Quote Usage Based Unquote

I brought some mathy snark last time for which I make no apologies, but this is the longer post promised on the subject of the Usage Based Billing controversy that has rightly been getting a lot of airplay recently.

Set Stimulator To 138

Let me open this up by marveling at the magnificent job the terminology has done in framing this debate. “Usage Based Billing”, does that not sound entirely reasonable? Should we not pay for what we use? Of course we should, and you know who doesn’t? Freeloaders, that’s who; leeches and layabouts, the lot of them. Even my esteemed colleague David Eaves has fallen into that trap, which frankly surprised me. It was a compelling hook that he bit, I suspect, because that interpretation advances some causes he champions; transparency and net neutrality among others. Laudable goals all! But I think we’re talking about something very different here.

There’s two things, in fact.

The first one I haven’t seen mentioned much, aside from Konrad Von Finkelstein’s somewhat agonizing claim that IPTV is “not an internet service” are all of those places where huge amounts of bandwidth get consumed, for which Bell charges very nearly nothing at all. Bell’s “Fibe” service, for example, offers customers:

  • Record up to 4 shows at once and get 100 hours of HD recording capacity included
  • Over 100 HD channels
  • Flexible programming – choose more of the channels you really want.
  • Stop paying for the same channel twice – for every standard definition channel you get, receive the HD version at no extra charge
  • Advanced Search – stop scrolling, start watching – our keyword search feature makes it faster and easier to find more of what you want to watch

Bell says you get 25GB/month in “data”, and pay $2/GB when you go over that. But the 4 simultaneous HD recordings, the 100 hours of HD recording, the pay-per-view stuff being sent well below the ostensible per-gigabyte cost, all of that stuff is coming over the same wire and all of it is approximately free. That $2/gig charge that would add up to between $30 and $50 per hour if it ever showed up on the bill isn’t really about congestion, abusive downloaders or any of the various disingenuous reasons on offer; it’s about punishing users to the tune of an extra $30/show for using AppleTV or Netflix instead.

It is nothing more or less than a surcharge that Bell has the luxury of imposing on you for the privilege of going to Bell’s competitors, in short.

In the same vein, why should TekSavvy be required to charge their users in accordance with Bell’s pricing policies? Don’t they buy bandwidth in bulk, and then resell it? This is of no benefit to TekSavvy or their customers, but again, it’s fantastic for Bell, forcing TekSavvy and any other reseller to pass punitive bandwidth surcharges on to their customers.

Retrovillainy

I’m not going to argue that bandwidth isn’t a relatively scarce resource – there’s a finite amount of it in the world, sure – but the fact that Bell is offering the Fibe service at all is a clear indicator that it’s not all that scarce, certainly not the grade of scarce that demands a 10,000% markup.

That’s why this “Usage Based Billing” discussion really isn’t about usage-based billing at all. This is about an incumbent monopolist engaged in price fixing, distorting secondary markets in which they have a substantial stake, dramatically impeding the ability of Canadian consumers to make choices in a free marketplace, and thwarting competition thereby.

There’s more to say about this, of course; while I think the CRTC has erred, and that the cultural protectionism they mandate is also broadly bad for Canadians, I also think that a body with the legislated power to rein in what is obviously corporate malfeasance in the communications space is an extraordinarily valuable thing, and not to be discarded lightly. I also think that error has handed the Conservative government the rare chance to carve up a cultural institution and business regulator under the guise of populism, and they’re going to ride that opportunity as hard as they can. That would be a terrible mistake, I think, but that’s a post for another day.

Bits are bits, and the worst-case scenario for a telco is to be reduced to being a purveyor of bits. There’s no money in it – no long distance calls, no ridiculous $20/month landline rental, nothing. It means going from the 40%-50% year over year profits telcos usually make to the 8%-10% year over year numbers that most other companies do. Just pushing bits is really bad for telecommunications companies; they’ll do just about anything they can to prevent that from coming about, and billions of dollars in spare profits gives you a lot of options on that front.

Back in the 90’s there used to be lots of ISPs; competition on performance was fierce and prices were relatively low. But VOIP was threatening to be the next big thing, so Bell used the profits from their monopoly on telephony to buy almost all the small-shop ISPs; now there’s very little competition and relative to most of the world our network connections are underperforming and really, really expensive.

Bell’s worst-case scenario is being nothing more than a purveyor of bits. That would be really bad for them.

But anything else is really bad for the rest of us. Those huge profit margins don’t come from nowhere; they come out of Canadian pockets in ways that put a terrible barrier in front of Canadian content creators and Canadian entrepreneurship, and pretending that between the absence of serious competition and legislated price-fixing affecting those few independent ISPs left that the invisible hand of the free market will somehow just sort this mess out to the betterment of the average Canadian is a dogmatic mercantilist’s daydream.

5 Comments

  1. Rich Y
    Posted February 10, 2011 at 2:46 pm | Permalink

    I think you’re missing something. You’re right, the providers have every interest in maintaining control over the content. And that’s not a good thing.

    But look at it from the local office, rather than the home terminal. 100 HD channels at 10 MB/s in 10000 homes isn’t 10 TB/s, it’s just a single 1 GB/s pulled from whoever it comes from and pushed down the cables. 10000 homes each streaming a single different HD channel costs 100 GB/s. That’s an additional, real, technical reason why your cable company would rather you just watch HBO this evening. Even at the cost of supplying DVR to each of those homes.

    Fixed TV programming bits scale as O(1) rather than O(n). They’re copied bits not kept. Those are the cheapest bits around. One could even argue (at the cost of having blown clear past devil’s advocate territory into several strange lands beyond) that O(n) is the correct markup.

  2. mhoye
    Posted February 10, 2011 at 3:02 pm | Permalink

    I didn’t distinguish between unicast and multicast, that’s true, and an important observation. But I also think that the combination of “four simultaneous HD recordings” and “pay per view” on offer mitigates that rebuttal somewhat.

  3. Rich Y
    Posted February 10, 2011 at 3:05 pm | Permalink

    At the risk of bad form by re-replying so quickly, I can walk myself back into devil’s advocate territory by noting that the ratio of data costs for N homes and M channels should be O(N)/O(M), which by my off-the-top example is 10000/100 = 100, or a 10,000% markup.

    Okay. I need a shower. And a valium, because maybe it actually is that much more expensive to have complete control over your own bits.

  4. mhoye
    Posted February 10, 2011 at 3:27 pm | Permalink

    Not necessarily – you’re ignoring sunk costs, you’re not limited to a single stream multicasting, and caching is a real thing.

  5. mhoye
    Posted February 10, 2011 at 3:27 pm | Permalink

    Don’t quite kill yourself yet, is all I’m saying.