The point of this street-level story is to show how Canada’s broadband oligopoly works in practice, especially the incumbents’ freedom to collect economic rents as ISPs – i.e. charge prices they would never get away with in a competitive market.
Rogers drives a furious customer into the waiting arms of TekSavvy
I’ve known Jacky and Jimmy* for many years (*not their real names). They’re a happy, successful couple raising a terrific teenage daughter. But after months of terrible service as Rogers subscribers, they were anything but happy. In due course I got a phone call from Jimmy, who was beside himself, wanting to be rescued from their ISP hell. And btw, would I still recommend TekSavvy?
Being a professional tech, Jimmy had already run some bandwidth tests at Speedtest.net, and pulled some figures from their bills. Turned out he and Jacky were on a legacy service with Rogers called Hi-Speed Lite UnLimited. His two most recent tests came in as follows:
- 1st test DL: 3.25 Mbps
- 1st test UL: 1.04 Mbps
- 2nd test DL: 2.03 Mbps
- 2nd test UL: 0.85 Mbps
Jimmy was unable to figure out what speed Rogers had advertised on their legacy plan. That information wasn’t readily obtainable online, and he and Jacky weren’t prepared to go back to waiting on hold for hours to find out from Rogers. Going by the speed tests and other figures, the nominal speed for this tier might have been somewhere between 3 and 6 meg.
The rate for this blistering speed of was a cool $80 a month (I’m rounding all the prices to the nearest dollar). The commercial rationale for such a high price point would be that the service on this plan was unlimited. Yet our couple transferred only 15 gigs in a typical month, with a few months peaking at 50 gigs. That plan was clearly not working for them given the monthly fee they were paying – equivalent to about $20 per Mbps (compare my TekSavvy service which tests out at a consistent 25 Mbps and costs $40 a month, i.e. less than $2 per Mbps or 1/10 of the charge for the Rogers legacy plan).
Although Rogers Retention Dept had been trying to phone them with an offer, their home phone VoIP, for which they were paying Rogers $45 a month, was out of service so much that Retention never got through. Way to shoot yourselves in the foot, Retention Dept. Jimmy only found this out when he turned up at the Rogers store, plopped their leased equipment down on the counter and said, You’re fired. A rep at the store tried to get him on the phone with head office, but by then Rogers had burned all its boats and their disgruntled subs had switched to TekSavvy.
How Rogers can triple an Internet bill – from $52 to $150 – with 5 HD movies
If Rogers had made even a half-hearted attempt to keep their business, our couple would have considered the cheapest Rogers alternative on offer: the entry-level service you see here in the banner clipped from the Rogers site…
At first glance, this looks like more speed – 10 meg – for a lot less money – $52 a month instead of $80 (even that price was due to be hiked to $90). And that’s exactly where the bait-and-switch comes into play – right where you see that 25GB in the middle of the banner and the footnote number “2” pointing to dark secrets buried in the fine print.
The caps on all Rogers’ speed tiers carry a significant financial penalty. As the banner below shows, the entry-level tier – Hybrid Fibre 10, for 10-meg in the downlink – carries a penalty of $4 for every gigabyte transferred over the 25 GB cap. And the penalty applies up to a monthly maximum of $100.
Let’s review in detail why it made sense for Jacky and Jimmy to switch from Rogers to TekSavvy using my table below.
The fine print. The “legacy” plan is no longer available from Rogers; the advertised speeds are estimates only; and the monthly fee for that plan was due to rise from $80 to $90. The 25-meg TekSavvy plan shown here on DSL is what Jacky and Jimmy switched to; it actually costs them an additional $5 a month for the dry loop charge; I haven’t attempted to calculate any additional costs for the 10-meg Rogers plan, like modem lease, bundling or discounts ending. The row marked “Cost of 25GB overage” shows that the financial impact of this overage is 8 times higher on the 10-meg Rogers plan than on the 25-meg TekSavvy plan ($100 vs $12.50). All else being equal, the newTekSavvy service costs Jacky and Jimmy less than half what the legacy Rogers service cost them for Internet access plus VoIP ($55 vs $125 a month).
It’s the data caps, stupid
It’s pretty clear Rogers doesn’t want anybody sticking around on their entry-level tiers, especially the current 10-meg. It’s bad enough that this service costs $52 a month – when you can get the same speeds (and the 300-gig cap) from TekSavvy for $45 a month (cable) or even less, $40 a month on DSL. But the deal-breaker here is the caps.
Let’s say our couple did go with the 10-meg Rogers plan, and let’s say they have a month, as they had in the past, when they transfer 50 GB. That’s 25 gigs over the 25-gig cap and at $4 a gig, their bill will have an added $100 – the maximum. As this plan costs $52 a month (other fine print aside), that means that four or five hi-def streaming movies would triple their monthly Internet bill to a whopping $150 (using 3 gigs per hour of hi-def streaming as the benchmark).
Here’s another thing about caps. I’ve never met anybody who came anywhere near a 300-gig cap. For the vast majority of onliners, 300 gigs might as well be unlimited, unless you fit into one of two categories. Either you’re on a very hi-bandwidth plan, say, 100 Mbps or more (where the burn rate shrinks much faster than at lower speeds); or you’re a kid whose life is devoted to massive file-sharing. In any case, even if you do go over your TekSavvy cap, the charge is 50 cents per GB per month, to a maximum of $50. (In the case of TekSavvy, you also get another break: the meter is turned off between 2am and 8am every day.)
Why would anybody want to be on Rogers 10-meg tier? Well, that’s the point. As a sub goes over the cap and she sees extra charges adding up, the Rogers rep is ready with a perfect solution: start paying for a more expensive plan. They get you either way: a more expensive monthly plan or overage charges with a ridiculous cap. There are two important lessons to be drawn here.
Rogers is collecting quasi-monopoly rents. TekSavvy isn’t getting its wholesale access for free. In addition to paying Bell (or Rogers or Cogeco), it then has to mark up its retail cost to cover everything else, including a profit. Yet it can still charge $40 a month for 25 Mbps and put an effectively unlimited cap on this plan – while the upside for Rogers is the prospect of collecting as much as triple the basic monthly fee.
Data caps punish the poor and technically unsophisticated. And herein lies the proof that our ITMP regime, Canada’s poor net neutrality cousin, is a failure in one key respect: the economic ITMPs that sanction the unrestricted use of data caps by the incumbents. The von Finckenstein CRTC made a big deal out of the idea that their scheme would kill off network abuse by bandwidth hogs. Instead, the scheme has done exactly the opposite – put the highest fees per Mbps per month against the lowest tiers, plus encouraged the incumbents to add punitive data caps on those tiers. Not only are the caps lower on the lower tiers, they also carry much higher per-GB charges than the more expensive tiers. This is a point I first argued back in December 2011 (How ITMP-based data caps punish light instead of heavy users).
No bandwidth hog – like, say, a devoted movie pirate – would ever try to manage on a 10-meg plan with 25-gig cap. Rogers simply wants to punish new users on entry-level plans until they cough up more money. That’s always been bad; now it gets worse. Why?
The big news is that major US program providers are starting to thumb their noses at conventional TV delivery in favor of launching over-the-top online services (see David Carr’s excellent summary this week in the NY Times: The Stream Finally Cracks the Dam of Cable TV). That includes HBO, which a year ago seemed like it would never forsake cable’s cash cow for a freestanding online audience; and old stick-in-the-mud CBS, which has already launched its $6 a month service.
To the extent that OTT keeps encroaching on cable here in Canada, our incumbents will be using data caps as a competitive weapon even more than they have done in the past. Absent a surprise move from Ottawa, our best hope for unfettered access to the public Internet still lies in voting with our pocketbooks for new entrants like TekSavvy.