The Incredible Shrinking Internet

Yves here. The state of pricing and service levels for the Internet in the US is a disgrace that doesn’t get the attention it deserves. Other countries (South Korea is a prime example) made getting cheap, pervasive Internet connectivity a national priority because they saw it as a spur to innovation. And in the UK, our Richard Smith an ancient house in a little village has 55 Mbps download speeds. What gives? But not to worry. The pipeline providers are scheming as to how to wring even more out of customers.

By Dan Fejes, who lives in northeast Ohio. Cross posted from Pruning Shears

A couple of weeks ago, Yves Smith’s link roundup included a McClatchy piece about consumers dropping cable TV. She remarked: “Trust me, when you seem more consumers ditching cable, you’ll see the pipeline providers start charging based on how much you download a month.” Caps really aren’t necessary, though; connections are already capped by speed. You can’t download any more than the connection will allow. Consumers should be able to buy a connection at a set price, and the ISP should charge for it based on how much data it could transmit. Charge more for faster speeds, less for slower ones.

The big providers don’t want to do that, though, so instead they are trying to figure out ways to charge customers more for what they already pay for. And the amounts they are charging are exorbitant. For instance, Verizon Wireless’ HomeFusion service has a top tier of $120 a month for 30 GB, with a $10 charge for every gigabyte over that. Since, as the article notes, Netflix can take up to 700 MB for an hour of streaming, that cap will get blown through pretty quickly. And it’s completely inadequate for the next generation of video: you can forget about streaming a movie that takes 45 to 60 GB.

That’s not all of the bad news, either. Internet connections have traditionally worked like this: Select your package, pay for it, use it for what you want. That’s what you do with your ISP. That’s what Google does too. Everyone pays to get on. But now there’s an emerging talking point that web sites (for some reason called “edge providers” in a bit of unhelpfully obscure tech lingo) are somehow not paying to get on. Verizon is before the FCC right now arguing that prices are higher because edge providers – which, remember, already pay to get on the Internet – do not also pay to get off. In other words, when you use your Verizon connection to watch a YouTube video, YouTube is also somehow bundled in as a Verizon customer.

The reason they are doing this is because they want to do away with net neutrality. If lots of their customers are getting data from site A then site A is a problem. If only they didn’t have to connect their customers to it, or maybe if they could charge the site a premium! And that’s where usage based broadband pricing comes in. If Verizon succeeds against the FCC and net neutrality is gutted, web site owners face the prospect of being charged extra by providers for the privilege of delivering content to customers.

We are already seeing a version of that as providers make deals to serve certain content free of data cap usage. And when you’re on a plan that has a 30 GB per month cap with $1 for every GB over, that’s a pretty big deal. It begins to make sense to confine yourself to those sites that your ISP doesn’t count against your cap just to make sure you don’t accidentally blow through it. Of course, some take a more sanguine view:

The critics’ real worry, then, is that ESPN, by virtue of its size, could gain an advantage on some other sports content provider who chose not to offer a similar uncapped service. But is this government’s role – the micromanagement of prices, products, the structure of markets, and relationships among competitive and cooperative firms?

It’s a mighty expansive view of micromanagement that encompasses preventing monopolistic behavior and collusion of market leaders. Herding customers into walled gardens by forcing surcharges on unfavored sites and privileging others does not strike me as a victory for consumers – in fact, it is exactly the kind of circumstance an effective government regulator should take a very close interest in.

It’s also worth noting the industry’s apparent preference for wireless rollouts over wired ones in light of the more stringent net neutrality requirements for the latter. Verizon gave up on its wired FIOS service, and it isn’t hard to imagine the company breathing new life into it should the FCC case go its way.

One of the few promising alternatives to this is municipal broadband, which has only happened in a few places. North Carolina passed an industry-friendly law crippling such efforts. On the other hand, Chattanooga has rolled out a system that runs up to 100 Mbps – compare that to HomeFusion’s 5 to 12. For those looking for a way out of the capped and cornered Internet experience big providers have planned, a municipal broadband initiative might just be the ticket.

There is one other possibility, though I admit it’s a little outlandish: We could demand the service we have already paid for. Way back when we were first hearing about the Information Superhighway, the Telecommunications Act of 1996 was passed. It provided all kinds of breaks, money, and incentives for phone companies to build out infrastructure. It sure sounded great: “All 50 U.S. states and the District of Columbia contracted with their local telecommunication utilities for the build-out of fiber and hybrid fiber-coax networks intended to bring bidirectional digital video service to millions of homes by the year 2000.” And we’d be cruising along at 45 Mbps. What happened?

Over the decade from 1994-2004 the major telephone companies profited from higher phone rates paid by all of us, accelerated depreciation on their networks, and direct tax credits an average of $2,000 per subscriber for which the companies delivered precisely nothing in terms of service to customers. That’s $200 billion with nothing to be shown for it.

Bruce Kushnick has a much, much longer treatment (PDF) of the subject. One thing he points out is that the 45 Mbps promise may have been illusory all along (emph. in orig.)

How do we know this? Well, Verizon, of course, is one source. Verizon’s May 19, 2004 press release states emphatically that Verizon was only now, in 2004, doing fiber optic “field trials”.

Although the use of fiber optic technology is common throughout the telecom industry, Verizon is the first company to begin using it to directly connect homes and businesses to the network on a widespread scale… FTTP is moving from field trials and the lab to the real world.

The fact that Verizon’s fiber optic project, (FIOS), as of January 2006 still couldn’t deliver video services, now called IPTV, should make everyone consider this a case of fraud, and not simply market forces that caused Verizon to offer fiber-based services, only a decade late.

Whatever the reason, what we got was a lot less thrilling than what we were promised. Having failed to deliver on their earlier promises, it would be nice if they would at least stop trying to obstruct public entities trying to route around them. Because at the moment, an Internet provided by these companies doesn’t seem like much of an Internet at all.

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  1. sbierwagen

    Consumers should be able to buy a connection at a set price, and the ISP should charge for it based on how much data it could transmit. Charge more for faster speeds, less for slower ones.

    Well, that doesn’t work.

    If you saturate a 15Mib/s network connection for a month, then you use up 4.7 terabytes of transfer. A simple pricing scheme like the one outlined in this article requires going back to the stone ages of ISDN: 128Kib/s or slower. Youtube or any other video streaming service would be unusuable.

    Oversubscription is a win-win policy. Most people don’t use the internet 24 hours a day. Selling them an internet connection that lets them burst up to 15Mib/s or faster, but capping network transfer, benefits everyone. Oversubscription can, and has, been abused, but banning it entirely is not a solution.

    Personally, I think the solution is regulating ISPs more like actual utility companies, not as unrestricted for-profit enterprises.

  2. psychohistorian

    In the early days of the web, when I was accessing via ISDN, I had dinner with a corporate techie friend who brought along a telcom guy. We had quite a spirited conversation and he railed at me talking about telco bit pipes and how I saw them being used in the future.

    Unfortunately so far, he and his telco bit pipe friends have succeeded in successfully monetizing the internet in conniving ways I never dreamed of. As stated in the posting the telcos have not only had the public pay for their fiber investment but they continue to keep much fiber “dark” and charge exorbitantly for the bandwidth they provide. Somehow they have stifled real competition and innovation just like every other industry in the US.

    I am not surprised to read about the efforts to hobble internet innovation further but it saddens me that it is ALWAYS about the money, never anymore about doing the right thing.

    A part of me wants a government shutdown so that the rest of the world has an excuse to stop financing our 3rd rate banana republic with nukes… can a default nation be the Reserve Currency for the “free” world?

    1. ian

      When everyone switches to streaming video, it costs money to support it. You focus on the physical layer to the consumer – the optical fiber, while neglecting how much extra has to be spent on routers and other infrastructure equipment. I agree that the prices of some of the providers you cite are exorbitant, but on the other hand, recognize that the added bandwidth does cost money. I think it is personally reasonable for ISPs to charge more when people switch from simple web surfing to watching HD tv – how much more is open to debate.

      1. Mark P

        Horse manure. The ISPs are making 97 percent profit margins in much of the US.

        (See my post & citation below)

        And now on top of that Verizon — as the post explains — is going to the FCC to try to gouge some more.

      2. Mark P.

        In fact, let’s not have this be buried —

        ‘In parts of the country, (with)slower-speed copper, fast-download cable, and a few fiber networks already built out … cable distribution giants like Time Warner Cable and Comcast are already making a 97 percent margin on their “almost comically profitable” Internet services … And most Americans have no choice but to deal with their local cable company.’

  3. Clive

    Yep, Yves is right, in the UK even very rural areas can get “Fibre to the cabinet (within a few hundred feet of one’s residence) which minimises the signal degradation that unavoidably occurs in the copper wire local loop which results in fairly fat Internet pipes. 40 – 80 Mbps is the expected range.

    There is a state funded rural broadband-ification (horrible word, sorry) programme in progress to make this happen. This is unfortunately mired in the predicable consequences of the Corporate state in which we increasing live (a big more or less monopoly provider gets its nose in the trough) but I’m not going to let that rain on the parade because it’s a separate issue.

    What brought this miracle of progress about ? The policy device that dare not speak its name of course — state intervention in markets.

    There’s nothing much new in the world; it reminds me of my father’a experience with the electricity supply industry in the 1950/60’s. Rural electrification was progressed, not just because it was socially useful, but because it was commercially sensible when viewed over a 20 to 30 year timeframe. It meant you had a standardised, all encompassing, reliable and predictable network *everywhere*. If you didn’t have what had become a necessity of everyday life at all locations, you got a patchwork of local standards such as voltages and the number of phases, frequencies and generation assets that were sub-scale. The same is true for Internet connections, with slightly different technicalities.

    No-one seriously argued against rural electrification (certainly in the UK, US readers do please correct me) even though those who could be supplied cheaply (areas of high load density) had to subsidise those areas with a high initial install cost per residence. It was obvious then with electricity what the benefits to the nation as a whole was. It’s equally obvious now with fast Internet connections.

    Obvious to everyone apart from rabid freemarketeers that is. As with so much else.

    1. psychohistorian

      I haven’t stayed up to speed on the technology but I believe that there is/was a fairly efficient way to piggyback the internet at huge speeds on electrical lines…..but like many other things, the existing players don’t want disruptive things like that to occur.

    2. digi_owl

      “It was obvious then with electricity what the benefits to the nation as a whole was.”

      A viewpoint that has largely given way to NIMBY-ism, unless it happens to align itself with the “need” for ever increasing corporate profits…

      And when so aligned, it must be done as cheaply as possible, with no local input, unless the corporations in question happens to be holding the construction contracts.

      It’s kleptocracy, and it has spread worldwide!

    3. Synopticist

      All true.

      I live in a small country town with a terrible mobile phone service in an area that’s always been notorious for poor TV and radio reception.
      But no-one I know has any problems with decent braodband service. I pay twenty something pounds a month for unlimited broadband, phone and free evening and weekend calls.

    4. Calgacus

      No-one seriously argued against rural electrification (certainly in the UK, US readers do please correct me) Robert Caro’s biography of Lyndon Johnson is fascinating on his struggles as a young Congressman to bring electric power to his district. Fighting against the blind stupidity of the wonderful free market capitalists who refused to do anything new, who kicked and screamed against rural electrification – a sure thing moneymaker obvious to anyone but those brilliant job-creator John Galts.

      Also fascinating on his later machinations against Leland Olds for political expediency, even though he and Olds believed the same things, believed in public power.

  4. Mark P.

    “The fact that Verizon’s fiber optic project, (FIOS), as of January 2006 still couldn’t deliver video services, now called IPTV, should make everyone consider this a case of fraud.”

    True. Good post. It’s almost technically impossible for a serious fiber project not to be able to deliver video services. What this is about — and the one thing this post doesn’t mention — is that Comcast, Verizon, etc. are right now enjoying 97 percent profit margins in some cases — 97 frickin’ frackin’ percent! — and they ain’t about to give that up.

    ‘In parts of the country, (with)slower-speed copper, fast-download cable, and a few fiber networks already built out … . cable distribution giants like Time Warner Cable and Comcast are already making a 97 percent margin on their “almost comically profitable” Internet services … . And most Americans have no choice but to deal with their local cable company.’

    More here —

    On the other hand, Google is not going to tolerate that long-term.

    ‘…in their Kansas City, Missouri, neighborhood an installer from Google Fiber wired their bungalow to give them at least 50 times their previous Internet access speed and a substantially better TV service, all for only $125 a month, tax included….

    ‘…It’s not that the technology involved is groundbreaking; the fiber and connections are off-the-shelf technology. Yet Google’s service is priced at just $70 per month, or $120 with bundled television, plus tax (see “Google’s Internet Service Might Actually Bring the U.S. up to Speed”). For the TV service, Google struck content deals, including for some sports channels—though HBO is not yet part of the mix. And all of this comes with a Nexus 7 tablet remote and two terabytes of DVR storage plus another a terabyte of cloud storage. A Google spokeswoman says the company “expects to operate profitably” and that Google Fiber is neither a loss leader nor a PR stunt….’

  5. zygmuntFRAUDbernier

    I was thinking that the Federal Trade Commission could be a more consumer-friendly commission. One of their revolving banner messages states that “COMPETITION COUNTS” …

  6. chicagogal

    As there is really no competition in most markets for internet usage (not to mention tv and/or phone services), people are held captive by whatever monopoly is around. There is no one to complain to and no one who regulates things. Add in the consolidation of smaller companies into Comcast, AT&T, Verizon, etc., then we have the exact type of business ventures that got broken up over the last century. Until, or maybe unless is the better term, these companies are forced to change, then we’ll always be held captive.

  7. William

    Rural areas of Thailand have excellent internet speed and availability, with vastly lower prices. I heard that even street food vendors have wi-fi for themselves and their customers.

  8. Banger

    The facts around internet speeds and costs have been well-known to those who follow the issue. I’m not sure anything can be done unless the mainstream media really covers it and there are too many other things that are easier to cover so that’s unlikely because the media is unlikely to cover the issue and the vast majority of the American people don’t want to know what is actually going on which is true of almost every matter. This may change down the line. Occasionally the Industry (I think this is a good name for the System–aren’t we actually living in One Big Industry) will show its weakness–it wasn’t able to stampede the American public into War despite firing every conceivable cannon at the public–they failed. Perhaps local efforts will bring a change in the matter of the internet and cable issue in some localities–let’s hope so.

    On the other hand, maybe we are spending too much time on the internet and ought to be doing other things. Remember life before it?

  9. Kurt Sperry

    The old “information superhighway” trope seems apt to me in the sense that having privately owned and run internet makes no more sense than privately owned and run roads or sewers or water or other critical infrastructures. Since these are inherently nonparallel lines of communication, competition is essentially impossible in any real sense and the obvious answer is to have publicly owned and operated networks. Too obvious perhaps?

    1. Clive

      @ Kurt

      Not too obvious to me :-)

      I’ve never seen a single shred of evidence to support the idea that for a natural monopoly (utility power, water/sewerage, roads and so on) a well managed (and that is the key I’ll admit) publically owned not-for-profit undertaking is inherently inferior to private ownership.

      The problem is, badly managed publically owned suppliers have obvious failings. They are also subject to political whims.

      Bad though they can be, they’re not in any way worse that corrupting, fraudulent, rent-extracting private enterprises.

      Given a choice between bad public ownership and bad private ownership, I’ll take bad public ownership any day. At least its vaguely accountable through the political processes…

    2. Banger

      The idea of a public utility worked in a different era when there was a sense that we, the public, are in all this together. Cultural changes have moved us in the direction of glorifying private over public benefits. I don’t believe there is any cultural movement going that leads us to a sense of common purpose.

  10. AlanO

    Cable TV was less than 20 dollars a month 10 years ago, now its over 71 dollars for the same channels. This includes mostly repeated programs and more commercials than one could shake a stick at. On the internet, the only sites worth visiting are alternative news sites that tell the truth, the ones the establishment call “conspiracy theory” based. I consider NC an alternative site because of the articles and comments which reveal more of the truth than the msm. Senator Feinstein wants to end that free speech, limiting speech to government controlled outlets. If that happens I have no use for this innovation whatsoever.

  11. Funonymous

    From what I remember from my wayward youth reading tech zines, the part of net neutrality they are after here are the neutral carrier provisions. At least in the mid 90’s, the deal on neutral carrier was as such; ISP’s would treat all traffic as created equal and carry it, and in exchange, they were not liable for anything that they carried. If they started to play favorites with whose data gets where fastest, then they also would have been responsible for any criminal activity that was going on on their networks.
    The internet is a different place now clearly, sometimes I miss all the bizarre back alleys and digital shanty towns that have been replaced with shiny corporate monoliths and data snoops.

  12. annie

    fwiw, i live in italy much of the time where we get internet through disc on roof pointed at a privately owned chapel across the valley. this costs 10 euros a months. only problem, owner of the chapel where the antenna is fixed forgot to pay his electric bill and so the valley (those who subscribe to the same system which for years was only alternative to dial-up) was out of its internet for approx two weeks. this has happened twice in the past year. why teh company chose to locate said antenna on this particular property where owner is away much of the year, is one of the many mysteries of italian life.
    (where we live is not some godforsaken clinging-to-civilization area.)

  13. jfleni

    Story of an Internet quest for something that really worked:

    Clutchbutt cable company [no matter how hard they grab, they couldn’t find either cheek with either hand] was fading away slowly, but surely; there were fair results, Tuesday through close of business Friday, but otherwise the pits. So something had to be done. Not to worry though, Mickey Money, Shamoo, Oprah, and Goofy all came through loud and clear.

    Strike Two: Try Plunder and Pillage local Telephone company.
    They said they would mail the equipment, but they never did, I had to pick it up myself. The instructions were a complete and unintelligible mess, but I worked through them and on late Friday 8/16 connected and got one web page telling me how wonderful it was to pay on line, and then everything disappeared. On Saturday and later the signal had vanished completely (it’s audible on any telephone set), and never returned. When I told them to cancel for non-performance, they assesed a “fine” of $200 for early termination. But, when I mentioned “CFCB”, they became anxious to deal, and canceled the fine.

    By that time, I had made other arrangements: a satellite system, which worked remarkably well, despite the fact that the round trip distance to the bird is 70,000 miles.

  14. F. Beard

    The US is an ideological country. The population has been told a government-backed credit cartel is a NECESSARY component of a free-market economy and can see no IDEOLOGICAL reason while the ISPs shouldn’t charge what the market will bear.

    Blame yourselves Progressives for not realizing that a government-backed credit cartel is in no way consistent with a free market and that the ISPs and every other business should be tightly regulated for the public good so long as we continue to have such a cartel.

    What are we gonna have folks? A true free market economy or mere pragmatism like Europe? Either will be better than what we got but hang your heads in shame if you pick the latter.

  15. Steve

    As long as the telecommunication companies have complete control of providing everything the internet speeds will always be slow, high priced and infrastructure falling apart so they just can’t provide what they are charging for and never have to replace it. Right now there is a major telecommunication company that sells everything it can to you, even “high speed internet” and only provide just above dialup speeds. While collecting over $100 a month for telephone and internet. Thing is they have been collecting free federal money to upgrade their “boxes to provide even more reach with their internet to rural areas. Well so far they have never started a single upgrade and have no plans to. So this brings us back to what is available here in the US. If you live outside of the city forget even getting anything of value cause it isn’t going to happen.

  16. Kunst

    This idea that the government is micromanaging the “free market” economy by regulating and setting standards for the common good illustrates the real nature of the game. The economic power structure drives hard to accelerate its success in bending the rules to its advantage, by buying governmental power both directly and indirectly.

    The bottom line is that our political/economic system is rigged to perpetuate itself to the extent that the US can’t really be considered an effective democracy. More like a developing mafia. This is why the 1% (and their 10% enablers) continue to get richer at the expense the expense of most of society. They being superior, “job creators”, compared to the “losers” who suck at the teat of the nanny state. The 47%, you know — *they* don’t pay *income* tax. Better that the elite rule over those who just just can’t keep up. Evolution, the White Man’s Burden. Throw in some racial and religious bigotry, and you have a formula for the glories of better days: feudalism, aristocracy, capitalist tycoons, maybe even that thing that happened in Germany, or the American South. Finally, we’ll finish off that aberation of democratic government – what a failure; for losers. The funny/sad part is, the soon-to-be serfs are the Koch brothers’ shock troops: own goal! “No, no, don’t force health care on me and my fellow Americans!”

    Anybody seen this movie somewhere in history?

  17. Art Eclectic

    What will be really hilarious is when the next step after cutting the cord is wholesale abandonment of standard entertainment products. What will they do then? Start charging for Tweets and Instagram uploads?

  18. danny

    the Communications Act needs to be rewritten to build in network neutrality. Specifically, it needs to get rid of the vertical silos that currently exists in the law (cable, telephone, wireless). instead, it needs to regulate communications based on the technology stack. physical layer (the pipes), network (connection points), software platform, and content. Force divestiture of the physical layer, require all connections based neutrality principles, and guarantee a certain return. we’ll see real improvement over today’s system.

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