Broadband Providers See a Goldmine in Terms of Use Agreements

*DRAFT*

Still hung over from a brief, drunken courtship with the media giants, broadband providers have awoken to a harsh reality where Internet connectivity is now a mere commodity. The "we bring the eyeballs, you bring the content" delusion faded as media conglomerates realized that ISPs have almost no control over which websites their customers visit. In this paper, I argue that in response to this commoditization of bandwidth, broadband providers are creating a crisis of informed consent by deceptively changing their standard Terms of Service and Privacy Policy agreements, effectively adding invisible asterisks to "Unlimited" Internet plans, deluding consumers and chilling the adoption of innovative web services.

The Road to Commoditization

Somewhere along the path from dialup to broadband, the value-add disappeared from Internet service. A decade ago, Internet service providers put at center stage features like webspace, email addresses, and in AOL's case, exclusive portals and chat features. But as broadband began its slow roll-out across the States, these extra features began to mean less next to web services like Hotmail and Yahoo, which had both buzz and portability to their credit.

Broadband providers like Time Warner, Comcast and Verizon now face a customer base that wants an invisible, fast Internet connection, effectively reducing provider differentiation to zero, and revenue sources to the monthly subscription fee. The industry-wide panic that ensued can be seen in what players in similar industries are doing to avoid the same fate. Wireless carriers are fighting tooth and nail to hold on to their own outdated add-ons-- phones have been capable of user-generated ringtones and instant email for years, but providers still lock out custom ringtones or SMS applications. Indeed AT&T removed text messages from the standard iPhone 3G plan, the thought being that the SMS-addicted public will gladly pay the extra $5/month as an add-on. Broadband companies only wish they had such control over customer computers.

New Profit Sources

But ISPs do still have vast quantities of users who would rather die than wait for the cable/DSL guy in order to switch providers; still other customers have no broadband alternatives. While this might encourage monopolistic complacency, other factors push back. First, shareholder pressure and newfound independence for some ISPs, such as Time Warner Cable, have increased pressure to find new profit sources despite peaking subscriber numbers. Second, there is a clear and increasing usage gap between a user of high-bandwidth, cutting-edge web services like Hulu and Bittorrent, and the average Hotmail, MySpace? , and YouTube? user-- power users force expensive network upgrades.

Broadband executives then face two tasks in a bandwidth commoditized world: to reduce costs by reeling in the most expensive customers, and to discover new profit sources while keeping in mind consumer desire for invisible, unlimited Internet service. To accomplish these tasks without upsetting customer immobility, two solutions have emerged: limiting the connections of high-bandwidth users ("network management"), and selling customer browsing data to advertisers and advertising firms.

What ISPs Are Doing

Network Management

The most important network management methods are bandwidth throttling (reducing speeds of top users), capping (limiting quantity transferred per month) and shaping (throttling certain types of data). Broadband companies contend that network management is legitimate and necessary. The problem is that companies want to have their cake and eat it too, by advertising service plans based solely on maximum transfer rates, then manipulating the ability of users to achieve those rates based on a predetermined but undisclosed formula.

Selling Consumer Data

The subject of much recent discussion, ISPs are partnering with firms like Phorm to monetize user browsing habits. Phorm claims that its software represents a "privacy revolution" by assigning random numbers instead of IP addresses. Random numbers? How soon we forget. Phorm seems quite aware that "informed" and "consent" might be mutually exclusive with regard to its platform, and seems to be taking a page from Facebook with regard to the meaning of opt-in.

Hiding in Plain Sight

Some may see no problem here, since ISPs are disclosing these new activities in the various Terms of Service agreements. But these documents often fail to alert users to potential outcomes, instead employing indefinite wording (i.e. "...network management activities may include...") instead of making users aware of real facts. This is especially potent for broadband where consumers lack both alternatives and bargaining power, making Terms of Service agreements a perfect place to hide controversial policies. Comcast deceptively lists the first three reasons for network management as preventing "spam, viruses, [and] security attacks"; Cox Communications requires users to ensure their activities "do not improperly restrict, inhibit, or degrade any other user's use of the service"-- they provide no guidance on how one might go about this. Time Warner Cable reserves that they "may" use means such as "suspending or reducing the Throughput Rate of the [Internet] Service" and "monitor [users'] usage patterns to facilitate the provision of the [Internet] Service."

But why bother hiding bandwidth limits? The average YouTube? user has no reason to flinch at 200GB. Wouldn't only the power users jump to less managed services like Verizon's FiOS? ? The reality is illustrated by the Netflix model of business-- American consumers tend to bite off more product than they can consume. It's the "better Supersize that" and "get the 5-disc plan just in case" mode of thinking, encouraged by high-quantity discounts. Companies from Comcast to Netlflix thrive on this phenomenon, as they are in fact unable to provide the level of service purchased to all subscribers. So only some of the users who might leave due to network management are actually hitting the bandwidth ceiling.

Conclusion

The commoditization of bandwidth and a complacent customer base has incentivized broadband providers to seek profitability in rather enterprising ways. Ideally, broadband companies would simply inform consumers of these plans, and like consumers in most other countries, Americans could choose from a variety of plans based on level of use. Some might even opt-in to Phorm in exchange for lower rates. But that's not the deal that's been offered-- the broadband companies want to hold onto customers paying high rates for minimal usage while reeling in power users, and somehow believe that users "consenting" to have their usage tracked wouldn't refuse unless they got a cut. By attempting to maintain the status quo, ISPs are chilling the development of innovative, high-bandwidth web services. Privacy policies and terms of use must be regulated to better ensure that users are giving informed consent.

Virgin acknowledges traffic shaping & misleading ads

Charter won't track customer's web use

AT&T Bandwidth considers a surcharge for high bandwidth use

Time Warner tries metering Internet usage

-- GlennLortscher - 16 Jul 2008