You too are now a (video) hog – just try telling that to the CRTC

Hate to say it but – I told you so.

In my May 27 post, I tried to provide some historical perspective on bit caps, based on observations about those so-called bandwidth hogs, from a piece I wrote in 2002. Now it appears the prophesies are coming true, as evidenced by both industry opinion and empirical findings about online behavior – from the likes of PCWorld, Cisco, the Pew Internet Project, the OECD and GigaOM. It’s a one-two punch:

> We’re all becoming bandwidth hogs.

> Bit caps aren’t just bad for consumers – they also kill innovation.

Who’s Mr Piggy now?

The capping issue is becoming significant as mobile networks move to the broadband speeds offered by HSPA/HSPA+ platforms, among others. The story making waves this month is AT&T’s June 2 announcement it will “start offering metered data plans for mobile device users rather than a $30 all-you-can-use monthly plan.” Not much wonder AT&T is first out of the gate, given all the pain they’ve inflicted on iPhone users – not to mention the arrival of bandwidth-hungry devices like the iPad and iPhone 4.

But there’s something bigger going on here. As online video goes mainstream, P2P traffic is dropping steadily as a proportion of overall Internet traffic. These developments are, counter-intuitively, bad news for carriers. For years they’ve been demonizing bandwidth hogs for taking up more than their fair share of network resources. And framing hoggery as basically about piracy.

Consider this exchange between Ivan Seidenberg, Verizon’s CEO, and Alan Murray, Deputy Managing Editor of the Wall Street Journal (on April 6, at the Council on Foreign Relations):

Seidenberg: “The problem we have is 5 or 10% of the people are the abusers that are chewing up all the bandwidth. That’s what happened with music and all that kind of thing. … But when we now go after the very, very high users, the ones who camp on the network all day long every day doing things that – who knows what they’re doing – those are the –

Murray: “It’s video, right? I mean, it’s video.”

Seidenberg: “But those are the people we will throttle …”

Notice how Seidenberg positions heavy consumers as “abusers.” Abusers of… a literal reading of the “unlimited” provision in his terms of service? Apparently, Verizon’s CEO is planning on throttling the 5 or 10% of users who are hogs because they consume too much video. Have these guys read a newspaper recently? Seidenberg and his cronies are going to have to find other demons to blame, because us regular folks are also taking up residence in the ISP (video) pig sty.

As Jeff Bertolucci wrote in PCWorld recently:

“… It’s true, even on wired broadband networks, that a tiny portion of subscribers gobble up most of the bandwidth. But with the expected surge in video applications for wireless devices, we’ll all be data hogs soon enough.”

So is online video the next big thing? See below…

We keep hearing TV is still king, or maybe prince consort. That doesn’t change the fact online video consumption is increasing by leaps and bounds. The folks at the Pew Internet Project have just released their study on The State of Online Video. Some highlights:

“Seven in ten adult internet users (69%) – roughly half (52%) of all U.S. adults – have used the internet to watch or download video. Since 2007, there have been dramatic increases in the numbers of Americans who watch the following kinds of videos online:

* Comedy or humorous videos, which have risen in viewership from 31% to 50% of adult internet users
* Educational videos, which have risen in viewership from 22% to 38% of adult internet users

* Movies or TV show videos, which have risen in viewership from 16% to 32% of adult internet users

* Political videos, which have risen in viewership from 15% to 30% of adult internet users”

Over half of all American adults have already used the Internet to watch some form of video. Bandwidth hoggery is no longer the exclusive fiefdom of purple-haired punks practising piracy. Hoggery is moving to the mainstream, as more and more of us gobble up bandwidth-intensive TV shows, movies and similar media – and increasingly so in hi-def. It also means the ISP strategy of punishing heavy users and trying to discourage consumption looks more and more like a dumb way to run a business. Much like what happened to the geniuses at the big music labels, who kept trying to run their customers off the Internet and into stores – and court. Although most of them have actually run into the waiting arms of Steve Jobs.

Huge increases in video by 2014, while P2P levels off

The day before Pew published its report on online video, Cisco released the findings of its annual Visual Networking Index Forecast.

Looking at the 2009-2014 timeline, Cisco confirms the big jumps in video consumption, as part of a remarkable increase in IP traffic overall. By 2014, average monthly traffic over IP networks will be equivalent to 32 million people streaming Avatar in 3D, continuously, for the entire month. That’s like 16 billion DVDs crossing the Internet – 64 exabytes a month (one EB = one billion gigabytes). This is the coming of what Cisco calls “hyperconnectivity” and the Zettabyte Era:

> Global IP traffic grew 45% during 2009.

> Internet video alone will account for 57% of all consumer Internet traffic in 2014.

> P2P as a percentage of consumer Internet traffic will drop by well over half its current volume, to 17% by 2014, down from 39% at the end of 2009.

Cisco: online video is growing dramatically in every major category

Bit caps: anti-consumer innovation-killers

And now for the bad news.

One of the principle reasons the Internet has been a roaring success is that its engineering is based on intelligence at the edges, while its ethos is based on innovation without permission. And that’s why incumbent carriers don’t innovate. They designed centralized networks, optimized for voice, and when they got pushed aside (temporarily) by TCP/IP-based networks, they began using their market power to regain control of both Internet users and much of what’s going on at the application layer.

In fact, the incumbents have a long, ugly history of fighting innovation – all the way back to the 1950s, when AT&T tried to crush the Hush-A-Phone (Wikipedia); then the Carterfone (Wikipedia); and eventually any device the telephone monopoly didn’t own itself. If AT&T had had its way, we might still be waiting for someone to attach a fax machine to the PSTN.

Here’s what I wrote in the 2002 piece about the likely effects of bit caps on end-users:

“Bandwidth scarcity will have a stifling effect on the growth of the transactional Internet, especially if coupled with disincentives like bandwidth caps. The problem with caps or quotas is only partly a matter of actual dollars going out the door. Some subscribers will balk at the amounts being charged for data transfers beyond their limit; some will go ahead and pay what they have to. But it’s the psychological effect that will do the real harm – the feeling you can’t just relax and enjoy the connection you’ve paid for, since you’re not sure what the next ISP bill will bring, relief or sticker shock.”

Writing in GigaOM on June 2 (The Good, the Bad and the Ugly of AT&T’s New Pricing Plan), Stacey Higginbotham was critical of the new AT&T data plan for a number of reasons, not the least of which is its discouragement of innovation – in this case, “the app economy and developers looking to create the next big thing for mobile networks.” Higginbotham had a few illustrations in mind:

“For example, augmented reality requires a network connection that sends location data to offer information, but one day may rely on a database of imagery and photos sent by the camera to get a more accurate sense of where people are. Sending photos, especially those taken with 8-megapixel cameras, uses data, and could consume more if AR becomes an everyday way of finding information.

“Other applications, including those that stream music, send real-time traffic updates or even web video conferencing, which is rumored as a possibility on the next-generation iPhone, would also be hampered by lower data caps, not to mention gaming and even ads consumed on the handsets. How acceptable will Apple’s iAds platform be if those fancy ads consume precious megabytes that might push consumers past their data plan limits?”

Only in Canada: bit caps expand while our bandwidth needs soar

We’re in the midst of our digital consultation and one of the best ways to find out how badly Canada is doing is, of course, to look at how the rest of the world is doing. So how do bit caps stand up in other jurisdictions? They don’t – because most sensible policymakers in other developed countries have done away with them.

As the accompanying OECD chart indicates (data as of October 2009), of the 30 member countries only 13 have bit caps at all. Of those 13, only two countries have bit caps across 100% of their broadband service platforms – Australia and Canada. Here’s the kind of question we’ll look at in the next post:

If bit caps are bad for consumers and stifle innovation, and global bandwidth consumption for video alone is rising at a CAGR of 52%, then why is the CRTC helping the incumbent ISPs institutionalize the use of bit caps, calling them “transparent” and promoting their use as a disencentive to “heavy” users of the public Internet?

Canada, world leader in bit caps (OECD, October 2009)

D.E.