the disconnect between profits and investment. Profits are at a record high as a share of G.D.P., yet corporations aren’t reinvesting their returns in their businesses. Instead, they’re buying back shares, or accumulating huge piles of cash. This is exactly what you’d expect to see if a lot of those record profits represent monopoly rents.

Broadband is the area which Krugman, and most other opponents of the Comcast-Time Warner tie-up, are most worried about. It can’t be a good idea to give a single company 37% of the market in broadband, especially when its real monopoly power would be much stronger still:

The reason this deal is scary is that for the vast majority of businesses in 19 of the 20 largest metropolitan areas in the country, their only choice for a high-capacity wired connection will be Comcast. Comcast, in turn, has its own built-in conflicts of interest: It will be serving the interests of its shareholders by keeping investments in its network as low as possible — in particular, making no move to provide the world-class fiber-optic connections that are now standard and cheap in other countries — and extracting as much rent as it can, in all kinds of ways. Comcast, for purposes of today’s public , is calling itself a “cable company.” It no longer is. Comcast sells infrastructure subject to neither competition nor a cop on the beat.

The argument from Comcast is, essentially, that it doesn’t matter whether it has a national monopoly, because it (and Time Warner Cable) already have local monopolies. If individuals and businesses don’t have any choice of broadband providers right now, then what difference does it make if the existing providers consolidate?

The argument does have a little bit of merit, if you believe that the main reason not to have monopolies is to encourage competition. But take a step back, and it’s abundantly clear that the US has something approaching a national broadband crisis on its hands.

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In comparison with the rest of the developed world, the US has slower broadband speeds and higher broadband prices than just about anybody. When you do find exceptions, they always turn out to be cases of a very clear monopoly: Carlos Slim more or less owns broadband in Mexico, for instance, while a company called Southern Cross controls all of the bandwidth into New Zealand.

What’s more, in cases like Mexico and New Zealand, the rule of supply and demand at least still obtains. Broadband prices are high — but in large part that’s because the supply is constrained. The supply is constrained mainly because the monopolist sees no particular reason to increase it: they’re already charging monopoly prices, which means that they wouldn’t make more money by providing better service.

The US, by contrast, is unique in that it has very high broadband prices and an abundance of bandwidth. The country as a whole — or at least its urban centers — has no shortage of bandwidth at all. But if you want to connect your home or business to the major internet backbones, the cable-company gatekeepers will charge you an arm and a leg for doing so.

Farhad Manjoo has the explanation for why this should be. Internet service is very cheap for the cable companies to provide, and it’s also price-sensitive: if you reduce the price, more people will sign up. As a result, the cable companies would make more money from their broadband offerings if they reduced the price. So why don’t they? Because right now, 91% of Americans with broadband also have cable TV (I think, I can’t find the link for that right now), and the cable companies make their real money from TV, not broadband. The cable companies therefore have every incentive to price broadband as high as possible, so as to make the marginal extra cost of getting TV as well as small as possible.

In the US, cable TV rates are very high; as such, the best way to prevent cord-cutting is to ensure that broadband rates are also very high. That’s bad for broadband adoption, but it’s reasonably effective at keeping people paying very large sums for TV every month. In other words, high broadband rates are a bit like most newspaper paywalls: they’re not so much a way of making lots of money themselves, as they are a way of persuading you to pay lots of money for something else. (Physical newspaper delivery, or cable TV.)

If Comcast is allowed to buy Time Warner Cable, that model won’t change — but it will be reinforced. The cable companies will continue to price broadband at uneconomically high rates, in order to protect their cable TV cash cows. And as Krugman notes, they will have essentially no incentive to improve their own broadband infrastructure, since providing high-quality broadband is not how they make money. Instead, they will just continue to extract monopoly rents, which is good for their shareholders, but bad for everybody else.

There isn’t a market solution, here: there’s only a regulatory solution. The US government regulates the amount that the post office can charge, so that everybody has access to the mail; it also regulates the maximum amount that phone companies can charge for basic landline telephone service. Both of those regulations are beginning to look increasingly anachronistic, in an era where the internet has replaced both mail and telephony. But the obvious regulatory response — to mandate that utilities provide universal access to low-price, high-quality broadband — seems as far away as ever. If Comcast is allowed to buy Time Warner Cable, the current model will become even more entrenched. And the USA will slide ever further backwards in the global connectivity race.

COMMENT

KenG_CA

Ah, but they wouldn’t be providing broadband. They would be providing wires/fibers/cables (OSI Layer 1). The stuff that goes on the wires (OSI Layer 2+) would be provided by some sufficiently corrupt capitalist entity.

Posted by Zdneal | Report as abusive

T-Mobile’s self-defeating resurgence

Felix Salmon
Dec 15, 2013 05:04 UTC

It’s a standard part of flying, these days: the minute you touch down, you pull out your phone and get back up to speed with the world — especially if you’ve been on a long flight without wifi. And then there’s the standard exception: when you’re flying internationally, you don’t. Not unless you’re very rich, or very reckless, or someone else is paying your phone bill.

Which is what made my arrival in Auckland this morning so special: I touched down after a long flight, pulled out my phone, cycled through Twitter and email and Foursquare, and didn’t stress at all about being charged $20.48 per megabyte (or whatever) in a world where I have no idea how many megabytes are involved in any of those activities.

But I just switched to T-Mobile, which has free international data. I’ve been using it for about 12 hours now, in Auckland and Wellington, and it’s been fantastic. I’d heard complaints about how slow it was, and I haven’t been trying to stream video, or anything like that, but basic things like maps and Google searches work fine.

I was already a fan of T-Mobile in any case: its LTE network is blazingly fast, its pricing is astonishingly simple and transparent, I’ve had very few dropped calls, and, the one time I did have a serious issue which required non-trivial customer service, their T-Force social customer support team came through with flying colors. It’s a big company, and there are still rough patches. But the “uncarrier” campaign is more than just a slogan, and makes it much easier to give T-Mobile the benefit of the doubt when things go wrong.

All of which explains why I got a horrible sinking feeling in my stomach when I saw the news that Sprint is working on a bid for T-Mobile. The first thing I thought of, when I saw the headline, was the documentary “Who Killed the Electric Car?“, about the General Motors EV1 of the mid-1990s. Electric cars could have had their start back then; instead, we had to wait almost 20 years. When you’re developing a new product which is a serious threat to the biggest players in the market, it makes sense for those players to shut you down.

The resurgence of T-Mobile was in no sense a predictable thing. Suffering from neglect and underinvestment, it agreed to be bought by AT&T in March 2011 for $39 billion. But when that deal got scuppered by the Justice Department, T-Mobile took its $4 billion break-up fee and started shaking up the industry in a very welcome and unexpected manner.

If Sprint does buy T-Mobile, it certainly won’t be because the two companies are any kind of natural fit. As Sascha Segan explains, there are a lot of reasons not to do this deal, including the fact that the combination of the two is a “technological nightmare”:

Sprint works with CDMA, some FD-LTE and increasingly TD-LTE. T-Mobile works with GSM, HSPA+ and FD-LTE. Sprint is trying to aggregate the 800, 1900, and 2600 bands; T-Mobile has some 1900, but does a lot of its work on 1700. This merger would result in a horrible technology alphabet soup; there’s very little compatible here, which means lots of time and energy will have to be wasted aligning these networks somehow. That means a combined Sprint/T-Mobile will fall even farther behind AT&T and Verizon.

That said, it’s easy to see why Softbank, Sprint’s new owner, would want to buy and neutralize T-Mobile. Softbank does have deep pockets. What it doesn’t have is any desire to get involved in the telecommunications equivalent of a land war in Asia, attacking two huge entrenched incumbents while needing to expend extra energy fighting off a nimble smaller competitor at the same time.

In other words, this bid, if it ever materializes, is an anti-trust no-brainer — and the T-Mobile board could be forgiven for regretting that they ever hired John Legere in the first place. Ironically, a weak and feeble T-Mobile might actually be worth substantially more than a seriously competitive T-Mobile, since the latter will have a much harder time passing anti-trust scrutiny.

Still, the die has been cast, at this point, and T-Mobile is on a roll. There’s something very refreshing about actually paying full price for the phone you use, either up front or on an installment plan, instead of signing up for an overpriced two-year contract and kidding yourself that you’re getting the phone for “free” or cheap. Segan calls T-Mobile’s Equipment Installment Plan its “one true innovation”, because it manages to “bridge the perception gap between the subsidized world and the no-contract world” — if you’re on the plan, you still end up paying less per month than you would on Verizon or AT&T, even with the extra cost of (say) an iPhone 5s added on a separate line item.

True innovations are rare in industry, and the US consumer has undoubtedly benefitted from this one. It’s just a little bit depressing that T-Mobile might have ended up being worth more if it had simply withered slowly away instead.

COMMENT

I switched to T-Mobile for the new international coverage, and having just returned from So. America I can say it’s really a great advance. No more long “how to reach me” memos, easy access to email without camping out in hotel lobbies, and $0.20 calls back home. Speed was adequate for all but video. Let’s hope this is the start of an industry wide trend.

Posted by 78RL | Report as abusive

How high-frequency traders benefit us all

Felix Salmon
Apr 4, 2012 16:17 UTC

File under “unexpected societal benefits of high frequency trading”: it’s doing wonders for building IT infrastructure. Sebastian Anthony and Jeff Hecht both have good overviews of the three — count ‘em — fiber-optic cables being laid deep below the arctic sea floor, all in a $1.5 billion attempt to shave 60 milliseconds, or less, off the amount of time it takes to get digital information from London to Tokyo.

None of this would be possible without global warming, of course:

Each cable will be laid by a pair of ships: an ice breaker that leads the way, and a cable ship. Until now it has been impossible to lay cables in the Arctic Ocean, but the retreat of the Arctic sea ice means that the Northwest Passage is now generally ice-free from August to October; a big enough window that cable can be laid fairly safely.

But global warming alone isn’t enough to make the economics make sense: standard cable ships aren’t rated for icy waters, so polar-rated ships have to be retrofitted for the job instead, at vast expense.

And yet three different companies have managed to make the economics work, even while offering only tiny decreases in latency: according to Arctic Fibre, the speed of the London-Tokyo connection is going to be reduced from 188ms to 168ms, a reduction of just 20ms.

Everybody will benefit from these cables, not least because they will bypass the current “choke points” in the Middle East and in the Luzon Strait between the Philippine and South China seas. But most of us are unwilling to pay for insurance against a ship dragging an anchor in an inopportune location. High-frequency traders, on the other hand, are willing to pay a lot.

The leaders of the project will need to persuade telecommunications companies to buy a piece of the capacity created by the cable. Telecom companies will make that decision largely based on demand from financial companies.

“What we’ve seen is just because you have a diverse path does not mean that you can necessarily sell that capacity for much more than the current market price,” Mauldin said.

I’m a little bit unclear on exactly how these cables are financed, and what the mechanism is whereby telecommunications companies sell ultra-fast connections to financial-services companies. But clearly it’s advanced and predictable enough that the economics make perfect sense for more than one player.

It’s lucky, then, that laying cable under the arctic makes a key financial connection noticeably faster. That cable would serve a very valuable purpose even if was a little bit slower than current connections — but in that event, no one would have any incentive to lay it. Are there any examples of people spending a lot of money to lay big fat pipes which are slower than what already exists but which simply expand the total amount of bandwidth available? I suspect the economics in that case would be much more difficult.

COMMENT

This and other topics that are relevant for speed traders and institutional investors will be discussed at High-Frequency Trading Leaders Forum 2013 London, next Thursday March 21.

Posted by EllieKim | Report as abusive

Justice makes the right decision on AT&T

Felix Salmon
Aug 31, 2011 16:14 UTC

The Justice Department’s official complaint seeking to stop AT&T from taking over T-Mobile minces no words:

T-Mobile in particular – a company with a self-described “challenger brand,” that historically has been a value provider, and that even within the past few months had been developing and deploying “disruptive pricing” plans – places important competitive pressure on its three larger rivals, particularly in terms of pricing, a critically important aspect of competition… unless this acquisition is enjoined, customers of mobile wireless telecommunications services likely will face higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent the merger. Because AT&T’s acquisition of T-Mobile likely would substantially lessen competition in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, the Court should permanently enjoin this acquisition.

One thing which fascinates me is the way in which neither the complaint nor the press release makes any mention of the fact that the proposed deal would give the merged company substantially all of the market in GSM cellphones — the only ones which work in most of the rest of the world. Americans who travel internationally pretty much have to get their cellphone service from one of these two providers — and they’re highly sensitive to exorbitant international roaming fees. Which would almost certainly go up in the event of this merger.

The noises coming from the FCC in the wake of this suit are supportive, with FCC chairman Julius Genachowski saying that he too has “serious concerns about the impact of the proposed transaction on competition.” He adds for good measure that “vibrant competition in wireless services is vital to innovation, investment, economic growth and job creation, and to drive our global leadership in mobile.”

AT&T hasn’t officially given up, but I can’t see it winning this particular fight with the law. This, then, is a good day for the American consumer, not to mention a great day for Sprint and Verizon. AT&T and T-Mobile have both put enormous amounts of management time and shareholders’ money into putting this merger together, all of which will now be for naught. Rather than fight the inevitable, they should go back to fighting each other where it matters: in the marketplace.

COMMENT

@Keng_CA says “All this talk about T-Mo doing horribly is not true – they just weren’t performing as well as DT likes.”

T-Mobile has not had an RoE above 7.1% in any year since 2006. For the last 12 months it has been 4.1%. For comparison, AT&T and Verizon (and indeed almost any healthy company) have RoE in the teens.

If you were a manager or shareholder of Deutsche Telekom, how would you justify investing the $3B settlement in a business that is returning 4-7% rather than distributing it to shareholders or finding a better use for the capital?

Posted by right | Report as abusive

Some answers from AT&T on data pricing

Felix Salmon
Jun 6, 2010 04:26 UTC

I sent AT&T spokesman Mark Siegel some questions this morning:

1. Will you have “rollover megabytes”? If not, why not?

2. Why do the plans have to be chosen ex ante, rather than ex post? Wouldn’t the plans be much more convenient for consumers if they just automatically paid for the Data Pro plan when they went over 200 MB, but paid only for Data Plus if they consumed less than 200 MB?

3. How exactly does data plan switching work? If I’ve consumed 150 MB in a month and switch from Plus to Pro for the rest of the month, do I pay any more than if I had been on Pro all along? What if I’ve consumed 250 MB in that month before making the switch? Do I pay $30 or $25? And what if I switch down from Pro to Plus — is the amount of time I spent on the Pro plan pro-rated, or do I still get the whole month for $15?

4. Here’s a comment I received on my blog:

It’s a patently cyncially priced plan. It’s extremely easy to exceed 200MB if you use your phone to surf the web and use Google Maps on a fairly regular basis, but you’re unlikely to exceed 500MB unless you do data intensive stuff like downloading music and streaming video.

You say you’re all about consumer choice, but it does seem that your choices are clear ones only for (a) Blackberry users who mainly just use email; and (b) heavy users who stream music/video, or who have a 3G iPad. The rest of us — which I think would include most people with an iPhone — are in that unhappy cusp zone around 200 MB where it’s very easy to make the wrong choice. Are these plans specifically designed to make us unhappy?

5. An AT&T representative said here that iPad 3G owners who turn off their $30 unlimited plan will be able to turn it back on again. Is that true? And is it fair for people to characterize the widespread advertising of the unlimited iPad plan as a bait-and-switch, given that it lasted less than 40 days?

Siegel replied:

We don’t have rollover megabytes.

The iPad plans are all prepaid and no-commitment. You pick the plan that works for you. Want to drop it? No problem. Want to pick it up at some other time? Also no problem.

We think that approach is easy and flexible and puts the customer in charge of what they want to do.

On switching plans: Customers can switch between the two new plans easily, even in the middle of the month. They can do so themselves on the Web or by contacting us. In either case, they choose whether to make the jump from DataPlus to DataPro that day, for the next cycle, or backdate to the beginning of the cycle to avoid overage charges. And remember, we give free text message (and email if we have the address) alerts at three usage levels, in addition to all of the other ways customers can monitor usage.

If you buy the iPad before June 7 and want to use the unlimited plan, you can.

So, that’s one question answered, at least: it seems that you can backdate your data plan to the beginning of your billing cycle if you’re switching up from Plus to Pro. (It’s not clear if you can backdate a downswitch from Pro to Plus.)

It’s also pretty clear that if you turn off your unlimited data plan on the iPad, you won’t be able to turn it back on again. But we knew that already, didn’t we.

As for the lack of rollover megabytes, I think that underlines that the underlying business plan here is cynical/evil. AT&T loves to talk about how many people use less than 200 MB of data per month on average — and if they really cared about serving those people, then they would be happy to let them roll over their unused megabytes. But as it is, someone like me who uses less than 200 MB of data per month on average is still probably going to end up subscribing to the Data Pro plan. Which is great for AT&T — an extra $10 a month for them — but is hardly the customer service that Siegel’s making it out to be.

COMMENT

I definitely see the 200MB/mo plan as a marketing ploy to prey on mistakes, but that is the way cell phone service has always been run; going over in minutes, getting text messages without a text plan, etc.

I assume that the reason they give for this it to “better manage our data network”, even though they say the most users use less than 200MB/mo on average. They aren’t going to move the high bandwidth users to that plan. If the wanted to manage there network and help their customers they would allow MB sharing like they do minute sharing between phones on the same account. Then that 2GB rate looks pretty attractive for say a family of four.

Posted by BottyGuy | Report as abusive

AT&T tries to defend its data pricing

Felix Salmon
Jun 4, 2010 16:52 UTC

Mark Siegel, the executive director of media relations at AT&T, was upset that I didn’t phone him before posting my blog entry yesterday on his company’s new data plans. He phoned me this morning, and I told him that I assumed the official AT&T press release — which I linked to from my blog — had all the information that the company wanted to release, but that if he wanted to tell me anything else, he was more than welcome to.

And indeed, he did clear up one thing for me. If you’re on the Data Plus plan, that costs you $15 for 200 MB no matter how much data you use. If you use 201 MB in a month, that’s $30; if you use 401 MB, it’s $45, and so on. If you go up to say 1.9 GB in a month, that’s $150 — six times the $25 you would pay to consume the same amount of data on the Data Pro plan.

Is there any point, I asked Siegel, at which AT&T will help a brother out and automatically switch a heavy data user from Data Plus to Data Pro? No, he told me: “Our assumption is that people are intelligent enough to see that they’re going over. People are way smart enough to manage their own usage.”

This puts a large and unnecessary onus onto people with phones, especially phones with WiFi capability. If you only use data-heavy applications like YouTube or Pandora when you’re connected to a WiFi hotspot, you should be fine with the lower data plan — until that fateful day when your WiFi craps out without you noticing, and you rapidly rack up a huge amount of data usage inadvertently.

I also asked Siegel what plan I should use, in the light of my detailed list of how much data I’ve consumed over the past eight months. “In your case it might be a toss-up”, he said, unhelpfully. “It’s up to you to decide.”

Well, that’s one choice I don’t want. Siegel thinks — or at least he told me — that “people don’t want one plan”, and that something along the lines of the plan I proposed in my post ($15 for the first 200 MB, and then $10 per GB thereafter) would constitute trying to fit all of AT&T’s customers into one mold — something he says that, after “months and months of speaking to consumers”, AT&T has learned that they don’t want.

So I asked him who would lose out from that kind of plan. He said: “For somebody who is a relatively light user, a gigabyte would be a much much much higher level of usage than that person would ever engage in, and why would you charge that at all.”

Somehow he forgot that AT&T, with its new plans, is asking anybody who’s likely to go over 200 MB in one month to get charged for two gigabytes of data each month — or face paying more for 201 MB than they would otherwise have to pay for 1.9 GB.

Siegel’s message, which I’m happy to pass on, is this: “One of the things we found is that people don’t want one plan. They don’t want one size that fits all.” Well, I want one plan, and it’s clear to me that AT&T new pricing scheme is deliberately constructed to ensure that a lot of people end up making unnecessary payments — either for using more than 200 MB when they’re on the Data Plus plan, or for using less than 200 MB when they’re on the Data Pro plan.

Of course, if AT&T weren’t evil, it could fix all this at a stroke, and it wouldn’t even need to change the plan pricing. All it would need to do is charge people for data usage ex post, rather than ex ante: if you used less than 200 MB in one month, it would charge you on the Data Plus plan, and if you used more than 200 MB it would charge you on the Data Pro plan.

But that would be far too easy for AT&T’s customers, and it would deprive AT&T of all that extra revenue from people who guess their data-usage needs incorrectly. Obviously AT&T prefers to make life harder for its customers, if that’s going to give it a little bit more money.

COMMENT

AT&T doesn’t have a leg to stand on, but they charge you as though they gave you at least a pair.

http://www.newnetworks.com/netneutrality fcc.htm

Posted by HBC | Report as abusive

Why AT&T is evil to have multiple data plans

Felix Salmon
Jun 3, 2010 17:06 UTC

On the London Underground, you don’t need to decide whether it makes more sense to buy an individual ticket or to buy a daily or a weekly or a monthly pass. With the Oyster card, you just tap in and tap out around the system, and it charges you whatever’s cheapest. You only make one journey? You only get charged for one journey. The minute that your journeys in one day add up to more than the daily-pass rate, you get charged the daily-pass rate, and no more. Similarly for your journeys in one week, with the weekly pass. And so on. Really, there’s only one plan, and there’s no way to get inadvertently ripped off.

When AT&T decided to abolish unlimited data usage on its smartphones, that’s the kind of of plan it should have implemented. Instead, it went the evil route, and it’s forcing its current customers to make one of three different choices, based on limited information. Whatever they choose is quite likely to be the wrong choice, and AT&T will chortle as it collects all that extra money which its customers didn’t need to pay.

The first choice is known as Data Plus, and gives 200 MB of data for $15. If you go over the 200 MB cap, you pay another $15 for another 200 MB. If you go over that cap, it’s not clear what happens, but you’ve already paid $30 and will certainly be asked to pay more.

The second choice, Data Pro, gives you 2 GB of data for $25, and then $10 per GB thereafter.

And the third choice is to stay grandfathered in to the current plan, which is $30 per month for unlimited data usage.

You can switch as much as you like between Plus and Pro, but once you leave the unlimited plan, you’ve left forever; you can’t go back.

AT&T is good at disingenuous statements like this:

Currently, 65 percent of AT&T smartphone customers use less than 200 MB of data per month on average.

This is disingenuous on two levels. First, as John Gruber points out, it carefully talks about “smartphones” rather than iPhones: the number for iPhone users is surely significantly lower.

But second, just because you’re using less than 200 MB of data on average doesn’t mean that you should necessarily choose Data Plus. I’ve just had a look over my most recent iPhone bills, and here’s my monthly data usage over the past 8 months: 202, 120, 160, 143, 89, 39, 333, 287. On average, I’m using 172 MB of data per month, and even with the overage charges I would have been better off with Plus rather than Pro. But for the past couple of months I’ve been significantly over 200 MB, and would be better off with Pro rather than Plus. And then, if I get the new iPhone 4G, is that going to raise my data consumption? Who knows.

At least with the subway you’re in control of how much you use it. With data usage on a phone, it often comes down to questions consumers can’t be expected to understand: how much data does say Google Maps use? And, more generally, if the AT&T network is good, and doesn’t time out on a regular basis, you’re going to use it more. And consumers can’t reasonably predict how good the AT&T network is going to be next month.

AT&T could easily have saved consumers all the trouble of having to try to predict their next month’s data usage by having a single plan: $15 for the first 200 MB, say, and then $10 per GB thereafter. They didn’t, because they’re looking forward to getting $30 per month from people exceeding 200 MB of data but who use nowhere near the 2 GB that “Pro” users get for $25. That’s where AT&T is evil, even if you think (contra Jeff Jarvis) that it makes sense to abolish unlimited plans.

COMMENT

Assume I have a jailbroken iPhone and a grandfathered account. I’d previously been scared of using up too much data because AT&T might slap a hefty data surcharge on me.

There was a soft limit of 5GB that people generally understood they must stay under. Additionally, even though I *could* go up to 5GB, I couldn’t really, because the network was so slow.

Their 3G network has improved in NYC over the past few months. Now that it’s created 200MB and 2GB hard limit plans, doesn’t this soft limit go away? Can’t all us grandfathers throw away our WiFi Cablevision/RCN/FiOS Internet connections and just start relying on our iPhone?

Sounds like a good deal for me.

Posted by manubhardwaj | Report as abusive

The future of the cable-TV business model

Felix Salmon
Jan 19, 2010 04:26 UTC

For reasons that I don’t fully understand, Jim Surowiecki is not a fan of a-la-carte cable pricing, where you just pay for the channels you want, and not for the channels you don’t want. My views on the matter haven’t changed since 2007, but one big thing has: broadcast TV is now digital, which means that cable companies are extremely constrained as to how much they could charge for network TV in an a-la-carte world. As a result, it seems obvious to me that consumers would likely save a lot of money if they paid only for the channels they watched. (The one possible exception? Sports fans.)

Surowiecki says that consumers wouldn’t benefit much from unbundling cable channels, while cable providers and cable networks would both get hurt. He says that a recent paper “estimated the best-case gain to consumers at thirty-five cents a month”, but if you read the paper in question, it doesn’t model a-la-carte pricing at all, but rather scheme where you get a choice of seven different “themed tiers” of programming on top of a $29-a-month basic bill. What’s more, the “best-case gain to consumers” is calculated not as the amount of money consumers save, but rather “the change in expected bundle utility”, taking into account how much “bundle utility” they lose out on by not watching channels they currently watch but which become too expensive under the new system.

There will surely be a lot of unforeseeable consequences to moving to an a-la-carte system: there’s no particular reason, for instance, that cable providers should receive all of the monthly fees, while cable networks receive substantially all of the advertising revenue. My guess is that in an a-la-carte world, both would be shared much more equally.

But as Surowiecki hints, there’s an extra possible step here. If you move along the spectrum from full bundling, like we have right now, to “themed tiers”, to a-la-carte, and keep on going, you end up at a simple metered system not unlike that which the NYT is mulling. Give everybody every channel, let them watch whatever they want to watch, and then bill them for whatever they consumed. Mass-market channels with mass-market advertisers would be completely free — as will smaller channels seeking to build an audience. High-end HBO dramas and big-time sporting events would be quite expensive.

I think the problem with that kind of system is the same as the problem with any micropayments system: people don’t like the psychic cost of paying even a small amount for anything, and would much rather just make one big payment and have it over and done with. As Surowiecki says, bundling “eliminates the problem of fretting about small expenditures”. TV is something people have on in the background: they don’t want to worry about running up a bill for that kind of activity.

The ideal world, I think, would be one where consumers got to choose. You only want to watch the Daily Show, 30 Rock, and breaking news? Go for metered pricing. You want HGTV, Bravo, HBO, Comedy Central, and ESPN? Go ahead and buy them. You want full access to the whole menu of hundreds of channels you can watch at any time at zero marginal cost, just like you have right now? Fine, you can keep what you’ve got.

That world would be great for consumers, but there would be a lot of adverse selection: people currently paying large sums for TV they barely watch would immediately trade down to a cheaper option, and the cable providers would lose that extra subscription revenue in perpetuity. Which means that unless and until it gets mandated by the FCC, it ain’t gonna happen. I’m not holding my breath.

COMMENT

May 24, 2010Cost-Effective GenosTV Replaces Traditional Cable and Satellite Service
By Calvin Azuri, TMCnet Contributor

Rob Shambro, CEO of GenosTV, recently decided to dissect the “AlternativeTV” market. Genos, reportedly ranked as the world’s first broadband cable TV network, made a decision to dissect the players and their offerings because of many false impressions in this space.

Internet Protocol Television comes in three kinds such as Live TV, time shifted programming and video on demand. IPTV (News – Alert) delivers television programs to the households through a broadband connection by using internet protocols. Most IP media comes under the category of video on demand and content generated via internet. Most of the players are trying to obtain this media in order to use it on the TV.

You can obtain the video from the Internet and play it on the TV in many ways. First method is you can set the computer near the TV and connect both video and audio outputs to that of the TV. Second method is by making use of the extender. You can obtain the extender for Windows Media Center on the Media Center Edition, Vista and Windows 7. Users can connect a computer to a network and an authorized device like the XBOX360, Linksys (News – Alert) DMA, Samsung Media Live and the HP MediaSmart. The end user has to choose at the computer level.

A lot of TV service providers and hardware manufacturers offer the GoogleTV platform. It is available in the form of a separate box or integrated into TVs and other provider boxes. The service offers two things such as indexing your stored media and provides the facility to search the subscribed channels available via cable provider, YouTube (News – Alert) and other web content.

Rob Shambro said, “You buy the Genos box for under $100 after the company’s launch at CES Jan., 2011. You connect the box to your TV and broadband Internet. You sign up. You pick your language. You pick your channels, which run between 2-3 dollars per month. Then you THANK THE BOX”, “Imagine the cost savings!”

The Genos Service is powered with TVME which is the next killer app which permits users to create their own television station at no cost irrespective of where they reside.Genos TV differs from the traditional cable or satellite service, since users need to pay only for the channels they chose.

Posted by GenosTV | Report as abusive
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