It seems less like “news” and more like an eventuality, but Skype is putting forward an HD version of its software. In addition to two-way video teleconferencing at 720p on computers, Skype is teaming up with LG and Panasonic to produce TVs with Skype built in – including webcams and connection – no computer required.

I had a feeling this was coming back in October 09, when Lifesize announced its “Passport” product that would allow you to hook up Skype to a 720p TV. I would not be surprised if much of the technology that went into the passport ended up in the new LG and Panasonic TVs.

Obviously, higher resolution Skype means higher bandwidth needs for Skype on your network. Well – eventually. See, most Webcams aren’t high-definition, and so you’ve got a little bit of time before HD webcams hit the market. They’re not cheap either – HD requires larger sensors to produce an image with the same amount of light as SD, so early HD webcams are going to be around $100 USD or more; compared to $15-20 for a cheap webcam.

What we have here is a similar kind of network disruption technology that occurred when YouTube went high def; only this time, instead of sucking down only bandwidth, Skype’s conversations are also latency based. So, if you’re not using Skype for business, you’re going to want to keep it out of the latency sensitive class of service; and if you are using Skype for business, you’re going to want to make sure it has the bandwidth it needs in the higher level QoS without it drowning out your other latency sensitive apps.

We’ll try to get more details on Skype’s codec and bandwidth requirements soon.

Lifesize, a video telepresence maker-of-thingies, just announced support for a new video telepresence thingy called the Passport.

Hook up the Passport to a 720p HDTV (or other HDMI enabled monitor) and a 1mbit/up Internet connection, and you have a teleconferencing system.  Since many places have both HDTVs and 1mbit/up connections, this vastly opens up the number of places that you can do teleconferencing from. 

Certain practical limitations apply, of course.  For example, while it might be theoretically possible to use a bar’s wi-fi connection and HDTV for teleconferencing, I do not think it’s a good idea to do so when a game is on.

The standards list includes a number of protocols, so it should interoperate pretty well with existing teleconferencing equipment – meaning you can have your salespeople check in from the road, telecommuters checking in from home, etc.

One interesting side-note is that the device supports Skype at 720p30 resolution.  I’m not sure what the resolution of Skype phone calls are now, but I think they’re maxed out at 640x480p30 for the desktop client – obviously, that’s going to cause a bit of a bump in Skype traffic for organizations that use Lifesize. (You are monitoring this stuff in your organization, right?)

But there’s another issue with the Skype calling.  That is, Skype has become a defacto standard for teleconferencing among consumers (though they’d just call it “video chat”).  At the $2500 price-tag for the Passport, while it’s pricy, it’s not too pricey for some early adopters who want to use it as a personal telepresence device.  I could see an upper-middle-class family dropping $5000 on it (one on each end) to keep tabs on a kid at college, for example. All of this requires sufficient network performance – about 1mbps, as mentioned earlier – and many “broadband” networks in the U.S. do not have that kind of speed.  At any rate, if these things get popular, we’re talking about increased demand for broadband speeds and increased usage of networks for latency sensitive communications. 

The Dow Jones Newswires report that Google will acquire On2 Technologies, a company that makes video compression, for $106.5M worth of stock, presumably for the video site YouTube.

It’s an awfully big investment - (a hefty 6.7x multiple of On2’s trailing twelve months (TTM) revenue, one of the highest multiples in tech over the last 18 months) - for a site which is perpetually the butt of jokes about not being able to turn a profit. But there are a number of reasons it might be a smart move.

At it’s core, Google has always been about using the power of computing to make information searchable and organized.  Video has a major limitation – unlike text, you cannot search by keyword, only by ‘tags’ – self-reported information – or by context, in this case, “links.” If 12 people link to a video with the word “Tango,” for example, then chances are the video is about tango in some shape or form. 

But Google is pretty good about finding ways around these limitations.  Google 411 was a free service that had a secondary function – it allowed for Google to improve its voice recognition algorithms to the point where it could offer Google Voice.  And if it can offer Google Voice, which automatically transcribes audio voicemail messages into searchable text, it’s not that much of a leap to transcribe the audio track of uploaded video into searchable messages.  That makes video more attractive to advertisers. 

Where On2 fits into this is that On2 offers a video codec, called VP6, which is compatible with Flash video and provides roughly the same quality as the current standard, H.264, at the same bitrates (filesizes).  However, the processing power needed to decode (play) the VP6 codec is significantly less than the processing power needed to decode the H.264 codec. 

Obviously, this is an advantage for Google, who is producing its own “Google OS” for use with low-powered netbooks.  Plus, there’s an awful lot of slow computers out there that are still in use. 

But less obviously – and this is a guess – because VP6 takes less processing power to decode, complex complications – like trying to do voice recognition – can be done faster when decoding thousands of VP6 files at once, compared to thousands of H.264 files at once.  Even if the difference is on the order of microseconds per video, when you’re talking about the millions of videos on YouTube, those little microseconds add up quickly. 

Perhaps Google is losing money, but it may be because they're creating, essentially, a new application, and trying to get the best performance for it before trying to market it, and increases in application performance can often offset hardware costs, power requirements, or bandwidth needs. 

By Keith Bendy
Business Development Manager, NetQoS

It’s hard to miss the “human network” theme in virtually all of Cisco’s recent commercials. They are clearly advocating a lot of converged network capabilities – voice, video, and other interpersonal communication or information methods.

It makes sense – video and voice are bandwidth heavy applications, and it’s a logical growth area for Cisco if they can provide more information about video and voice traffic. The challenge, however, is that despite all the video products they’ve brought into the market, (from Telepresence to the acquisition of Flip), there aren’t a lot of robust capabilities built into the products in order to troubleshoot performance.

Medianet is one of the largest initiative in Cisco’s history, and it’s focused on bringing those exact troubleshooting capabilities to the market. The objective is to integrate media traffic reporting into Cisco products and IOS, and get the ability to really understand what performance is for video and voice traffic. And in addition to troubleshooting, even having the ability to have the infrastructure react to changes in performance (i.e., “Autoprovisioning”) is really what the overall goal is for MediaNet.

MediaNet is just starting up, but Cisco is addressing a need that is very real, so I anticipate that its adoption will be high. Cisco may be ahead of the demand curve, but the need is pretty well established.

At a very high level, what's important to MediaNet customers is the ability to understand what performance looks like, find out where the issues are, and then drill in to get the information required to get the issue on the path to resolution. And so, when Cisco wanted to demonstrate the MediaNet capabilities at Cisco Live, they used NetQoS Performance Center because they have a lot of experience working with NetQoS (on products like WAAS, ACE and NAM) and it can take advantage of capabilities that exist today (like NBAR, IPSLA, and Netflow)

With Netflow, the NetQoS Performance Center is able to show how much video is on the network, and use TOS values to determine how the traffic is tagged. We can also see what the end-point IP addresses are. But NBAR provides deeper recognition of the protocols than what Netflow will typically give you. NBAR reports on specific tags for various traffic - instead of saying "This particular TOS queue is all my video traffic, and I don't know what kind of video it is," the NBAR identifiers would say: "This is telepresence traffic, this is security camera traffic, this is WebEx traffic, this is a video-capable phone” - and tag all of it appropriately.

Below is a video, from Cisco’s YouTube page, where Aamer Akhter, Technical Marketing Engineer at Cisco, demos the Cisco Medianet 1.0 network.

By Brian Boyko
Editor, Network Performance Daily

I’ve been getting better and better with video as I’ve worked here – and I noticed that many people don’t really understand the nature of digital video files – what makes one file big, what makes one small, what makes one 20 MB file look good, while another 20 MB file looks lousy. 

Considering that Cisco is claiming that video will take up 90% of all traffic by 2013, it might be important go over some of the ideas about what makes up digital video files at the low level so that you can understand how they impact your network. 

If you already know this, I apologize. 

Digital video files are, essentially, pictures.  Multiple pictures played in sequence, with an audio track.  And like digital pictures, they can be compressed.  Uncompressed video is like a photo in BMP format – perfectly accurate, but huge.  Compressed video is like a JPG file – it creates artifacts, but is much smaller. 

There are many compression schemes, with advantages and disadvantages, based on different ways to compress the file.  Some are more effective at reproducing more accurate information with smaller filesizes, but ultimately, from a networking perspective, it’s really not important which you’re using.  What is important is the resolution, framerate, and bitrate. 

The resolution is the size of the video in terms of how many pixels you can see on screen.  It’s usually in varying rectangle sizes, but it’s usually expressed as the size of the rectangle (i.e., 640x480) rather than the absolute number of pixels.   High definition television comes in two types: 1920x1080 (a.k.a. “1080”) and 1280x720 (a.k.a. “720”), and “720” is the format used for YouTube high definition video.  Standard definition television comes as either 720x480 (NTSC) or 720x576 (PAL).  

The framerate is the number of frames – or pictures – that are shown each second.  In a filmed Hollywood movie, it’s typically 24 frames per second (or 24p).  On television, and with most recording equipment, they usually show 30 frames per second in the U.S. and 25 frames per second elsewhere in the world – though, in order to get faster motion, they often stagger every other line of resolution and place them between every other frame – so when you watch 30 frames per second of TV, you’re really watching 60 “half-frames” per second - also known as 60 interlaced frames  (or “60i”).

Finally, the bitrate is the number of bits of information that are in the file for each second of video.  A file with a bitrate of 512kbps has exactly 512 kilobits per second in order to convey all the information it can about the video.  With more bits, you can contain more information. 

Ultimately, the only thing impacting the network is the bitrate.  Bitrate determines filesize for downloadable video, and bitrate determines bandwidth requirements for streaming video.   A 3Mbps SD video will be the same filesize as a 3Mbps HD video, for example, provided that they are the same length. 

The quality of the video, however, is impacted by resolution and framerate as well as bitrate.  

In one second of 640x480 video at 30 frames a second, and 24 bits per pixel, you have 210 megabits worth of information.  Representing that, with, say 3 megabits is a daunting task.  On the other hand, if you increase the framerate to high definition – 1280x720 – you get 632 megabits of data per second – and representing that with only 3 megabits is an even more daunting task. 

The higher the bitrate, the higher the quality of the video; but the higher the resolution and framerate, the more you have to increase the bitrate in order to get the same level of quality.  High definition files tend to be larger than standard definition files because they’re usually – but not always – rendered at a higher bitrate. 

This was one of the reasons that when NBC was covering the Olympics, they often sent the raw footage from Beijing in low-resolution, low-bitrate formats, and only sent high-resolution files to their editors in the U.S. when they knew exactly which shots they wanted to include in their broadcasts.

By way of metaphor, think of bitrate as a fixed amount of butter that you have to butter bread.  You could spread out a single pat of butter on a whole loaf of bread, but it wouldn’t taste very buttery.  Or you could just butter one slice with that pat, but the bread wouldn’t be very filling.

Where different compression schemes come in is that they’re ways to use the limited amount of bits in each second of video to represent all the information – some compression schemes simply look better than others.  Right now, the leader seems to be H.264, which is about twice as efficient as the file system used to store information on a DVD (MPEG-2.)  A 3Mbps H.264 file and 3Mbps MPEG-2 file will have the same filesize, but the H.264 file will simply look better. 

Bitrate is also important because for streaming video, the bitrate of the video is equal to the amount of bandwidth required in order to show a video without pre-buffering or jitter – especially important for live applications like teleconferencing.  Lowering the bitrate decreases the quality, but image fidelity is often less important than immediate response time in teleconferencing applications.  (There are other issues that can cause jitter even with sufficient bandwidth, so it pays to monitor your communications network.)

At any rate, I hope you find this information useful when dealing with bandwidth.  At least now, when someone complains about how long it takes to download a video file, instead of spending tons of time and energy on network upgrades, you might want to ask if you can get a lower bitrate file instead. 

Network World’s Steve Taylor and Larry Hettick ended up talking to the CEO and Senior VP for Marketing of Vidyo, a company that makes high definition teleconferencing solutions. Vidyo’s differentiation? It uses the Internet.

This wouldn’t be such a big deal - Skype has had video capabilities for three years now – except that in the corporate environment, it eliminates the need for network capacity dedicated directly to teleconferencing, and allows desktop users – even ones connected to the network via VPN - to join in the conversation instead of relying on specialized rooms dedicated to teleconferencing, where network throughput can be controlled and limited.

That’s all well and fine, except that there is a tradeoff. (There is always a tradeoff.)

Vidyo’s solution uses scalable video coding, which, in essence, means that when networks become oversubscribed, the teleconference app will lower the bitrate of the video on the fly. This can cut down on problems due to lack of capacity, and as such, it can prevent some latency due to oversubscription, but it does not address latency problems directly. Additionally, latency is less predictable in Internet-based apps than apps that run on private networks.

Videoconferencing, of course, is notoriously susceptible to latency and jitter problems.

Still, having a little stuttering is better than having no videoconferencing capabilities at all, and a solution like Vidyo’s brings teleconferencing to more endpoints, cheaper. If performance, rather than extensibility, is of utmost concern, you’re probably looking at something more traditional in a teleconferencing solution.

Whatever the teleconferencing solution, however, networks need to be monitored to preserve telecommunications performance and to make sure that teleconferencing applications do not take vital resources away from business critical applications.

In this economic climate, (which, apparently, the economic equivalent of Siberian Permafrost,) companies may be tempted to cut back on travel and expenses.

But Interop’s already spent the deposit with Mandalay Bay, so they’re going to go ahead with it in a week and a half.

Anyway, it’s unsurprising that I, personally, will not be at Interop Las Vegas. Plane tickets, hotel stays and the costs of expenses in Vegas do not, apparently, justify two or three good blog posts about how, just like very year, our booth is cool and whatever. If Interop were held, in say, a less expensive city than Las Vegas, the place in America with the third largest Fool:Money parting coefficient it might be feasible. (The largest Fool:Money parting coefficient is Washington D.C., and Wall Street leapfrogged over Vegas with the credit crisis to get second place.)

So I’m personally staying back in Austin – NetQoS will have a presence, however, in both Booth #663 and Pod #1 in the Cisco Solutions pavilion. We will be bringing along the camera, so even if you don’t make it to Interop, you might be able to catch some of our presentations later when we digitize the footage and put it on the ‘Net.

I still highly recommend you go, if you can – the presentations may be there, but trade shows are really about asking questions and meeting with your peers, being able to compare solutions by walking a few dozen feet rather than flying a few hundred miles, and, of course, seeing how each booth tries to top the next. For example, Bill Alderson will be flying in and delivering his presentation, “Top Issues Affecting Application Performance.”

The “Bottom Issues Affecting Application Performance” are, as usual, Wombat attacks and an oversupply of AOL CDs.

But I’m betting attendance at Interop will be down this year, and NetQoS won’t be the only vendor bringing along a videocamera so that non-attendees can tune in online. What this underscores is the need for corporate networks to handle video, as both one-way and two-way video increase in important when you need to convey audiovisual information without having the person physically in the room.

In the ultimate irony, I’m betting some of the biggest product announcements at Interop will be those that help you transmit, monitor, and manage video – or video traffic. That’s just a hunch, though.

And video is a tricky thing to manage. Not only does video take a lot of bandwidth, but when you think of “video,” you think of both teleconferencing and of streaming video such as YouTube. The problem is that “one-way” streaming video and “two-way” teleconferencing are completely different when observed from a network point of view, and have completely different requirements.

That is, streaming video is more concerned with throughput. The more throughput you have, the faster the data comes in, the more data you have, and the better the quality of the picture, both in resolution and in bitrate. Fatter pipes mean better quality. But with teleconferencing, the quality of the video isn’t the important thing – the quality of the interaction is. For that reason, sacrificing a little bit of visual quality is secondary to being able to have a conversation in real-time and interacting with the other end of the conversation without noticeable delay. For that reason, latency is the important factor in delivering teleconferencing. And fatter pipes do not always mean faster pipes.

What it comes down to is that knowing what type of video you’re hosting is important to knowing what the bottleneck in improving performance would be, and if you have multiple types of video, you need multiple types of visibility into the network.

Anyway, if you’re going to Interop, look out for our booth.

No, seriously, look out for our booth. It stalks the unwary and pounces when you least expect it. We asked a team of ninjas to design it this year.

Alex Dudley, VP of PR at Time Warner, mentioned something interesting in our interview with him:

“Look, I don't know why this is such - why this is foreign to folks. You know, you're either paying for consumption... I mean, the concept of paying for what you consume is not a foreign one. I understand that it's different from the way we've charged for the Internet in the past, and we admit that. But the concept that you pay for what you use is how you buy just about everything”.

It is, you know. Paying for data usage is a very simple concept. Anyone can understand it. The problem is that it’s an oversimplification of the concept. That is – consumption based billing may be how you buy gasoline and bread, but it really doesn’t accurately reflect the way that networks and communications services actually work.

Trying to explain these complex concepts without oversimplifying is one of the reasons we’ve spent – what, six posts now? – on TWC’s data caps.

For example, I’m not sure I accept at face value Time Warner’s claim that there are (or will be) congestion problems in the future. I tend to subscribe to the idea that these data caps ultimately have nothing to do with preserving Internet performance for Time Warner’s customers, but everything to do with trying to preserve the market for cable television while exploiting the existing monopoly Time Warner has in certain markets for a quick burst of short-term revenue.

Time Warner earlier used the metaphor of “going dutch on a Salad/Steak lunch” to show the relationship between light and heavy users. Ars Technica responded to it this way:

“TWC's steak/salad analogy breaks down when it's crafted more accurately. The real question is whether you would even have lunch with a friend at a restaurant that charged $45 for a salad and $200 for a steak. Certainly, in a free market, most people would go elsewhere.”

So, I’m skeptical. Time Warner charges $1/GB for something that costs them $0.10/GB, they’re only doing this in markets where they have clear monopolies and competitors do not have strong footholds, and they’re doing so despite the fact that the profitability and capacity of broadband has actually outpaced demand. In short, there’s no actual “problem” that the “solution” is going to solve.

But even so, one needs to be a devil’s advocate sometimes. We’ve constantly argued that data is not the limited resource, bandwidth is. It’s an argument which ultimately boils down to: “It’s not too much data that causes congestion, it’s too much data at once.” Therefore, prices should continue to be based on bandwidth, not data consumption.

The only flaw in this argument is that, if you cram enough data down the pipe, it will lead to congestion eventually. Multiple people would have to be hitting close to the maximum of their data capacity nearly all the time during peak hours, but it is plausible.

So, if you were to assume, despite the evidence, that congestion on Time Warner’s cable service is a problem and that data overuse will lead to congestion, does that necessarily mean that Time Warner’s plan is an acceptable one?

No. There are other and better ways to handle congestion.

In fact, we can think of five separate plans that would be more effective at managing congestion, both in the near and short terms. Some of them are non-trivial, some of them non-neutral, but they would all manage congestion problems better than trying to change user behavior using exorbitant fees for consumption as a stick.

The fact that Time Warner isn’t using any of these plans – and chose to use the data cap plans – implies to me that they were either unable or unwilling to come up with better alternatives.

Plan 1: QoS-based packet prioritization for light users over heavy users.

Time Warner could, if it want to, deploy new hardware and software close to regional network routers to flip a user from the highest QoS levels to a lower one if they’ve been saturating the connection for a period of time. Comcast uses a similar system, flipping users who use more than 70% of their allotted bandwidth over a 15 minute period to a lower QoS priority over the next 15 minutes when the line is congested.

There’s no change to packet priority when the line is not congested, the system is identifying users who are using the most bandwidth at the time of congestion, and it immediately improves the relative performance of the light user while neither blocking or charging extra for the data for any user.

Tracking QoS policies on an individual IP address basis rather than by protocol would be a large rollout, perhaps even requiring new modems at the client-side to get the best results. But Time Warner was going to have to do that anyway with the rollout of DOCSIS 3.0 technology to enable faster speeds, and it was going to have to track usage anyway in order to bill for it. If congestion really is a problem, this is a practical solution considering the unique opportunity provided by the DOCSIS 3.0 rollout.

[Full disclosure: Network Performance Daily is the company blog of NetQoS, which is a enterprise network monitoring solutions vendor, many of which monitor the impact of QoS policies. On the other hand, we’ve got four more ideas below that don’t need quite as much network monitoring, and Time Warner’s welcome to use these as well.]

Plan 2: Graduated Decline of Bandwidth during Peak Hours based on usage

If the idea to manage individual QoS policies based on usage is too complex or too expensive, a less accurate but more effective solution would simply be to track data usage and slow down heavy users during peak hours.

Rather than a data cap, or billing based on data consumption, this plan would track data consumption and use it as a sort of a loose rule of thumb as to how much bandwidth the user is using, and during peak times, throttle the bandwidth down to slower, but reasonable, broadband speeds.

For example, a user on a 15Mbit down, 2Mbit up connection would always have that speed during off-peak times. But he only gets that 15Mbits during peak times if he’s downloaded less than, say, 15 gigabytes during peak hours for that billing period – or, if measuring consumption only during peak times is too difficult, say, about 50 gigabytes overall.

At that point, during times of congestion, his speed is knocked to 7Mbits. Consuming more data would knock it down to 3Mbits during congestion, and even more would knock it down to 1.5 Mbits during congestion. Again, however, off-peak times – the times without congestion problems – still retain the normal speeds.

A sudden drop in speed can be frustrating; and this plan may cut user speed far more aggressively than is actually needed. But it can be implemented rather quickly and easily compared to a QoS policy solution, while having much of the same effect.

Plan 3: Charging for extra consumption, rather than all consumption.

This plan turns the broadband consumption assumption on its head. The major problem most people have with the broadband cap is that there’s no way around it – all plans have some sort of cap. This is, perhaps, one of the reasons why the (probably true) conspiracy theory around Time Warner trying to protect their Cable TV interests keeps coming up.

But, instead of offering 15Mbit “Turbo” plans, and then complaining about “heavy users,” why not give “heavy users” a chance to pay more for extra speed instead of charging them for the data they used to get for free?

For example, you could bring everyone down to a standard 5Mbit plan, with unlimited data for a reasonable monthly rate.

However, if users require more bandwidth, they would then pay extra for a certain number of gigabytes at that higher bandwidth.

So, assuming that you charge $45 for the 5Mbit unlimited access, a Turbo plan could charge, say $65 for 15Mbit access with 60GB at that speed. When the 60GB cap is maxed, users can choose to continue along at the standard 5Mbit access until the next billing cycle, or perhaps they can buy another pack of “high-speed gigs” at a reasonable rate (say, $20 for another 60GB). Unused gigs would roll over to the next billing cycle.

This achieves exactly what Time Warner argues it is trying to achieve – making the heaviest users pay more compared to the lightest users – but doing so in a way that no one has to worry about Internet service suddenly costing more than they expected. Friday Night Lights Season 1 won’t cost $31 to download anymore, if you’re willing to wait 14&1/2 hours to get it, compared to 5 hours.

Plan 4: Lower QoS during Peak Hours based on protocol
I don’t like this plan. I thought of this plan and I don’t like it.

It’s simple and it’s brutal. During peak hours, decline the protocol associated with the highest data consumption and with the most saturation – BitTorrent. During all other times, leave it alone.

As a tool, I love BitTorrent. BitTorrent actually helps you take advantage of the capacity of the network, instead of limiting you to the slowest link along the route from server to client. It is one of the wonders of the Internet, and despite the stigma it has as a “pirate’s tool,” BitTorrent is extremely useful for any application where you have to get large amounts of data to multiple users.

This is a stupid plan, and I don’t endorse it. It opens thorny neutrality issues, creates problems for people wanting to use the torrent protocol in other applications (World of Warcraft, for example), and is unfairly scapegoating one set of Internet users.

As bad as this plan is, it’s still better than caps.

Plan 5: Reselling service and letting the free market hash it out.

It could be argued that the broadband infrastructure in this country is a natural monopoly, like many utilities. However, they are certainly not regulated like utilities.

What might be an option would be going the Canadian route – letting Time Warner handle the backbone and parcel out bits of bandwidth to the highest competing bidders, who then compete with each other. One company might differentiate itself by offering lower prices with a cap, the other, higher prices without a cap. Another company might advertise fast speeds, another low speeds, another good tech support – and if customers are unhappy with one service, it would be much easier to switch to another service.

This might require regulation, as it did in the Canadian market, but if we can’t run DSL and Cable and Fiber to every home, perhaps this is the best way to preserve the best prices for the consumer.

Part 3: Killing Your Financial Performance… and your company’s performance.

Time Warner can bring out the argument that, under data-capped plans you only pay “extra” for data “over the cap.” The problem is that every single one of Time Warner's plans require you to “buy” that cap of data with your monthly fee.

Since every single monthly fee that Time Warner has come out with (so far) costs around the same $1 per gigabyte for under-the-cap gigs. For some plans, (such as the $30 ten-gig plan, or $15 one-gig plan) it’s much more. For the “60 gigs for $55” plan, it’s slightly less. But for every gig you download, you pay, whether you go over the cap or you don't. How much will that cost?

Well, to simplify things, let’s take a look at the overage rate of $1/GB – only the top tier, at $0.91/gig , is cheaper, and even then, you’re saving maybe 5 dollars for the month over a flat $1/GB rate.

• Idling for One Month: $2.04
  
  Yep, I actually checked, when I had the computer running there, with nothing else going on, no AIM, no Skype, nothing coming in or out of my LAN other than the statistics my router was sending me, I was still using up 485kB over 10 minutes. Extrapolating this out, I get 2.04 GB. I can assume that I'm being bombarded by all sorts of neat little packets containing all sorts of things I don't want. All of which, I'd have to pay for under Time Warner's plan.
  Keep in mind, Time Warner's lowest plan is 1GB, with a $2/GB overage rate. I’m not even sure I can avoid this “usage” by turning off the cable modem when I wasn't using it, because Time Warner measures the traffic at their end.
  
  
• Downloading “Twilight” (HD) from the AppleTV store: $3.80
  
  (I thought that it was pretty appropriate to use a vampire movie to illustrate my point about Time Warner's new pricing plan.)
  
  It should be noted that renting HD version of the movie itself only costs $4.99. At a total cost of $8.79, you might spend $2 on gas getting to Blockbuster and still come out ahead.
  
  Which brings me to an interesting point – Apple’s major overhead cost for the iTunes store is bandwidth. I can't imagine that Apple is paying anywhere near $3.80 in data transfer fees, as that would leave them with only $1.19 in profit before splitting it with the content distributors.
  
  
• Downloading Season 1 of Friday Night Lights (A source of Austin Pride): $30.86
  
  It should be noted that Friday Night Lights is a source of much of Austin's creative community's income and future career positioning – Austin Mayoral Candidata Brewster McCracken specifically mentioned Friday Night Lights in his statement on the data caps. The HD season costs $65.78 – this would add $30.86 to that bill.
  
  
• Watching “Young Frankenstein” on Netflix Instant: $1.26
  
  This would absolutely be one of the competitive, promising services killed off, as the cost of mailing the DVD out is certainly less than the cost of downloading it would be. Netflix Instant is free to Netflix subscribers.
  
  
• Watching an episode of “The Daily Show” from ComedyCentral.com: $0.20
  
  
• Watching an episode of “Survivor” on CBS.com: $0.49
  
  This includes the cost of the commercials that they were running, which included, ironically enough, commercials about watching March Madness Online at the Office.
  
  
• Watching a March Madness Game: $0.28
  
  Yep, it's online now. Oddly enough, the video quality for March Madness was lower than that of Survivor... but as I don't watch sports anyway, who cares.
  
  
• Downloading “Where the Wild Things Are” Trailer: $0.15
  
  Not much, but who goes to Apple's trailer site to watch ONE trailer? And if it's something cool, like “Star Trek” (2009) aren’t you going to see it more than once?
  
  
• YouTube High Definition Video (7m11s): $0.11
  
  Again, YouTube is providing a great way for people to become active creators instead of passive consumers. When a third party charges for something the first party created and the second party wants, it limits the audience and stifles growth.
  
  
• Downloading the back catalogue of a video podcast (Comedy Central's Stand Up Podcast): $1.13
  
  These video podcasts are free to download, though they serve a purpose – the idea is that you watch the podcast, want more, and tune in to Comedy Central’s programming.  Under a data cap, it severely alters the new media marketing plan of just about every company.
  
  If everyone had to pay a surcharge for the data as well as bandwidth, there wouldn’t be any demand for “new media communications specialists” because we’ll all be forced back into using the old media – the old media that we “loved” so much that we abandoned it en masse the instant a better alternative became available.  


• Watching Live Breaking News (Obama's DNC Speech used as example): $1.11
  
  
• Downloading Service Pack 1 for Vista: $0.45
  
  Hobson's choice: Skip an update and risk infection, or leave Windows updates on, and pay more for it? Oh, and if you think you’re immune to infection because you run Linux…
  
  
• BitTorrenting Ubuntu: $0.65 + ($.065 x your share ratio)
  
  A 1:1 share ratio would cost $1.30 – still cheaper than Windows, but not “free.”
  
  
• Gaming:
  
  
  
  • Downloading the latest nVidia graphics card drivers: $0.07 
  • Downloading Half Life 2 from Steam: $0.94
    
  • Patching Battlefield 2: $0.55 
  • One Hour of Team Fortress 2 gaming online w/Voice: $0.09
    
  
  
• Sending an 8GB SD card worth of digital photos to Grandma: $8.00
  
  “Yes, Mom, I'd love to send you photos of your grandson... but... it's so expensive...”
  
  
• Getting Rickrolled: $0.01…
  
  …per rickroll.
  
  Rick Astley only clocks in at 10MB... but Rick's been out there over 19 million times. It adds up. 
  
  
• Video calling my sister via Skype: $0.88
  
  I had a great 2 hour conversation with my sister on Saturday when I was sick. She showed me her fan-translations of Japanese comics and we talked about what she's going to do when she gets her certificate, her plans for her future, it was a great time. She also made fun of me gargling Chloraseptic when I had forgot to mute my headphones, and made fun of me gargling Chloraseptic when I did mute my headphones but still had the webcam on. Ah, great times.

You know, I think it's absolutely ironic that Time Warner didn't learn any lessons from the fact that they were able to storm into the telephone business because they eliminated the exorbitant fees for long distance telephone calling with “cable phone service.” Of course, that may be the idea – there's nothing technologically separating Time Warner's cable telephone service from a service like Vonage, except that you would have to pay for every gigabyte on that Vonage phone – while Time Warner's phone wouldn't have any charges associated with it.

All of a sudden, this thorny “pricing” issue becomes a thorny “Net Neutrality” issue...

Maybe some of these sub-dollar prices look reasonable to you… except that you previously got them for free.  And when people have to pay for what they previously got for free, they’ll find a way around that.

So instead of waiting until they get home to watch that March Madness game, or that YouTube clip, or that Daily Show episode, they’ll do it at work, instead.  And unlike on a Time Warner connection, there really is congestion difficulty on corporate networks. 

You think recreational traffic is bad now…

But ultimately, I think this is a case where Time Warner simply has not learned from history.  We already looked at how the last major service to charge based on usage is a shadow of its former self and eventually abandoned that business model, and how an “@aol.com” e-mail address on a business card went, in the early 90s, from being seen as a go-getting trendsetter to being a laughingstock.  And we saw how Time Warner and other cable companies were able to battle entrenched phone service monopolies by eliminating rated service for long-distance calling for a flat rate. 

But there’s more to it.  When you put a third party price on it, a “Time Warner Tax,” if you will, the thought of doing some of these things – things that have been changing our lives, our economy, and our culture, from one of passive consumers to creators and producers, well... it reminds me of a specific point in history. 

That is, there was once a time in America where every official communication, every official piece of business, every record – required that an onerous surcharge be applied, a tax levied by a distant, monolithic monopoly with no concern for those affected. It negatively affected merchants, manufacturers, printers, lawyers and anyone who needed to work with legal documents. The justifications were also similar to the arguments by Time Warner today – that is, that the tax was “the most easy and least objectionable” way of raising the money, and that alternatives were considered but rejected.

This was the “Stamp Act of 1765.” Opposition to it was so widespread and heartfelt that, well, one thing lead to another, and eventually we waved bye-bye to King George III.

And that's what it comes down to. The move by Time Warner to attempt to use this pricing scheme flies in the face of history. Anybody who legitimately needs broadband service and has the ability to switch to a different provider will do so when they get that first bill.  In short, Time Warner is getting out of the broadband business. 

They’re just doing it in the most money-draining way possible. 

There have been some updates on Time Warner’s data caps since we started covering them.

First, Wired’s Epicenter blog took a look at some of the justifications for the caps. In Ryan Singel’s “Time Warner Cable Earnings Refute Bandwidth Cap Economics,” Wired breaks down Time Warner’s economic justifications for the data caps – and call them “fuzzy math.”

A close look at Time Warner Cable's books shows no significant link between its high-speed data costs and network usage.

For 2008, the most recent period available, Time Warner Cable reported that its high-speed data costs actually declined by 12 percent to $146 million. Meanwhile subscribers increased by more than 10 percent to 8.4 million, and high-speed data revenues climbed to more than $4 billion….

In previous public statements, TWC has said that flat-rate plans are unfair to its customers and that those who just check their e-mail pay the same amount as those who watch streaming video and download movies and that the company needs the extra cash to make the network faster.

These claims, however, do not appear to stand up under scrutiny….

"The conspiracy theorists are saying it’s because they want to keep their customers captive to their video services," says Vince Vittore, a principal analyst at The Yankee Group. "I tend to fall towards the side that they are trying to keep people captive."

In addition to Singel’s article, Saul Hansell at the New York Times interviewed Landel Hobbs, COO of Time Warner Cable, and Hobbs was put into the uncomfortable position of convincing its investors what it doesn’t want to admit to its customers.

Mr. Hobbs tried to strike a balance, saying that while the company is concerned about the cost to maintain its broadband network, investors should not be worried. He said it was “absolutely not” true that Time Warner’s profits were being squeezed by the cost of heavy broadband users…

“[Average Revenue Per User] continues to grow,” [Hobbs] said. “Broadband data is such a great product. I think there will be some customers who don’t use much that will select the lower tier. But over time, they will use more and move up to the higher price plans.”

Additionally, Hansell also brings up the biggest elephant in the room – why make customers pay variable costs for data when Time Warner pays fixed costs?

I tried to explore the marginal costs with Mr. Hobbs. When someone decides to spend a day doing nothing but downloading every Jerry Lewis movie from BitTorrent, Time Warner doesn’t have to write a bigger check to anyone. Rather, as best as I can figure it, the costs are all about building the network equipment and buying long-haul bandwidth for peak capacity.

If that is true, the question of what is “fair” is somewhat more abstract than just saying someone who uses more should pay more. After all, people who watch more hours of cable television don’t pay more than those who don’t.

Mr. Hobbs declined to react to my hypothesis about how costs are almost all fixed costs. He did invite me to meet with an engineer to go over the details, an offer I want to take him up on.

What may be most frustrating is that, according to Nate Anderson at Ars Technica, in “The Price-Gouging Premiums of Time Warner Cable’s data caps,” is that those fixed costs – even to upgrade the network – are quite low.

TWC claims that the caps are needed to "make improvements to infrastructure" that are necessary for higher speed access, but it's hard to see how. Comcast is aggressively rolling out DOCSIS 3.0 upgrades across its service area. In Chicago, it already sells a 50Mbps plan for $139.95—only 56¢ per GB. [Comcast has a 250GB cap across all tiers of service. –ed]

Besides, the dirty secret of these DOCSIS 3.0 rollouts is that they're cheap. Cable companies need to upgrade hardware at the head-end and may need to send out a new cable modem, but this is hardly expensive. A New York Times piece last week quoted industry insiders who said the job could be done for between $20 and $100 (the latter figure includes a new cable modem).

Landel Hobbs also issued a statement online, talking more about the specifics of the plan for Austin and the other test areas. [We had calculated our numbers in Thursday’s article based on the Beaumont plan, however the new numbers do not change the overall results much – 60GB is not that much more than 40 when you average it over 31hrs/wk. --ed] After yesterday’s deadline, we were aware of a statement by Hobbs with more specifics.

Some recent press reports about our four consumption based billing trials planned for later this year were premature and did not tell the full story. With that said, we realize our communication to customers about these trials has been inadequate and we apologize for any frustration we caused. We’ve heard the passionate feedback and we’ve taken action to address our customers’ concerns.

To be perfectly candid, Time Warner certainly had tons of opportunities to set the record straight – including with us, when we interviewed Alex Dudley, their VP of PR, before then. Either the right hand doesn't know what the left is doing over there, or this is a bit of “slight of hand” where Time Warner seems to be changing their plans based on the backlash without admitting that they're changing the plans based on the backlash.

This is a common problem that all network providers are experiencing and must address. Several other providers have instituted consumption based billing, including all major network providers in Canada and others in the U.K., New Zealand and elsewhere.

This is true, but it ignores the fact that in Canada, major network providers, such as Bell Canada, are legally required to resell the Internet connections to smaller network providers, all of which set their own rules for usage. These small network providers, such as TekSavvy have thrived because customers flee Bell Canada for the uncapped services (TekSavvy offers 5Mbps/800kbps unlimited service for $39.95CAD/mo). Bell tried to cap wholesalers' customers as well, but failed.

Additionally, services in New Zealand (where Kiwis pay an obscene $20NZD/GB) are... complex. First, unlike the U.S., the companies there have a legitimate excuse for charging more for bandwidth; as New Zealand is two islands out in the middle of nowhere, connected only through undersea cables which New Zealand's companies have mostly had to finance. (Additionally, there are political considerations, as Telecom New Zealand, which is New Zealand's largest company, has close relationships with the conservative elements of New Zealand politics. Nothing untoward or unethical, but certainly a great deal of lobbying power.)

Internet demand is rising at a rate that could outpace capacity within a few years. According to industry analysts, the infrastructure may not be able to accommodate the explosion of online content by 2012. This could result in Internet brownouts. It will take a lot of money to fix the problem.

The most famous of these studies came out at the time the Net Neutrality debate was just beginning, and it turned out to be connected to the “Internet Innovation Alliance” which essentially was a front organization for telecommunications companies.

Rather than raising prices on all customers or limiting usage, we think the fairest approach is to move to a tiered model in which users pay more if they use more.

The problem, of course, is that this does, in fact, raise prices on all customers and limit usage. Usage limiting may be de facto – via a person's ability and willingness to pay – rather than de jure, like the Comcast cap, but it is still a limit. Or more accurately, a disincentive. As for raising prices on all customers, this is the big one – the caps proposed for the higher usage customers are too low, obviously, but the caps proposed for low usage customers are also way, way too low. Customers who were doing fine on a 728kbps line but using more than 5GB/mo will find that they have to upgrade to a higher tier of service – paying more for something they don't need – in order to get to a more reasonable cap.

This is a price hike that Time Warner desperately does not want to look like a price hike.

To accommodate lighter Internet users and those who need a lower priced option, we are introducing a 1 GB per month tier offering speeds of 768 KB/128 KB for $15 per month. Overage charges will be $2 per GB per month. Our usage data show that about 30% of our customers use less than 1 GB per month.

When the bandwidth caps were announced, I used Tomato Firmware to track 10 minutes of idling – nothing except for standard windows services – no updating software, no instant messengers, no web browsing – nothing – to see how much bandwidth was consumed idling. It came out to around 2GB a month. Simply idling. I think Time Warner's “usage data” for “30%” of their customers is incorrect. We go more into this in part 3 of the series on Monday.

We are increasing the bandwidth tier sizes included in all existing packages in the trial markets to 10, 20, 40 and 60 GB for Road Runner Lite, Basic, Standard and Turbo packages, respectively. Package prices will remain the same. Overage charges will be $1 per GB per month.

We will introduce a 100 GB Road Runner Turbo package for $75 per month (offering speeds of 10 MB/1 MB). Overage charges will be $1 per GB per month.

Again, price hikes without calling them price hikes. At the very least, they're “shrinking the size of the candy bar.”

Overage charges will be capped at $75 per month. That means that for $150 per month customers could have virtually unlimited usage at Turbo speeds.

Again, we currently get that now – at $60/mo. That's really what it comes down to – for someone paying $60/mo, $150/mo for the exact same service will simply never seem reasonable.

There really are two issues here – the first is the cultural issue of bandwidth caps stunting Internet usage and development, combined with issues of making people pay twice for online content, and what can be seen as anti-competitive maneuvers against competitors of Time Warner's cable TV and VoIP offerings.

The second issue is – will people put up with being, quite frankly, price-gouged by a monopoly? We conclude with how much these data caps will end up costing you – and costing your enterprise network in terms of performance – in the conclusion to our 3-part series on Monday.