The sad paradox
Previously we talked about data caps in terms of size and cost, and touched on why it might be a bad idea to let ISPs use them to regulate their traffic in an otherwise unregulated market. To clarify what’s been going on here, we turn to the much-ignored subject of data cap burn rates.
The size of the cap and the cost of overage get lots of attention, as does the measurement of customer value in terms of file types and sizes. Rogers, for example, suggests you can conceive of a gigabyte “as approximately 26,000 web pages or about 1,000 digital photos or approximately 200 songs.” People are fond of quibbling over estimates like these, since it’s easy for an ISP to use a very slimmed down kind of Web page in place of what others would use as a standard. But that’s not how end-users measure perceived value or enjoyment. “Wow, I’ve had great value from Rogers Internet this week… I downloaded 26,000 Web pages!”
End-users don’t usually count their minutes any more than they count pages downloaded. Nevertheless, as survey after survey indicates, most people have a good sense of recall when it comes to the amount of time they’ve spent online – both in total and in pursuit of particular activities. It also turns out there are important differences between the behaviors of those who spend little time online and those who spend a lot.
How much time did you spend enjoying a gigabyte’s worth of data on your particular connection? The answer to that question is a function of your line speed as well as your data allowance, which together determine the burn rate of your cap. And therein lies the sad paradox of the data cap. Caps kill the unambiguous benefits enjoyed by end-users from increased speed. Once caps are institutionalized on 100% of broadband services, more speed doesn’t mean more good clean fun, only faster. It means you get to your cap faster and pay more money sooner. Consider the table below, which presents figures on the first four of Rogers’ six hi-speed tiers.
The 2008 data are from the OECD (broadband worksheet 5m, which provides service speed, cap size, cap burn rate and implied contention ratio for each of 214 services in the 13 countries with explicit caps). The 2010 data were taken from Rogers’ website on October 7, 2010, except for the 2010 burn rates, which are my estimates.
How Ultra-Lite can you go?
Over the 2008-2010 period, Rogers increased speeds on the three higher tiers, but not on Ultra-Lite (UL), which has remained at 500K. In two cases out of the four, Rogers has chosen to freeze the cap over the period at issue: it’s stayed at 2 GB for UL and 60 GB for Express. These caps take away something precious you take for granted: time. As you can see from the table, the burn rate for those on UL was a stunning 9.1 hours in 2008 – and an even more stunning 9.1 hrs in 2010.
If you sign up for UL, expect to get 18.2 minutes per day, yes, that’s minutes per day of “pre-paid” service. After that, you will pay for over-use at the highest rate on the Rogers card, i.e. $5 per GB, up to the same monthly maximum as subs on all the other five tiers – $50.
Rogers surmises that the equivalent of a little more than one-third of a single day each month is meeting the needs of UL subs. And who are they likely to be? I’ll hazard a wild guess: apart from a few outliers, they’re the low-income, low-education, technophobic segment most in need of help using the Internet and least able to pay for it. The UL flat price of $27.99 (which is only $4 cheaper than my 5-meg reseller DSL) goes up by $50 to a potential $77.99 for an “unlimited month,” i.e. for a total of 12 GB (2 GB plus 10 GB, at $5 per GB over).
If you hit the max on UL, you will be paying more per month than any of the other flat rates, except the 50-meg Ultimate service (which is $99.99).
Rogers has clearly been manipulating cap prices to suit the company’s own needs, not the customers’ (e.g. to push subs up to pricier tiers). Look at the history of this tier between 2006 and 2010. And keep this item in mind from Rogers Internet FAQ about the primacy of customer needs:
Why do additional usage charges differ between tiers?
Different service tiers serve different customer needs. Allowances and additional usage charges have been set to fit those needs and to reflect how customers who subscribe to each tier use the Internet.
That would explain why the UL tier has morphed from an unlimited cap in 2006; was then cut to a cap of 60 GB; and since 2008 has been serving those same customer needs with a cap that is 96.67% lower (2 GB).
In a study commissioned this year of the SSRC by the FCC, we read that many low-income consumers shun broadband, or “un-adopt” it, because of lack of clarity in billing and surprises in the amounts charged from month-to-month – or they are dumped by their ISP for not paying (Broadband Adoption in Low-Income Communities). In trying to pin down affordability, the authors point out that what counts isn’t some objective scale, but the personal expectations set by initial pricing, which frequently includes time-limited discounts and bundled offers:
Lack of consistency and transparency in billing was a significant concern among non-adopters, and especially un-adopters in our sample. No one seemed sure that they were getting what they are paying for (for example, if they were getting the speed that they should) or that charges were accurate. Respondents told numerous stories of unexpected charges and unintelligible bills from cell phone and Internet providers (p.30).
Rumble on the Express tier
The Express tier figures provide another perspective on the effects of the unregulated cap. In this instance, Rogers increased the nominal bandwidth from 7 to 10 Mbps, a jump of 43%. As I noted earlier, this might have been cause for celebration given an uncapped service (and no big price jump). But it ain’t so. In 2008, Express gave you the right to consume a little over twice what you got on Ultra-Lite – 19.5 hours. That means your daily ration on this tier would have been about 39 minutes.
On March 22, Canada’s largest survey research firm, Ipsos Reid, announced that Canadians were now spending more time on the Internet than with TV:
Ipsos reports that for the first time ever in their tracking research, the weekly Internet usage of online Canadians has moved ahead of the number of hours spent watching television. This latest finding comes from the Inter@ctive Reid Report, a syndicated Ipsos Reid study that tracks online Canadians usage of the Internet. Overall, online Canadians are now spending more than 18 hours a week online, compared to 16.9 hours watching television. Internet usage is up from 14.9 hours last year (press release).
So the average Canadian onliner now spends more than 18 hours a week on the Internet, “now” being almost seven months ago. And the jump reported over 2009 is about 21%, year over year, so we could extrapolate linearly to a half-year increase of around 10% – making the current online consumption level almost 20 hours a week. That in turn translates into roughly 170 minutes or 2.9 hours of online time a day… And on a monthly basis we’re looking at 85 hours.
Two years ago, Rogers’ Express tier ran at 7 Mbps, giving us a burn rate of 19.5 hours (table inserted again to reduce scrolling; and we aren’t finished with those red numbers). The 43% speed increase of this tier, to 10 Mbps, was not accompanied by any increase in the 60 GB cap. If you were on this tier in 2008, at 7 Mbps, your daily allowance was about 39 minutes. By the current numbers the “average” user is clocking 170 minutes online, per day. That’s over four times the old allowance on Express.
Then we factor in the effect of the higher speed on the burn rate. The speed bump translates into a unit your ISP hopes you’ll never twig to: you just lost 5.8 hours from your already slim allowance. As the table shows, Express now has a burn rate of 13.7 hours. In other words… 27.4 minutes a day! The average Canadian is online daily more than six times that amount. And time online is increasing, not decreasing. Has the CRTC noticed?
The economic ITMP regime is: a) punishing the wrong people; b) won’t stop motivated heavy users (spend a day on a college campus and talk up hoggery); c) has given the ISPs a very effective weapon to stifle major competition at the application layer, not just the transport layer; and d) is completely unjustified in terms of ISP costs for bandwidth and heavy usage, costs that the regulator can’t share with consumers. I need a drink.
Don’t miss instalment #5, already in progress!