Think your Internet blows? Try $300 for 3Mbps DSL and a data cap

People in Winthrop, Iowa and several nearby towns are mad about the price of their Internet service, and we can't blame them.

The East Buchanan Telephone Cooperative (EBTC) offers DSL Internet at sub-broadband download speeds for up to $300 a month, and it imposes data caps with overages of $5 per gigabyte. As detailed on the company's website, service starts at $24.95 for 5GB per month and moves up to $44.95 per month for 10GB, $179.95 for 50GB, and $299.95 for 100GB. Regardless of which plan you choose, going over your cap brings a charge of $5 more per gigabyte.

The base prices provide only 3Mbps throughput downstream and 1Mbps upstream. (The upload speeds are listed incorrectly on the EBTC site, but the company's GM gave us the correct numbers.) The US Federal Communications Commission defines broadband as 4Mbps download and 1Mbps upload. To get broadband download speeds from EBTC, you'd have to pay another $4.95 per month for an upgrade to 6Mbps down and 1Mbps.

That's not all. The company will charge you another $10 per month to rent a DSL modem or $69.95 to buy the modem. Naturally, there's also a $49 up-front charge to install the DSL service.

EBTC glowingly describes its DSL as being "up to 20 times faster than a standard dial-up connection! Complex graphics pop-up instantly. You can send and receive huge files in seconds. With DSL, you’ll experience the Internet the way it was meant to be experienced. And all for as little as $15.00 more per month than your standard dial-up connection!"

David McElroy isn't impressed. He filed a Change.org petition asking the DSL provider to "[s]top pricing home internet like cellular internet." The petition, which has 423 signatures, says the current prices and caps were implemented on December 26, at the same time that base download speeds rose from 1Mbps to 3Mbps. On January 9, "McElroy and approximately 25 disgruntled customers met with the EBTC Board about the issue during the Board’s regular monthly meeting," the Independence Bulletin Journal reported three days ago. McElroy lives in Dubuque, Iowa, but he said his parents, brother, and sister live in Winthrop, where he also grew up.

The trouble with rural broadband

Unfortunately, this story doesn't seem likely to have a happy ending. EBTC General Manager Butch Rorabaugh explained to Ars last night that the company has to offset revenue losses in phone service and federal funding. A written response the company made to McElroy's petition says the money it makes from access charges fell from $738,929 in 2009 to $456,701 in 2013. Additionally, government funding designed to prop up rural broadband service fell from $454,200 in 2009 to $169,196 in 2013.

The access charges are "basically what we charge long distance companies for using our facilities to originate or terminate messages," Rorabaugh said. "Access charges—they used to be a mainstay of the telephone industry and now it's gone down drastically." The cuts in government funding are due to changes in the Federal Communications Commission's Universal Service Fund, he said.

Some ISPs would be able to absorb dramatic changes like that, but not EBTC, according to Rorabaugh.

"The challenge we face is serving a rural area," he said. "We have a little over 1,000 customers. We serve an area that is 165 square miles." That leaves EBTC with less than seven customers per square mile, making the cost of providing wireline infrastructure quite large on a per-home basis, he noted.

EBTC also provides service that's cheaper to maintain in the form of a wireless home Internet product, which sends signals over the 3.65GHz band to antennas on customer homes. That service provides the same download speeds of 3Mbps and 6Mbps but larger upload bandwidth of either 2Mbps or 4Mbps. Initially, EBTC priced the wireless home Internet service at exactly the same monthly rates as its wired service, but it lowered the prices on some of the higher-end wireless tiers in response to complaints. The wireless service requires a $149 up-front equipment fee and an installation fee of $49 (the latter fee is often waived, Rorabaugh said).

The rural broadband problem is no doubt a huge one. There are some lucky people out there, though. We wrote about an ISP in rural Vermont that was offering gigabit fiber and phone service for just $48 a month, but that was achieved only with the help of $116 million in federal funding. That kind of government largesse isn't going to every rural part of the US by a long shot.

According to the Bulletin Journal's account of the board meeting, Rorabaugh recommended that customers trying to preserve data change quality settings on services like Netflix to get a lower-bandwidth stream. Rorabaugh reportedly also said at the meeting that the EBTC will consider special packages for people who work at home, take online classes, or have other "unique situations."

But while the company lowered some of its wireless prices, Rorabaugh told Ars that "the board has decided that we're going to leave our wireline" prices the same. About 70 percent of its customers use 15GB or less per month, which costs $64.95 per month.

EBTC may die “if we do not change to measured Internet”

McElroy isn't buying the argument that the EBTC can't offer unmetered service and lower prices. His petition accuses EBTC of "decid[ing] to price DSL and their new wireless offering similarly to cellular Internet since they do not have any other competition."

Moreover, "All other communities near Winthrop, Quasqueton, Aurora, and Stanley do not charge for the amount of data that someone uses," he wrote. ISPs in nearby towns offer comparable speeds, without data caps, for $30 to $50 a month, he wrote.

Rorabaugh acknowledged that nearby ISPs offer lower prices, but he argued that it's only a matter of time before they raise them, too. "As I look at our company and what's going on, I know we have to make a change," he said. "It's difficult being the first one out of the gate. Just because other people are doing it that way doesn't mean they're making money out of it."

In his written response to McElroy, Rorabaugh said, "We considered an overall increase to our previous packages but thought it was unfair for the 70% who use less than 15GB to subsidize the 10% who consume 50GB - 100+GB. We have attempted to construct a pricing structure that fits a majority of our actual customers and offer discounts up to 40% for larger users. Although measured Internet may not be popular, I am genuinely concerned about the long term survival of EBTC if we do not change to measured Internet."

McElroy pointed out that EBTC is already profitable. He posted a financial document showing that EBTC made $241,279 in net margin on $2.28 million in operating expenses in 2012. Those numbers don't account for the latest access charges and Universal Service Fund revenue figures. While USF money for EBTC actually rose more than 7,000 from 2012 to 2013 after years of sharp declines, access charges continued to plummet with a year-over-year drop of $143,000.

Rorabaugh wishes large content providers had to pay to send data over his network. "Netflix can come in and use the network that exists here and not have to pay a penny for it," he said. "You would think they would be obligated or should feel obligated to help support the network that generates their revenue."

He may get his wish thanks to a recent court ruling striking down much of the FCC's net neutrality law.

In the meantime, he said EBTC had to find a way to offset at least part of the lost access charge and USF revenue. "We're not trying to recover all of the lost revenue from our Internet customers, but we do think its pretty clear that Internet traffic dominates our market and it does have to bear a larger portion [of the cost]," he said.