This post is a merge-and-rewrite of my earlier 2-parter, Why are incumbents so afraid of being truthful? My thanks to Tim Wilson, publisher and managing editor of Telemanagement, for reprinting this in his next issue – containing opinions with which the publisher does not necessaily agree! I’ll be providing other comment pieces to Tim over the coming months. Telemanagement is a great resource. Check it out here. And past the jump, listen to a terrific speech given earlier this month by Larry Lessig on America’s Internet woes.
The other day I got a piece of unsolicited mail from Bell Canada, promoting its Novatel U998 wireless modem, aka the Turbo Stick. It runs at speeds “up to” 21 Mbps.
The front of the card talks excitedly about “One extra-large, super-fast, anytime, anywhere connection – to go.” The back of the card then throws the Legal Dept’s wet blanket all over the deal, in nearly 200 words of fine print, enough for a short blog post. Sign up now and you’ll get a $20 Starbucks Gift Card – free!
Let’s start with this moronic giveaway, the world’s second most annoying marketing gimmick after Enter to Win. Here’s the math.
The card says you can get the Stick free if you sign up for a 3-yr term (to save the $174.95 retail hardware cost). The minimum plan goes for $30/month – but that’s with a Bell Bundle and without the extras. No bundle: according to footnote #2, that’s $35 over 36 months or $1,260. Then add the $35 activation fee and ballpark the 911 fee at $1/month (“Subject to change without notice”), making the total $1,331. If you don’t happen to know about the paper bill surcharge, add another $2/month for the 36 months: $1,403. Add taxes: $1,571.36.
10 minutes later, an additional $3,000
How do you like that Venti Frappuccino now? The Starbucks giveaway represents 1.3% of the value of what you’re committing yourself to on a 3-year plan. According to the baristas in my Starbucks office, the average customer ticket is about $4 a pop. So this free gift might last you a week, on a deal that commits you to Bell for 156 weeks.
And the Stick? At the full retail of $174.95, you stand to save a whopping 12% of what you’ll owe Bell over the 156 weeks. Remember, we’re looking at the lowest quoted rate plan. And we haven’t checked what happens when you start behaving like a bandwidth hog.
When I went looking for further information about the Turbo Stick, I dug up some unusual facts about roaming with the Stick outside Canada (we’ll confine this to the US). On one of its Web pages Bell says the charge is $3/MB. On another the charge is twice that, $6/MB. Let’s play it safe and go with the higher quote.
If you stay in Canada and you’re on any of the Stick plans, usage over the maximum allowance is charged at 5 cents per MB – meaning data roaming in the US is 120 times more expensive than data roaming in Canada. Let’s say you’re on the $45 plan, which allows you from 500 MB to 1 GB of data. Bell says: “When you travel in the U.S., your rate plan’s included data will not be used. Instead, there are special roaming rates, depending on your device.” And let’s say you step across the 49th parallel. Then your 500 megs would theoretically set you back… $3,000.
Now, how long would it take you to run up a bill of $3,000? A 21-Mbps device, running at a fraction of its rated speed, should easily get throughput of 1 MB/s. So in one minute you could download about 60 megs of data. Meaning you could reach 500 megs in 8 or 10 minutes. I can’t think of a lot of things you can do for 10 minutes then get a bill for $3,000.
A walled garden where money grows on trees
The Turbo Stick runs anywhere, says the big print. No it doesn’t, says the fine print. The fine print is too small for many people to read. It’s also way too technical for most people to understand.
Incumbents sell services whose functionality and performance are mystifying. Ask anyone – except maybe an electrical engineer – what “speeds of up to 21 Mbps” means. In fact, ask your friend or neighbor what “21 megabits per second” means. You’ll find they have no idea. Nor any idea what bandwidth is – or uplink, or DSL, or ISP, or bytes. The incumbents have a huge advantage over their customers: ignorance, and it’s definitely not blissful.
This marketing behavior may be legal. But the information as presented on Bell’s card does not pass the smell test. It stinks. It’s not truthful in any meaningful sense of “truth.” Meanwhile, Canadian service providers are laughing all the way to the bank, whatever mood swings they may be inducing in their customers.
That’s because Bell’s Turbo Stick is the tip of a much larger iceberg. In September 2009, CBC News reported that “Canada’s big three [mobile carriers] far outstrip [their] global peers in margins and monthly revenue.” A Merrill Lynch study found that our three largest carriers had a combined profit margin of 45.9% – the highest in all 23 developed countries examined:
“Rogers, Bell and TELUS arrived at the high profit margins by bringing in correspondingly lofty revenue from customers. In the wireless industry’s key measure of monthly average revenue per user, or ARPU, Canadian carriers came in not just second-highest among developed countries, but second-highest in the world. Of the total of 53 developed and emerging countries tracked by Merrill Lynch, Canadian carriers’ monthly ARPU of $60.83 US was second only to Ireland’s $62.97 US. Among developed nations, the average ARPU was $44.24 US.”
Are we getting more than other nations for our record-breaking ARPU? No. Take the notoriously high fees North Americans pay for broadband Internet access. In its comments on the FCC’s National Broadband Plan, Free Press notes that “broadband Internet access is not price-regulated, and the contribution margins earned on these services are often in excess of 80 percent” (Unanswered Questions and Next Steps, p.8). In Canada, even the cost of watching TV for the 90% of households on cable or DTH has risen at twice the rate of the Consumer Price Index for most of the last decade, says the CRTC’s 2009 Communications Monitoring Report.
The same CRTC document explains that, for 2008, Bell, Rogers, TELUS, Shaw and Vidéotron controlled 76% of the broadband market, a figure that has crept up to 81.5%. Meanwhile, the top four cable BDUs and the two DTH providers captured 90% of all TV subscribers (2008). Prior to the launch of WIND, about 96% of the Canadian wireless market was shared among Bell, Rogers and TELUS. The Commission also says that since the communications service industry “generally operates in a competitive environment,” it has forborne from the economic regulation of 98% of Internet and 100% of wireless service revenues.
Your mileage will vary, a lot
A competitive environment is supposed to discipline pricing, keep service quality high, promote innovation and maintain significant choice in service providers. Right now, I’d settle for a little truth in advertising.
On April 7, The New York Times published an opinion piece entitled “How fast is your broadband?” The editors argue that broadband has become too important to let ISPs keep ambushing customers with their weak commitment to the truth:
“There are many ways for marketing professionals to bamboozle customers into believing they are getting a better deal than they actually are — notable among them “as low as” pricing come-ons and offers that promise to deliver “up to” some standard of service.”
Naturally the folks who do the bamboozling beg to differ. They have two gimmicks. One is to make truth in advertising seem too tough to deliver. Alternatively, when confronted by data that makes them look like lying, cheating scalliwags, they pull out that perennial favorite, flaws in the research:
“In a report last month, the F.C.C. reprinted the results of a study by comScore that found that the typical download speed into American homes is only 3.1 megabits per second, less than half the median advertised rate of “up to” 7 Mbps. The [National Cable and Telecommunications Association] says comScore used flawed methods. It argues that the slow downloads are because of factors beyond providers’ reach — from the traffic on the Internet and the distance a download must travel, to the speed of a user’s home network or computer.”
You’re flawed, we’re defeatist. That’s the best the NCTA can come up with?
Think about cars for a minute, as The Times suggests. North Americans drive thousands of different makes and models, on thousands of different roads, in all kinds of weather, in a million different ways. None of which prevented some clever engineers from devising a way of calculating average fuel economy for all those vehicles.
Larry Lessig goes to France
Back in November, I wrote a series of posts called Battle of the Broadband Studies. In the spirit of the NCTA, there was a lot of loose talk going around at the time about the flaws in any broadband research that tended to make Canada and the US look bad by comparison with almost any other country on the planet.
So with the help of an economist friend in Paris, I decided to put aside the research debates about multi-country comparisons and presented some lurid comparisons between services in just two countries: Canada and France. To sum up: services in France are much, much cheaper than here; speeds are much higher; fiber is in the mix; there are no bit caps or limits on “unlimited”; competition is vigorous. (Please visit the original post to see the numbers.)
Lessig could be talking about Canada in his analysis of America’s broadband problems
It turns out I was in good company. On April 12, Larry Lessig – Harvard Law prof, open source champ and Net neutrality evangelist – gave what’s described as an “electrifying” speech to a convention crowd at, you guessed it, Storage Networking World in Orlando. The speech is embedded in the player above.
In his coverage for InfoWorld, columnist Paul Venezia highlights Lessig’s broad assault on the rigged system that has made US broadband policy an embarrassment and lately a hot topic even in the mainstream press. For Lessig, America’s telecom system stinks. But of course people are always asking the question: Compared to what?
It just so happens that the highest performing countries, Japan and South Korea, have far higher population densities than the US. Lessig pulls the rug out from under that argument by choosing France to make his point. We end up with numbers much like those I unearthed in my Canada-France comparisons. As Venezia notes, the quad play that costs $33 a month in France costs him about eight times as much – and that’s with half the access bandwidth. Venezia describes the US predicament as “insane.”
How high is up?
Here’s the situation in Canada. We have a regulator whose commitment to open access has been described as “half-hearted” (Berkman Center’s February report for the FCC, Next Generation Connectivity). We have incumbents whose market share is growing at the expense of new competitors. We have a government whose faith in market forces is unshakeable, and which last year made two rulings that will likely keep the incumbents’ next-generation networks a safe distance from any unbundling requirements.
I see little hope for incremental, policy-based solutions to the anti-competitive behavior Canadians continue to experience. For broadband, competition from new entrants is now less likely than ever. And even though re-regulation of certain retail rates would serve the public interest, it would face a firestorm of lobbying and lawsuits from the incumbents and their allies.
Meanwhile, the industry is taking its own approach to handling the faster network speeds offered by platforms like HSPA, along with the increasing congestion created by bandwidth-intensive applications – in particular, the rocketing demand for data bandwidth on cellular networks. Demand is being tempered by high pricing. In fact, this is exactly the strategy promoted last fall by CRTC Chairman von Finckenstein as a way of managing network congestion: economic Internet traffic management practices, as opposed to technical ITMPs.
The problem is Canadians are being offered more speed (like HSPA nets) and more slick devices (like the Turbo Stick), which are priced so high when used as intended they become unaffordable. Or do they? Canadian carriers aren’t hurting financially, as we’ve seen. Their rates aren’t disciplined by either regulation or sustainable competition, and demand for Internet access isn’t going to fall off any time soon, especially for the incumbents that offer both wireline and wireless access.
On the other hand, even big firms have to respond to long-term changes in consumer awareness and sophistication, and the role they eventually play in purchase decisions. Newbies don’t remain newbies forever – something AOL forgot to its eternal regret. I see far more hope for discipline in the communications marketplace from knowledgeable consumers than from large-scale industry policing efforts. It’s no coincidence that incumbents avoid straight talk about purchase decisions. We all know the apparent function of the fine print on the Turbo Stick card is to explain, but that its real function is to get Bell off the hook and you on it.
So while we mull Canada’s National Digital Strategy, let’s get serious about truth in advertising. It’s high time Ottawa looked at our communications landscape from the consumer’s perspective instead of the industry’s.